COVID-19 has caused a divide in business aviation. This is not like the bifurcation of the market after the 2008 economic crisis, when wealth destruction and over-production caused light-jet demand to collapse while sales of large-cabin jets continued largely unscathed.
Instead, driven by health concerns, it is a division of the market between private and corporate flying. Business-aircraft activity has recovered more quickly than commercial aviation. But that rebound has been led by private flights to the safety of second homes and not corporate flying on business trips.
The recovery has been overwhelmingly in domestic flights, with little sign of any rebound in international flying because of constantly changing travel restrictions as governments respond to a resurgence in the novel--coronavirus pandemic.
- Charter flights leading recovery in activity
- Large-cabin jet business lags lighter aircraft
The story is in the data, with flight activity looking quite different than its normal pattern as business aviation recovers. “It’s a whole new world when it comes to how charter behaves,” Greg Johnson, president and chief technology officer of booking platform Tuvoli, told a September webinar organized by the National Business Aviation Association (NBAA).
“There are bright lights, new things that are happening that are encouraging, and there are certain geographies and parts of the business that are really challenged in this environment,” he said. One of those bright lights is the charter market, largely fueled by customers new to business aviation.
FAA aircraft movement data show a gradual resurgence of domestic U.S. activity since the April trough, with Part 91 private operations stabilizing by the end of August at around 18% less than in 2019. “The Part 135 charter market is doing much better, at 5% below 2019” and continuing to grow, Johnson said.
Geographically, the impact has not been spread evenly across the industry with corporate-aviation hubs such as Teterboro Airport in northern New Jersey near New York seeing a much slower recovery than airports in vacation destinations such as Florida or second-home locations such as Vail, Colorado.
A mecca for private aviation, Teter-boro started to see a recovery in Part 91 and 135 activity as people began to return to the New York City area but, by the end of August, was still down by more than 50% over the same month in 2019, said Johnson, adding: “It’s really had a hard time coming back.”
At the same time, second-home locations were showing an increase in traffic. Activity at Eagle County Regional Airport in Vail was trending 33% above 2019 levels for August. “Jackson Hole [Wyoming] and Aspen [Colorado] also were doing better,” he said. “Throughout the pandemic, Florida was impacted less, its airports tracking pretty darned close to 2019.”
“Charter operators are doing well, but it’s regionalized,” says Ryan Waguespack, senior vice president of the National Air Transportation Association. “In certain areas there are not enough aircraft. In others, they are at 45-65% capacity, at non-destination cities and places where it was 100% business travel.”
Flight activity data also show a disparity based on aircraft size. During August, charter activity with midsize jets was running 2% above 2019 levels. “Large-cabin is a very different pattern. Throughout the pandemic they have really struggled. Because of the challenges with different restrictions, it is much harder to travel internationally than domestically,” Johnson said. “It is better than it was, but large--cabin is not coming back at same rate as smaller domestic aircraft.”
“It’s a tale of two markets,” says Paul Kirby, executive vice president of aircraft brokerage QS Partners. “Large cabin remains pretty soft. Inventory is rising and transactions are decreasing because they have nowhere to go. There’s not much utility for a 6,000-nm aircraft right now. You can contrast that pretty dramatically with what we are seeing in the light-cabin market. Transaction volume is up, inventory is stable and prices are stable because there is utility there for domestic travel.”
Part of that light-jet demand is from people new to business aviation. “We are seeing a lot of first-time airplane buyers . . . in the $6 million and under, [Embraer] Phenom 300 and below, light-cabin segment. The common theme is people who have the means and are saying they are not going to travel on the airlines,” says Kirby. “We are also seeing a lot of people upgrading out of single-engine turboprops.”
Flight schools also have seen a recovery in activity, despite the pilot furloughs at the airlines. “It’s a very dynamic environment,” says Robert Rockmaker, president and CEO of the Flight Schools Association of North America. “We estimate we’ve lost at least 50-100 schools of different sizes, but the good news is schools that are open are operating at 70-100% of their pre-COVID levels.”
While there will be no near-term shortage of pilots, both Waguespack and Rockmaker say longer-term the downturn could exacerbate the problem. With the delay in the restart of international flying, senior captains now on furlough face the prospect of returning to duty in a couple of years only to be forced to retire at 65 by regulations. Instead many are choosing to retire early.
“We are encouraging people to continue entering the industry. To pause is a big mistake,” says Rockmaker. “Business aviation and charter are only going to grow because of health concerns, and there will be a need for more pilots to fly them. And there are going to be fewer and fewer pilots out of the military. That is no longer the supply chain, and it is not going to change.”
Manufacturers reacted swiftly to COVID-19’s global spread, shuttering factories and adjusting production rates for the rest of 2020 and into 2021 to align with expected lower demand for aircraft in the economic recession riding the pandemic’s wake. The factories reopened, but as travel restrictions persisted so did difficulties delivering aircraft to existing customers and selling aircraft to new buyers.
Business-jet, turboprop, piston-aircraft and helicopter deliveries all declined during the first six months of 2020 compared to the same period of 2019, reports the General Aviation Manufacturers Association (GAMA). Deliveries were down 26.7% for jets, 34.2% for turboprops and 37.1% for turbine helicopters. The total value of aircraft deliveries through the second quarter of 2020 was $7.9 billion, down 20.2%, says GAMA.
