Fractionals Boost Market

AlliedSignal's five-year world market extrapolation for new business jet deliveries is up 2.8 percent over 1997's results, the company says. More than 1,000 flight departments were surveyed. Market expectations increased in North America, remained stable in Europe and declined in Latin America.

Purchase expectations have remained consistently high for three years, reflecting regional economic strengths, operators' optimism regarding the economic future, and strong interest in new models, which, in this year's survey, accounted for nearly 40percent of all jets mentioned for purchase during the next five years.

Fractional ownership plans for business aircraft continue to grow dramatically at double-digit annual rates, expanding the pool of aircraft owners well beyond the historical operator population. Only a small fraction of this total potential market has been developed to date.

Participation in fractional ownership plans by traditional corporate operators is relatively limited, however, as the survey notes only a modest increase in interest in fractional ownership plans by traditional corporate flight departments, not enough to indicate any significant shift in purchasing patterns.

North America remains the strongest and largest business jet market, with operators saying they will replace or expand the equivalent of about 28 percent of their existing jet fleet with new aircraft during the next five years. This year's survey data indicates that over 80 percent of all new jets will be sold in North America during the next five years. This level represents slightly over a 5 percent increase in the share of purchases projected for North America in 1997's survey.

The other two regions surveyed-Western Europe and Latin America-reported mixed trends in new jet purchase expectations for the next five years.

In Europe, operators hold roughly the same outlook as a year ago, but express concern over the future of their economies. A universal concern among European operators is the move to a common currency and the potential exchange rate impacts on aircraft cost. Operators in France and Southern Europe also reported high unemployment as a concern. European operators say they expect to expand or replace the equivalent of slightly more than 17 percent of their current jet fleets in the next five years, compared with 18% last year.

In the 1997 survey, 35 percent of European operators reported higher aircraft utilization, up from 22 percent in 1996. This year that fraction increased again, to 41 percent.

Economic and political concerns also differ by country in Latin America. Despite two years of steadily increasing purchase expectations, overall new aircraft replacement and expansion plans declined in the current survey. Latin American operators expect to replace or expand the equivalent of 14 percent of their current aircraft fleets with new jets during the next five years, down from the 22 percent rate reported in the 1997 survey. Impending elections as well as uncertainties regarding the banking systems in several countries were cited as some of the reasons for the more cautious outlook in Latin America.

In Asia, results are somewhat disappointing due to current economic difficulties, but some optimism remains for the prospects of long term business aviation growth in this region. Since 1990, the Asian business jet fleet has been growing at an annual rate that parallels the region's overall economic growth, which indicates slow but steady penetration into a potentially enormous market. During the 1990 to 1997 period, the Asian economies grew at 7.7 percent compounded, while the region's business jet fleet grew at 6.7 percent per year.

This relationship is expected to continue during the forecast period. The Asian business jet fleet is expected to grow at approximately 3 percent per year from 1999 to 2009, compared to the region's economic growth potential of 3.6 percent per year. This compound growth rate suggests that the Asian business jet fleet, which has approximately 460 aircraft now, will increase to over 600 aircraft by 2009.