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Business Aviation Q1 2015 Review & Outlook Demonstration Version
Author: Michael Riegel (AviationIQ)
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
1
we obsess about market, competitive, safety, pricing
and financial risk so you don’t have to…
Why You Need Our Support
This report isn’t exactly a best-selling book! We developed
this format, twenty-five years ago, to use during discussions
and support for every single client: business jet users and
investment professionals. If you could see the thirty
spreadsheets we compile, showing the business jet market,
starting in 1966, you’d be falling asleep within seconds!
This report is our way of showing the foundation of the work
we do. I have designed three highly-successful business
jets, using this data, plus detailed research of thousands of
consumers. Getting to know the market, industry players
and the people who use business jets has also allowed us to
develop a Business Jet Demand Index. If you skip ahead, a
few pages, you will see the “master curve”. This index uses
the ten aircraft-based criteria business jet buyers point to,
when they go shopping for a jet. They also tell us about
subjective criteria, such as brand strength, peer referrals,
support quality, and half a dozen other key issues. By using
these criteria, weighted in the same way consumers weight
them, we create a breakdown of demand, by aircraft type. The graph you can see, on Page 7, was created in 2007, and
we have attached details of what happened to the nine
aircraft types that fell below the “line”. We now use this
index, in addition to fresh research and analysis, to help you
understand which aircraft types will be most successful, and
how many orders they should capture, compared to their
competitors.
We also have access to information very, very few people
can tap about new aircraft programs and the definition of
each type: cabin volume, speed, range, and other key
variables. We use current, and future program information,
so we can tell you how demand, or values, for your chosen
aircraft type will change looking ahead. © Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
We exist to provide measurable, and actionable, insights that
can be turned into better, less risky, and more financially
rewarding decisions.
Our clients cover a wide spectrum. We have more than 2,000
clients, across the full range of investment, consumer and
consulting businesses. Just over 450 consumers have come
back to us for two, or more, repeat assignments. They tell us
that, even when they are committed to one provider, like
Netjets, they prefer to have us assess the quality of their
oﬀers, and to reality-check their plans. At the bottom of the
fractional market, every single provider started to repurchase shares at hefty discounts to Blue Book Average
Retail aircraft values. Of course, market values fell heavily,
after 2008. Some types are still falling in value, today.
However, there ARE tremendous diﬀerences between bestin-class residual values, and some of the aircraft types
Netjets and their competitors have purchased. Even in the
lower-priced light jet segment, Netjets purchased one
aircraft type whose five-year residual values fell to 30%,
while best-in-class values remained close to 70%. Netjets
provide an excellent service, but they are by no means
immune from buying the wrong aircraft types. In the whole aircraft market, we can provide typical market
pricing, the medium to long-term value prospects for any
aircraft type, and we can talk you through new designs, like
the Cessna Longitude, and help you to understand, BEFORE
you invest your money, whether this aircraft type is the best
way for you to spend your money.
We have heard many aircraft and share owners tell us that
they can handle their own negotiations. While this might be
true, I can make you aware of risks and contract clauses you
need to understand, before you sign on the dotted-line. I
oﬀer a free initial call, and I have a 90% conversion rate
when clients get even basic feedback out their oﬀers.
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The Power Of Up-Front Advice
Our services cost about the amount you would expect to pay for
1-2 hours of flying, more than this for whole aircraft support. We
remain involved through until closing, no matter how long this
might take. I won’t be retiring for at least twenty years, so I’ll be
around, if you will be!
Case Study - Whole Aircraft Purchase
An existing client was using 300 charter hours, per annum. He was
annoyed by the refusal of the charter company to leave the aircraft
with him for his regular long weekends. We calculated his total
cost per occupied hour at $8,000. He needed 6-8 seats, and was
based in the Dallas area. We presented the idea of a used Learjet
45XR. We detailed a handful of used options, each with engine
insurance, and brand new paint and interiors. A DFW-based
management company was found, and their fleet allowed our
client to trade hours with owners of larger, and smaller jets. He
bought the Lear for under $3 million. His flying fell to 250
“occupied” hours, with two trips, each month, to his holiday home.
With about 150 hours of charter use from other managed fleet
owners, his first two years of flying cost him under $6,000 per
occupied hour. He loves the Learjet 45XR, and now makes two
extra trips to visit his kids in college, every month. He has saved
more than $1.5 million for his flying, and has complete control over
his own travel requirements.
Case Study - Buying A Fractional Share
Another client was using a Sentient card, and ad hoc charter from
two local charter companies. He came to me, unhappy with the
time and hassle he faced, deciding on the operator, and aircraft
type, for each flight. His wife is a white-knuckle flier who visits kids
in college, and elderly parens, every month. They purchased a
share in an XLS, with Netjets, giving them 100 occupied hours.
They also own a share with Executive AirShares, in the Phenom
100, which is used for their shorter runs in the mid-West. Costs are
under $6,500 all-in, and they can travel anywhere at short-notice.
No more white knuckles with identical aircraft in each fleet.
we support consumers from needs & oﬀers to contracts & closing
Our Objective: We Give Clients Factual, Supportable Advice For Buying Quality & Low-Risk Flying
Needs & Options
Close & Fly
Options Risks
Costs & Tips
Short-List & Negotiate
Needs & Options
Where, when, with who, how long,
how much baggage, capital risk
versus hourly cost risk, and half a
dozen other questions we ask you
during our first call.
Options, Risks, Costs & Tips
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Our report oﬀers 4-6 options,
p ro v i d e r re v i e w s , r i s k s t h e
providers don’t mention, all-in
real-world costs, and negotiation
tips and concessions we have
seen in recent deals.
START
2
3
Short-List & Negotiate
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Close & Fly
FINISH
Clients have closed in three days,
with almost two years, for our
l o n g e s t d e a l . We d o n o t
bottleneck progress, and have
seen thousands of agreements,
giving us a clear advantage we
use for your benefit!
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
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Either you, or we, can request final
proposals, which we review, and
use to generate contractual,
service, or financial areas where
pressure is needed. We also make
sure that risks you might not
understand, such as “command &
control”, or “suitable alternative
aircraft” provisions are defined in
detail.
we support investors from by converting earnings into reality
Our Objective: Accurate, Detailed, Insightful Data, Analysis And Actionable Industry Insight
Battlefield
Interpretation
Customized
Reports
Key Metrics & Insight
Real-World Performance Updates
Battlefield Interpretation
We h a v e a d v i s e d o v e r 8 0
investment and private equity
firms. Our expertise running major
business aviation companies
allows us to add insight & contact
to widely used data!. Example:
how risky are major fractional
orders?
