By ANDY PASZTOR

Global demand for business jets, already near a five-year low, is likely to erode further before rebounding slowly in 2011, according to the latest forecast by Honeywell International Inc.

Business aircraft manufacturers—such as Bombardier Inc.; Gulfstream, a unit of General Dynamics Corp.; and Cessna Aircraft Co., a unit of Textron Inc.—can expect a tough slog through the end of the next decade before they see overall deliveries approaching last year's record level, according to the annual outlook. And when the turnaround does arrive, it will be driven for the first time by resurgent European and Asian clients, rather than the traditional U.S. customers.

Released Sunday during a generally downbeat industry gathering in Orlando, Fla., the closely watched report by the avionics and parts maker presents a dramatic reversal of business-jet fortunes from just a year earlier.

Last October—despite early warning signs of credit woes, eroding prices for used planes and general economic weakness—Honeywell forecast that record industry results would continue. Honeywell executives said at the time that neither oil price shocks nor widespread corporate cost cutting appeared to reduce the appetite of most blue-chip customers for newer planes.

Honeywell last year projected that hefty order backlogs would insulate most suppliers and manufacturers from moderate economic downdrafts. The company predicted nearly 1,400 new business-jet deliveries this year, with larger, more expensive models leading the way.

Those numbers mistakenly assumed years of robust economic growth world-wide. The rosy predictions also didn't forecast the credit crunch that would wreak havoc with many customers.

Now, the Morris Township, N.J., aerospace supplier sees global business-jet deliveries plunging to fewer than 800 aircraft this year from 1,140 last year, at least a 30% decline by unit volume and a 40% decline in dollar terms.

Deliveries are forecast to slip below 700 next year. From there, annual deliveries are expected to gradually increase through the middle of the next decade, according to the report.

Honeywell's analysis seeks to explain how the company miscalculated so badly. "As the extent of the recession worsened and the insidious nature of the credit crisis was revealed," the report says, order backlogs once considered firm shriveled rapidly.

Along with a drop-off in new orders, the result has been industry-wide layoffs, furloughs, development delays for some models and in some cases, entire production lines that have been temporarily shuttered.

"By 2012, a combination of pent-up demand and global economic recovery" will increase orders and deliveries, the report says. But unlike the seemingly unstoppable booming demand of previous years, the latest outlook envisions more of a "measured recovery."

The report sees global demand steadily growing through 2019. For a big chunk of that period, U.S. customers are likely to account for 48% of all corporate and charter purchases. The U.S. share was projected at 55% in the last survey.

Part of the reason, according to the report, is that customers in Asia, Africa and the Middle East still have the highest expectations of replacing corporate jet fleets, with purchases anticipated to come significantly sooner than in North America or Latin America. The relatively mild impact of the recession on the economies of China and India—combined with infrastructure improvements there—"is helping support a more optimistic level of interest in business jets," the report says.

With thousands of lost or deferred aircraft orders around the world and the mix of aircraft changing, the anticipated value of deliveries is falling.

Over the next 10 years, as many as 11,000 new business jets will be delivered, based on customers' plans. Revenue is now projected to total about $200 billion through 2019—a third less than the previous prediction, which covered 2008–2018.

To make its forecast, Honeywell surveyed 1,200 corporate flight departments, aircraft manufacturers and industry experts.

In the used-jet segment, where prices for older models slipped substantially over the past year, the report notes that newer models also are experiencing "significant price erosion." And in all regions world-wide, the survey finds "flat to lower usage rates" for business jets in the near term. Honeywell determined that flight activity is down between 12% and 24% from 2008.

Continuing earlier patterns, fractional-jet fleets—which allow customers to reserve only a portion of a plane's total flight hours—are suffering disproportionately. Once seen as a major industry growth driver, new jet deliveries to fractional operators through the first half were off more than 66% from a year earlier.

Particularly in the U.S., other long-term industry concerns include mandated emission reductions and enhanced security restrictions, said Rob Wilson, president of Honeywell's business and general-aviation operations.

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Well this report is the complete opposite to MetroJet in Hong Kong who have seen unprecendented growth in the past few years. They have expanded when not only other Business Jet operators, but also airlines were in a period of contraction.
A buddy who flies there does between 250 and 300 hours per year!!!
F69.