Elevated used inventory, attractive used pricing and macro uncertainty continue to hold down demand for new business jets, says the latest business jet monthly report by JPMorgan Equity Research.
The US analyst concedes that "OEMs are eating further into their backlogs, and if these don't stabilise in the coming quarters, further production rate cuts seem likely".
The risk is, however, greater at the lower end of the business jet product lines. "The degree to which demand for new heavy jets [Bombardier Global Express XRS, Dassault Falcon 7X] continues to outpace light jets - even as we move further into a cycle in which light jets took a pounding early on - is striking," says JP Morgan.
Bombardier's second-quarter conference call this month provided "further supporting data points" as Learjet and Challenger backlogs continued to decline while the Global backlog is growing.
"We're not ready to say that large business jets are out of the woods as orders remain anaemic overall, and the next two quarters will be crucial in determining whether further rate cuts are necessary," it adds.
The used inventory of in-production models edged up to 11.8% in August compared with 11.6% the previous month, with all categories showing increased inventories. "We believe this increase is a bump in the road and expect that inventories will continue to decline gradually," JP Morgan says.
Asking prices for pre-owned jets increased 1.3% in August - driven by the increasing demand for large jets while business aircraft flight activity in North America increased by 7.7% in July compared with a year ago.
"Business jet usage is improving slowly, and there is still a long way to go as July flight operations were 19% below [the November 2008] peak," says JP Morgan.
Source: Flight International