Key Metrics & Insight
Industry forecasts and deliveries
use widely varying standards for
an aircraft “delivery”. Other shortterm delivery spikes are driven by
o n e - o ﬀ c i rc u m s t a n c e s n o n industry specialists fail to take
account of. We can also help
researchers understand
roadblocks to unconstrained
growth in emerging business jet
markets.
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START
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3
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FINISH
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Real-World Updates
Cessna recently announced a
refurbishment program for older
Citation X aircraft. We can explain
the downside of such programs,
and the underlying risks Cessna
aren’t explaining. We also use our
demand index to assess the future
impact of brand new designs that
might not have been launched, to
date.
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Customized Reports
Many investment, private equity
and consulting groups come to us
for bespoke analysis. We have
access to data and industry
insights that allow us to build
more accurate metrics for industry
performance, with much more
accurate insights into trends, lead
indicators, and industry
announcements that only oﬀer half
of the required information, or
completely overlook detailed risk
assessments.
innovation that gives you the upper hand
March 2015: Business Jet Demand Index
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
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market summary for business jet users and analysts
New Aircraft Deals
Used Aircraft Market
New aircraft deliveries, in 2014, were more than 25% below
2013. In fact, at about 750 aircraft, deliveries were more than
900 aircraft below the 2008 market peak! Our demand model helps us to review used jet inventory that
is listed to sell. Again, the volume of sales, days on market,
and asking prices are always scored below the line in our
model. If you are thinking of a new jet, your biggest risk is value
loss. Used aircraft numbers have stabilized, but we have
seen no indication that prices are recovering. We have now
seen prices fall, or remain stable, for a total of six years: by
far the longest slump in the history of modern aviation!
If you are interested in a new private or business jet, you will
need expert advice. Put bluntly, the diﬀerence between best
in class, versus worst, has now reached more than 30%.
Even with a light jet, selling for $5-7 million, choosing a weak
product will cost you close to #2 million compared to market
or segment leaders. To complicate your decision, it is now vital that you look
ahead, to any new jet designs that are under development.
With every segment becoming overcrowded with new
aircraft designs, it is important to get a view of the future.
Which current designs are equipped to stay competitive, and
hold their value?
We produce a value index, you can read about on the next
slide. We have been using this mathematical model for many
years, to predict which aircraft types would remain popular,
and successful, versus the duds! We use almost thirty years
of consumer research, client feedback, and refining our
model. As you will see, we used this model, back in 2007, to
highlight nine aircraft types the model scored below the level
of “viable”. As you’ll see, the nine predictions we made were
spot-on, with six now out of production, and the other three
selling in numbers that are 1/3 of segment leaders!
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
The great news is that there are hundreds of very, very good
used aircraft deals available to buyers. At the light jet end of
the market, excellent Learjet 45’s, Cessna Excels, Citationjet
2’s and 3’s are available at 1/4 to 1/5 the cost of new aircraft.
If you can buy a used aircraft with engine insurance, no
damage history, and major maintenance checks completed,
you will have many years of low-cost flying available to you.
We have dozens of clients who have Armed with the world’s most boring mathematical forecast
and index, I put the models to work. The best way to share
the results is by using the output of a 2007 index run. The
next slide shows the index output for all current, and several
under-development business aircraft. The red line
determines the tipping-point: the level of demand that
should assure an aircraft type success within the appropriate
market category. You will see that there are nine aircraft
types that fall below that red line. I’ll quickly list them,
together with their current status:
• Hawker 400XP (out of production)
• Premier 1/1A (out of production)
• Learjet 40/70 (in production, but with 31 delivered in
2013/4 versus 119 for leader Phenom 300);
• Hawker
750 (out of production, and sold in small
numbers when pitted against super-light jets);
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• Learjet 60 (out of production);
• Gulfstream 150 (in production, with 41 deliveries in
2013/4 versus 109 Cessna Sovereigns). Both aircraft
types will face stiﬀ competition from the Legacy 450,
which is scheduled to enter service in 2016;
• Gulfstream 200 (now out of production, and replaced
by the follow-on Gulfstream 280, sporting a new
wing). Over the last three years, the Gulfstream 280
has delivered 75 units, versus segment leader
Challenger 300/350 with 149 deliveries and a Netjets
order for 200 more of the Challenger 350 variant; • Global
5000 (in production, but with 53 deliveries
over the last three years, versus 148 deliveries for the
older, slower, and lower-technology Gulfstream 400
series, which is being replaced by an all-new
Gulfstream 480 model).
With five out of eight aircraft types we rated as “underperforming” now out of production, and the other three
delivering a combined 169 aircraft compared to segment
leader deliveries of 407 aircraft, I hope you can see the
predictive capabilities of our index, when assessing
deliveries of current aircraft types. We also run regular
simulations that allow us to add or delete aircraft programs,
and to make accurate predictions regarding the impact such
programs will have on segment and competing aircraft
deliveries in the future. Our Business Jet Demand Index is
the most thoroughly-researched, and the most accurate
predictive model available in business aviation.
Business Jet Demand Index
2007 Output Of Business Jet Demand Index - Shows The Fate Of Weak Aircraft Programs
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
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timely and accurate predictions: the best training & tools
Business Jet Demand Index
Flawed Forecasting & Favoritism
I have been in the aerospace industry since I was 23. My first
aerospace business was a flying training business I
established in 1982. I was earning my first Master’s degree,
in applied aeronautics. The subject was boring to the point
of craziness, but did allow each student to experience six
hours of flying using Cranfield University’s light aircraft. Once
I had flown, I wanted to get my Private Pilot’s License (PPL).
The local flying clubs were much too costly, so I approached
the owner of a Cessna, and asked him what he would
charge for the use of his aircraft. After adding-in all costs, I
leased the initial Ceesna 152 and hired part-time instructors
to train our club members. Forecasting total business aircraft delivery numbers isn’t too
diﬃcult, with measures of corporate profit trends as the
mainstay of most current models. Buying intentions survey
results, even when they are used, aren’t accurate, because
the outlook period is no more than 2-3 years, and many
buyers would be largely ignorant of upcoming aircraft
designs. Gulfstream, in launching the G650 accumulated
more than 200 orders within the first year of their launch. In
addition, I had heard whispers, from several reliable sources,
that Gulfstream had the G650 design well under way before
they oﬃcially launched the aircraft type, giving them firstmover advantages. Finally, with Bombardier pre-occupied
with other programs, Gulfstream were able to attract a great
deal of future demand in the “ultra long-range” segment,
well before Bombardier or Dassault could formulate a
response.
