Analysis: Booming Private Jet Market Stretches Wealthy Buyers As Climate Clouds Build Up
LAS VEGAS, Oct.21 (Reuters) – Demand for private jets has exploded during the pandemic as the wealthy take control of their travel, but the flight to luxury may have a limited track as some buyers spend beyond their means and the sector presents a prime target for climate critics.
Bidding wars for used aircraft and bonuses for fast delivery of new ones dominated discussions at the National Business Aviation Association (NBAA) show in Las Vegas last week.
It’s a boon for publicly traded corporate aircraft manufacturers who are increasingly selling planes without the discounts that had become ubiquitous after the industry fell out of favor during the 2008-2009 financial crisis.
Gulfstream Aerospace of General Dynamics Corp (GD.N), Bombardier (BBDb.TO), Textron (TXT.N) and Dassault Aviation are the leaders in terms of delivery value, which supplier Honeywell (HON.O) puts at 238 billion dollars over the next decade.
âI hear every day from people interested in getting on private planes,â said Stephen Hofer, president of Aerlex Law Group, which handles aircraft transactions.
But the influx of new entrants, often wealthy individuals and families who upgraded their travel from first-class airline tickets during the pandemic, brings new risks.
A seasoned broker described a new buyer who bought a plane at prices he could only afford by leasing the plane part of the time to other travelers. If leasing demand declines, the buyer could have difficulty paying for the jet, warned the broker, who spoke candidly on condition of anonymity.
“These are people who have never received a million dollar maintenance bill before,” the broker said, adding that such practices are reminiscent of market activity before the 2008 crash.
Yet U.S. business jet flight hours increased 16% in early October compared to October 2019, itself the most important month for activity since 2008, according to consultancy WingX.
And many executives, analysts, lawyers and aviation brokers believe the rebound will continue until 2022.
âThe rebound in activity in 2021 is increasingly seen as a green light for faster industry growth over the next few years, not just a one-off rebound from the pandemic,â said CEO of WingX, Richard Koe.
Deliveries are expected to rise from around 700 per year today to around 900 by 2025, but still have room for improvement given the peak of 1,300 aircraft delivered in 2008, analyst Brian Foley said.
Production of business jets, however, will be constrained by supply chain capacity, added Don Dwyer, co-manager of aircraft brokerage firm Guardian Jet. Read more
An unknown quantity is the number of business trips, which are expected to take longer to recover than the leisure trips that underpin US domestic air traffic.
Vinayak Hegde, chairman of private aviation company Wheels Up (UP.N), said he now sees more senior executives traveling for business.
But some companies are pulling back from travel and setting “carbon budgets” to reduce pollution, which would strain business class and airline business jets, which generate more emissions per passenger. Read more
The industry is also fighting to push back questions about its environmental record. It recently made headlines when Prince Harry and Meghan Markle drew media criticism for using private jets despite their stance on climate change. Read more
Investors in the industry want him to tackle the problem.
Kenneth Ricci, director of Directional Aviation Capital, a private investment firm that finances and owns business aviation companies, warned that business aviation must take action for the environment or risk it. use against industry.
âMy biggest concern, the one I watch all the time, is what we’re going to do about sustainability,â Ricci said during a lunch at the NBAA show. “We have to be vocally ahead of this.”
Business jet companies followed airlines last week in pledging to net zero carbon emissions by 2050, but environmental activists say the pledges don’t go far enough. Read more
âBusiness aviation is at a crossroads,â said Jo Dardenne, aviation manager for Transport & Environment in Brussels.
“If the industry is to achieve zero emissions, it should accept that governments mandate the use of clean technology and tax wealthy private jet users to finance their deployment.”
Reporting by Allison Lampert in Las Vegas; Editing by Tim Hepher and Pravin Char
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