GO BIG, OR GO HOME
The world’s wealthy are demanding bigger, better private planes and Bombardier was in a perfect spot to serve them. Now it risks being left on the tarmac.
In late 2008, the chief executives of General Motors Co., Ford Motor Co. and Chrysler LLC travelled to Washington to plead for a bailout — flying in on their companies’ private jets. The backlash over the high-flying optics was swift and fierce, and when the executives returned two weeks later, they drove. Much ink was spilled at the time about how the incident signalled the beginning of the end of the big corporate jet, but, surprisingly, the financial crisis that had so debilitated the Big Three automakers seems to have had the opposite effect on the biggest, most comfortable private planes. Ever since then, sales of large-cabin, ultralong-range jets have been rising, with the globe’s richest customers only demanding more of them. Meanwhile, orders for the smaller, relatively more affordable private jets have plunged.
As the demand for the upper end of the private plane market grew, Bombardier Inc., with its popular lines of Challenger and Global jets, was well positioned just a few years ago to compete in this shifting market. However, that appeared to change with an announcement earlier this month that the company is reviewing the development schedule for the next-generation larger-sized Global 7000 and 8000. This, even as it curtails production of the existing earlier-generation 5000 and 6000, leaving the Montrealbased company suddenly at risk of losing ground to its competitors in that sub-sector, while it continues to pour so much of its time and money on the struggling CSeries jet, aimed at the commercial airline market. (The company also suspended development of the new Learjet 85, part of its line of smallest private planes, in January).
The job of trying to maintain Bombardier’s competitiveness in the private-jet segment it once seemed so set to dominate now falls to David Coleal, the company’s new president of business aircraft. But he declined to comment for this story. Company spokeswoman Christina Peikert said Coleal’s only been with the company for two months and wants to complete a “deep dive into the business” before he talks to the press.
The split in the private-jet industry began in earnest during the last recession.
Between 2008 and 2012, deliveries in the top half of the market edged up 0.3 per cent while the bottom half collapsed by 56 per cent.
“The market has never seen bifurcation like this in any previous downturn or growth period,” Richard Aboulafia, vice-president of analysis for aviation research firm Teal Group Corp., wrote in a recent analysis.
He added that it was “one of the worst market cataclysms to ever impact any mature industry segment.”
And that divergence is expected to continue for the next decade at least, with high-end models forecast to make up 67 per cent of production between 2015 and 2024, up from 50 per cent before the 2009 crisis, according to Teal Group.
It’s a split that’s affecting the entire aviation industry, from airplane manufacturers to fractional-ownership companies like Bombardier spinoff Flexjet LLC and Warren Buffett’s NetJets Inc., both of which are in the midst of reshaping their fleets.
“We’re seeing opportunities in that upper end of the market coming on very strong,” Chuck Suma, NetJets’ execu- tive vice-president for global asset management and procurement, said in an interview. “Travel patterns for business aviation are changing. … There is a growing need for large-cabin, long-range aircraft and we continue to assess the market niche for that and what our future may be in that area.”
Aboulafia attributes this to the fact that the world’s ultrarich keep getting richer no matter what happens to the global economy.
“People at the top of the eco- nomic pyramid have been the most resilient to downturns and they’ve outperformed everybody else in the upturns. After a couple of decades, it shows up in the structure of the market,” he said.
“In other words, it’s more than just a temporary market trend — it’s probably a longterm secular trend.”
For the manufacturers, it’s creating a chicken-and-egg situation where new demand is prompting them to develop longer-range aircraft, and the appeal of impressive new lines of longer-range aircraft is only spurring greater demand.
Gulfstream Aerospace Corp.’ s new G650ER, which entered service at the beginning of the year, boasts a range of 7,500 nautical miles — greater than the distance between Hong Kong and New York, or Los Angeles and Melbourne, Australia. This is less than the 7,900 nautical miles targeted by Bombardier’s (still undeveloped) Global 8000 but, as Gulfstream cheekily points out on its website, the G650ER data “isn’t hypothetical — it’s reality.”
“They established a new market segment for the industry,” Steve Cass, Gulfstream’s vice-president of technical marketing and communications, said in an interview, referring to the G650 and the G650ER.
“These airplanes are not only larger in size in terms of their cabin, but they fly farther than any other business jet and faster than any other aircraft.”
Flexjet, the time-share jet service that used to be owned by Bombardier before it was sold to Directional Aviation Capital in 2013 for US$195 million, recently opted to order 50 long-range aircraft from Gulfstream instead of from its former parent company.
“Our owners are looking to fly to more international destinations and they want to do that non-stop and they want to do that faster and in more comfort,” Matt Doyle, executive vice-president of sales at Flexjet, said in an interview.
“A lot of our direction is taken from our owners, and we spent a lot of time speaking with our owners and asking them what they want, and the Gulfstream is what they’ve chosen for those long missions.”
NetJets, on the other hand, ordered up to 395 Challengers and Globals from Bombardier as part of a historic US$17.6billion contract for up to 670 new aircraft in 2010.
“We do a fairly detailed analysis of the aircraft prior to the purchase and what we found with Bombardier products is that, especially in the Challenger series, they have a very good track record of being able to perform, high availability and good operating costs along with generally good market reception,” Suma said.
“We looked at that against other products in that particular market niche and we said that was the right airplane for us.”
Brian Foley, who spent 20 years as director of marketing for Dassault Aviation’s Falcon business jet — which competes with Bombardier and Gulfstream — said he thinks the growth in the large-cabin mar- ket is already slowing down.
“The big-cabin aircraft was a favourite of emerging markets like China and Russia that today, because of political and economic reasons, aren’t buying aircraft as fast,” said Foley, who now runs his own aviation consultancy, Brian Foley Associates.
“In addition, the oil-related companies and regions always favoured that size of aircraft too, and with the price of oil down they’re not as eager to buy today.”
Bombardier acknowledged this when it announced in May that it would lay off 1,750 workers and cut production of its Global 5000 and 6000, citing softness in China, Russia and Latin America.
“We have seen an industry wide softness in demand recently in certain international markets and are taking steps to adjust our production accordingly,” then president of business aircraft Eric Martel said at the time.
For now, strength in North America is helping to offset weakness elsewhere, but that won’t last forever, said Aboulafia. And if Bombardier does end up delaying the Global 7000 and 8000 from their planned 2017 entry-into-service date, Gulfstream will have the chance to cement its dominance in the ultra-long-range market.
“If Bombardier can get the Global 7000 and 8000 to market, they’ll be in great shape,” Aboulafia said.
“It’s their high-end market attack. It’s their response to the Gulfstream 650 and it looks great, but everyone’s wondering when it’s going to be rolled out and when it’s going to fly and when it’s going to enter service.” For that, Aboulafia offers a sarcastic, “Thank you, CSeries!”
People at the top of the economic pyramid have been the most resilient to downturns and they’ve outperformed everybody else in the upturns. After a couple of decades, it shows up in the structure of the market. — Richard Aboulafia, vice-president of analysis, Teal Group Corp.
There is a growing need for large-cabin, long-range aircraft