By the time I graduated from Cranfield, my flight training
school was leasing six aircraft, and had trained more than
fifty students for the 43 hours needed to get a British PPL. Zooming ahead, to fifteen years ago, I was researching a
new aircraft model, now called the Challenger 300. We had
access to every demand forecast used in business aviation,
but found that all of these forecasting models failed to
provide, well, much of anything! Even the better demand
models failed to accurately forecast the timing, or magnitude
of market ups and downs. Worse was their complete lack of
demand information by aircraft type. As I studied forecasting in more detail, I realized that there
was one major reason why the business jet forecasters had
failed to provide accurate demand numbers: the politics of
money! Several forecasters used a short-term “buying
intentions” survey to help break demand down by aircraft
segments, or even by aircraft type. Existing aircraft owners
were asked to tell forecasters which aircraft model they
favored for their next purchase.
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Forecasters have faced several major challenges over the
last seven years. I was advising clients, back in 2006 and
2007 that I was skeptical of the impressive backlogs many
manufacturers were recording, during this period. With a
broad spectrum of clients, from around the globe, I was
deeply concerned that international business was a
complete unknown, to the business jet industry, and that our
lack of history made current backlog data, at best,
unreliable. My argument was simple: most forecasters, and
manufacturers viewed international customers the same way
they viewed customers from mature markets, like North
America, Western Europe and much of the Middle East. The
reality was very diﬀerent, as the industry was about to learn!
International position-holders melted away very quickly after
wider global economic indicators suggested an imminent,
and deep, decline in global economic conditions.
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Forecasters were caught by surprise, having never
encountered a down-turn that cut so deeply, for so long.
Backlog estimates had to be re-evaluated as international
orders melted away. To be blunt, international markets, like
China and India, had long traditions of using trains and
airlines for business travel, making it easier for them to
cancel business jet orders. Business aviation was also guilty of leaving forecasting in the
hands of industry players whose forecasting models needed
to yield to commercial needs. Developing a forecasting
model that could break demand down by aircraft type was
well within the reach of forecasters, but the consequences of
truthful forecasting might not be attractive! Not all business
jet engines have been successful. As the first sales manager
to take Hawker 1000, serial number 4, into Europe for two
weeks of demonstrations in Italy and Switzerland, I can tell
you the above in vivid detail, should you call me! With engine
makers positioning themselves as leading forecasters, how
could they provide complete objectivity, when doing so
might require that they call one of their own kids ugly?
Bias explains why forecasts have remained fairly generic,
across the entire industry. Even when major financial players,
like J P Morgan, and UBS, have tried their hands at
forecasting, they have tried to build demand down into a
series of metrics. I like metrics, too, but demand for business
jets is heavily influenced by emotional, and tough to
measure, influences, such as brand strength, channel
presence, support reputation, or referral strength. Unless you
have access to the full spectrum of buyer criteria, how to
measure each, weight each according to buyer importance
and how backlog, product launches and used market
dynamics impact demand, the best you will be able to oﬀer
is guesswork. Our index dispenses with guesswork! aviationiq proprietary demand index
Index Prediction Made In 2007
Gulfstream 200
Out of production. Replaced by
an updated, re-winged version
that has delivered in disappointing
numbers. Just 51 delivered in
three years, versus 136 Challenger
300/350 aircraft. Unless deliveries
improve, the G150 and 280
marques might need to be shutdown, or replaced.
Hawker 750
Out of production. An attempt to
use a Hawker 800, with a very
basic feature and options list. Just
48 were delivered 2008-2012.
Learjet 40/70
A cut-down fuselage derived from
the Learjet 45/75. In production,
but with just 33 delivered over the
last two years versus 108 for the
closely-matched Phenom 300.
Gulfstream 150
Just 30 delivered, during the last
six years, versus 127 Cessna
Sovereigns. The G150 is unlikely
to be generating significant
margins at these low output rates,
with increased competition from
above and below. I would expect
an all-new design, or a productline shut-down very soon.
Hawker 400XP
Out of production. Older
airframes being purchased By
Nextant Aerospace for
replacement of engines, flight
deck and interior.
AC 1
AC 2
AC 3
AC 4
AC 5
AC 6
AC 7
HB 400XP
HB P1
B L40XR BL45XR
AC 8
HB 750
AC 9
B L60XR
AC 10
G 150
AC 11
HB 4000
AC 12
G 200
AC 13
AC 14
AC 15
B 5000
G 450
AC 16
AC 17
AC 18
D 7X
Global 5000
Hawker 4000
Learjet 45/75
Premier I/IA
Out of production. Once said to
be a “game changer” that would
sell more than 5,000 units, the
Premier I/IA saw just 31 deliveries
during it’s last three years in
production, and just 279 during
twelve years in production, this
was. Another composite program
that has gone the way of the
Starship 2000,
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
A well-designed machine, with the
singular limitation of lacking
enough headroom for the fivehour flights that are possible in
this aircraft. Simply-put, the
Learjet 45 was guaranteed to
struggle the moment Cessna
countered with the Cessna Excel,
oﬀering 5’7” of stand-up
headroom.
Learjet 60
Out of production. Though fast,
the Learjet 60XR fell short of the
all-round range, speed and
versatility of the Hawker 800
program. With an under-sized
wing, the Lear 60 had no-where
else to go, developmentally, in a
market segment that research
showed to be populated with
users who were looking for more.
9
Out of production. Another illfated composite design, the
H4000 took seven years to go
from launch to delivery, versus
almost half that time for segment
leader Challenger 300. By the time
the H4000 was certified, the
Challenger 300 was approaching
200 deliveries, Gulfstream had
launched the G280, and the
Legacy 500 was poised to capture
more cost-conscious buyers.
Netjets had 75 on order, but
canceled the order, which may
have triggered the collapse of
Hawker Beechcraft.
Still being produced, I have long
felt that shortening an existing
design is a weak response to
weak demand for the larger
variant. The G5000 has managed
just 36 deliveries, over the last
four years, versus 73 for the aging
Gulfstream 450. The Global
program will boast four separate
models when the 7000 & 8000
enter service, to add to the three
Gulfstream, and three Falcon
rivals. The Global 5000 is likely to
remain a lower-volume option in
the $40 million+ space, with so
many larger, faster, longer-range
and more flexible designs in the
hunt for buyers.
feature article - the cirrus SF50 - game changer?
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
10
AviationIQ Quarterly Business Jet Update
February 19, 2015
Cirrus SF50 Single-Engined Jet
• During the last business jet upswing, the
industry saw almost a dozen twin-engined
very light jets (Twin VLJ's) vying for a market
segment they all thought would create
demand for thousands of aircraft;
• Today, a couple of these programs have
survived the realities of the cost, time, and
potential for Twin-VLJ's. Hundreds of millions
of dollars have been lost fighting over a
market segment I didn't believe existed;
The Cirrus SF50 is a rare smaller jet. The
interior can seat five adults, and two children.
