Deliveries of business jets should begin to rise again in 2012, ending a three-year slide that has decimated much of the industry. But any increase will be modest, and deliveries are unlikely to return to 2008 peak levels until after 2017.

That is the upshot of Honeywell’s “2011 Business Aviation Outlook.” Business jet manufacturers are expected to deliver just 600-650 aircraft this year, down from 732 in 2010, as the hangover from a dramatic decline in orders lingers. And next year’s delivery total is projected to remain below 700.

Honeywell’s sobering assessment is in line with the sentiments of industry leaders, whose hopes for a strong rebound next year have been dashed as economic woes in Europe and the U.S. keep nervous buyers on the sidelines. “2012 was to be the year,” laments Bombardier Aerospace President and Chief Operating Officer Guy Hachey. Now, “it looks like [it will be] at least another year until things get better and probably a slower recovery over the mid-term than anyone anticipated.”

It also remains a tale of two markets, with large-cabin aircraft faring much better than light- and medium-weight jets. The backlog at General Dynamics’ Aerospace unit has risen for three consecutive quarters, thanks to improved demand for large Gulfstream jets. By contrast, Cessna’s backlog shrank by more than $400 million during the first half of 2011 due to tepid sales of its smaller aircraft. Honeywell projects that, by dollar value, the larger-cabin jets will account for 60% of industry sales during the next five years, while the smaller cabin aircraft will make up just 12%.

10,000 BizJets

Honeywell’s forecast, scheduled to be released Oct. 8 at the National Business Aviation Association’s annual convention in Las Vegas, is based on a survey of more than 1,500 flight departments worldwide during the summer. Those purchase expectations were then adjusted to reflect recent economic concerns stemming from the U.S. Congress’s budget standstill and the European debt crisis. About 80% of the purchases that survey respondents anticipate are timed for 2013 or later.

Honeywell now forecasts deliveries of 10,000 new business jets from 2011 through 2021, generating more than $230 billion in sales. While that is 1,000 fewer aircraft than predicted in last year’s 10-year forecast, the sales value is slightly higher, thanks to a higher percentage of large-cabin aircraft in the mix.

Similarly, Forecast International is predicting an uptick beginning in 2013 for general aviation and utility aircraft (not including business jets and light sport aircraft), with that market valued at $28 billion over the next 10 years (see article on Page 4).

Demand from emerging business jet markets is offsetting some of the pain from slower sales in the U.S. and Europe. Honeywell found that buyers from the fast-growing BRIC economies—Brazil, Russia, India and China—collectively plan to purchase aircraft equal to 49% of their current fleets for expansion or replacement during the next five years. The comparative figures are just 26% in North America and 29% in Europe. Orders from emerging markets skew toward larger jets, which have the long-range capabilities to serve transoceanic trading needs.

North America Still Majority

But the number of business jets operating in newer markets is so small that even robust growth cannot come close to replacing sales lost in the industry’s dominant market. North America is still expected to account for 55% of the industry’s demand during the next five years. And one encouraging sign is that recent economic jitters have so far not eroded five-year purchase plans in the industry’s biggest market. “Despite the tepid pace of global economic activity, North American operators responding to the survey indicated their overall new jet purchase plans for the five-year horizon were largely unchanged for the second year in a row,” says Rob Wilson, Honeywell Aerospace’s president for business and general aviation.

Honeywell officials say the backlogs of business jet manufacturers are more solid than they were in 2008, when the onset of the credit crisis led to a huge wave of cancellations and deferrals. More than 70% of purchases in North America are now made in cash, up from 40-45% before the downturn hit in late 2008.

Historically, aircraft buying was spurred by solid corporate profits and general economic expansion, conditions that are mostly absent today in the industry’s largest markets. But other factors can be damping enthusiasm for acquiring business aircraft as well. These include:

• A tight credit market in which traditional lenders accommodate only long-term clients with strong balance sheets, and still demand of them a high level of equity in the purchase.

• Depressed values as a result of a continuing oversupply of good used aircraft.

• High oil prices, making fuel a notable operational expense, particularly among heavy users.

• Increasing environmental regulations, fees and concerns worldwide.

• Heightened security restrictions, demands and concerns, including the suspension of the Block Aircraft Registration Request program in the U.S.

• Altered depreciation schedules in the U.S.

• The threat of additional fees, notably user fees, including air traffic control charges in the U.S.

• Political opposition, particularly in the U.S., in which business aircraft are publicly targeted as symbols of irresponsible fiscal behavior by a privileged few.

While some of these issues could be remedied by a strong economy and political change, others are likely to remain, clouding the business aircraft market for years to come.