Business jet sector hit by headwinds
Market decline attributed to anti-corruption campaign and slowing pace of GDP growth.
A salesman for a domestic business jet operator surnamed Li was standing on the windy and rainy tarmac at Shanghai Hongqiao International Airport on the morning of April 14, the launch day of the 2015 Asian Business Aviation Conference and Exhibition.
Li was waiting for his clients and planned to show them the Boeing Business Jet and ACJ319－the most luxurious jets on show, although he was pretty sure they would not buy any this time.
"I have to grasp every opportunity," Li said, and he hoped that they would at least be interested in some small jets.
Compared with his colleagues, Li is much luckier, as his employer is powerful and has clients in this period of slowing economic growth.
"We just come to the exhibition to meet and exchange opinions with our friends in the business," said a salesman from another domestic business jet distributor.
"But everything was totally different back in 2012," he said, recalling the best time so far in China's business jet market.
China's business aircraft market boomed after the 2008 Beijing Olympics, with the number of business aircraft growing from 91 in 2008 to 203 in 2011, according to a report from Asian Sky Group, a Hong Kong-based business aviation consulting firm.
The annual growth of China's business aircraft fleet reached 34 percent in 2013, while global growth was just 5 percent.
However, the market dipped last year, with the fleet's annual growth dropping to 15 percent in 2014.
The net number of aircraft added in China in 2014 was 59 compared to 64 in 2013, while in 2012, when the ABACE was held in Shanghai for the first time, 102 business aircraft, including new and pre-owned aircraft, were added in China.
"The China market is very much in decline," Asian Sky Group said in its latest report released at the exhibition.
Some aircraft manufacturers and distributors had orders canceled by Chinese clients last year.
"I cannot tell you how many orders were canceled, but some of the clients even gave up their deposits," said a salesman from a business jet manufacturer, who refused to be identified.
Statistics from Asian Sky Group show that last year's fleet growth of most business aircraft manufacturers, including Gulfstream, Boeing, Airbus, Bombardier and Embraer, was slower than in 2013.
"We are definitely seeing a slowdown here in China," said Mark Burns, product support president of US-based large business aircraft builder Gulfstream Aerospace Corporation.
Gulfstream has the biggest share of the Chinese market at the moment, with its products accounting for 34.92 percent of the business aircraft fleet in the mainland by March 2015, according to Chinese civil aviation portal CARNO.com.
There are currently 155 Gulfstream aircraft in China, Burns said, with a further 23 being purchased by Chinese customers in 2014. Business insiders, including aircraft manufacturers, operators and distributors, said that the market decline was due to the central government's ongoing anti-corruption campaign and China's slowing pace of GDP growth.
"It is without doubt that the market is slowing down," said Fernando Grau, director of marketing and product strategy of Embraer China's executive jets department, the manufacturer of the Legacy 600/650 and the Lineage 1000.
Policy and economic growth changes in China have not just led to a market decline, but have also affected clients' choices of business jets.
Chinese clients previously had a preference for long-range corporate jets with large cabins, but they are now turning to small and medium-sized jets.
A businessman surnamed Zhou from Shandong province visited the ABECE on April 14. He said he plans to purchase a small corporate jet for business purposes.
Zhou, who is in the real estate industry, said airline flights do not suit his busy work schedule and business jet may provide the solution for him.
"I need an affordable jet to meet my basic requirements," he said.
Small-sized business jets accounted for 30 percent of the planes on display at this year's ABECE, up from just 15 percent in the previous two years.
As the market and clients become increasingly sophisticated, they will choose small and medium-sized airplanes, which are more functional for them, said Guan Dongyuan, senior vice-president of Embraer SA.
Most business jet owners in China do not understand the airplane or business aviation industry, Guan said, and they are unclear about what type of plane would be the most appropriate for them.
In the next one or two years, people will correct their misunderstanding about business jets, seeing them more as a convenient transportation tool for businesspeople rather than luxury item, he said.
Scott Neal, senior vice-president of sales and marketing of Gulfstream, said that this was the trend in China, as four of its medium-sized G280s were delivered to the nation in 2014.
International airplane manufacturers remain cautiously optimistic about the Chinese market, as the nation's 7 percent annual GDP growth remains very robust by global standards.
"The main driver of the aviation market, both in terms of commercial and business aviation, is economic growth," said David Velupillai, marketing director of Airbus Corporate Jets.
Policy changes may affect the market in the short term, but the long-term prospects remain rosy, he said.
About 20 Airbus Corporate jets are flying in China at present, and all of which were delivered after 2007.
Government, individuals and corporations equally share the ACJ fleet in China, he said.
"We expect to be more successful in the market in the next 15 years," said Velupillai.
Mark Burns from Gulfstream also said the market decline also happened in the US after 2008 and it is a cyclical occurance.
"It will take time for people to understand how important business jets are," said Burns, "and we are going to see growth in China with business jets."
