The disappointing decade – a look back at the 2010s
The end of an old decade and the start of a new one is usually the cause for hope. But despite a flat 10 years, many in business aviation are going into 2020 far less optimistic than they were in 2009.
Parking demand: The recession cut sales of cars and business jets.
“HAD RIP VAN WINKLE gone to sleep in 2010 and woken up in 2020, he’d take one look and go back to sleep – nothing new,” says Brian Foley, founder of Brian Foley Associates (BRiFO). “New jet sales have been remarkably stable. Others may prefer to call it flat, as if deliveries were supposed to return to pre-recession levels. On the contrary, the industry should be grateful that the market didn’t decline any further.”
Foley’s hindsight contrasts strongly with the optimism that many felt in 2009. After the sudden crash in demand for both aircraft and flights in 2008, business jet companies – operators, manufacturers, FBOs, maintenance companies and others – were hopeful that things would suddenly bounce back.
“The 2010s were very flat and very disappointing. In 2009 most forecasters were predicting a V-shaped recovery as the market came out of a deep hole but that just did not happen,” says Rollie Vincent, creator, JETNET.
Demand for aircraft had returned quickly following global recessions in the 1970s, 1980s, 1990s and early 2000s. Before the Global Financial Crisis, business jet deliveries had always grown within two years of the end of a global recession. This simply did not happen in the 2010s.
“There was a lot of hope at the start of the decade. A feeling that ‘what goes down must come up’,” says Jon Raviv, senior aerospace and defence analyst, Citi Research. “But there was such an oversupply because of the numbers of aircraft built in 2006, 2007 and 2008. It was always going to take time to absorb this excess capacity.”
It seems harsh to offend a whole decade, but the 2010s were dominated the Global Financial Crisis that happened in 2007 and 2008. Many of the key global themes – such as the rise of populist politicians, nationalism and Brexit – can be attributed to anger following the downturn. Even the amazing rise of technology companies like Uber and Airbnb (which raised $600,000 in seed funding in January 2009 and was valued at $30bn at the end of 2019) – was made possible by cheap cash sloshing around as central banks tried to stimulate economies.
Like many industries – including carmakers who started the decade with parking lots full of unsold vehicles – business aircraft manufacturers had to react to a sudden drop in demand.
Alasdair Whyte, Editor-in-chief of Corporate Jet Investor. He has been a financial journalist writing about aviation for more than 20 years.
Expert Panel: Putting a decade of disappointment into perspective
Business aviation insiders share their insights on a decade of disappointment. But what optimism can they muster for the new Roaring Twenties?
Richard Koe, MD, WINGX Advance.
Rollie Vincent, creator, JETNET.
Brian Foley, founder of Brian Foley
Jon Raviv, senior analyst aerospace and defence, director, Citi Research.
Some customers were happy to cancel orders for new aircraft and walk away – even if it meant giving up deposits. Others could not find finance as banks and finance companies were too busy trying to manage their own problems to want to think about starting new deals. Their investment banking colleagues also stopped chartering business jets for roadshows.
Some owners and regular travellers discovered that they could no longer afford to fly privately and were forced to return to airlines.
The only bright spots at the start of the decade were China (where finance companies – led by Minsheng Finance Leasing – were keen to place orders for new large aircraft) and commodity producing countries like Nigeria. These orders dried up: when President Xi Jinping introduced an anti-corruption policy and China’s economy slowed; and when oil prices collapsed. The other high point for the market was President Donald Trump’s 2017 Tax Cuts and Jobs Act that allowed business jet owners to claim bonus depreciation. This led to what was described as the “Trump Bump”.
Manufacturers delivered 1,137 business jets in 2007 worth $19.3bn and a record 1,315 aircraft for $21.9bn in 2008. They cut this to 874 jets in 2009 worth, a still impressive, $17.4bn. For the rest of the decade, deliveries stayed between 767 jets (2010) and 666 aircraft (2016). Although because of a larger proportion of large jets – particularly Gulfstream’s extremely successful G650, the values of deliveries stayed higher. In 2012 they fell to $17.1m, still higher than anything before 2016.
