Photographer: SeongJoon Cho/Bloomberg

Business-Jet Sales Struggle for Lift Amid Brexit, U.S. Woes

  • Embraer sees corporate-aircraft demand flat for a sixth year
  • Brazilian manufacturer steering clear of hard-hit large planes

Selling aircraft to the world’s elite is set to remain a struggle as concerns about the fallout from Brexit and political uncertainty in the U.S. weigh on buyers of corporate jets, according to Embraer SA.

Western European markets are sluggish, and demand could dip in the U.S., said Michael Amalfitano, who took charge of the Brazilian company’s corporate-aircraft division on March 1, adding that there’s little sign of a surge in purchases from emerging nations such as China and those of Latin America.

“Some of these economies and infrastructure are very challenged, plus we have Brexit in Europe and a new administration in the U.S.,” Amalfitano said in an interview Monday from the 2017 European Business Aviation Convention and Exhibition in Geneva.

The market for corporate planes, once expected to take off as wealth spread around the world, has been stuck in a range of 650 to 700 aircraft for the past five years. Demand is expected to be broadly flat again this year, according to Amalfitano. Embraer, which builds the entry-level Phenom, seating four to six people, and the seven-to-14-berth Legacy range, is targeting the production of 105 to 125 business jets in 2017.

Embraer delivered 117 such aircraft in 2016, giving it an 18 percent share of a global market, according to the General Aviation Manufacturers Association. The company has a larger slice of the smaller-jet segment, built around its 50 percent share of the sector in Europe, the second-largest after the U.S.

Supply Glut

Amid the market’s struggles, Embraer is playing it safe and sticking with its focus on smaller business jets, alongside its mainstay regional aircraft operation. With the market for larger corporate plans particularly torpid, Embraer has resisted offering business versions of the newer E2 family of passenger jets, Amalfitano said. Its 19-seat Lineage 1000E model is based on the older E190, which carries 100 people in its airline layout.

“There’s a lot of competition in the larger aircraft space,” Amalfitano said in the interview. “Price points have collapsed in on themselves, and there are a lot of used aircraft out there.” Embraer has been making executive planes only since 2002, when it diversified into a market dominated by General Dynamics Corp.’s Gulfstream, Dassault Aviation SA’s Falcon and the Cessna arm of Textron Inc., as well as regional-aircraft rival Bombardier Inc.

Amalfitano spoke after announcing a $77.7 million order for three Legacy 650E business jets from Air Hamburg at the Ebace expo, marking the first deal for the new model.

The German charter operator is typical of a new client base that’s emerged since demand from direct corporate operators slumped during the 2008 financial crisis, when private flights to Washington by the heads of the top U.S. automakers while seeking bailouts made owning the planes politically toxic.

Optimism

The industry is still working off an oversupply of business jets stemming from a buying frenzy in the run up to the global recession that spurred annual deliveries to an average of more than 1,200 a year. The overhang has caused a steady slide in used aircraft prices that continues to weigh on new sales.

Last year’s global delivery tally of 661 planes represented a 7.9 percent decline and was the lowest in 12 years, according to GAMA. Sales fell 16 percent to $18.4 billion as demand for higher-priced large and medium aircraft dropped the most, with Embraer’s Phenom 300 the best-selling model.

Still, there’s generally more optimism around in most markets, according to Amalfitano, who said that Europe may be set to return to being a net buyer of aircraft. Some 20 new private jets were delivered in the region in the first quarter, up from the 18 handed over a year earlier, according to research from Colibri Aircraft based on figures from the AMSTAT business aircraft database.

Oliver Stone, managing director at Colibri, which specializes in marketing pre-owned business aircraft, said that for the moment there are currently more sellers than buyers so that prices for used planes are still falling.

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