That means a family of six, if you choose to hire
a pilot to fly you around.
• Cirrus, the market leader in piston-powered
single-engined aircraft, started looking at a
single-engined VLJ before the business
aviation market collapsed, in 2008;
I am 6’3” tall, and weighed 300LBS when I sat
in the mock-up of the SF50. More than a dozen
of my friends or clients have ordered the Cirrus
SF50, and many others are ready to shop for a
delivery position once the aircraft is in
production.
• They have been through an acquisition that
has injected much-needed capital, from
China, that has been put to good use,
recently;
• With three flight test Cirrus SF50's working
towards a 2015 certification, I am now
tracking Cirrus, carefully, to see if they can
make the tough, and costly, transition into
production;
• With 550 orders on their books, the Cirrus
design should make an eﬀective competitor
to current twin-VLJ's, and single-engined
turbo-props;
• For business aircraft users, the Cirrus oﬀers
the speed and comfort, not to mention
30-40% savings in operating costs, to make
this aircraft fit nicely into several individual,
group and quasi-fractional business models;
• As 2015 continues, I will track the Cirrus
program, to see if my clients can take
advantage of this interesting business and
general aviation product.
© Copyright 2011 Michael Charles Riegel - All Rights Reserved
11
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Copyright 2015 Michael Riegel (AviationIQ) - All Rights Reserved
1
AviationIQ Quarterly Business Jet Update
Detailed Editorial
Back in 2005 I was under contract to design a
new jet for a non-US aircraft manufacturer. I
actually defined two jets, which would benefit
from a high degree of component compatibility:
wing, engines, flight deck, and many others. By
2006, I had completed the definition, and had
met with key engineering people to refine
dozens of more detailed design parameters.
In the Fall of 2007, I was attending the National
Business Aviation Association show, or NBAA,
when I noticed my designs on the exhibit of
another manufacturer. My guest, who was a
senior investment executive with Janus, stood
confused as I took a closer look at these new
aircraft models. I felt genuine pleasure that my
designs were going to enter the market, but
peeved (I might have used stronger language,
at the time) that details of my designs had
made their way into the hands of a company I
had never dealt with. I had charged a great
deal less for my design work than I would have
for the manufacturer whose exhibit I was
standing on, because I believe in the "little
guy", and my client was a former colleague,
and a good egg!
Back on-point, when I was defining the two
aircraft mentioned above, I had occasion to
visit a major jet engine builder. Engine-makers
produce industry forecasts. I have never been a
fan of industry forecasts, to put it mildly, mostly
because they are often inaccurate, but
because they are rarely detailed-enough to be
usable by my clients in the investment world.
Forecasting market volume, with color-coded
aircraft segments won't help with actionable
data. In addition, the small number of
forecasters that try to break market volume
down use "buying intentions" surveys. 12
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Copyright 2015 Michael Riegel (AviationIQ) - All Rights Reserved
February 19, 2015
Such surveys can provide a short-term look at
demand for existing designs, but they become
highly questionable beyond a year, or two, and
they fail to take account of programs that either
haven't been launched, or are in the midst of
development. My company produces a
forecast that takes account of more than shifts
in corporate earnings. We also produce a
"kick-ass" index that builds upon decades of
grey hair creation, measuring hard and soft
buying criteria used by consumers, weighting
each according to their relative impact across
current, and the occasional emerging segment
(such as single-engine VLJ's. I developed my
forecasting models because I could see the
dilemma for engine makers. An engine, on it's
own, doesn't guarantee the success of an
aircraft program. Therefor, engine makers must
avoid oﬀering product-specific demand
predictions, out of a natural fear that they
would have to call some children ugly! If your
forecast remains a little vague, you can benefit
from people thinking you are smart, without the
natural recriminations, and verbal violence that
would ensue, if you were to admit that you sold
good engines, or bad ones, for use on an
aircraft that attracts low levels of demand (a
dog, to be specific!).
As I mentioned, I visited a major, leading
engine maker, and was asked to assess engine
o p t i o n s f o r m y a i rc r a f t d e s i g n s . O u r
discussions started with a discussion about the
current market, and the eleven twin-engine
Very Light Jets (VLJ's) that were under
development. The head of my host's
forecasting team was giddy with excitement
about the huge delivery numbers that twinVLJ's would attract. 2
AviationIQ Quarterly Business Jet Update
February 19, 2015
This VLJ champion pointed to the low pricepoint for the VLJ's as the main reason for his
optimism, and the reduced ownership costs he
felt would fuel demand.
A Potential Game-Changer?
I had studied VLJ programs in great detail, over
many years, and upset the host's apple cart by
disagreeing with their logic. Firstly, VLJ's were
creeping up in price, by hopelessly unrealistic
business plans that focused too much on
design and certification, and nowhere near
enough concerning the cost of moving into
production, and service, with the tens of
millions that would be needed to fund spare
parts inventories, in-service engineering
support, support personnel, and many other
downstream costs. I had learned many
important lessons about aircraft development.
For example, the cost of taking a small jet to
market wasn't appreciably diﬀerent to doing
the same for a large aircraft. I tried to focus on
VLJ competition: used light jets, and new very
light jets, like the Cessna Mustang. VLJ's
simply weren't compelling game-changers,
which might explain why all of the significant
VLJ programs were either driven into
bankruptcy, ran out of willing investors, or had
to scale-back their ambitions, forcing many
investors to write-oﬀ hundreds of millions.
Even if manufacturers are trying to maintain
secrecy, there are multiple resources that can
be used to track development programs, if you
have the right contacts. The Cirrus Single-VLJ
has not become a sure thing, in my view, but
they boast an appealing backlog, of 550
aircraft, they have three flight test aircraft
grinding away towards certification, and they
have a Chinese parent that will likely have the
deep pockets required to transition into
production. I see some weakness in support,
marketing and competitive analysis functions,
but one can only hope that Cirrus have the
leadership to make their program work. Almost
invariably, smaller producers of aircraft that are
trying to move into segments they aren't
already occupying believe that infrastructure
and commercial strategies and resources
change little. I'm afraid that this is a wildly
inaccurate belief. While I love the SF50, there
are still obstacles Cirrus could trip over as they
head towards production.
