(Reuters) - Demand for corporate jets has begun to recover from a post-recession low and is likely to rise over the next decade, with $250 billion worth of new aircraft delivered by 2022, according to a forecast by Honeywell International Inc (HON.N).
The forecast projects that companies will increasingly choose larger aircraft capable of traveling longer distances, driven by the desire to use private jets in international travel and to transport larger teams of people, Honeywell said in its forecast, released on Sunday.
The total value of corporate jets delivered worldwide in 2012 will rise 9 percent from 2011, said the diversified U.S. manufacturer, which makes engines used in the aircraft. Major makers of business aircraft include Textron Inc’s (TXT.N) Cessna, General Dynamics Corp’s (GD.N) Gulfstream, Canada’s Bombardier Inc (BBDb.TO), and Brazil’s Embraer SA (EMBR3.SA).
Honeywell expects similar growth levels and demand patterns in 2013.
“It’s all about range. To have more range you have more fuel, more fuel requires bigger wings, bigger wings mean bigger fuselage,” said Rob Wilson, president of Honeywell’s business and general aviation operation. “So you will get a larger cabin with the higher range requirements. In addition, when you’re going to be on an airplane for 12, 14 hours, you need a certain amount of volume to prevent you from going a little stir-crazy.”
A Honeywell survey found that 69 percent of spending on new aircraft in 2012 was for large-cabin jets.
Morris Township, New Jersey-based Honeywell based its forecast on interviews with 1,500 operators of corporate jets, as well as other economic data sources.
Sales of corporate jets have traditionally closely tracked growth in corporate profits -- when times were good, companies invested in aircraft; when conditions worsened, they pulled back. That cycle played out in the last recession, with orders falling sharply in 2008 and 2009, then steadying.
The current wave of third-quarter corporate earnings reports has largely showed a decline in profit among companies in the Standard & Poor’s 500 index .SPX, with analysts expecting the group’s collective earnings to fall 1.9 percent in the quarter, according to Thomson Reuters I/B/E/S.
Wilson, however, argued that with North America representing just 53 percent of expected corporate jet demand over the next five years, the correlation between U.S. corporate profits and jet sales may not be as strong as in prior cycles.
“The linkage to corporate profits may have been more of a hangover from when we saw the market being much more dominated by North American companies,” he said. “With that now being half the market, we don’t see the linkage being as strong, we see other facets globally that drive it.”
Honeywell’s survey found growing demand for corporate jets in Asia and Latin America.
Corporate jet makers have suggested in recent weeks that demand could pick up after the November 6 U.S. presidential elections and Congress’s year-end “fiscal cliff” deadline passes, as jet buyers will then have a clearer sense of the economy’s heading.
“Our primary customers are small, mid-sized businesses. There’s no question that a lot of these guys are looking at a very uncertain next few months, right?” Textron Chief Executive Scott Donnelly told investors on an October 17 conference call. “People will wake up the morning after the election, they may be happy, they may be unhappy. But to some degree people are going to have to dust themselves off and say, ‘You know what? I’ve got to get on with my life.’ ... It takes some uncertainty off the table and that is probably good for the market.”
Editing by John Wallace