However, compared with manufacturers which do business all over the world, business jet operators focusing on China's market suffered more in recent years.
"Last year was flat," said Zhang Peng, president of Deer Jet Co Ltd, the largest business jet operator in China in term of fleet.
Deer Jet's fleet reached 70 in 2014 from 67 in 2013, while 10 jets were added into its fleet from 2012 to 2013.
"The global economic situation, the anti-corruption campaign and weak infrastructure in China all limited China's business aviation in the past year," Zhang said.
He said the operator's main clients are Chinese privately owned and international enterprises from various industries.
In order to stimulate the market, Deer Jet launched some new packages of its charter flights at ABECE and the lowest price of its G550 jet is 78,000 yuan ($12,600) per hour, which was over 90,000 yuan before.
At ABACE, Hong Kong-based Sino Jet announced its merger with Beijing Dabaixiong business airlines, a Beijing-based business jet operator, to form a new company called Sino Jet, which continues to focus on business jet operation.
Plane facts
Business aircraft: According to the National Business Aviation Association in the United States, business aircraft vary widely from propeller-driven aircraft to jets to helicopters. The vast majority of business aircraft have six passenger seats in the cabin and fly an average length of less than 1,600 kilometers. Depending on their capability, business aircraft may fly at altitudes below or above airliners, which means below 6,000 meters or above 12,000 meters
Jet aircraft: These have one or more gas-turbine engines, which is often faster than a turboprop, making them attractive for businesspeople. The size and flight range of jets also varies from single pilot and small cabin to a meetinglike environment and being capable of flying internationally. Airbus, Boeing, Bombardier, Cessna, Dassault Falcon, Gulfstream and Embraer are the world's major main business jet manufacturers.
Heavy jet: Also known a super large jet, it is priced above $68 million and has a super long range. Heavy jets are usually modified from commercial airplanes.
Large business jet: Priced between $46 million and $68 million, with a flying range of more than 9,260 kilometers and around 15 seats.
Medium-sized business aircraft: Priced between $18 million and $42 million, with a flight range from 5,740 to 9,260 kilometers and no more than 15 seats. As they can be used for transcontinental flights and can accomodate more passengers, they are usually first choice for large companies.
Light business aircraft: Priced between $7 million and $18 million, with a flight range between 3,150 and 5,740 kilometers and six to nine seats. The light business jets have competitive advantages in short-haul routes on price and low operation cost.
Very light business aircraft: Also known as microjets, these are smaller than light jets and usually seat four to eight passengers with a single pilot and a maximum take-off weight of less than 4,530 kilograms.
Li was waiting for his clients and planned to show them the Boeing Business Jet and ACJ319－the most luxurious jets on show, although he was pretty sure they would not buy any this time.
"I have to grasp every opportunity," Li said, and he hoped that they would at least be interested in some small jets.
Compared with his colleagues, Li is much luckier, as his employer is powerful and has clients in this period of slowing economic growth.
"We just come to the exhibition to meet and exchange opinions with our friends in the business," said a salesman from another domestic business jet distributor.
"But everything was totally different back in 2012," he said, recalling the best time so far in China's business jet market.
China's business aircraft market boomed after the 2008 Beijing Olympics, with the number of business aircraft growing from 91 in 2008 to 203 in 2011, according to a report from Asian Sky Group, a Hong Kong-based business aviation consulting firm.
The annual growth of China's business aircraft fleet reached 34 percent in 2013, while global growth was just 5 percent.
However, the market dipped last year, with the fleet's annual growth dropping to 15 percent in 2014.
The net number of aircraft added in China in 2014 was 59 compared to 64 in 2013, while in 2012, when the ABACE was held in Shanghai for the first time, 102 business aircraft, including new and pre-owned aircraft, were added in China.
"The China market is very much in decline," Asian Sky Group said in its latest report released at the exhibition.
Some aircraft manufacturers and distributors had orders canceled by Chinese clients last year.
"I cannot tell you how many orders were canceled, but some of the clients even gave up their deposits," said a salesman from a business jet manufacturer, who refused to be identified.
Statistics from Asian Sky Group show that last year's fleet growth of most business aircraft manufacturers, including Gulfstream, Boeing, Airbus, Bombardier and Embraer, was slower than in 2013.
"We are definitely seeing a slowdown here in China," said Mark Burns, product support president of US-based large business aircraft builder Gulfstream Aerospace Corporation.
Gulfstream has the biggest share of the Chinese market at the moment, with its products accounting for 34.92 percent of the business aircraft fleet in the mainland by March 2015, according to Chinese civil aviation portal CARNO.com.
There are currently 155 Gulfstream aircraft in China, Burns said, with a further 23 being purchased by Chinese customers in 2014. Business insiders, including aircraft manufacturers, operators and distributors, said that the market decline was due to the central government's ongoing anti-corruption campaign and China's slowing pace of GDP growth.
