Top brokers discuss global business jet market prospects

Yuvan Kumar
By Yuvan Kumar December 4, 2018 15:37

Top brokers discuss global business jet market prospects

Despite the emergence of strong growth rates in private business aviation in Asia and elsewhere, Europe and North America still represent over 90% of all private flight activity. Of this, however, Europe only accounts for 20%. Asia and the rest of the world might be growing strongly, but off comparatively small bases.

According to the latest AMSTAT figures, there are 2,580 bizjets in Europe, stacked against 13,706 in North America. And even though there has been a surge in the European charter market — a 10% jump in 2017 — something is amiss.

So really, the question is: When will Europe’s business jet market boom? Moreover, will it ever be on par with that of North America?

America has always dominated the world market in business jets – primarily owing to geography, aviation regulation and, now, tax codes. Yet, two American brokers find themselves selling business jets in Europe.

Corporate Jet Investor spoke to Oliver Stone, Director, Colibri Aircraft Ltd; and Steve Varsano, the founder of The Jet Business, to hear their views on the European market, buyers and prospects in the near future.

 

 

Corporate Jet Investor: Where do you think the European market is headed at the moment?

Oliver Stone: Europe is actually increasing activity wise. It’s up by 5% from last year in terms of deal flow. We’re seeing much more demand for newer planes coming through here. Pre-owned planes are harder to buy, just because of the nuances of European certification. So, I think we’re going to see a lot of people migrate towards the newer ones that can be made in Europe.

Steve Varsano: I think that the market is a little better than most people think. You take out a couple of the countries which are not in great condition, but it’s really not very dependent on the country. It’s more about the people in the industries in those countries. And I actually think the activity level and the charter market have gone up. But in our business — the sales side — we see good activity.

 

Corporate Jet Investor: There’s always talk about America being a booming market for business jets. So, when do you think, realistically, Europe will boom?

Oliver Stone: The real reason the United States is booming is just because of scale. The States accounts for 70% of the jet fleet. And in terms of transactions, about 80% of these are American buyers. So, when you say boom in terms of actual units, Europe will never come close to that.
But just from the organic desire of people to own planes, we are seeing that increasing. It’s kind of happening now.

Steve Varsano: Well, that’s a real crystal-ball question. But if Europe continues to break up, that actually might be more positive than negative for our industry. Europe has always been 15% of the global market. And as the global market has been growing, that 15% is becoming 15% of a bigger number. It’s been quite steady, it hasn’t spiked and it hasn’t crashed.

 

Corporate Jet Investor: What’s the biggest difference between buyers in America and Europe?

Oliver Stone: The biggest difference is how planes are operated. Europe is far more regulated than the US, and it’s very common in the US for a high-net-worth guy to have a plane. He has a pilot and that’s how they operate it. He doesn’t need any of the background stuff you need in Europe. We see a very strong relationship with operators, because the regulation on flying is horrendously intense. And it pushes people to give it to a professional, and our recommendation is to do just that. It just makes life easier for you. Add to that, there’s tax benefits to having you jet with an AOC operator, both in terms of VAT and import operations. That’s the difference – Europe is more professionally managed, the US is much more privately managed.

Steve Varsano: The American market has been into corporate jets since 1963, so they’ve been around a long, long time and people understand the market. But the most obvious thing is, In America, it’s like driving a car. I mean you just get to the plane, you get on it and you file a flight plan almost as you’re taxiing out – it’s so simple. You can land anywhere. In Europe it’s much more difficult. It’s harder to get clearances, slots and parking. And it’s always been harder to own and operate your own airplane and that’s been a big impediment for European buyers versus American ones.

 

Corporate Jet Investor: What kind of buyers are we seeing now? New or existing?

Oliver Stone: Most are existing. We have a lot more interest from new buyers, but still the most-frequent buyer is a current owner of an airplane. Just because they know it, they’ve understood the cost involved in it, they’re usually a lot more comfortable buying another one. When times are good, as they are now, we see a lot more new buyers saying, ‘I want to buy a plane.’ But obviously a lot of them don’t when they look at the math around it. The ones that do and who are well-educated getting into it usually stick around and buy more of them.

Steve Varsano: I would say 20-25% of the buyers today are new, which is probably more than there were before. In the old days, you would get somebody who would start in a turboprop and then move into a small jet and so on. But in the last 10-15 years, there’s been a lot of quicker wealth made by a younger clientele. These people jump right up to the big airplanes!

 

Corporate Jet Investor: With the end of year fast approaching, what do you forecast the market will look like next year?

Oliver Stone: That’s a bigger macroeconomic question. As long as we don’t have a macroeconomic recession, I think things will continue much on the same trend we currently have; which is, a decrease in supply. Right now, the biggest supply shocks have been in the newest airplane types. As people realise they can’t buy the airplanes they want, they’ll migrate down to slightly older and even-older airplanes. And then prices will start to increase more rapidly on the newer planes and you’ll start to see an increase on the older side – if things are the way they are. If the world hits another recession, all bets are off. I think the tax incentives are still there, until 2020 or 2021, I think, the depreciation rules still exist. That will be a huge impetus for people to buy a jet and so we’ll see that continue to have a big effect and the supply will continue and we’ll still see a pretty high level of transactions — assuming we don’t hit a recession.

Steve Varsano: In the pre-owned market, it was much stronger in the second half of this yea. And I think that in 2019 you’ll see that same sort of momentum. Not growing, but continuing. Even though the US economy is on fire and though Americans account for 60-65% of the market and the pre-owned market today, there are so many negative things happening around the world. And in our business, there is nothing that can happen in this world that is going to make our market any stronger. Because it is really firing on all cylinders.

There are too many bad things in the world, and the political environment is just ‘off-the-chart’ crazy. There are lunatics running different countries around the world. There is no stability anymore, so who knows what’s going to happen. These people putting up 10-year forecasts, I mean toilet paper would be much more productive!

Yuvan Kumar
By Yuvan Kumar December 4, 2018 15:37

One Minute Week Newsletter