x Abu Dhabi, UAESunday 23 July 2017

Too many little jets, but not enough big buyers

An unwillingness among banks to lend is creating a drag in the private jet market, according to analysts.

In the Middle East and other emerging markets, private individuals and companies tend to favour bigger jets. Above, private jets on display in an airshow in Singapore. How Hwee Young / EPA
In the Middle East and other emerging markets, private individuals and companies tend to favour bigger jets. Above, private jets on display in an airshow in Singapore. How Hwee Young / EPA

A global unwillingness among banks to lend is creating a drag in the private jet market, according to analysts.

Research published by the American aircraft manufacturer Beechcraft Corporation found that 1,440 planes, just under a fifth of the light and medium sized jets market in Europe, are currently for sale across the continent, The Times reported in London.

The market favours buyers when more than 10 per cent of private jets are for sale at one time, according to the company, which manufacturer the Beechcraft King Air 350i and the Baron G58.

"There is an oversupply," said Richard Aboulafia, the vice president of analysis at Teal Group.

But it does not affect all corners of the market.

The top end, where private jets cost US$25million and above, is untouched. Nine out of 10 times, companies or individuals buying jets at the top end of the market use balance sheet or a "big pile of cash," said Mr Aboulafia.

Not so with light to medium-sized jets.

"What was the number one defining characteristic of this recession? It's the collapse of commercial credit as lenders seek safety in the form of US government bonds or something and the idea of lending for a business jet, the terms have totally changed. It used to be that you could get a loan for 90 per cent of the value or something like that," said Mr Aboulafia.

Now, banks ask individuals and companies to stump up more of the cost, which can be around 40 per cent.

"Lending is just a lot less aggressive," said Mr Aboulafia.

And the result is more jets for sale.

The solution lies in economic growth, particularly in the mature markets.

In the Middle East and other emerging markets, millionaires, billionaires and companies tend to favour bigger jets.

"[The Middle East is] one of the strongest markets. The problem is they tend to take larger jets. So [they buy] a smaller number of larger jets, Gulfstreams, Bombardiers, or Dassaults.

"So the real problem being in the bottom half of the market, there is no relief in the Middle East," added Mr Aboulafia.

 

gduncan@thenational.ae