It has been a slow but steady rise though for the private jet market in the last two decades. The freeing up of state control of many airports has helped hugely, handing much of the responsibility to the private sector, enabling some to own and manage airports, as well as control leasing and equity arrangements. The upside for business and consumers has been huge. Time-consuming check-ins, lost luggage, lengthy delays. All gone. Or at least, their likelihood is much reduced. And it’s not all about corporations with big pockets being able to fund such expenditure. Wealthy families are also taking advantage, whisking skiers to the slopes or simply belting to a holiday retreat within a few hours. You don’t even need to own the plane. The fast-growing number of air taxis and plane-for-hire services – some even by the hour – are indicative of the burgeoning corporate aviation market. It’s also a very straightforward solution to a common problem. Many international executives, be they Russian, Chinese or American, have to travel vast distances in their job. The ability to make multiple stops in one day is a boon, especially across vast landmasses.
Full order books
Recently, NetJets, the Warren Buffet-backed subsidiary of Berkshire Hathaway which rents out private jets to corporations and wealth individuals, bought 40 new Gulfstreams in a $1.9bn deal from jet maker General Dynamics, owner of subsidiary company Gulfstream Aerospace. Another example: look at the first quarter results of 2008 for Bombardier Aerospace, builder of a wide range of aircraft for the corporate market. Despite worries of a recession, Bombardier ravenues increased by 21 percent to reach $4.8bn. “Our first quarter results have shown marked improvement in all areas,” said Laurent Beaudoin, Chairman of the Board and Chief Executive Officer, Bombardier Inc. “…both business and commercial aircraft enjoyed good demand as demonstrated by the level of net orders and deliveries…” And Bombardier now has an overall backlog of $55.5bn – an enviable position to be in. Especially in a global environment of increased belt tightening. At least for some, at least.
Brazilian player Embraer is another good example of spectacular success and has even overtaken Bombardier in terms of supplying regional jets, where it has carved out a substantial market for itself. Increasingly Embraer is investing in a new range of midsize business jets to bolster its model range. Brazil, in many ways, has been at the forefront of the aviation industry for some time (a fact not widely known). Embraer’s new Lineage 1000 model range will even include shower rooms and bedrooms.
Hot tickets
Did anyone mention costs? Private and corporate jet travel is more expensive than flying commercial airliners. But it’s not just about hard costs. Time-pressed executives increasingly need to travel rapidly between destinations and being able to return home in the same day – without the cost and hassle of an overnight stay – is incredibly attractive. It’s also about disposable income too. Many high net worth individuals – millionaires and a growing band of billionaires – are increasingly differentiating themselves not by their Bentley or Ferrari but by their jet. Whether it’s a modest $5m VLJ (Very Light Jet) to a top of the range Gulfstream.
Demand from executives in markets such as commodities like oil and gas, construction and manufacturing is particularly strong. A recent report from Asia Sentinel quoted managing director of Air Deccan, Captain G R Goliath, on the massive potential demand for private jets from wealthy Indians. “The number of wealthy people in India is on the rise and their needs are growing,” he said. “Over the next decade, the private jet market in India will boom even though it will largely remain the preserve of a select few.”
Aircraft manufacturers are also targeting their sales pitches directly at the executives. Yet there are pressure points. Just about every developing nation is keen to unleash the forces of unfettered jet travel. Many runways and airports still struggle to cope with existing demand, especially with the prevalence of budget airlines. Then there’s also the issue of maintenance infrastructure costs. How is this shared? What of also the huge cost of air traffic control systems?
Greener flying?
Concern about greenhouse gases which jets unleash high above the earth are never going to disappear. To its credit, the private jet market appears to be tackling the issue. Netjets is now incorporating carbon offsets into its product offering for all new customers and renewing customers since October last year. Since Netjets have a five-year contract cycle, 100% of their customers will be flying carbon neutral no later than the end of 2012. “This is the beginning of a long-haul programme to
cut emissions,” says Netjets chairman and ceo Mark W.Booth. “We’re in a business where this is
not easy to do. But we’re attacking it from every
side of the problem. This is about deeds not words.” Booth has since acknowledged that several of NetJets’ main clients have signed up for the scheme on a voluntary basis, regardless of the length of their current contract. The Warren Buffett-backed company has also said it is helping fund a new jet fuel project underway at Princeton University.
Yet other issues hang around. Corporate governance and shareholder lobbying is increasing the pressure on companies to come clean on expenses – including air travel. Even Stuart Rose, chief executive of Marks & Spencer, has had the use of the company jet scrutinised by shareholders. Cost cutting can be political as well as pragmatic. As the lines between business and leisure get increasingly blurred, the use of private corporate jet travel will need to be treated with some care.
