The business jet market worldwide remains weak with large cabin aircraft the worst performing. AAV editor Matt Driskill checks the figures from the latest UBS survey.
The latest UBS Business Jet Survey index remained flat with an overall reading of 29, which was roughly in line with its prior reading in April, and the investment analysts said large cabin aircraft remained the weakest performing sector.
The survey showed small cabins improved 7 percent to a reading of 32, mid-size cabins fell 7 percent to a reading of 29 and large cabins fell 1 percent to a reading of 27. The “straight-up measure of absolute business conditions” came in with a reading of 4, which was unchanged from the previous report.
UBS said it saw improved scores for pricing, up 16 percent, and said the 12-month outlook also improved 15 percent. The outlook for current inventory levels fell 1 percent, it added, and said industry players were 4 percent less willing to increase inventory levels. Customer interest declined 10 percent, the survey found.
“Customer interest in North America dropped to 46, the lowest level since we began tracking regional data [in 2011], and below 50, indicating sequential deterioration”, UBS said in its report. “All other regions remained well below 50 as well, although Europe/Latin America/Middle East scores were slightly higher since April”.
The survey also found that emerging markets and currency concerns remained at the top of the list for the majority of the industry that took part in the survey. UBS found that 60 percent of the participants cited a “significant negative impact” from emerging market weakness and currency devaluation with 76 percent highlighting large cabins as being most affected while 13 percent cited midsize cabins as most affected and 11 percent citing small cabins as being most affected.
“We believe the recent steep decline in our survey, along with stagnant flight activity, is indicative of continued bizjet weakness, particularly on the high end of the market. We ultimately see the market improving on pent-up corporate replacement demand in North America”, UBS said in its report.
UBS also found that its “young inventory score”, which is not a component of the index, increased 3 percent to 29, but still well below 50, which indicates that “young aircraft inventories remain much higher than historical average levels”, UBS said. “Our financing score, also not a component of our index, increased 4 percent to 50, indicating financing conditions are unchanged since April”, it added.
The bank also found that customer interest in business aircraft was relatively unchanged from the April with 50 percent of the respondents saying it was changed, 14 percent said it had improved and 36 percent said customer interest had deteriorated.
“This result is worse than our prior survey, in which 17 percent indicated that customer interest had improved, while 31 percent indicated that customer interest had deteriorated and 52 percent indicated that customer interest had stayed the same”, UBS reported.
By region, North American customer interest continues to decline, with the most recent findings showing that region fell 3 percent to a score of 46 and Asia showing a decline of 8 percent for a score of 37. There were a few bright spots with interest in the Middle East actually rising 2 percent to 37, Latin America rising 3 percent to 35 and Europe rising 4 percent to 42.
Pricing levels were also said to be under pressure with 65 percent of survey respondents saying pricing levels had decreased, 34 percent said pricing levels had remained the same and 1 percent indicating pricing levels had increased.
“This result is better than our prior survey in April, where 1 percent indicated that pricing levels had increased, while 69 percent indicated that pricing levels had decreased and the remaining 30 percent indicated that pricing levels had stayed the same” UBS said.
The outlook for the next year improved slightly, UBS reported with 21 percent of its participants saying they expected business conditions to improve over the next 12 months, 29 percent expect conditions to deteriorate and 50 percent expect business conditions to stay the same.
“This result is better than our prior survey in which 17 percent expected business conditions to improve, while 37 percent expected business conditions to deteriorate and 46 percent expected business conditions to stay the same”, UBS reported.
Customer financing also improved, UBS reported, with 12 percent of the survey’s participants saying financing had improved, 12 percent saying it had deteriorated and the remaining 76 percent indicating that financing conditions had stayed the same.
“This result is better than our prior survey, in which 7 percent indicated financing conditions had improved, 11 percent indicated financing conditions had deteriorated and 82 percent indicated no change in financing conditions”, UBS said.
As usual, the dry facts and figures were not the most interesting part of the report, but it is the comments from the survey’s participants that yield some of the most interesting insight into the business jet industry.
Participants told UBS that “the word uncertainty we hear a lot” and that the US election was being used as an “excuse” in transactions. They also said “supply was way ahead of demand” and that “we have seen what we fear is a rapid deterioration of the pre-owned turbine aircraft market. The only one factor we can attribute it to is a general lack of confidence in the marketplace as a whole”.
Others said they were bracing for a “fairly rapid contraction” in the market and that “it's ugly out here if you have to sell your aircraft”.
Still other respondents said “we have seen the biggest slowdown in customer interest since 2009” and that there is a “disturbing increase in less than 10-year-old inventory for sale” and “prices for large cabin aircraft have dipped so low that we are seeing buyers such as fractional owners enter the market for whole aircraft”.