“I would define the decade as a hideous mix of stagnation and bifurcation. The top line saw little growth. The high end did reasonably well, with a few painful cycles,” says Richard Aboulafia, vice president, analysis, Teal Group Corporation. “The bottom half – no longer half, really – just went nowhere, with no recovery at all after 2008.”
The lost decade for manufacturers and operators
At the end of 2013, Raviv and his colleagues at Citi published a (depressing) piece of business jet market research – titled The Lost Decade. The bank argued that too many aircraft had been built in the 2000s and that this inventory would overhang new orders. It was largely correct, and they updated it in 2017.
“It definitely was a lost decade,” says Raviv. “Some mixed years were better than others, but there was not much sustained growth – a flattish 10 years.”
Raviv also highlights that many of the much talked about new business models – so-called Ubers for business jets – have yet to stimulate demand for new aircraft. “There was a lot of talk about new business models, but on the whole, we do not see AirBnB or Uber type services creating orders. For now these businesses tend to be about consuming unused capacity among existing assets – not buying new assets,” he says.
No one thinks that forecasting the next 10 years will be any easier. “In retrospect, many of the past rules did not stand up to proper analysis,” says Raviv. “It is always going to be an industry where emotion plays a big part and is therefore difficult to forecast.”
Things were not much better for those operating aircraft. It may have been a flat decade for deliveries, but it is worth remembering that manufacturers built more than 7,000 new business jets between 2009 and 2019. The total business jet fleet grew past 25,000 for the first time. But the average aircraft was flying a lot less.
Research by WINGX shows that between 2009 and 2019 the number of flights had a compound average growth rate of just 2.7% a year – less than the rate at which the fleet grew. North American flights rose by 3% by year on average. European flights by just 1.4%.
“It has been tough for the past 10 years, coming down on the crazy boom market up to 2008, but it is important to point out there is a lot of dead wood in these figures – a lot of aircraft that barely flew,” says Richard Koe, MD of WINGX. “There are operators who have grown faster but overall it is pretty grim.”
Koe points out that some types performed well. The two biggest winners were very light jets – largely delivered at the start of the decade – and ultra-long-range jets – the category created by Gulfstream’s G650. Gulfstream delivered an impressive 400 G650s between December 2012 and 2019.
“The real shame is that the industry is going into 2020 with many of the same structural problems it faced in 2009. There was a lot of talk of consolidation and new business models, but fundamentally the market has not changed,” says Koe. “It was a wasted downturn.”
Of course, it was not a bad decade for everyone. Many brokers and dealers had record years towards the end of the decade. “The only highlight would have been pre-owned sales which benefitted from a surprise US tax incentive, the novelty of which has since worn off,” says Foley. “To all Doubting Thomases’ needing proof, look no further than AMSTAT which clocked a 13.5% fall in used business jet transactions in 2019 over 2018.”
“The only highlight would have been pre-owned sales which benefited from a surprise US tax incentive …”
What happened to forecasts?
One of the big lessons of the past decade is how hard it is to forecast business aviation demand. Before 2008 most people thought that demand for aircraft and charter followed the wider economy. This did not happen in the 2010s.
“We didn't see a complete de-linkage between market growth and the traditional macroeconomic drivers that once reliably grew the market, particularly corporate profits, GDP, world trade, and equities markets,” says Aboulafia.
The other thing that few forecasters saw was the split in demand in 2012 where large cabin jets were being bought by non-US customers, while demand for smaller aircraft stayed low. Many borrowed the term bifurcation from engineers to describe this split.
“I don't think anyone saw the bifurcation until it was upon us,” says Aboulafia. “We certainly didn't see a ghastly self-perpetuating cycle whereby OEMs responded to bifurcation by putting all their new product development resources into the top end, further stimulating demand there, and driving down values of earlier top end models.”
