400 regional corporate jets projected by 2018

As the aviation world stands up and takes notice of two emerging Asian players – China and India – the Middle East too, is catching up as far as business jets are concerned, said industry analysts.

The Middle East currently constitutes around six per cent of the global business jets market and will need more than 400 business jets by 2018, of which more than 200 business jets will be needed by 2015, said a senior analyst at Frost & Sullivan, the global business research and consultancy firm, in an exclusive interview with Emirates Business.

When asked about deliveries of business jets in the region, John Siddharth CP, Team Leader, Aerospace and Defence, Frost & Sullivan, said there was good potential in the market. "Between 2010 and 2018, 415 new business jets are expected to be delivered. [Of these,] 223 business jets [are due for delivery] between 2010 and 2015, valued at about $3.89 billion (Dh14.28bn)," said Siddharth, who tracks aerospace trends in the Middle East, Africa and India.

Healthy growth for region

The business jet market globally is dominated by Europe and the US. However, lately, manufacturers are eyeing Asian markets, especially China and India. According to industry estimates, around 18,000 business jets are sold every year throughout the world. Clearly, with an expected surge in regional demand for business jets, several global players are taking serious note of the Middle East.

The Middle East's Compounded Annual Growth Rate (CAGR) too, looks positive. According to Frost & Sullivan's latest study on the sector, the CAGR in the region is expected to remain "healthy" till 2018.

"The expected CAGR for new deliveries is about 7.29 per cent during the study period, till 2018. The expected CAGR of the total fleet is about 6.7 per cent from 2008-2015 and deliveries in the Middle East can be segmented into three time frames," said Siddharth.

International analysts say globally business jets are in a challenging situation at present. A forecast by Richard Aboulafia, Vice-President, Analysis with Teal Group expects key demand drivers, economic growth and corporate profits, to recover in late 2010.

While globally players have been shifting their focus to the Asia-Pacific, the Middle East could account for about six per cent of total demand, said analysts. "The Middle East's demand for business jets typically accounts for five to seven per cent of the [total business jet] market," Aboulafia told this newspaper.

In the last report on business jets, Aboulafia wrote that recovery would start after 2012 and that the next five years would see 10 per cent CAGR. The report also pointed out that since recoveries in the past have generally been faster, so one could regard the present prediction about recovery starting from 2012, as a conservative assumption.

The 2003-2008 recovery saw a CAGR of 17.1 per cent. The 1991-2001 market transformation exhibited a 14.3 per cent CAGR while the 1986-1988 period saw a 12.8 per cent CAGR. The forecast went on to state that there would be global production of 12,768 business jets worth $196.9bn over the next 10 years. This includes 9,300 business jets worth $153.9bn, 575 corporate versions of jetliners and regional jets (RJs) worth a combined total of $429.6bn, and 2,893 business turboprops worth a total of $12.4bn.

Demand high despite crisis

Of traditional business jets, more than 50 per cent (by value) will be class four and class five (high-end) models. "In comparison, the past 10 years (1999-2008) saw production of 10,568 business aircraft worth $159.2bn. This includes 7,696 jets worth $134.5bn plus 381 jetliners and RJs worth $14bn and 2,491 turbopops worth $10.7bn," added the report by Teal.

Recently, Francois Chazelle, Vice-President, Executive And Private Aviation, Airbus (Middle East) said the demand for large corporate jets in the Middle East has increased by five per cent due to the annual steady rise in airline traffic despite the world economic downturn last year. "Last year we sold 80 corporate jets in the Middle East, with a majority of those going to Saudi Arabia. At this rate, the airline traffic is set to double every 15 years," said Chazelle recently.

That is not all. Of the $2.83bn earned in total revenue by the Middle East airport airside services segment, a high $360 million revenue would be generated by airside services of business jets, added Siddharth.

For Gama Aviation, a UK-based business jet firm that bagged an air operator's certificate from UAE federal authorities in February, the market is full of opportunities. The Dh500m business jet company, in a recent conversation with the newspaper, said it was exploring mergers and acquisitions in the region and was bullish about the Middle East.

Investments continue

The company is targeting revenue of more than Dh200m from the region by 2015. Though nothing is decided as of now, a senior company official said it was exploring greenfield and brownfield opportunities in the GCC states.

"We want to grow organically and are developing greenfield operations in the region," Marwan Khalek, Chief Executive Officer, Gama Aviation, said. He added the company would keep options open for acquiring companies if needed, in future. Gama has earlier made some important acquisitions outside the region.