By the time I had discussed my concerns, it
was obvious that this executive team had
already gone "all-in", and had convinced
themselves that the demand was there. They
had even developed a new engine to cater to
twin-VLJ’s. As I’ve seen in every business
aviation market segment, almost all
development decisions are made by program
stakeholders. For example, too many industry
executives draw their industry data and news
from sources who depend upon revenue from
their customers to survive: ad revenue,
editorial, or revenue. Go figure…
13
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Copyright 2015 Michael Riegel (AviationIQ) - All Rights Reserved
Enter the Cirrus SF50 single-engine jet. I keep
myself up-to-date with development programs. The Cirrus SF50 has been a stop and go
program, a process that was impacted by
many problems, few of which had anything to
do with their basic aircraft design. With the
purchase of Cirrus by a Chinese company, the
cash became available for Cirrus to place three
FAA-conforming aircraft into the flight test
program. I often field questions about flight
testing, and why so many aircraft are required.
Most flight test programs require four to five
aircraft. Serial number one is generally used as
a static test article. The airframe lacks an
interior, or the electronics, engine and other
systems that will be fitted to flying test articles. 3
AviationIQ Quarterly Business Jet Update
Number one is put through an accelerated
series of take-oﬀs and landings, with the
pressure vessel (the cabin of the aircraft) going
through thousands of pressurize/de-pressurize
cycles to make sure the airframe can sustain
decades in service, with tens of thousands of
hours, and thousands of landings.
The base design is ingenious, with seating for a
pilot plus six passengers, in a comfortable
cabin, 300 knot maximum cruise speed, the
single Williams jet engine mounted at the rear,
with the air intake nicely protected on the
upper surface of the fuselage, and a V-tail
design that allows engine thrust to clear the
airframe without impacting any control
surfaces. Pricing started well-below $2 million,
but has rightly been pushed to just under $2
million. It wouldn't surprise me to see one of
two changes made to the Cirrus business plan.
They have set an initial target of just over 10
aircraft each month. I suspect that they will
either need to increase output, to allow both
backlog, and new sales, to develop, or the
price will need increasing. I would not be at all
surprised to see Cirrus establish a second
production site, to meet possible demand in
emerging business aviation markets, (in China
perhaps?).
Will Demand Remain Robust?
This is a question I have assessed, dozens of
times, over the last few years. The US business
jet market totals some 20,000 business jets. As
you would expect demand falls into a pyramid,
with entry-level jets at the base of the pyramid.
Very Light Jets start at about $3.5 million to
buy, when new. The general aviation market,
world-wide, is populated by single-engine and
light twin-engine piston-powered aircraft that
are typically under 12,500 pounds in take-oﬀ
weight.
14
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Copyright 2015 Michael Riegel (AviationIQ) - All Rights Reserved
February 19, 2015
There are more than 200,000 such general
aviation (GA) aircraft, in the US alone, and there
are more than 600,000 pilots who are trained to
use these aircraft. There are several popular
single-engine turbo-props, from the Pilatus
PC-12, the Piper Meridien to the European
SOCATA TBM-900. The lowest cost singleengine turbo-props start at $2.2 million, and go
up to almost $4.5 million. So, the Cirrus jet
oﬀers an attractive package for under $2
million. Very attractive, if they can invest
additional engineering resources to open up
multiple distribution channels.
Looking at the profile of private business
owners, and owner/pilots who use lighter
aircraft for business use, the market potential
for a competitive single engine jet would be
very significant. Indeed, the basic rules that
were used to enable US fractional aircraft
ownership find their origins in the GA market,
where the vast majority of aircraft are owned by
groups of enthusiastic pilots. I would expect a
high percentage of Cirrus SF50's to be owned
by multiple owners, each of whom would share
their aircraft costs. Here are some interesting
numbers for you: Airliners typically fly more
than 12 hours per day, with the most costly
routinely peaking at 16-20 hours of flying each
day. Business jets average about one hour per
day, with 2-3 hours use in well-run fractional jet
programs. In general aviation, however, many
aircraft will go for months between flights. Even
active groups will usually have members who
fly well-under 100 hours per year. Thus, with
range limited to roughly 1,000 nm, the Cirrus
would create a natural radius of operation,
added to it's attractiveness for private pilots,
business owners, and even non aircraft owners
who would have a group-owned aircraft flown
by an experienced pilot.
4
AviationIQ Quarterly Business Jet Update
When you start to research distribution
channels, geographies, existing data for GA
users, and the low operational cost of a singleVLJ, I have no doubt that a well-managed
aircraft program could see long-term
production rates that would almost be begging
for Cirrus to exploit their to-market advantage,
just as quickly as they can, safely.
Competitive Advantage
The most significant advantage a single engine
jet aircraft oﬀers is low operating costs. The
Eclipse 500 VLJ costs about $900 per hour in
fuel, engine insurance and maintenance. The
Cessna Mustang costs about $1,000. A Pilatus
PC-12 will cost around $900 per hour, with the
lower-cost Piper Meridien costing about $600.
The Cirrus will have a single jet engine. The
lighter Citation aircraft have two Williams or
PWC engines. For two engines, fuel
consumption is about 90 US gallons per hour.
Engine insurance costs about $110 per engine,
for twin-jets. The Cirrus is slated to burn about
60 gallons of fuel per hour, with engine
insurance, for it's Williams FJ-33 that should be
around $100-125 per hour. In other words,
even if we leave maintenance costs at light jet
levels, a Cirrus SF50 should cost at least $250
per hour less than a very light or light jet to
operate. My experience suggests that the
savings should exceed $300 per hour. The
Cirrus oﬀers cruise speeds of up to 300 knots,
with seating for a pilot, four adult passengers,
and two children. Between seating capacity,
initial cost and operating costs, the Cirrus will
oﬀer a significant step-up for almost any other
general aviation aircraft. The vast majority of
piston aircraft oﬀer seating for pilot + 3, with
the bulk of twin piston aircraft oﬀering room for
one pilot + 4-5. Even the Cessna Mustang only
oﬀers seating for pilot + 5. In other words, by
purchasing the Cirrus, you spend up to $2.5
15
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Copyright 2015 Michael Riegel (AviationIQ) - All Rights Reserved
February 19, 2015
million less than light jets, and a full $1 million
less than popular very light jets, with
comparable speeds, more comfortable seating,
and operating costs that will likely be 25-35%
lower.
Market & Program Summary
My research, and my experience at assessing
single and twin-VLJ market potential suggests
that an aircraft, like the SF50 could do all of the
above, and could also create a sub-fractional
ownership business model that would be highly
attractive to the 4,500+ US, and non-US
potential markets. Cirrus are at a critical
tipping-point, operationally and commercially.