No one thinks that forecasting the next 10 years will be any easier. “In retrospect, many of the past rules did not stand up to proper analysis,” says Raviv. “It is always going to be an industry where emotion plays a big part and it will always be difficult to forecast.”
With these disclaimers, how optimistic are these market specialists about the next 10 years?
The Roaring 20s?
The answer is not very. “It is hard to be really optimistic now,” says Vincent. “I am short term positive about 2020 but less so after that. We are already seeing OEMs laying off people. We are optimistic about newer models but not seeing any great uptick in demand.”
Aboulafia agrees: “My confidence in forecasts is at a low point. We're keeping our forecast mostly flat, with any growth concentrated at the top,” he says. “This, of course, means continued trickle down pain, as used high-end assets continue to be available at discounted prices, pushing down values for jets at every other lower run on the ladder.”
This focus on larger aircraft is easy to see. Bombardier started is gearing up production of its Global 7500; Gulfstream announced the G700 in October 2019; and Dassault has said it will announce a new model in 2020. But other markets could surprise. “We see renewed interest in the super mid-size market, our surveys show that people are looking to buy in this class and we could see a short term rejuvenation; as people like the improved comfort but do not feel the need to be able to fly halfway around the world without refuelling,” says Vincent. “We do see people asking, do I really need to be able to do this?
Having dismissed the past decade, Foley is not much more positive about the next 10 years. “The green movement will rise logarithmically creating a widespread move for companies to rebrand themselves as environmentally responsible, while their clients seek carbon offset programmes or explore non-ownership private flying models to also protect their image,” he says.
Foley feels there are too many manufacturers and wonders if we will see a bigger shake-up. “There are too many business jet models chasing too few buyers and something will likely give. Forty-one models of new business jets from seven manufacturers vie for just 700 total worldwide industry sales per year,” he says. “With such a relatively small market and workforce cutbacks, it wouldn’t be surprising for a least one of the participants to call it quits.”
Business aviation is not the only industry heading into the next decade with trepidation. There are concerns about political risk, trade wars and pandemics. The US economy has grown for more than 10 years and many feel that a correction is due – even though bull markets do not die of old age.
It is, however, worth remembering that business aviation is a particularly difficult market to forecast. If most market specialists and forecasters are pessimistic, there is a decent chance we are about to enter the biggest period of growth ever. Roll on the Roaring Twenties.
Teal Group Corporation, Vice president, analysis
+1 703 385 1992 ext 103
Brian Foley Associates, Founder
Citi Research, Senior aerospace & defence analyst
A look back at 2030
Scenario planning is not designed to help you predict the future. Rather it helps you forecast possible outcomes and to prepare for any eventuality.
The rise of megacities could hit long-range business jet sales. Pictured is the planned megacity of China’s Meixi Lake – due to accommodate 100m people.
SHELL IS WIDELY credited with being the first organisation to realise the value of scenario planning. The oil company has used the technique since the 1970s and says that it helped its business anticipate and adapt to sudden rises in oil prices, the collapse of communism and the threat of climate change.
Scenario planning is not designed to predict the future. Instead it is meant to help you explore what could happen. The theory goes that if you can work out what could happen, you will be ready to deal with what does happen.
With this caveat in mind, here are a few business jet market scenarios for you to consider.
OEMs stop selling
It took some time, but in retrospect it never made sense for aircraft manufacturers to sell aircraft. The salespeople at manufacturers were the last to agree to this but when they saw that customers wanted simple ownership and not metal – and that was where the biggest commissions were – they quickly changed.
In the 1990s and 2000s there was a real cachet in owning your own aircraft but the Global Financial Crisis in 2007-2008 changed that. Consultants called it moving from the “owning economy” to the “sharing economy”.
The first OEM ‘shared ownership club’ was a simple one. Buyers selected an aircraft, chose the interior and then agreed the term of the contract. They then selected an operator from a list of approved ones. Provided they flew between the minimum and maximum hours they did not need to worry about anything else. If the aircraft suffered from unforeseen maintenance (which was becoming increasingly rare) the manufacturer lent them another aircraft. At the end of the lease you either returned, renewed or choose another model.