“Gulfstream was able to deliver only 23 aircraft in the first quarter due to travel restrictions. We struggled with the same problem in the second quarter, but managed largely to mitigate that problem with 32 deliveries. There were several G650s to international customers that we couldn’t deliver,” Phoebe Novakovic, CEO of parent company General Dynamics, told investors in July.
The situation was similar at Textron Aircraft in the second quarter. “We delivered 23 jets, down from 46 last year, and 15 commercial turboprops, down from 34,” Textron CEO Scott Donnelly told analysts in July. “The decrease in Citation volume largely reflected a decline in demand related to the pandemic and to a lesser extent delays in the acceptance of aircraft related to travel restrictions.”
Orders were also down. “From an order perspective, sales activity in the quarter was extremely difficult, exacerbated by fears concerning the economy, inability to travel, inability to arrange demonstration flights and difficulty getting before the customers other than by telephone,” said Novakovic, noting: “It’s very difficult to sell an airplane, in fact impossible, over the telephone.”
While Novakovic said customers contacted by Gulfstream “expressed the same needs and requirements as they had going into this downturn,” it is hard to sell a large-cabin jet when corporations are concerned about the survival of their businesses as well as the safety of their executives.
The lower end of the market presents a different story, fueled by individuals and families seeking a safer way to travel.
“We certainly have seen a pickup,” said Donnelly. “The level of activity and orders that are closing have been stronger on the light side. King Air 250s are very strong. [Citation] M2s are strong. They’re more for private businesses, high-net-worth individuals.” Larger Citations are primarily corporate-owned. “We’re not seeing as much activity yet in Latitudes and Longitudes, but there’s a lot of dialogue going on.”
But, despite a pickup at the lower end, the overall market is down significantly. “We still see 2020 business-jet deliveries industry-wide down approximately 30% year-over-year,” Bombardier CEO Eric Martel told analysts in early August. But longer--term trends are encouraging, he said, with “very limited” cancellations of existing orders and pre-owned inventories remaining at healthy levels.
Holding to the revised forecast of 125-130 Gulfstream deliveries for 2020, down from around 150, Novacovik said, “Our backlog is holding up pretty strongly, which is in marked contrast to 2008-9, where the backlog experienced some significant erosion.” They may not be placing new orders, but customers are telling Gulfstream their needs are unchanged. “This is just a question of timing,” she said.
“As people go into the end of the year and beginning of 2021, we expect to see an uptick in the order activity,” said Donnelly. Textron is encouraged by the recovery so far, “but we need to see that continue to progress and start to head back to some degree of normalcy,” he said. The company is looking keenly to the beginning 2021 “as the corporate piece of America starts to make capex commitments again.”
With the plant shutdowns and rate adjustments, Textron expects to be down 30-40% in deliveries for 2020. “The run rates anticipate you’d probably get half that reduction back as you go into 2021. But there’s a long way between here and 2021,” Donnelly told analysts.
When Aviation Week first looked at how business aviation might recover from the pandemic, in June, evidence that the relative safety and convenience of private aircraft could draw new customers away from commercial aviation was anecdotal. Now there is solid data. But the question remains: Is the uptick here to stay, or will business aviation fall back to its normal demand pattern and customer base?
New customers entering business aviation tend to follow a pathway. “It starts with charter and club and hour, and moves into fractionals before whole ownership,” said Donnelly. “Somebody that’s never been on a business jet before doesn’t buy a new airplane. They’re going to start by getting some experience with it by the hour and progress to fractionals.”
This model appears to be holding. “The addressable market today is not what it was last year,” Alan Mann, director of safety at membership company Wheels Up, told the NBAA webinar. “People used to flying first class or business class don’t want to do that anymore. When companies are starting flying again, they’re saying to board members and CEOs, ‘you’re not flying on airlines. It’s private only.’”
Flying at Wheels Up was up 10% in August and, by the third week of that month, membership sales for the year were 20% above the total for all of 2019. “That is because the addressable market is so much bigger,” he said. “People that could afford to fly privately last year and didn’t think about it are thinking about it. I think [business aviation] will come back. But it’s all about the private flyer right now.”
In July, fractional operator NetJets Europe recalled furloughed crews and reinstated Dassault Falcon 2000EXs to its fleet. In the U.S, NetJets reported a strong increase in new owners joining the program as individuals and businesses. The fractional is a big customer for Textron. “They are seeing the same thing that we’re seeing from a sales standpoint. There’s demand out there,” Donnelly said.
“It’s across everything. It’s charter companies that are flying older aircraft, it’s guys like Wheels Up that are strong club membership models, it’s the NetJets seeing folks that are interested in cards but also fractional shares,” he said. “So I don’t think it’s anecdotal. I think it’s quite real. But from our perspective it starts in a non-equity mode and migrates through the path toward ownership.”
But consultant Brian Foley has sounded a cautious note about “unsubstantiated exuberance” over the charter-led recovery. “There is growing concern that summer may have been the high point for the aircraft charter season. Once the frolicking at the beach is over and people return home, the focus normally turns to business trips in the fall,” he wrote in Forbes in late August. And those trips look scant.
But countering that view are anecdotal reports from charter operators, cited by Johnson, that their customers have “flipped and are now making their primary home in the second-home city.” Real-estate markets in those same cites are “on fire,” he said. If substantiated, this trend could sustain charter activity to these cities as well as demand for private flying from customers new to business aviation.