To succeed, they will need to execute their
program flawlessly, or risk allowing a second
competitor to emerge. At this point, Cirrus have
a good-looking value proposition, but still have
numerous opportunities to trip themselves up.
In business aviation, it helps to have an
attractive aircraft, to succeed, but I could name
a handful of highly-successful aircraft that
achieved segment dominance with an inferior
product, simply by executing better.
By the end of the year, I hope that Cirrus will be
delivering SF50's, and that they have the
people, skills, knowledge, financial resources,
market and competitive knowledge to make
certain that early owners have an outstanding
ownership experience.
5
market historical demand & insights
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
16
demand forecasting - flying a plane using the rear-view mirror!
Manufacturers were hailing increasing demand
from emerging markets, like India and China,
with leading manufacturers attributing 75% of
their backlog for popular aircraft types as having
been international in origin. As we got closer to
late 2007 manufacturers were heaping praise on
the emergence of demand from non-US or other
mature market sources, that had been in most
leading forecasts for several years. Standard Industry Graph: Useless!
The graph below is by far the most widely-used
by all of the industry forecasting companies
(Honeywell, Pratt & Whitney, Rolls Royce Aero
Engines). Early in my aviation career, I learned
about regression analysis, and using historical
demand for forecasting future demand. There’s
a catch! Firstly, this method breaks down fast
when the “future” market misbehaves: the
world’s greatest understatement used to
characterize more than seven years of recorddestroying demand and used business jet value
collapse! The 2001/2 downturn is clear to see at
the left-hand side of the graph. Although most
forecasters attribute the 2001 downturn to the
9/11 tragedy, the lead indicators we track were
already quite evident in the third quarter of 2000.
Even with the events of 9/11, the market
rebounded very quickly, in 2003/4 before going
through the strongest upswing in new jet
deliveries we have ever seen. In my newsletters, published between 2005 and
today, I expressed extreme skepticism at
international business aircraft orders. We simply
had no experience with buyers in these markets,
making it impossible to tell if a world-wide
economic downturn would cause a collapse in
backlog numbers, or not. My view, based upon
client feedback, was that backlog would
collapse.
The problem I had was simple: after two
decades spent tracking global markets for light
aircraft, aircraft support services (engine
overhaul and spare parts), and business jet
charter, fractional and whole aircraft sales, By 2007 manufacturers and industry “pundits”
were suggesting that the market surge would
continue until 2012, followed by a modest
downturn that would end in 2014.
I was quite certain that backlog from emerging
business jet markets would collapse, quickly. I
was right, in a rare example of my emotions
wishing for my analyses to be wrong.
Thousands of people lost their jobs. By 2008 manufacturers were forced to re-assess
their backlog volume, triggering the loss of
many billions of dollars in aircraft orders. Even
today, with several major manufacturers, like
Bombardier, Cessna and Embraer announcing
multi-billion dollar aircraft “orders” from Netjets,
we are seeing a fresh round of blindness to
historical events. Netjets have canceled major
aircraft orders before, with their 2002 order for
Citationjet 2’s, and a more recent order for 75
Hawker 4000’s as high-profile precedents.
Former Hawker Beechcraft executives have told
me that their bankruptcy was triggered by the
loss of the Netjets order for Hawker 4000’s.
Needless to say, we remain skeptical of this
graph, and it’s broad-brush approach to a
market that requires laser-guided precision! I
find it sad, and quite scary, that such a huge
industry, with unlimited resources available, has
failed to put in place robust forecasting and
volume predictors that I have developed, alone!
Ulta Long-Range Jets
Long-Range Jets
Large Jets
Heavy Super Mid-Size Jets
Light Super Mid-Size Jets
Mid-Size Jets
Super-Light Jets
Light Jets
Twin Turbo-Prop
Single Turbo-Prop
2000
2001
2002
2003
2004
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
2005
2006
2007
2008
2009
2010
17
2011
2012
2013
2014
fractional aircraft & major fleet companies
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
18
fractional aircraft ownership - the major US players pre-2010
164
88
80
12
8
70
65
113
111
8
7
115
86
7
7
62
55
Avantair
CitationAir
10
Flexjet Flight Options Netjets
PlaneSense
Sold to In-Service Percentage - Share Owners Only
Avantair
CitationAir
Flexjet Flight Options Netjets
Fractional Aircraft Repurchasing
The three graphs, above, show key operational data
that was last updated in 2009. Since then, providers
have seen their fleets shrink in size, with Avatar
going into bankruptcy. Sadly, the major fractional providers seem to be
taking a rather one-sided approach to their fleet
renewals. Even when their new aircraft types, like the
Phenom 300, oﬀer substantially-reduced operating
costs, little of the benefit seems to be oﬀered to
long-standing Netjets share owners. The result is
substantial improvements in both share-related and
operational margins, for Netjets, while their share
owners lose record percentages when trading their
used shares back to Netjets.
In the US, Netjets now operate about 409 aircraft,
and have announced their plans to replace virtually
all of their existing aircraft, world-wide, over the next
7-10 years. For the hundreds of share owners who
retain us, the news is not good. Used aircraft values
are starting to stabilize, but Netjets could not
possibly have chosen a worse time to be asking,
some might say “telling”, their share owners that
they must either leave Netjets, or transition into new
jets at 3, 4 or 5 times the capital requirement.
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
The fractional business model is one we have spent
over twenty-five years studying. We have developed
a new model for fractional services, which we are
converting into an investment prospectus. Upon
completion, we will see if there is any appetite for
existing providers to use a business model that
reduces their own costs, while also reducing costs
and risks for share owners. Existing providers argue
that this is not possible, but five minutes over the
telephone would be enough to prove that simply is
not so.
Fractional ownership isn’t a bad concept: quite the
opposite! It’s simply being badly executed…
19
2005
2006
2007
2008
2009
New Fractional Aircraft Deliveries (2004 to 2009)
Owner to Aircraft Ratio - Share Owners Only
Fractional Ownership: Key Metrics
Netjets, the industry leader in the US and Europe,
lost almost 100 US-based aircraft, and about the
same number of jets from Netjets Europe. Their
European fleet, however, started at about 180
aircraft, showing you the far greater impact that
downturns have in markets where business jet users
are less inclined to keep costly business jets when
their companies, or wider regional economies, start
to tank.
2004
PlaneSense
52
Netjets USA
Flight Options
Flexjet
CitationAir
Avantair
PlaneSense
30
76
83
504
99
market performance by aircraft category
Whether looking at infrastructure, tax and operational regulations, operational
restrictions, political momentum, alternative options, service costs, or any of
another dozen variable, it is impossible to accurately assess global demand for ANY
business aircraft. Our research has long monitored limitations, and trends, regarding
business aircraft applications in key usage categories, which define the true market
potential we can use for forecasting purposes. Today, too many forecasters, and
especially those produced by financial institutions and companies who don’t go to
the trouble of understanding the realities of each segment, in each geography. This
is where our insight is essential. We tap hundreds of contacts, in every significant
market, globally, to keep us updated regarding the market, and the environment
available to business aircraft users.
