Teal Foresees a Slight Market Trough But Warns Business Could Get Worse

"Everybody's taking a long position on the economy." That's why, says aerospace analyst Richard Aboulafia of Virginia's Teal Group, business aviation leaders are able to downplay the current economic slowdown.

Aboulafia, for the most part, agrees, reminding the industry that even with a significant business jet production decrease expected next year, "the worst years of our forecast period will be better than any year before 1999."

But there's a major caveat. "The economic downturn is looking a bit more long-lived than we like," Aboulafia says-which could spell bad news for manufacturers' order backlogs. "I think you can see the rug pulled out of the market just as fast as with commercial jetliners," he told Show News.

Now that NBAA's been postponed following the atrocities in New York, there's more uncertainty than ever. Recession, reduced capital outlays, reduced business travel, all loom larger.

On the other hand, one of the the key attractions of business aviation, executives' desire to avoid delay, will be more significant than ever, bolstered by a new desire to avoid the risks associated with public infrastructure.

"The bottom line is that I think it's going to help the market," Aboulafia said six days after the World Trade Center events. "The market is effectively insulated from any shocks related to last week's attacks."

The new questions, he says, involve security and the possibility of restrictive regulations.

Teal still predicts production of 728 business aircraft this year, worth some $10.91 billion, followed by a slight production trough until 2007, when output will rise again to 735 units. Overall market value won't match this year's at all this decade, Teal opines.

"The current years represent an all-time market peak, but our forecasted downturn is fairly minimal," says Teal's latest business air-craft market overview. "Backlogs are strong, and while aircraft values are falling, they are not collapsing."

To be specific, Teal predicts production of 6,896 business jets worth some $94.4 billion (2001 dollars) over the coming decade. Nearly half, or 45%, will be high-end models.

Teal further forecasts that 225 corporate versions of regional airliners and jetliners will be built during the period, and that those often even larger craft will be worth some $7.9 billion.

Compare those forecast numbers with the tally for the previous ten years, which saw production of 4,198 business jets worth $54.3 billion (2001 dollars): "The market has grown by over 70%," Teal says.

Bombardier, which Aboulafia likes to call "the gorilla," will have 25.5% of the market over the next ten years, while Gulfstream, now that it's absorbed Galaxy, will be a close second with 25.1%. Bombardier's Global Express is facing a special challenge, he says, now that Gulfstream has launched the GV-SP.

Dassault Falcon Jet will be number three, Teal says, with a market share of 18.9%, followed by Cessna with 17.2% and Raytheon with 11.5%.

Aboulafia notes that just as fractionals have helped take the current market to its dizzying heights, they could hasten a decline.

"Anything with fractional ownership exposure is at greater risk," he says.

Fractional buyers can push hard for airframe discounts, a trend that could grow as airlines get involved. "Profitability is a huge issue," he says, and tighter margins could make for further industry consolidation.

Dassault would be a good fit with either Cessna or Raytheon, Teal suggests, "either way creating a new colossus." If Sino-Swearingen makes a go of its new SJ30, the low-end jet "would be a nice enhancement for General Dynamics (Gulfstream) or Bombardier," Teal says.

Aboulafia's got an opinion on a future supersonic business jet too, linking it to Boeing's move toward a near-sonic jetliner, the radical and attractive Sonic Cruiser. An SBJ, says Teal's Aboulafia, "is just a matter of time, for market and technical reasons."

"Boeing's Sonic Cruiser proposal, if it materializes, would make the SBJ inevitable and necessary," he concludes.

-Rich Piellisch