Summary
While we're delighted that Cessna feels the business jet industry has hit bottom, we think it's still a little early to proclaim this. The industry has historically high numbers of used inventory to sell before customers return to the new airplane arena. The economy, credit situation and negative public perception of business aviation must also improve before buyers are comfortable enough to part with potentially tens of millions of dollars for a new jet.
Analysis
According to our proprietary 10 year forecast by manufacturer and aircraft model, the business jet manufacturers won't recover meaningfully until much later than Cessna's prediction. Nearly 1 in 5 of the world's active business jet fleet is currently for sale including young, desirable models which compete directly with new aircraft. In addition owners are selling dozens of "delivery positions" -- brand new aircraft right off the line which they do not want to own anymore.
The manufacturers can't hope to sell new aircraft in quantity until availability of both used aircraft and delivery positions greatly diminish. They must also sell any "white tails" -- aircraft that were built but still haven't been sold to anyone.
The economic market drivers of business jet sales have vanished over the last several months and are not expected to improve significantly in the short term. This has been exacerbated by our friends on Capitol Hill publically humiliated the auto makers' use of private aircraft, further depressing an already clobbered market.
We've estimated backlog cancellations for the industry as well as by individual manufacturer. Suffice it to say the rest of the year will be spent by OEMs trying to keep the wheels from falling off the current order book. This is not helped by a lack of aircraft financing, with Cessna's own captive finance unit now in jeopardy due to Textron's ineptitude.
We appreciate Cessna's optimism but feel it's a premature to break out the champagne just yet. In fact we feel there's the real potential for consolidation amongst the "Big 6" business jet manufacturers and have specific thoughts on who this might be.
