Company Boards Stand In The Way Even As Business Jet Sales Seem Poised To Take Off

As corporate executives caught in a waiting game for their shiny new planes, there are new challenges for the business jet market just when it looked like the market was ready for a take off.

It’s been taking longer to get new orders signed, but not for the reasons you might think, Gulfstream parent General Dynamics said. Corporate boards taking their time to approve new business jet purchases are partly responsible for the wait.

“We’ve got potential customers who are waiting on the sidelines,” said General Dynamics CEO Phebe Novakovic. “It’s simply just taking longer for a whole series of reasons — everything from the introduction of brokers to additional board approvals … for fleet aircraft purchases.”

Indeed, when they are still letting workers go or looking for ways to trim other expenses, some boards may be slow to approve corporate jet purchases.

The company’s Gulfstream G650, a $65 million aircraft, is one of the most popular high-end corporate jets on the market today even though Novakovic didn’t share customer names on the waiting list.

The “anti-biziet rhetoric” that began during the Great Recession would fade and make buying corporate jets hip again, some analysts had predicted following the election of President Donald Trump (a long-time private flyer). But a sign that companies are in no rush to loosen the purse strings can be seen in the waiting time for board approval.

While new deliveries still remain well below the 2007 to 2008 peak, analysts say there have been improvements in the overall business jet market.

The higher-end business jet market was hurt again about two years ago by declining commodity prices, especially oil, as well as weakness from emerging markets even as it generally recovered faster after the Great Recession than the lower-end market.

For international customers to buy U.S. planes was made more expensive due to a strengthening dollar. Elevated levels of pre-owned business jets on the market has been another factor that has impacted new deliveries. On aircraft this year, it has allowed some buyers to get better pricing.

“Used bizjet prices continue to ease, but this may reflect an increasing base of older and more heavily used aircraft for sale,” Cowen analyst Cai von Rumohr said in a note last week.

While the second-quarter deliveries slid almost 17 percent against the year earlier, Gulfstream aircraft deliveries in the first half of 2017 fell 6 percent compared with the year-ago period, General Dynamics on Wednesday. The company said that the large-cabin aircraft segment saw the biggest decline in the quarter.

That said, Novakovic said the company is “comfortable with the anticipated third-quarter orders based on early contract activity and contract discussion. The interest in the G650 and G650ER as well as the G550 remains quite good and supportive of next year’s operating plan.”

At the same time, Eric Trappier, CEO of French-based business jet manufacturer Dassault, was quoted by Reuters on Wednesday as saying in a news conference that “the recovery is uncertain.”

Competing with jets made by Gulfstream, Canada’s Bombardier and others, Dassault manufactures the Falcon 8X, which is in the ultra-long range business class.

(Adapted from CNBC)

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Categories: Economy & Finance, Strategy, Sustainability

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