Companies are still not investing in private business aircraft, according to a new forecast by Jetcraft.
The business aviation specialists says that low interest rates means companies are more focused on share buybacks than capital investment in executive aircraft.
The company says "Companies [have] opted to shift capital investment in equipment (the spending envelope from which aircraft are purchased) to share buybacks. Over the last five years, buybacks from companies in the S&P 500 have totalled $2.7 trillion. Understandably, companies are taking advantage of the low interest rate environment to finance acquisition of their shares. However, this is clearly displacing the aircraft procurement schedules of many companies as business aviation travel is less of a priority in their capital budgeting decisions."
Our chart this week shows the development in deliveries of business aircraft over the past twenty years. Three clear economic cycles are shown. The first relates to the dotcom bubble. Deliveries enjoyed an annualised growth rate of 17% in the seven years until the bubble burst. The downturn lasted two years before a recovery led by emerging markets lasting six years took hold. The global financial crisis in 2008 marked the beginning of a three to five year downturn before deliveries started rising again. Jetcaft predicts that the new cycle will peak in 2021 as flatter growth will extend the cycle to ten years.
The market is still expected to be healthy, despite lukewarm interest from corporates.
Over the next ten years, the company predicts there will be a market for 7,879 business aircraft deliveries. Jetcraft chairman Jahid Fazal-Karim says, "While the US is, without doubt, driving much of this performance, we see activity in regions where many have seen little business potential, particularly throughout Asia."
The report also shows that deliveries are closely correlated with global GDP growth, as shown below.
Jetcraft says ultra long range aircraft, those with a range of between 5,800 and 7,800 nautical miles, will be the most significant part of the market, driven in part by demands from customers in the emerging markets.
However, the low price of oil, which is not expected to recover significantly in the near future, means demand from markets such as Brazil and Russia is not expected to increase substantially.