By Robert Wall
Demand for corporate jets spanning Gulfstream (GD)’s $14.5 million G150 to the $4 million Embraer SA (EMBR3) Phenom 100 is failing to track a rebound in stock markets as companies focus on preserving cash.
Concern about the strength of the economic recovery in the U.S., the European debt crisis and the potential for more political turmoil in the Middle East is also contributing to buyers sitting on the fence, companies including market leader Cessna said this week at the Ebace business-aviation expo.
Manufacturers that had been forced to slash output from a 2007 peak as the credit crunch and recession sent demand tumbling had since counted on gains in corporate earnings and share prices to spur orders. The increasing number of high net worth individuals and demand from China had also been expected to revive demand, a bet executives said has yet to pay off.
“The stock market is at record levels but a lot of that is through cost control,” Scott Ernest, CEO at Textron Inc. (TXT)’s Cessna, said in an interview at the show in Geneva. “The ability for people to take a decision to spend a significant amount of money on a business tool such as a jet is difficult.”
Gulfstream President Larry Flynn said order weakness is mainly afflicting the market for smaller jets, in particular its G150, where production slots remain available early next year.
‘Slow to Close’
“Companies have the money, they have the earnings, but they are slow to close airplane deals,” Flynn said, adding that while the situation won’t hurt the business this year, it may do so in 2014.
The flagship $65 million G650, which can cover 7,000 nautical miles and fly close to the speed of sound, remains sold out through mid-2017 and the G280, first delivered last year, is still benefiting from the uplift new models generally get, he said.
Cessna is seeing a similar trend, with new planes enjoying greater demand, Ernest said. The six-passenger Citation M2 is sold out for 2013 and about 10 production slots are available next year. The company is also wrapping up development of the Sovereign, seating 12 and due for delivery in the third quarter, and the Mach 0.935 Citation X, slated for this year.
“The wallets have not fully opened up,” said Ernest Edwards, president of Embraer’s business-jet unit. “There is still not quite the confidence to get a strong recovery in aircraft sales.”
Signs of a rebound exist, Edwards said, with sales of Embraer’s smallest plane, the $4 million, seven-passenger Phenom 100, and the larger Phenom 300s starting to pick up in the U.S.