Podcast: Will The Business Aviation Market Be As Buoyant In 2023?

December is usually a busy month for business aircraft closings. BCA editors discuss the state of the market and predict what will change in 2023, as well as examine top technological developments impacting the industry.

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Rush transcript

Lee Ann Shay:

Welcome to this latest BCA podcast. I'm Lee Ann Shay, Aviation Week's executive editor for MRO and Business Aviation. I'm here today with Managing Editor Molly McMillin, Senior Editor Bill Carey, and Associate Editor Matthew Orloff. Thank you all for joining me.

Molly McMillin:

Thanks for having us, Lee Ann.

Lee Ann Shay:

Well, we've been fielding questions about predictions for this last quarter and next year, so we are getting together to tell you what we've heard. For starters, the fourth quarter, in particular, December, is usually a very busy month for aircraft transaction closings. And last December was a record month in fact. Molly, what's your prediction for this month, this December?

Molly McMillin:

Well, as you know, the manufacturers are crazy busy right now getting aircraft out the door before the end of the year, so this is always their biggest quarter. And at the same time, yes, aircraft transactions, anyone doing business are closing out business for the year. I spoke to, in fact, Jetcraft this week who said they have 26 closings by the end of the year, there are not 26 business days in the month. So they're doing two, three closings a day just to get things closed out and finalized. So it's a busy month.

Lee Ann Shay:

Last year, just because it was such an atypical month, some people were foregoing aircraft inspections based on the corporate jet investor people I talked with, I guess in the end of October. Lawyers and people who specialized in that were urging people not to do that. But have you heard? Is there any of that kind of craziness going on?

Molly McMillin:

It seems like it's subsided just a little bit from the crazy craziness. Experts are saying, "Do that pre buy inspections, although it was difficult because the places to get those done were very backed up." But yes, I think that all signs look like it's mitigated a little bit. And going into 2023, they're expecting more of not a return to normal, but more just kind of a leveling off.

Lee Ann Shay:

Now speaking of 2023, there are a lot of economic headwinds at Ukraine. Russian war is still going. There's some flight shaming in Europe in particular, business operators are having a little bit more of a headwind there and there's labor shortages yet at NBAA. The outlook still seem to be pretty positive for 2023. Do you have any hesitations of predicting this can be another buoyant year for business aviation?

Molly McMillin:

I think experts still say they're bullies on next year, although it may not be quite the craziness. But when you look at the manufacturers, they have record backlogs. The other thing is if there is more of a slowdown, it's not like it was in the great recession when manufacturers delivered, I think at that time something like 1,300 business jets. And now it's about half of that. So the craziness, those levels never did get back to where they were of a decade ago.

Also, at the same time, supply chain issues like manufacturers have been increasing production, but because of the supply chain, they haven't been able to ramp up as much as maybe they otherwise could. So it would be kind of a softer landing, if you will, if there is a little slowdown. And in fact, when you look at charter and fractionals in that, some of them say a little slowdown would actually be a welcome relief because they can provide better service and handle the busyness in a better way.

Lee Ann Shay:

Matt, have you heard anything different?

Matthew Orloff:

Nope. I've heard the same thing in fact that the relief would be welcome and beneficial if anything. However, I will say as far as aircraft transactions go, the OEMs for new orders are still a year out. So really it's all about the used aircraft market right now, which in some cases those aircraft are even selling for greater than a brand new aircraft off the assembly line for the mere fact that it's available right now.

Aircraft prices across the used market has only continued to rise despite the fact that pricing has been all over the place. However, that being said, the one consistent trend is that those prices remain on the rise. If they're going to continue to be on the rise, that's a great question. I don't think anybody really has a crystal ball. And that's the billion dollar question. However, for the immediate future, I wouldn't be surprised if that were to continue to be the case despite any lull or slight lull in demand as far as charter goes at least.

Molly McMillin:

I totally agree with what you said, Matt. The other thing is I know some people are expecting 2023 to be a very good year because the used inventory has crept up just a little bit after having such record low inventories and pricing has seemed to stabilize. So some of them think that those who have been on the sidelines because they didn't know about pricing kept going up every month and they couldn't find an airplane anyway or had a difficult time, that they're kind of sitting off in the sidelines waiting. And so that 2023 might be their year then, they're just kind of watching and waiting. And then 2023 that they could be the year to jump in.

