Bloomberg News

McDonald’s to BlackRock Jet Upgrades Show Big-Plane Rebound (1)

October 21, 2013

Gulfstream G650 Business Jet

The category includes planes such as Bombardier Inc.’s Challenger 300 and Gulfstream’s G280, each seating about 10 people, on up to models such as the G550 and the G650, which is able to seat as many as 19 people. Photographer: Chris Ratcliffe/Bloomberg

U.S. corporations including McDonald’s Corp. (MCD:US) and BlackRock Inc. (BLK:US) are starting to return to the market for large business jets after putting off aircraft upgrades since the recession five years ago.

Shipments of planes with about 10 or more seats, the so-called super-midsize segment and larger, will rise more than 10 percent this year and by less than 10 percent in 2014, even with global jet deliveries poised to fall in 2013, Honeywell International Inc. (HON:US) said in its annual industry forecast today.

Big, long-range private aircraft, the types favored for Fortune 500 companies’ fleets, are a bright spot amid the worldwide pullback. Honeywell projects that buyers in North America, anchored by the U.S., will get 61 percent of worldwide deliveries during the next five years, up from 53 percent in 2012’s forecast for the first gain “in recent history.”

“They just basically went dormant during the downturn and now they’re coming back on,” said Chief Executive Officer Larry Flynn at Gulfstream Aerospace, which makes the new G650 jet able to seat as many as 19 people. “It’s a significant market opportunity.”

U.S. private-jet flight hours rose 1.5 percent this year through August, and the three-month moving average was at the highest since mid-2011, according to an Oct. 14 report from Joseph Nadol, a JPMorgan Chase & Co. analyst in New York.

Sales Momentum

Honeywell found increasing momentum for sales in North America, with buyers planning purchases equal to 28 percent of the region’s jet fleet in the next five years. That number had held stagnant at about 25 percent for the last six years, Honeywell said.

Planes in the super-midsize segment and bigger include models such as Bombardier (BBD/B) Inc.’s Challenger 300 and Gulfstream’s G280, each seating about 10 people, on up to models like the G650. Large planes will account for more than 80 percent of business-jet spending “in the near term,” Honeywell said.

Dwindling small-aircraft demand means that global business-jet deliveries in 2013 will fall to a range of 600 to 625 after 2012’s 649, according to Honeywell, which surveyed 1,500 corporate flight departments. Delays in new jet programs are chiefly responsible for the drop, not weaker sales, it said.

Worldwide deliveries during the next 10 years will total 9,250, down from last year’s forecast for 10,000 planes, according to Morris Township, New Jersey-based Honeywell, whose aviation products include business-jet engines. It released the forecast at the National Business Aviation Association convention in Las Vegas.

Aspirational Buyers

“The biggest, most-expensive jets are outperforming starter/low-end jets,” said George Ferguson, a senior analyst at Bloomberg Industries in Skillman, New Jersey. “The ultra-rich and the bigger corporations came through the downturn of 2008/2009 fine and can still afford expensive biz jets. The aspirational buyers had incomes change the most due to the downturn and they haven’t returned to the market.”

U.S. companies deferred fleet renewals as the worst slump since the Great Depression crimped profits. Private jets also became symbols of business arrogance in 2008 when U.S. automaker CEOs flew to Washington in corporate planes to lobby Congress for federal assistance to the industry.

Europe, Asia and the Middle East will all see a smaller share of shipments during the next five years, while Latin America was unchanged at 18 percent, according to the forecast, which didn’t give raw numbers.

U.S. Market

“The biggest installed base of corporate jets is in the U.S., and a fair amount of those are with the Fortune 500 companies,” Gulfstream’s Flynn said in a telephone interview ahead of the NBAA expo. “They’re not new to business aviation, so there’s a fleet replacement opportunity.”

Upgraded planes are beginning to appear in U.S. fleets. McDonald’s, the world’s largest restaurant chain, purchased a Bombardier Challenger 605, which carries as many as 13 passengers, in February to replace an existing jet, said Rebecca Hary, a spokeswoman for the Oak Brook, Illinois-based company.

BlackRock, the world’s biggest money manager, bought a Gulfstream G550 in December, according to Federal Aviation Administration registry records. Starbucks Corp. (SBUX:US) purchased a G550 in June, and health-care products maker Johnson & Johnson (JNJ:US), bought one in August, the FAA records show.

Company Reaction

Jim Olson, a Starbucks spokesman, didn’t respond to e-mail and telephone messages seeking comment about the plane for the world’s largest coffee-shop operator. Ernie Knewitz, a Johnson & Johnson spokesman, referred questions back to the FAA document, and Brian Beades, a BlackRock spokesman, declined to discuss the company’s jet.

Large aircraft have an important niche, said Rob Wilson, president of Honeywell’s general aviation unit.

“You have companies that need to do more business over longer distances and with more people,” Wilson said. “If you superimpose on that lower interest rates and company access to debt markets, you have all the ingredients for a steady, robust demand increase.”

That shift toward bigger planes is paying off for Gulfstream, which began delivering the G650, its newest jet, in December. CEO Flynn said demand is so great that buyers have a four-year wait. Its range of 6,000 nautical miles (11,100 kilometers) is almost twice that of a Boeing Co. 737-800 jet.

“My phone rings off the wall with customers who want it sooner,” Flynn said.

To contact the reporter on this story: Thomas Black in Las Vegas at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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Companies Mentioned

  • MCD
    (McDonald's Corp)
    • $91.01 USD
    • -0.58
    • -0.64%
  • BLK
    (BlackRock Inc)
    • $319.16 USD
    • 6.03
    • 1.89%
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