Club members valued the flexibility (although getting out of the club before terms ended was not that easy) but most loved the simplicity. Technically they did not own the aircraft but it felt like they did and no one corrected them when they called it “their jet”.
Within five years it was responsible for 50% of all sales. Not everyone signed up. Some very rich individuals and a few multinationals still choose to buy aircraft and use their own flight department or a bespoke aircraft manager. Many owner pilots of smaller aircraft also chose to keep running their own aircraft.
Because manufacturers guaranteed availability rather than values, it also changed perceptions about older aircraft. Users of programmes rarely realised how old their aircraft was. Suppliers developed plug-in upgrades and it was common to see 20-year-old aircraft being used by top corporations.
It took time but the change in ownership was the biggest shift in aviation since the jet engine. Whilst some OEMs tried to control the whole experience – including finance, maintenance, crewing, flight planning and training – others quickly formed what they called ‘risk sharing partnerships’. Owners did not realise, but in some cases they were being supported by dozens of different companies. Staff working at risk sharing partners became adept at switching branded polo shirts.
Rise of cities kills long-range jets
The rise of the megacity was widely forecasted. But no one guessed how badly it would hit long-range business jet sales. Especially at the start of 2020.
In 1950, 67% of people lived in the country. By 2008 it was split 50:50 but things changed fast. In almost exactly 100 years – 2046, 67% of people were living in cities. In 2030 there were already more than 30 megacities – cities with more than 10m inhabitants.
This urbanisation led to profound changes. Cities became more important than many countries forcing the United Nations to reform. Children born in megacities often had a very limited understanding of nature or agriculture. Farming became an old person’s career as people left for jobs in urban areas.
The problem for business aviation is that – as always – airports did not keep up with the growth. Inhabitants of megacities wanted to be able to fly to other cities and business aviation kept being pushed out further and further. Soon many traditional business aviation prospects were happy to fly long-haul on airlines rather than using business jets (as most of the new cities were in Asia, their first-class products were very strong). New developments in security screening also made flying on a commercial aircraft more pleasant.
Poised for take off: Joby Aviation recently raised $590m to make its latest eVTOL project (pictured) a reality. The firm is the latest eVTOL manufacturer to join the Uber Elevate partnership.
It was not all bad news for business aviation. Smaller towns and cities became less connected, so smaller business jets became essential business tools. Towns realised the importance of business aviation and learnt to value having a general aviation airport.
Helicopter and flying car manufacturers were the biggest winners. Although everyone knew that urbanisation was coming, few cities invested enough in transport infrastructure. As megacites became more gridlocked helicopters and flying cars became the only way to get around.
“Consultants called it moving from the “owning economy” to the “sharing economy”
Pilots still in charge
Everyone knows it will happen eventually, but in 2030 observers are predicting that it will be 2050 until unmanned business jets and commercial jets become normal.
Apart from a few enthusiasts no one drives anymore. Many countries no longer offer driving tests. But business aviation is behind the curve. Everyone is used to seeing Urban Air Mobility taxis – including Uber Elevate – zipping about the skies and autonomous cargo drones are everywhere. But business jet passengers still want at least one pilot sitting in the cockpit.
Anyone surprised by this should have looked back at history. Aviation has always been different to other forms of transport.
The first fatal aviation crash came in 1908 when the propeller flew off a Wright Flyer that Orville Wright was flying. Wright was badly injured but his passenger lieutenant Thomas Selfridge died. Just seven years later – in 1915 – the UK launched the Air Accident Investigations Branch.
Compare this with rail. The first rail death was in 1830 when William Huskisson was runover during the opening ceremony of the Liverpool and Manchester Railway in England. In 2005, 175 years later, the UK Rail Accident Investigation Branch was created.
There is something about aircraft that makes passengers still want pilots. UCAV controllers joke that the key skill of a commercial aircraft pilot is “the ability to wake up when the aircraft lands”. But it does not matter what they think. The public disagree.