It Doesn't Get Any Better Than This?
No, Says Teal Group, It Probably Will

"The market has not only increased dramatically but it looks like it's going to stay at a new level." That's the word from Teal aviation analyst Richard Aboulafia on the eve of NBAA 2000.

"We're at a new high. Corporate aviation has gone from the backwater of the aircraft industry to one of its leading lights," he says. 1999 was the first year, Aboulafia reminds, that business jet business was bigger than combat aircraft worldwide.

"This is a great market to be in," says the business jet section of the Virginia-based Teal's World Military & Civil Aircraft Briefing report. Updated figures forecast that 6,761 business aircraft will be sold over the coming ten years, worth more than $81 billion, compared to 3,716 for the past ten, worth $45.6 billion (in year 2000 dollars).

Although Teal sees business jet production dropping from 722 this year to a low of 534 in 2004, it says "the worst years of our forecast period will be better than any year before 1999." Teal sees an upswing recommencing in 2005, peaking at 801 aircraft in 2008 before dipping modestly again.

Looking back, business jets seemed almost like a niche segment of the aircraft industry until the second half of the 1990s. "Then," says Teal, "a funny thing happened. A mature market basically tripled." Manufacturers delivered 636 business jets worth $9.2 billion, not counting such aircraft as the Airbus A319CJ Corporate Jetliner or Boeing Business Jet. Add them in, and the current market value exceeds $10 billion.

Put another way, of the 10,767 business jets ever delivered (by Teal's reckoning), 3,716 of them, or 34.5 percent, were delivered in the past ten years.

The business world has essentially changed its mind about business aviation. While still viewed as a fat-cat frill and louche impecunious luxury by some, corporate jets "are now held in high esteem," says Teal, "due to what might be termed a 'cult of productivity,' a belief that economic progress lies with more efficient use of capital and labor resources.

"People looking for gauges of globalization and the internationalization of the global market need look no further than the business aircraft boom," Aboulafia says.

"The fundamentals are in place for long-term market growth," says Teal. "This is a much broader clientele; despite the uncertainties surrounding fractional ownership providers, the evidence is that they really do grow the market." Most fractional clients have never been in business aviation before, and the number of corporate flight departments is growing too. "Clearly, there is continued organic growth, on top of the fractional impact," says Teal.

"This has more to do with mediocre airline service than the fall of the Soviet Union," Aboulafia told Show News. "Thanks in part to regional airline service cutbacks and the recognition that personal jets save time," says his report, "companies are looking to private aviation as a source of efficiency."

Perhaps most striking is the surge in the high end of the market. Again discounting converted jetliners, it used to be that a top-of-the-line business jet cost about $25 million. Now both the Gulfstream V and Bombardier's Global Express are priced at about $41 million. "Nobody blinked and the market expanded,' says Aboulafia. "The high end is willing to go even higher."

Clouds on the horizon? Other than an inevitable downturn as we move to the mid-2000s -- one that's being prepared for as companies like Cessna invest in service and support rather than manufacturing infrastructure -- the most vulnerable area is upper midsize jets, Teal opines, with the Falcon 50 and Citation X at the low end and the Falcon 2000 and Challenger 604 being joined by the Galaxy and Raytheon's Horizon. "Clearly," says Teal, "this upper-middle segment is extremely vulnerable to a market downturn."

By Rich Piellisch