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By Syed Zaidi, Principal aviation analyst, ASA senior appraiser at Ascend by Cirium
What to expect in business aviation during 2022?
Business Aviation had a remarkable 2021, putting any mid-2020 pandemic induced weakness behind it, and going from strength to strength.
Looking at 2022, we discuss our predictions and outlook on the year ahead. The pandemic continues to subdue commercial aviation, and the appeal for business aviation, as a hassle free and safe way to travel, has remained strong.
After some large magnitude increases in Market Values over the course of 2021, we expect 2022 to bring some stability. If values continue to increase beyond logical understanding (once factoring in a continued supply / demand dynamic), we may be entering what is termed ‘bubble territory’.
We are already seeing some aircraft values ‘level out’. We will follow up with a further analysis piece shortly. We do note that a wider range of institutional investors are eyeing up this sector and Ascend by Cirium is helping those with advisory offerings including our Value Time Series product, enabling an assessment of historical values back pre-GFC. Importantly, financiers continue to be disciplined and are reluctant to finance premiums paid above market pricing, in stark contrast of the previous downturn.
Secondary market activity was very strong through 2021 but is unlikely to grow further this year. This may largely be due to limited supply of aircraft, rather than any notable demand slowdown. Shared-use fleets in charter and fractional roles continue to grow to meet increasing demand for business jet travel. As per expectations, if the pandemic looks to become more manageable, we may start to see some demand from corporate operators return as well. There is also the potential of demand returning in markets outside North America, which have remained subdued through the pandemic. We expect that brokers will have to get even more creative than they have been in the past year to source inventory.
Business jet utilization is seeing activity not seen since before the global financial crisis. With only limited growth in the size of the fleet, this points to increased utilization of individual aircraft which is being attributed to the increased charter demand. This increased demand may also lead to some charter rate improvements, but the rate increases will have to remain manageable as many new customers are coming from flying commercial airlines and may be more price sensitive. We do feel however that the fleet remains under-utilized. See November 2021 Thought Cloud article: U.S. Business Jet Flight Activity on the up, but is the fleet under utilized?
For the manufacturers, book to bill ratios are likely to return closer to 1 by year end, helped by ramp ups in deliveries for existing types as well as new types entering service. However, with overall utilization across the global fleet up, and young preowned supply minimal, demand may trickle down to new orders as older high-time aircraft may start to show their age and require major maintenance prompting new aircraft purchases. Global supply chain shortages continue to hinder significant production rate hikes, therefore constraining supply and giving manufacturers more control on new pricing. Discounts from list price are already starting to curtail, with some newly delivered aircraft being sold at prices higher than manufacturer list pricing due to immediately availability.
Despite COVID-19 having put several other sectors in damage control mode, business aviation’s unwavering commitment to sustainability has kept participants across the industry cognizant of improving the overall carbon footprint using synthetic aviation jet fuel (SAF) and offsets. Furthermore, manufacturers remain committed to certifying the use of 100% SAF in current production aircraft, improving engine efficiency as well as running flight test programmes for aircraft in development on SAF. Industry organizations will continue to push for more SAF production to improve accessibility to the fuel type.
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