In its Q1 Business Aviation Market Brief, Global Jet Capital finds that the business jet market continued to normalise following record high utilisation and demand post COVID. Flight operations were above pre-COVID levels; OEMs reported strong backlog growth; and inventory remained low, especially for younger, more desirable aircraft. As things stand, the industry is well positioned, it says, to weather any future economic downturn.

Many economists have raised their forecasts for 2024, but challenges to future growth persist. Flight operations declined two per cent year-over-year in 1Q24 but were 16 per cent above Q1 2019 levels, reflecting an enduring expansion in the user base for business aviation. OEM book-to-bill ratios were around 1.3-to-1 with backlogs growing, demonstrating continued demand for new aircraft. Transactions declined due to slower-than-expected new deliveries (attributable to ongoing supply chain and labour issues and delays in aircraft certification) and price-driven inertia between buyers and sellers in the pre-owned market. Aircraft inventory increased, but a split between older aircraft and younger aircraft has emerged. Older aircraft inventory continued to increase, while inventory of younger aircraft has been stable for three quarters. Most aircraft models, however, continued to experience depreciation in line with historical norms, although, younger aircraft have been more stable than older aircraft.

Economic growth is expected to slow slightly from a surprisingly strong 2023. Many of the headwinds that affected the economy last year remain, including wars in Ukraine and Israel, high interest rates and persistent inflation. Other factors that may negatively affect economic growth this year include continued de-globalisation and trade conflicts, major elections in countries making up 38.1 per cent of global GDP, structural growth challenges in China and disruptions in Europe. There are some notable tailwinds as well. East Asia, South Asia and Central America are expected to experience strong growth in 2024, the Eurozone has begun to recover from slow growth in the second half of 2023, and China remains resilient despite challenges. And although the US experienced slower GDP growth and surprisingly strong inflation in Q1, both appear to be correcting in early Q2. The global economy is expected to remain stable in 2024.

Flight operations declined 1.9 per cent from a year earlier. Declines occurred around the world due to continued normalisation of usage in the US and Europe, as well as geopolitical threats in Europe, the Middle East and Africa. Fractional operators remain the strongest segment in the market and continue to demonstrate strong growth and sustained demand.

Even as departures declined year-over-year, demand remained above pre-COVID levels. 1Q24 departures were 15.7 per cent higher than in Q1 2019, continuing a trend from 2023 when departures were 15.1 per cent higher than in 2019. In 2023 and early 2024, some passengers who utilised business jets in the post-COVID recovery period returned to commercial airlines - a trend that was widely anticipated. However, due to the industry’s inherent value proposition of personal safety, flexibility, productivity and comfort, there has been a systemic expansion of the user base, with a substantial proportion of these new users continuing to utilise business aviation in 2024. As such, flight operations were lower than the peak witnessed in 2022, but higher than pre-pandemic levels with steady and sustainable growth expected going forward.

OEM backlogs increased 4.8 per cent year-over-year to $46.4 billion (excluding Dassault which does not provide quarterly updates). While industry-wide orders in Q1 were lower than the high levels in 2022, they were 32.4 per cent higher than in Q1 2023. Strong orders were driven by high demand for business jets and continued low inventory of young pre-owned aircraft. At the same time, revenue (largely driven by deliveries) increased only six per cent year-over-year. While Q1 revenue was strong, it was not as strong as many OEMs expected. As a result of high orders and lower than expected deliveries, book-to-bill ratios were 1.3-to-1. These levels were higher than many industry observers expected, not to mention expectations from the OEMs themselves. Going forward, OEMs expect book-to-bill ratios to remain around 1-to-1 this year.

Preliminary data shows that new deliveries held steady compared to Q1 2023, while pre-owned transactions continued a trend of decline (although pre-owned dollar volume increased).

The pre-owned market continues to suffer from economic uncertainty (despite stronger than expected growth) as well as inertia between sellers looking to maintain post-pandemic value gains and buyers waiting for values to return closer to historical levels. 'Higher for longer' interest rates have also affected demand on the margin. Newly certified models making their way into service may create more liquidity in the pre-owned market, driving up transactions. As an early indication, many brokers reported increased user activity in Q1 that may lead to more sales later in the year.

Continuing a trend that started in the latter half of 2022, aircraft listings increased in Q1. While increases in late 2022 and early 2023 benefitted from comparison with very low levels of listings in 2021 and early 2022, listings of older aircraft drove the increase. Listings of 13 year old and older aircraft rose 11.4 per cent, compared to only 4.3 per cent for 12 year old and younger aircraft and 9.3 per cent for the whole market. Aircraft older than 16 years increased at an even faster rate of 22.6 per cent. This is a natural outcome of the high degree of activity in the older segment of the market during COVID since the market is now stabilising.

Inventory levels ended the quarter at 7.1 per cent of the total fleet. Inventory for the whole fleet was higher than the historical low point of 3.1 per cent at the end of Q1 2022 but still below average levels of 10 to 11 per cent over the last decade. As with aircraft listings, the increase in inventory was largely driven by older aircraft. Inventory is expected to continue to increase due to additional listings of older aircraft. However, continued demand for newer high-quality aircraft should keep overall inventory numbers from reaching the historical average of 10 to 11 per cent in 2024.

As inventory increased, so price negotiations between buyers and sellers became more balanced. As a result, average business jet bluebook values declined 1.1 per cent in Q1 2024 compared to Q1 2023 following two years of value increases.