From the gradual sale of used planes to the smoothing of corporate air traffic, demand has begun to wane, according to aviation lawyers, brokers and analysts. Although standards remain rare, these signs of uneven demand attract attention.
One business jet manager said he has seen a few ailing planes and customers paying late because of financial problems, some of them from parts of Eastern Europe or Latin America where economic growth is expected to slow.
“We’re looking to see if it flattens out as a soft landing or something else,” said the manager, who did not want to be identified.
Investors will be looking for clues when Gulfstream maker General Dynamics Corp and Cessna business jet maker Textron Inc report earnings on Wednesday. Private jet makers have assured investors that their multibillion-dollar orders and continued demand will cushion the blow of a potential recession.
Aircraft manufacturers rarely disclose cases of aircraft in distress, but claim they can easily resell unwanted models.
“If the final sale of an aircraft falls through for any reason, the sales team works to match the aircraft with the mission, location and timeline of a similar customer,” said Lannie O’Bannion, a senior vice president of president for Textron’s aviation division.
During the COVID-19 pandemic, rising affluence, access to cheap money and demand from elite travelers created a seller’s market for business jets, leaving aircraft manufacturers with large backlogs and long wait times for certain models.
But rising interest rates, which have pushed up borrowing costs, and growing signs of a looming recession have prompted some buyers to delay their purchases.
With demand still strong for now, some eager buyers are looking for distressed assets to bypass the still-long wait for new planes, industry officials said. Some buyers also began looking for distressed aircraft late last year to qualify for favorable tax rules.
Brian Proctor, CEO of aviation consulting and brokerage firm Mente Group, said he has two buyers who would look at an ailing new plane “even if it wasn’t 100 percent perfect.”
Meanwhile, aviation lawyer Stewart Lapayowker said he knew of a few buyers who were “waiting on the sidelines and ready to jump into a defaulted delivery” as some vulnerable customers reconsidered earlier orders.
At the same time, the speed of sales has slowed, with used aircraft sales now taking weeks instead of hours or days by the end of 2021, Proctor said.
Another sign that the market is settling down is that the stock of used aircraft for sale rose more than 40% in the first half of 2022, aviation analyst Brian Foley said, citing data from industry specialist AMSTAT.
According to research firm WINGX, charter activity in North America fell by 2% last year. WINGX sees flight activity declining in 2023 relative to property levels, but still higher than in 2019.
REFACTS ON EMISSIONS
Another factor making buyers hesitate is the growing opposition to emissions, with countries such as Belgium planning to tax corporate jets and labeling some American celebrities who own jets as “climate criminals”.
Zipporah Marmor, vice president at corporate aviation company ACASS, recalled a deal for a used business jet that fell through amid proposals in Europe to ban, tax or regulate private jets. The European company’s board advised against the deal.
Bombardier, a Montreal-based business jet maker that reports earnings on Feb. 9, has said it was able to resell four or five planes originally destined for buyers in Russia before the war in Ukraine to other customers.
According to aviation analyst Richard Aboulafia, it is important to prevent a demand crash like in 2008.
“My problem is that if things go badly in 2008, the backlog gives a false sense of security,” he said, but added that such a crash is unlikely.
For now, one company’s failed trade is another buyer’s luck. Marmor converted the failed deal with the European company into a sale to an American buyer at a higher price two weeks later.
“Buyers are willing to have more flexibility in getting a plane,” she said.