Matthew Orloff:

I hope so for their sake. I mean, a lot of these transactions are happening off market. Closed door deals just between friends. So for their sake, I hope so. And I think you're right.

Lee Ann Shay:

They used aircraft market. I think we need to point out that like OEM such as Bombardier are really making a big play into servicing their fleet and upgrading aircraft that are being traded in. So there's a different kind of aftermarket dynamic starting to be there too. And there's so many different things that you can retrofit your aircraft with.

Speaking of which, technologies. Bill, it seems like there have been a lot of interesting technological developments this year. What stands out to you?

Bill Carey:

Well, I think the most fashionable topic of course has been Advanced Air Mobility. There was a couple of significant milestones in the past year, the growing AAM sector. The Eviation Alice Electric jet flew for the first time September 27th from Moses Lake Washington. That was a historic first flight of an electric aircraft, followed soon after by the flight of an all-electric Robinson e-R44 helicopters. So there's a lot happening. There's dozen or so AAM vehicle developers that are moving forward with their designs.

The FAA threw a bit of a monkey wrench into the proceedings in the spring of 2022 when it adjusted the certification basis to define AAM vehicles as powered lift aircraft. And that may have slowed some of the development and pushed off entry into service for some of these vehicles. From what was hoped to be a 2023 time horizon is now more like 2024 or 2025 for some of the first AAM vehicles, electric vertical takeoff and landing vehicles to enter service. And then we'll get to see whether those business models hold up because a lot of these AAM vehicle developers are venture capital funded.

So in that sense, I think a lot of the enthusiasm has given way to the reality of how difficult it is to bring an aircraft to market. And in that same vein, very much in the news, this past year has been sustainable aviation fuel, that FBOs have been offering staff on a demonstration basis. I think since the 2019 2 20 timeframe, they're moving into more regular supply of sustainable aviation fuel. There's consensus in the industry that SAF is really going to be the linchpin of how aviation achieves net zero carbon emissions by 2050 as it has committed to. And the emphasis now is kind of shifting away from sustainable aviation fuel itself to how to make SAF itself sustainable. And to do that, the industry, including the fuels industry, is going to have to source other types of feed stocks that then have been sourced to date in order to produce SAF at scale, which will be needed to achieve aviation's goals.

And I guess third, I would just mention in the field of connectivity there's a lot happening, and that's both air to ground connectivity and aircraft to satellite connectivity. Gogo Business Aviation completed the deployment of its ground infrastructure for its new 5G system. So it's installed 150 towers across continental United States. And then SmartSky Networks has also turned on its own air to ground network, which combines both 4G and 5G technologies for connectivity to the aircraft. There's a lot of STCs underway in development for different business aviation platforms to connect to those systems.

And then on the satellite side, earlier this year, or actually back in 2021, the big merger was announced between Viasat and Inmarsat. That's run into some hard reality with the UK competition and markets authority, which has raised monopolies concerns over that. So that kind of mega merger, a $7.3 billion merger is still on hold. But once that's approved, if it's approved, that will really have an impact on the satellite communications market as it affects aviation.

Lee Ann Shay:

Well, it sounds like there's going to be a lot of potential connectivity upgrade options for business aircraft.

Bill Carey:

There certainly will be. And there will also be a real plethora of bandwidth available from new high capacity satellites that are being launched from systems such as Starlink and OneWeb that are lower [inaudible 00:10:51] satellite networks that will be broadcasting in Ku band, which is a broadband pipeline to the aircraft. So there's a lot of excitement, but it's still in the future right now and the industry is consolidating and some of these proposed networks are still shaking out.

Lee Ann Shay:

Thanks for all that. I'm glad you brought up SAF. I think it's undeniable that sustainability efforts, SAF's rollout is definitely going to be something that's going to be paramount to watch in 2023 and beyond.

Bill Carey:

That's true. As it affects both business aviation and commercial aviation, there might be some tension there in the future.

Lee Ann Shay:

I agree. Well, I hate to do this, but we have run out of time for today. But Molly, Matthew, Bill, thank you so much for joining with me. And listeners, don't miss the next episode by subscribing to the BCA Podcast wherever you listen to podcasts. And one last request, if you're listening in Apple Podcasts and want to support us, please leave us a star rating or write a review. Thank you so much.