A rebound in the luxury-jet market is gaining steam as more well-heeled customers turn to private flying because of the coronavirus pandemic, said the bankers who cater to buyers of business aircraft.
A pick up in demand for used planes in the second half of 2020 is carrying over into this year, powered in part by first-time purchasers, said executives from Credit Suisse Group AG, BNP Paribas SA and other lenders. New gains are likely later this year as vaccination efforts spur corporate demand, bolstering the outlook for an industry that was bracing for the worst less than a year ago.
“Looking back we had a very good year and much, much better than expected,” Werner Slavik, chief of aviation for the equipment-finance unit of Societe Generale SA, said at a virtual Corporate Jet Investor conference last week. “We saw, especially in the smaller jet market, quite strong demand.”
Travel restrictions have reduced the need for larger jets that can cross oceans. Meanwhile, an uptick of first-time purchasers ventured into private-aircraft ownership at the lower end of the market, which is where they usually start, the bankers said. Leisure trips are driving demand in the pandemic, as more of the world’s wealthy travelers opt for private flights instead of premium seating on jetliners.
“The crisis has obviously shown the value of this business jet sector compared to commercial aviation,” said Marie-Laure Gassier, a senior credit adviser for jet and yacht finance at BNP Paribas. “It has brought also new customers to the market.”
The bankers expressed surprise at how quickly private aircraft financing has recovered. Deals for used planes actually rose slightly in 2020 from the previous year to 2,598 transactions, according to a Jetnet iQ report.
Buyers’ appetites for planes built a decade ago or less squeezed the supply of so-called “young” aircraft. That bodes well for manufacturers once the virus impact dissipates and companies begin renewing their fleets. Production cuts last year by companies such as Bombardier Inc. and Textron Inc.’s Cessna, helped shore up plane values.
The private-jet market is still feeling the effects as corporate executives fly less. Textron delivered 132 jets last year, down from 206 a year earlier. General Dynamics Corp. shipped 127 Gulfstream aircraft, 20 fewer than in 2019. And U.S. business-jet flight operations fell 23% last year.
Still, that operational decline was much shallower than the 74% plunge in April, reflecting the rebound later in the year. JetHQ, which brokers aircraft sales and has its U.S. headquarters in Kansas City, Missouri, was “cranking out” deals in the fourth quarter, said Rebecca Johnson, president of the broker’s operations in Europe, the Middle East and Africa. The momentum has carried forward into this year, with the U.S. driving most of the sales.
“We have a lot of first-time buyers,” Johnson said. “Covid has just seemed to drive most people over the edge.”
For now, buyers are mostly motivated by leisure travel rather than business trips. That will change as countries open up, said Robert Gates, chief of international sales for Global Jet Capital Inc. Commercial airlines are expected to take years to rebound to the number of pre-Covid flights and the well-heeled aren’t willing to wait.
“You can’t go on vacation on Zoom,” Gates said. “You need to get to your vacation house some way.”
Source Bloomberg