"It is without doubt that the market is slowing down," said Fernando Grau, director of marketing and product strategy of Embraer China's executive jets department, the manufacturer of the Legacy 600/650 and the Lineage 1000.
Policy and economic growth changes in China have not just led to a market decline, but have also affected clients' choices of business jets.
Chinese clients previously had a preference for long-range corporate jets with large cabins, but they are now turning to small and medium-sized jets.
A businessman surnamed Zhou from Shandong province visited the ABECE on April 14. He said he plans to purchase a small corporate jet for business purposes.
Zhou, who is in the real estate industry, said airline flights do not suit his busy work schedule and business jet may provide the solution for him.
"I need an affordable jet to meet my basic requirements," he said.
Small-sized business jets accounted for 30 percent of the planes on display at this year's ABECE, up from just 15 percent in the previous two years.
As the market and clients become increasingly sophisticated, they will choose small and medium-sized airplanes, which are more functional for them, said Guan Dongyuan, senior vice-president of Embraer SA.
Most business jet owners in China do not understand the airplane or business aviation industry, Guan said, and they are unclear about what type of plane would be the most appropriate for them.
In the next one or two years, people will correct their misunderstanding about business jets, seeing them more as a convenient transportation tool for businesspeople rather than luxury item, he said.
Scott Neal, senior vice-president of sales and marketing of Gulfstream, said that this was the trend in China, as four of its medium-sized G280s were delivered to the nation in 2014.
International airplane manufacturers remain cautiously optimistic about the Chinese market, as the nation's 7 percent annual GDP growth remains very robust by global standards.
"The main driver of the aviation market, both in terms of commercial and business aviation, is economic growth," said David Velupillai, marketing director of Airbus Corporate Jets.
Policy changes may affect the market in the short term, but the long-term prospects remain rosy, he said.
About 20 Airbus Corporate jets are flying in China at present, and all of which were delivered after 2007.
Government, individuals and corporations equally share the ACJ fleet in China, he said.
"We expect to be more successful in the market in the next 15 years," said Velupillai.
Mark Burns from Gulfstream also said the market decline also happened in the US after 2008 and it is a cyclical occurance.
"It will take time for people to understand how important business jets are," said Burns, "and we are going to see growth in China with business jets."
However, compared with manufacturers which do business all over the world, business jet operators focusing on China's market suffered more in recent years.
"Last year was flat," said Zhang Peng, president of Deer Jet Co Ltd, the largest business jet operator in China in term of fleet.
Deer Jet's fleet reached 70 in 2014 from 67 in 2013, while 10 jets were added into its fleet from 2012 to 2013.
"The global economic situation, the anti-corruption campaign and weak infrastructure in China all limited China's business aviation in the past year," Zhang said.
He said the operator's main clients are Chinese privately owned and international enterprises from various industries.
In order to stimulate the market, Deer Jet launched some new packages of its charter flights at ABECE and the lowest price of its G550 jet is 78,000 yuan ($12,600) per hour, which was over 90,000 yuan before.
At ABACE, Hong Kong-based Sino Jet announced its merger with Beijing Dabaixiong business airlines, a Beijing-based business jet operator, to form a new company called Sino Jet, which continues to focus on business jet operation.
Plane facts
Business aircraft: According to the National Business Aviation Association in the United States, business aircraft vary widely from propeller-driven aircraft to jets to helicopters. The vast majority of business aircraft have six passenger seats in the cabin and fly an average length of less than 1,600 kilometers. Depending on their capability, business aircraft may fly at altitudes below or above airliners, which means below 6,000 meters or above 12,000 meters
Jet aircraft: These have one or more gas-turbine engines, which is often faster than a turboprop, making them attractive for businesspeople. The size and flight range of jets also varies from single pilot and small cabin to a meetinglike environment and being capable of flying internationally. Airbus, Boeing, Bombardier, Cessna, Dassault Falcon, Gulfstream and Embraer are the world's major main business jet manufacturers.
Heavy jet: Also known a super large jet, it is priced above $68 million and has a super long range. Heavy jets are usually modified from commercial airplanes.
Large business jet: Priced between $46 million and $68 million, with a flying range of more than 9,260 kilometers and around 15 seats.
Medium-sized business aircraft: Priced between $18 million and $42 million, with a flight range from 5,740 to 9,260 kilometers and no more than 15 seats. As they can be used for transcontinental flights and can accomodate more passengers, they are usually first choice for large companies.
Light business aircraft: Priced between $7 million and $18 million, with a flight range between 3,150 and 5,740 kilometers and six to nine seats. The light business jets have competitive advantages in short-haul routes on price and low operation cost.
Very light business aircraft: Also known as microjets, these are smaller than light jets and usually seat four to eight passengers with a single pilot and a maximum take-off weight of less than 4,530 kilograms.