Category Demand - What Our Subscribers Receive
Our actual report provides additional details, by aircraft type. We discuss hard
number diﬀerentials between current aircraft types, versus future programs that are
under-development, or are expected to be announced during our 3-5 year outlook.
Segment performance is measured in terms of volume, margin, channel coverage,
geographical potential, and short, medium, or long-term game-changers. Our nondemo version provides these additional details, which have a profound impact on
existing aircraft categories. Utility turbo-props are attractive to a wide range of buyers. Companies, like FedEx.
FedEx operate a fleet totaling 667 aircraft, including a staggering 112 Boeing 757’s,
71 Airbus A300’s, 60 MD-11’s, and 243 Cessna Caravans. At present, the Cessna
Caravan is the ideal aircraft for high-volume, low weight freight use, out of smaller,
regional airports. As an indication of the depths we go to in researching demand,
the US remains one of very few countries that allow the commercial operation of
single-engined aircraft for night-time IFR (instrument flight rules) flying. While
analysts might believe the night freight business, in emerging markets, will strongly
boost demand from this category of aircraft, you need to understand market
realities. These can involve operating regulations, air traﬃc control coverage for
night-time operations, and the alternative options available in many key markets, In
Europe, for example, the UK postal service taps airliner capacity for urgent
packages, all the way down to using high-speed rail services, that oﬀer similar
speed to the airlines, with the ability to deliver packages closer to high-demand
cities.
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
Our annual subscription adds details that that are critical in assessing market
potential, and performance, for each category and aircraft type. Considerations can
become very intricate. For example, we found, via research, that one fleet operator
of a leading large jet selected a slightly smaller, and brand new design, because the
older design could not make short flights, when starting with full fuel tanks. The
older design was favored for cabin size, but was unable to oﬀer a variant for such
shuttle services, because there was a 12,000 pound diﬀerence between the
maximum take-oﬀ weight, and the maximum landing weight. This often happens
with designs that are “upgraded” over many years. Manufacturers are readily able
to get take-oﬀ weights increased, using the original testing done on the undercarriage and the wing. However, with the stress associated with landing an aircraft,
manufacturers rarely get approval to increase maximum landing weights. This,
seemingly ridiculous, item illustrates why industry experience is so important!
20
single-engine turbo-props
2005
Historical Category Deliveries
186
Cessna Caravan Family
Pilatus PC-12
Piper Meridien
TBM 700-900 Familt
Model Deliveries (2006 to 2009)
190
2006
186
2007
147
2008
2009
173
2010
174
235
2011
280
2012
342
2013
227
2014
0
70
140
210
2005
280
2006
Segment Demand Insight
Segment Outlook & Upcoming Entrants
Segment demand has remained strong, with steady
growth since 2010, driven by the unusually wide array of
distribution channels being tapped by Pilatus, the highperformance TBM-900 and the widely-used Cessna
Caravan family of utility turbo-props. Utility segments
have continued to grow, with the addition of China,
India and former Soviet countries needing aircraft that
can be used for freight, people moving, air ambulance,
regional government and in other industrial sectors,
such as utility power-line inspection, pipeline
construction, and flight operations into short, or
unpaved airfields that are often little more than dirt
patches or grass. In more mature markets, the faster
PC-12, TBM-900 and Piper Meridien have each traded
upon cabin volume (PC-12) or near-jet cruise speeds
(Meridien and TBM-900) to sell well with high-end
owner-pilots who have chosen to transition out of piston
designs. To summarize, turbo-prop singles have very
wide applications, from FedEx package deliveries,
through Australian flying doctors, to private pilots who
want a flexible aircraft to use.
I expect continued growth among utility and freight
users, especially in emerging markets, where the need
for regional travel exceeds the number of available
airports. Such utility use will be oﬀset by the migration
of owner-pilots into a brand-new aircraft category: the
Cirrus SF50, a single-engined jet, which is slated to
commence deliveries this year. With the price of the
Piper at $2.2 million, the Pilatus at $4.55 million, and the
TBM-900 at $3.7 million, all three designs will lose
volume to the Cirrus SF50, which is priced at just under
$2 million, and with an estimated backlog of 500+
aircraft. With it’s dorsal air intake, I would expect Cirrus
to oﬀer a rough airfield kit to help buyers take
advantage of the superb airfield performance oﬀered by
the Cirrus jet. With the financial backing of a Chinese
parent, I would expect to see Cirrus split production,
between their Duluth HQ, and, most likely, China, where
we see continued strong growth of flexible singles,
especially the Cirrus, which oﬀers speed, a large,
comfortable cabin that seats seven, low hourly costs
and tremendous role flexibility.
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
2007
2008
2009
2010
2011
2012
2013
2014
350
21
Growth Drivers
Broad geographical demand
Multi-channel appeal
Tapping strengthening owner/
pilot segment in USA.
Strongest Competitor
TBM-900 since 2011
PC-12 strong since 2005, but
each over-priced.
Weakest Competitor
Pilatus & TBM900 vulnerable
on price with emergence of
Cirrus SF50 late 2015/6
Segment Threats
Cirrus SF50 (Very Strong)
New King Air model long
overdue: hinted by Textron.
Potential For Growth
(3-5 Year Outlook)
Segment will over-perform with
expected volume above 300
units for 12-24 months.
