A Wall Street analyst is starting to see signs of softening in the business jet market, but remains optimistic that any downturn will be buffered by new demand from markets outside the U.S.
JP Morgan´s Joseph B. Nadol says the number of used business jets for sale has reached 7.2% of the active fleet, up from 6.8% in March and 6.2% in January. The rise was driven by higher inventories of medium and light aircraft. "We have been expecting the used market to weaken due to the soft economy in the U.S. and Europe, and the data is beginning to bear this out," Nadol wrote in a report to his clients on Friday.
The average asking price for used jets has fallen 1% since March, to $ 16 million, but is still 2.6% higher than a year ago. Prices for medium business jets have declined the most since March, 2.1%, while heavy jets were down just 0.5%.
The big question is how much the sputtering U.S. economy will cool off record demand for business jets. The recent emergence of markets in places such as Asia, Eastern Europe and Russia has decreased the industry´s vulnerability to swings in the U.S. economy. North American operators, which used to make up nearly 80% of demand, are expected to account for just half of the business jet purchases over the next five years, according to a Honeywell forecast released last fall.
"With U.S. corporate growth likely to decline in at least the first half of 2008, we believe that at least a slowdown in business jet delivery growth could occur in 2009 or 2010," says Nadol. However, the size of the impact will depend on how much U.S. economic doldrums impact other nations. "As we see the global economy remaining relatively strong, we believe that continuing demand from emerging markets will likely mute the effect somewhat."