Growth and more growth
Global sales of private aircraft have more than doubled since 2003 to a now eye-watering $19.4bn last year. Between 2006 and 2007 the number of private jets sold increased 28 percent. And sales are still rising this year. Corporate jet ownership has increased by about 70 percent since the early 1990s. According to the General Aviation Manufacturers Association (GAMA), 297 business jets were sold just in the first quarter of 2008. The private jet market seemingly immune to the issues of high fuel costs and global credit worries. In fact, Gulfstream has just launched its new G650 in March – the fastest and most expensive business jet available priced at just under $60m.
The growth in business aviation in Europe also looks set to continue for the foreseeable future, with the number of jets rising from 1,900 today to around 4,000 by 2017 according to a new study by Eurocontrol. Its recently published study ‘More to the point: Business Aviation in Europe in 2007’ found that between 2005 and 2007, the number of business jets on the European register rose from 1,100 to nearly 1,900, an increase of 70 percent. “This could rise,” says David Marsh, manager of forecasting and statistics at Eurocontrol, “to around 4,000 by 2017. These estimates suggest that in 2017, the number of business flights will be 4,300 a day – but if air taxi operations based on very light jets grow as expected, then there could be over 5,000 flights a day.”
Growth, adds Eurocontrol, will be driven by a number of factors, including increase in fractional ownership – which extends the value of private jet ownership to the business class sector – world economic growth and emerging international markets. Growth in Russia in particular is expected to affect Europe as their fleets travel to and from European destinations. “The levels of growth that we are seeing provide a real challenge for airports and air traffic control across Europe,” said David Marsh. “Business aviation uses different airports, but flies mostly in the same densely-used airspace as the rest of the traffic. In addition, business aviation generates more and bigger unanticipated peaks of demand, which puts pressure both on airports and on air traffic control.”
Conclusion – Plenty of fuel left in the tank
The rise and rise of the private jet market looks unlikely to run out of fuel anytime soon. Increasingly, the private jet is seen as a business tool, rather than a board perk or extravagance. For the private jet makers, business is good. Their problem is increasingly supply, not demand. Resale values are looking good too. Some one-year-old planes can sell for substantially more than their new price ticket. From Indonesia to Russia to Hong Kong, air authorities are increasing landing slots – and grabbing a useful slice of revenue. Of course, when things are going well, it’s natural to forecast a future slowdown. But at the current rate, this is unlikely to happen anytime soon. Indeed, this growth could just be the start of an air renaissance.
Much of the growth in the market is coming from countries that have seen absolutely explosive growth in the last decade. Just look at Vienna’s June European championship semi-final: the Austrian capital’s airport experienced its busiest ever day for business jet traffic when 220 private jets landed within 24 hours day – and two-thirds of them had flown in from Russia, 1040 miles away. Netjets marketing director Rob Dranitzke recently revealed that 25% of the UK’s FTSE250 companies now use Netjets, as do many of London’s top investment banks.
So while some parts of the world economy are experiencing turbulence, the corporate aviation market continues, it seems, to gain altitude. There’s plenty of fuel left in the tank too it seems.
Focus on safety
Air traffic safety is paramount. The biggest challenge, says Eurocontrol, the Brussels-based air traffic management agency, is traffic growth. “Because when traffic doubles, risk is squared. Air traffic keeps on growing – by about 5% a year, which means that there will be twice as many aircraft in the sky in 2020 as there are now.” So efforts to maintain safety must be intensified. Indeed, safety performance needs to be improved ten-fold to make sure that the rate of accidents does not increase.
High profile accidents have been few so far. There is concern though that some of the business jets increasingly used for corporate travel were not originally designed for such hard use. However, this issue will fade as more modern designs – and there are many – come on-stream.
The International Civil Aviation Organization (ICAO) is aware though of the need for streamlining of rules and safety protocols. It’s also not just about fairly small aircraft, as the ICAO points out. “Although the use of aircraft for business purposes originated in the 1930s, over the past twenty years there has been significant growth in applications of business aviation used to enhance the productivity of both small and large corporations. In particular, there has been considerable growth in large intercontinental aircraft designed to serve the global economy. There are now over 23,000 turbine business aircraft flying around the world, operated by over 14 000 companies. The need for harmonized rules and procedures is universal in aviation; moreover, harmonization is a fundamental tenet of the Convention on International Civil Aviation.”
Certainly the ICAO acknowledge this need is paramount in corporate aviation where aircraft are flown to all corners of the globe often with very little advanced notice. And it knows rules and operating procedures vary considerably from country to country. “For this reason, the business aviation community recognizes the importance for States to harmonize rules and procedures to the maximum extent practicable, and encourages the international aviation community to maintain effective and modern standards upon which the State rules can be based.”