The rich get richer – and they feed a private jet boom

The demand for private jets is growing – to the extent that companies can not produce them quickly enough and buyers are facing longer waiting periods for deliveries.

Even used business planes disappear from the market.

“If you look at today compared to 2019, the market has almost exploded,” John Schmidt, global aviation and defense industry leader at consulting firm Accenture, told CNBC on the Dubai Air Show.

The pandemic has converted many travelers to private aviation, many for the first time. But analysts say the trend can be attributed primarily to a boom in prosperity over the past year and a half, especially in the upper echelons of society, as more companies go public, the stock market reaches record highs and users enjoy a longer period of low interest rates.

Departure and landing of business jets in the US is up 40% from year to year ̵[ads1]1; and at the highest point since before the financial crisis in 2008, according to Morgan Stanley.

Public listing of companies in the United States has already reached record highs in 2021. Data from Jefferies Equity Research shows that as IPO activity increased, the volume of business jet deliveries increased accordingly.

The market also attracts individual buyers in search of safer and more exclusive travel that guarantees greater reliability than commercial flight, which has been hampered by Covid-19 travel rules.

Amid the increase in demand in the high-end industry and rising inflation, the prices of both new and used jets are now the highest level in many years.

The stock of used jets – the proportion of aircraft for sale versus the number of said aircraft that exist globally – is record low, around or below 3% for most major jet manufacturers, including Cessna, Dassault, Gulfstream, Bombardier and Embraer, says Jefferies.

Private aviation activity is not only up in the US, but also 20% higher in Europe, Schmidt said. “Things are very cramped in used business jets, the inventory is the lowest we have seen in years, and yet prices are 20 to 30% higher,” he added. “So there’s a very hot market right now.”

New customers

For the first time on the market for private jets, more than 30% of buyers now make up, according to a recent report from Goldman Sachs. For Embraer Chief Commercial Officer Stephen Friedrich, it is the growth in the consumer base that stands out.

“The addressable market right now for business aircraft has expanded. The pie has gotten bigger,” Friedrich said. “And the result is from continued value creation of over 12% when you take a look at the billionaires in the world, but also from what was traditionally Fortune 100 and large private companies.”

“People are looking for ways to be more productive, more confident in the missions they have to perform,” he added, describing business aviation as a “productivity tool.”

“Can you fly directly from New York City to Muscle Shoals, Alabama, on a commercial flight? No,” Friedrich said. For companies or individuals with the wealth to own a business jet, travel that will take a full day of travel is reduced to a few hours.

Cabin pressure setting in commercial aircraft is also significantly lower than for commercial aircraft – for some it is less than half. This difference means that passengers feel significantly less tired on landing, which makes more city stops and encounters much easier. Embraer’s flagship Praetor 600 has a cabin height of 5800 feet while Dassault’s Falcon 6X has a cabin height of 3900 feet. Compare that to an average cabin height of up to 8,000 feet for commercial jets.

Private jet charter company VistaJet reported a 29% increase in new members over the past year, with 71% of new requests from passengers who did not regularly use private aviation before.

It also found that more than half of the new private aviation users – 53% – will continue to fly privately on a regular basis after the pandemic.

Value creation since the pandemic has been quite different, with US billionaires becoming approximately 62% richer – and receiving more than $ 1.8 trillion – since March 2020, according to the US think tank Institute for Policy Studies.

Sustainability issues

Private jets were a fairly common sight at the COP26 climate summit in November, and drew intense criticism from environmental activists, who say that 1% of air travelers are responsible for 50% of the industry’s carbon emissions.

A recent report from the European campaign group Transport & Environment found that private jets are 5 to 14 times more polluting per passenger than commercial aircraft and that in one hour a single private jet can emit two tonnes of CO2. The group also found that in Europe alone, CO2 emissions from private jets increased by 31% between 2005 and 2019, which exceeded the growth in commercial jet emissions.

Industry leaders say that sustainability is becoming a key priority for their businesses. Embraer has made a promise to reach net zero carbon emissions by 2040, and the charter aircraft supplier VistaJet aims for the same by 2050.

For this purpose, some airlines are starting to use sustainable aviation fuel, or SAF, which generates 80% less CO2 emissions over the entire life cycle than fossil fuels. But the recovery has been slow so far.

This is because sustainable aviation fuel is expensive and difficult to obtain, said Accentures Schmidt, even though there are currently more than 20 places globally where sustainable aviation fuel can be found. The private jet charter service NetJets celebrated a year of using SAF in November, after flying 2.5 million nautical miles on the cleaner fuel.

“I see (SAF) as the next step in sustainability for business aviation, followed by new programs, new engines and the advancement of sustainability technologies,” Schmidt said.

There are 3.7 billion gallons of SAF in futures contracts, according to the International Air Transport Association. 26 million gallons of SAF will be produced in 2021, and around 45 airlines have experience in using the fuel. More than 370,000 flights have been operated with SAF since 2016.

“What we found is that we knew it was good for the business to ensure we had a sustainable product,” said Friedrich from Embraer. “It’s not only the right thing to do, it’s also good for the business. It’s the right thing to do for the company.”

The coming years will show whether the companies’ promises result in long-term changes. But given the increase in private aviation, which industry analysts expect will continue, any significant reduction in the damage it causes is likely to be far off.

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