market performance by major aircraft manufacturer
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
22
embraer aircraft deliveries
2000 To 2014
125
94
63
31
Phenom 300
Phenom 100
Legacy 500
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Cumulative Aircraft Deliveries By Type
21
24
14
2000
2001
2002
16
18
20
20
19
17
13
11
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Manufacturer Market Percentage Market Share Of Deliveries
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
23
embraer aircraft details
Aircraft Type
Phenom 100
Phenom 300
Legacy 500
Compare Five-Year or Three-Year
Residual Values Of Leader
Year Entered Service
Number Built
Price Versus Competitors
Maximum Cruise Speed
Range @ High Speed Cruise
Cabin Height & Width
Key Competitive Pro
Key Competitive Con
Margin Strength
Three-Year Program Deliveries
Versus Segment Leader
Segment Threats
Outlook
Short-Term (1-3 Years)
Medium Term (3-5 Years)
Long Term (5-10 Years)
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
24
embraer aircraft details
Legacy 450
Aircraft Type
Primary Versus
Segment Leader
Year Entered Service
Number Built
Price Versus Competitors
Maximum Cruise Speed
Range @ High Speed Cruise
Cabin Height & Width
Key Competitive Pro
Key Competitive Con
Margin Strength
Three-Year Program Deliveries
Versus Segment Leader
Segment Threats
Outlook
Short-Term (1-3 Years)
Medium Term (3-5 Years)
Long Term (5-10 Years)
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
25
embraer aircraft editorial
Aircraft Models
Commentary Covering Learjet & The Learjet 70/75 Models
Embraer Business Jets
Embraer started to deliver business jets in 2008, and have quickly taken over segment leadership from
Cessna. Within two years of full production, they owned 40% of the very-light through super-light
segments. Embraer are also ambitious, with their Legacy 450 & 500 programs either entering service,
or close to this milestone. The 450 & 500 oﬀer large, stand-up cabins, impressive range points, runway
performance and baggage volume. These designs are an exact match to definitions I created in 2005,
so I am confident that they will take market share from the Cessna Sovereign and Gulfstream 150
Phenom 100
A capable intra-regional jet, oﬀering just under 5’ of headroom, and around 1,200 nm of range. I am
disappointed by the maximum cruise speed, at Mach 0.70. This is below the long-range speed of the
50 year-old Hawker 800 design. The design is not flexible enough for wide-spread fleet use. If the
Phenom 100 can de limited to regular 1-2 hour milk runs, it should sell quite well. At present, the
Phenom 100 competes against the Cessna Mustang, which doesn’t oﬀer the cabin cabin height (five
inches less with the Mustang, but is similar in range and speed capabilities. The Phenom 300 and
Cesna Mustang are likely to encounter stiﬀ competition from the upcoming Cirrus SF50.
Phenom 300
The Phenom 300 remains in the light to super-light segment. The cruise speed is an impressive 453
knots. The cabin cross-section oﬀers minor advantages over the Citationjet 4, but this aircraft will
attract strong fleet and single-ship customers, with almost 2,000 nm of range, a very large baggage
hold, and very low operating costs at high cruise speeds. The Phenom 300 has been purchased by
Netjets, Executive AirShares and Flexjet, in the US, which will make this type the default jet for three
leading fleet operators. The upcoming Pilatus PC-24 will compete well with the Phenom 300, oﬀering a
longer cabin, and an excellent combination of speed, range at speed, and airfield performance. With
2013 pricing set at $9 million, the PC-24 should also be price-attractive.
Competitive Outlook
Competitive Outlook: Increased market share for 1-3 years, with increasing market share, and margin,
pressure when the Pilatus PC-24 enters service. Cessna will have more margin to play with, given the
derivative design of the Citationjet 4. Early indications suggested that Embraer might increase output
to 10 Phenom 300’s per month. I have a more conservative take. Combined Phenom 100 & 300 might
approach 10 per month, but Embraer will need to be careful with the market: if they allow fleet sales
and deliveries to increase above 10-20% of total production, they will create surplus used aircraft
entering the market over the next 5-10 years. With the PC-24 expected to enter service in 2017, and
with Cessna’s Citationjet 4 competitive-enough for Cessna to fight for volume, the Phenom 300 should
be able to maintain production rates of up to 8 per months, for the next 18-24 months, after which their
competitive position will weaken. They should also try to keep fleet sales below 25% of production, to
avoid flooding the used market with used aircraft when the next market down cycle kicks-in.
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
26
market share trend by major aircraft manufacturer
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
27
trends in manufacturer market share
2000 To 2014
OEM
OEM
OEM
OEM
OEM
OEM
1995
1996
1997
1998
1999
2000
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
2001
2002
2003
2004
2005
28
2006
2007
2008
2009 2010 YTD
6
5
4
3
2
1
used business jet market metrics
© Copyright 2015 Michael C Riegel (AviationIQ) - All Rights Reserved
29
used aircraft market trends
09/2014 to 02/2015
Fleet operators, as with the fractional industry, held
back with replacement programs, resulting in aging
fleets they started to dump as share owners exited
their shares. We had a perfect storm, with rapid
increases in used aircraft for sale, collapsing
demand for new and used aircraft, all of which
caused used jet values to go into free-fall.
During past market cycles, used values, for the most
popular aircraft types, have remained within 60-70%,
or higher versus the prices that were charged when
these aircraft were new. Today, this situation has
changed, drastically. For example, the popular
Challenger 300, now replaced by the upgraded
Challenger 350, can be purchased used for wellunder $8-9 million. The new price is presently above
$24 million, making used Challenger 300’s an
outstanding opportunity for aircraft buyers. To be
blunt, with engine and spares insurance, and a
realistic 30-year life, I would struggle to recommend
a new Challenger 350, or almost any new aircraft,
when used examples are available for 1/3 to 1/4 the
cost, with all of the advantages they had when new.
Today, we continue to wait for signs that used jets
are selling more quickly (see the curve for “days on
market” below. We also track used transactions, to
see if used inventories are being reduced at
increasing rates. Finally, we carefully track used
aircraft pricing, using transaction prices we receive
every month from the Aircraft Price Digest Blue
Book, and their quarterly value updates that are
often slightly out of sync with the actual market
20
15
01
4
y
ua
r
br
nu
a
ry
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15
Fe
N
Ja
14
20
ob
be
em
pt
Se
er
r2
20
15
y
ua
r
br
Fe
Ja
nu
a
ry
r2
m
ce
De
em
ov
N
be
be
er
ob
ct
O
01
4
r2
01
4
20
01
4
r2
be
em
pt
Se
r2
20
be
300
m
45
ce
375
De
70
be
450
em
95
01
4
525
20
15
120
14
600
r2
01
4
Monthly Used Aircraft Transactions Per Month By Size
ov
Average Days On Market Trend By Aircraft Category
ct
All of the providers of business aviation market
analysis, especially forecasters, largely ignore used
aircraft activity. I don’t. In the years leading-up to the
2008 new aircraft demand collapse, the used market
had been behaving in ways we understood. During
the 2001-2003 downturn, used aircraft values fell by
an average of some 15%, and used aircraft volumes
stayed within the parameters we were used to
seeing, with modest variations. By late-2007, it was
obvious that used aircraft volumes were climbing
steeply, while manufacturers were still maintaining
production rates that crashed, hard, during the next
two years. The manufacturers made some bad calls.
Used Market Impact On New Sales
O
Used Aircraft Recent Days On Market
Large Jets Recent Transactions Per Month
Medium Jets Recent Transactions Per Month
Light Jets Recent Transactions Per Month
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