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Business-Jet Makers Confront Weak Sales Ahead of Farnborough Airshow

Business-Jet Makers Confront Weak Sales Ahead of Farnborough Airshow

Record production backlogs for airliners are buoying the global aviation industry, but the mood is bound to be more somber among business-jet makers attending the year’s biggest international air show next week.

Orders for corporate aircraft have been depressed for years and many veteran industry officials are girding for what could be a further downturn, leading big suppliers, such as cockpit-equipment maker Rockwell Collins Inc., to prepare for tough times that could stretch into the next decade. For some of these companies, the fallout even could fundamentally alter their traditional balance between working on programs for jetliners versus corporate aircraft.

With stagnant demand and world-wide business jet deliveries projected to slip by roughly 3% to 4% in 2016 from a year earlier, the market seems headed for “a bit of a new normal” at what could end up as a lower plateau, said Kent Statler, chief operating officer of Rockwell’s commercial businesses.

“We have to find a bottom here” before the industry can return to growth mode, Mr. Statler said Friday, three days before the kickoff of the Farnborough International Airshow, the aerospace world’s splashy gathering outside London. Rockwell, which provides flight-control systems and displays, sees that customers “have changed behavior” and anticipates that current delivery rates could stay the same or decrease slightly through the end of the decade, he said.

Slightly more than 700 corporate jets were delivered last year, down from more than 1,100 in 2008, when such jets enjoyed a heyday before the global financial crisis. Economic downturns in China, Russia, Latin America and other regions that used to be mainstays for fast and spacious models designed to whisk VIPs between continents have cut into orders for business aircraft in recent years.

As well, orders from the Middle East have been hurt by depressed oil prices, though relatively brisk sales of larger, pricier models in the U.S. have compensated for part of that drop. Fractional-ownership arrangements also have been gaining market share more recently.

Rockwell’s commercial unit used to rely on a roughly 50-50 split between products sold to business jets and commercial jetliners. By 2018, according to Mr. Statler, the airline part of his business could climb to some 70% of revenue.

The upshot, he said, may be “almost a lost decade of business aviation” growth.

When Honeywell International Inc., another major industry supplier, released its annual global outlook late last year, it projected some $270 billion of deliveries through 2025, less than 5% below its year-earlier total.

But for the near term, Brian Sill, president of Honeywell’s business and general aviation businesses, said “sluggish economic growth and political tensions are driving a more reserved approach to purchasing.” Honeywell sees growth limited to 3% over the next few years, followed by what it expects to be a resurgence around the end of the decade.

With both orders and deliveries potentially slumping, Mr. Sill’s data revealed an uptick in operators investing in “retrofits and upgrades for their existing aircraft.”

A number of manufacturers, however, already have cut production of some models or canceled new programs. Smaller, less-capable models have suffered the worst sales hits. Nevertheless, industry officials continue to deal with owners whose planes are worth less than barely a few years ago.

Still, plenty of business jets—decked out in fancy livery and often surrounded by red carpets for prospective customers—are expected to jam the flight line at the air show, which attracts tens of thousands of industry participants and plane aficionados.

Bombardier Inc. which builds everything from classic Learjets to some of the largest, longest-range models, such as its family of Global variants—has forecast a slump of about 10% in 2016 deliveries compared with the previous year. The company’s 10-year forecast, though, maintains that “significant growth is expected in the long term.” At the same time, company officials also are seeking to boost interest in a revised pilot-training concept, intended to give aviators more specific feedback on their strengths and weaknesses.

Textron Inc. ’s Cessna unit last year opted to introduce the Citation Hemisphere, its own version of a plush new plane with a roomier cabin.

At Rockwell, Mr. Statler said demand has been “less than our expectations,” though the company’s business-jet revenue has remained largely flat because of its mix of products and some significant competitive wins.

But looking ahead, he considers supplying systems for airliners to be “a lot more predictable business” based on fundamentals that are significantly less volatile than those that affect business jets.

Courtesy : wsj.com



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