Skies brighten once again for makers of corporate jets

PUBLISHED : Monday, 01 November, 2004, 12:00am
UPDATED : Monday, 01 November, 2004, 12:00am

As the world's major airlines stagger under the burden of rising costs and intrusive security precautions, small jets for rich people and prosperous businesses are taking off.

Manufacturers of corporate jet aircraft - those planes with up to 19 seats - report that they have recovered from the slump that inflicted a body blow to the small jet industry after 2001.

Leo Knaapen, media relations manager at Bombardier, which produces corporate jets in Canada, the United States and Northern Ireland, said the market was recovering 'quite nicely'.

'We have emerged from a very difficult economic period in the US, which is the No1 market for corporate jets in the world. Seventy per cent of the corporate jets in the world are based in the US. What we have seen is a slow but steady recovery,' he said.

After the 2001 peak, when 780 corporate jets were manufactured worldwide, the bottom fell out of the market. But the recovery has been quick: 508 planes were produced last year and this year the forecast is for about 550 units.

'When the GDP [growth] is measuring 3 per cent and higher, that's always a bellwether sign for corporate aviation. That means that decisions set aside by corporations to replace aircraft are now back on the table, so the discussions start again and negotiations begin again,' Mr Knaapen said.

Although the American aviation pioneer William Lear began producing corporate jets in the mid-1960s, the market was restricted, led by a few thriving businesses that would replace their aircraft every five or six years. That changed with the explosion of wealth in the US in the 1990s.

That period also saw the development of what is known in the US as 'fractional ownership' - effectively a system of timesharing of aircraft in which individuals or companies buy an equity share in a plane and pay an annual management fee.

Jens Hennig, operations manager at the General Aviation Manufacturers Association, said the system permitted private jet flying at a significantly lower price.

For instance, a share of a plane may cost as little as C$1 million (HK$6.38 million), while outright ownership of the cheapest corporate jets would cost more than $5 million.

'It is also a worry-free form of aviation. You basically just pay for it and somebody else takes care of it for you. If you own your own business jet, of course, you have to consider hiring pilots and all those other things,' Mr Hennig said.

Between 15 per cent and 25 per cent of all corporate jet sales are to fractional operators. 'It's been a substantial boost for the industry,' he said.

Some corporate jets are bought by individuals for their private use but Mr Hennig estimated that about 70 per cent of the jets sold worldwide are for business use.

Part of the appeal is that private jets enable executives to travel quickly and conveniently while doing business on board. Probably more important, though, was security, Mr Hennig said.

Another consideration is the adaptability of smaller jets. In the US, there are 450 airports that can accommodate commercial airliners but business jets can fly into more than 2,000 communities with smaller but adequate airstrips.

It is the ability to use smaller airports that has become one of the industry's big selling points - one that may open the way for a boom in corporate aircraft in China.

Mr Hennig said China recently introduced general aviation regulations - 'one of the key drivers to having a market' - despite the reluctance of the Chinese military, which had traditionally controlled the country's air space.

China last year also reduced the notification time for private flying from one week to one day, liberating private flying from bureaucratic shackles.

The result has been the first sales of corporate jets in China and the expectation among manufacturers of a vast emerging market.

Already, Mr Hennig's group has met a number of Chinese delegations to discuss corporate jet travel.