Gama Aviation has had a presence in the GCC since 2008 through its Middle East arm. Operating out of Sharjah International Airport, it represents the confidence of business jet players in the region. The company that boasts a fleet of 75 jets, has allocated three of these – Challenger 604, Challenger 605 and Challenger 850 – for the region.

Khalek said Gama was committed to investing an approximate Dh70m in the Middle East and North Africa (Mena) within a few years. Several other players are bullish on the Middle East too. In the first quarter of 2010, business jet charters saw a recovery with an 11 per cent rise in sales in January alone.

Meanwhile, Empire Aviation Group (EAG) that manages and operates the Middle East's largest mixed fleet of 21 business aircraft, recently said its January performance reflected a strong recovery. Bookings had dropped around 40 per cent in the first half of last year, the company said.

However, Paras Dhamecha, Executive Director, EAG, said in a recent company statement that block hours from corporate clients have been rising from the beginning of this year. In January, the operator chartered flights in the Far East, CIS countries, Africa, Maldives, South America, Afghanistan and Iraq. The company said the Middle East continued to dominate the charter market as a favoured point of departure to global destinations and also as a favourite destination.

Increased bookings

According to industry trackers, 45 private business jets operate out of Dubai and more than 500 operate in the Middle East. Most of these 500 operate out of Saudi Arabia under private ownership, for personal use. However, there is no official charter market value for the Middle East.

Abu Dhabi-based Royal Jet too, is seeing a rise in the number of bookings, according to a company statement. "Starting with last November's Formula One Etihad Airways Abu Dhabi Grand Prix, Royal Jet looked after 90 per cent of the visiting aircraft traffic into Abu Dhabi," it said. Other players such as Netjets and Vistajet too, are active in the region.

Dubai-based aircraft charter firm, Western Aviation recently announced that it had posted a 21 per cent increase in air charter sales turnover in the first quarter of the year as against the same period last year. After the aviation industry struggled last year following the global economic crisis, it has been a slow and steady recovery. The company recorded around 14 per cent increase in the number of charter flights for the first quarter as against last year, a company statement said.

"There have been a lot of mergers, consolidations and takeovers in the global market, which is forcing major organisations to revamp their business strategies and look for partnerships and associations elsewhere. As a result of this, top executives have to fly a lot beyond their traditional boundaries to form these new alliances and ventures, thereby driving the strong requirement for private charter flights," Imran Ahmed, Marketing and Charter sales executive, Western Aviation, said in a statement.

Flight operations up

For manufacturers of business jets, the past year has seen mixed feedback from the market. Analysts remain positive about the future as manufacturers explore markets other than their countries of origin.

A report released by JP Morgan in March said flight operations were up by 11 per cent year-on-year in January. "This was the first double-digit increase since April 2004. Flight operations are still 16 per cent up from the March 2009 bottom and we expect this to translate into rising aftermarket demand for suppliers in the coming months," the report stated.

It went on to state that February was a minor bump on the road to recovery. The report pointed out: "While we expect used market conditions to continue along the gradual path of improvement, we have noted that bumps on the road are likely and February was a small one. Used inventories increased for the first time in six months, prices dropped after appearing to stablise and while flight operations were up nicely year-on-year they fell sequentially on seasonally adjusted basis.

"February figures highlight that while business jet indicators are far better than they were several months back, conditions are still fragile. As for new markets, we continue to believe a recovery will unfold only gradually and that there is risk of further cuts particularly in large jets."

Largely, all industry research reports point towards global business jet manufacturers such as market leaders Bombardier, Dassault, Gulfstream, Cessna and Embraer, continuing to dominate the market till 2018. There may not be a new entrant, according to analysts.

New designs may take a hit

The Teal Group report stated that after 2011/12, the business jet market would enjoy revenue from the Lear 85, G650, G250 and Falcon SMS models. However, there will likely be a drought in new product development after these new products arrive. The market's rapid deflation means it will be worth billions of dollars less than anticipated in the coming years. In addition to reduced resources for new designs, this market drop implies a reduced incentive to spend on new products, the report added.

Most global players are now concentrating sales efforts on outside mature markets like the US and Europe. Roger Sperry, Vice-President, Sales, Gulfstream, the US-based business jet manufacturer, recently said the company was now focusing on markets outside the US. "Earlier, most of our sales were in the US but now at least 60 per cent of our sales are outside (the US). We have built new facilities for the production of our latest offerings," Sperry was quoted by the media earlier.

Another global player, Bombardier recently forecast that around 1,030 business jet deliveries would take place by 2018. Industry experts said that at least 50 per cent of those would be outside Europe and the US.

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