It is almost a daily routine that every major airline is cutting back as costs for jet fuel skyrockets. Continental Airlines (CAL) on Thursday became the latest carrier to announce major layoffs, flight cuts, and retiring old while delaying delivery for new aircrafts, following JetBlue (NASDAQ:JBLU), American (AMR), Delta (NYSE:DAL), and United Airlines (UAUA). This sure is bad news for Boeing (NYSE:BA) and Airbus, the suppliers of such aircrafts for commercial airlines.
High jet fuel costs could mean stronger demand for business jet planes, however.
When commercial airlines increase their price and cut flights, routes, and services, traveling by plane means larger crowds, more transfers, more waiting, more expensive, and poor services. A private or shared plane becomes efficient and more cost effective transportation and fuel costs become a no issue for those business jets owners/buyers. These are not regular Joes purchasing business jets. Instead, it is the corporation executives, the oil tycoons from Middle East and Russian. Now, the new riches from China and India are joining the waiting list. The impact of the ecumenical downturn in the US is more than compensated by the booming world economy.
All business and small jets manufacturers, Bombardier (OTC:BDRPF), Gulfstream, and Textron (NYSE:TXT), have been reporting increasing demands for their smaller planes despite a downturn in the world economy. Bombardier's quarterly profit nearly tripled as aircraft deliveries rose with a big-time backlog for decades, prompting it to reinstate its quarterly dividend. Gulfstream Aerospace said on Wednesday that the demand for business jets remains strong, despite a downturn in the world economy. Cessna, the “Best-Selling Private Jets” with the “lion’s share of sales” (BusinessWeek) and a Textron (TXT) subsidiary, wrapped up the eighth annual European Business Aviation Convention & Exhibition [EBACE] last week in Geneva, Switzerland, with 88 new aircraft orders totaling nearly $750 million.
In such a crowded market, ironically, most jets purchased recently have seen an increase in market value and a used personal jet sometimes becomes even more expensive than the new order/delivery -- a rarity for the industry.
According to Hurried Moguls Put Premium on Used Jet, by David Pearson, June 2, 2008, Wall Street Journal:
The (secondhand personal jets) market is partly driven by surging economic activity in the Middle East, Russia and other fast-growing areas that is boosting prices for oil and other resources and creating interest in private jets from billionaires such as Russian oil-magnate Roman Abramovich. Such super-wealthy people don't want to waste time standing in line or suffer the overbooking and security inspections that nettle most airline travelers. Demand from these new moguls, coupled with changes in the European corporate culture making it more palatable for executives to travel in company-owned planes, have driven an unprecedented rise in corporate-jet sales since 2003. In 2007, deliveries of business jets topped 1,000 for the first time, and in the first quarter of 2008 they rose 41%, according to General Aviation Manufacturers Association. New orders rose to just under 1,800 aircraft in 2007. With orders outstripping deliveries by a wide margin, and manufacturers unable -- or unwilling -- to ramp up production to meet demand, the delivery backlog is stretching out until well into the next decade, especially for large, long-range aircraft.
Moguls who have made their fortunes in a couple of years aren't willing to sit around waiting five years or more for a brand-new Gulfstream 550 -- made by a division of General Dynamics Corp. -- or a Dassault Falcon 7X made by Dassault Falcon. Other private-jet makers include Montreal-based Bombardier Inc., which makes Learjets; Brazil's Empresa Brasileira de Aeronáutica, better known as Embraer; and Cessna Aircraft, a unit of Textron Inc. European Aeronautic Defence & Space Co.'s Airbus and Boeing Co. also do a thriving trade in private-jet variations of their airliners. ……
Matthew Hartnett, vice president for preowned aircraft sales at General Dynamics' Gulfstream corporate-jet division, agreed that the market has become topsy-turvy. A brand new Gulfstream G450 sells for about $40 million, but a used one can easily fetch 10% more than that, he said. "That's because you can fly it next month, instead of the first quarter of 2013," Mr. Hartnett said.