TURBULENT TIMES

The corporate jet market is bracing for a comedown

As the global economy reels, business jet sales—a lagging indicator of corporate profits and GDP growth—face an especially long and turbulent path ahead.

Of the eight main corporate jet manufacturers, one, Bombardier, is running out of cash and urging the Canadian government to back its new plane; another, ONE Aviation, was recently formed by merging ailing Eclipse Aerospace with Kestrel Aviation; and a third, General Dynamics-owned Gulfstream, said this week it will lay off 1,100 employees and contract workers, comprising nearly 7% of its 16,500-person workforce.

Gulfstream spokesperson Heidi Fedak told Quartz the layoffs were the result of routine evaluations of costs and workforce needs. The last time the Savannah, Georgia-based company laid off workers at this scale was in 2009, when the company let go of 1,200 employees and put an additional 1,500 on a five-week long furlough because of weak sales.

What’s different this time is that the deceleration in the corporate jet industry stems from the difficulties of the economies of Europe, China, and Brazil, which emerged as key markets for business aviation during the recession.

Before the economic downturn, the bulk of business jets were exported to North America, Jens Hennig, vice president of operations at trade organization General Aviation Manufacturers Association (GAMA), told Quartz. But after the recession, developing regions like China, Brazil, and Russia made up nearly half of deliveries.

Now, that trend is reversing amid sluggish global growth and growing political tensions.

“Some of those regions that have been so important for us during those recession years are continuing to stay in rather tough economic situations,” Hennig said. “The caution that we’re seeing [from jet operators] is driven by that mixed picture.”

During the first nine months of 2015, shipments of corporate jets were up about 4%. Not bad considering the state of the global economy, but far from peak 2009 rates, according to GAMA.

Historically, business jet deliveries trail corporate profits and GDP growth by about 18 months. But while corporate profits have been strong for a while, deliveries have been more sluggish than usual as businesses cut costs and defer capital investments to turn a profit, Hennig said.

“Business jet purchases are capital investments and, as a result, our delivery growth has not experienced the same close correlation to corporate profits as we have seen in past cycles,” he said.

Corporate jet billings, on the other hand, have largely recovered from the economic downturn as demand for larger cabin jets increases.

Looking ahead, Honeywell Aviation forecasts that up to 9,200 new business jet deliveries worth $270 billion will be shipped from 2015 to 2025. That value outlook is down 3% to 5% from the company’s 2014 projection.

“While emerging markets like Brazil continue to be a bright spot for business aviation over the medium term, we have seen weaker demand across other key growth markets,” said Brian Sill, president of business and general aviation at Honeywell Aerospace.

Honeywell Aviation found that business jet operators only plan to replace and expand their fleets by 22% over the next five years—the lowest purchase plan outlook since the early 2000s—according to the firm, which interviewed more than 1,500 operators around the world.

Latin America was the most optimistic region when it comes to jet purchase expectations, comprising 18% of the total projected demand, the Honeywell data showed.

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