UBS Bizjet Survey Reflects Continued Weakness

Jan 5, 2009
Benet Wilson



The latest UBS index of business jet market conditions only slightly improved over the all-time low hit in the November index, reflecting a market that continues to rapidly deteriorate. The UBS business Jet Market Index rates market conditions on a scale of zero to 100 with 51-100 representing strengthening market conditions, and below 50 marking weakening conditions. The December Business Jet index was valued at 14, barely better than the 13 in November.

UBS analyst David Strauss surveyed more than 1,000 broker/dealers, manufacturers, fractional providers, financiers and others, and the report is based on 156 responses. "Our overall business conditions score continued to decline sharply, dropping 18 percent this month to a second consecutive all-time low," he said in the latest report. "We believe this reflects a market with few serious buyers, too much supply (used and new delivery slots) and pricing that has fallen 25 percent+ over the past six to eight weeks."

Using a scale of zero to 10 - with zero as the worst and 10 the best ever - the survey asked how respondents would characterize overall business conditions after factoring typical seasonality. Scores ranged from zero to six, with an average of 2.6. The business conditions score has now dropped over seven consecutive surveys, and is well below five, indicating a much worse-than-normal operating environment, the report said.

The survey also asked if a business has experienced some slowing recently, is it attributed mainly to: slowing end market demand, limited supply, availability of financing, or not applicable - business has not slowed. Of the 156 responses, 21 percent said their business had not slowed, while 18 percent indicated that business had slowed due to availability of financing and 49 percent indicated that business had slowed due to slowing end market demand. The remaining 12 percent indicated that both limited financing and slowing demand had contributed to deteriorating business conditions.

While the UBS survey indicated slowing end market demand for some time, financing looked to be there to deliver the backlog. "However, over the past two months since the [National Business Aviation Association convention in October], business jet financing looks to have dried up considerably as roughly one-third of survey respondents now cite limited financing as compared to virtually none prior," Strauss wrote. "The surge we have seen in delivery slots available for sale is likely at least partially attributable to this and indicates that backlogs are at risk."

USB believes the deterioration in its survey, increase in available for sale aircraft and decline in flight activity presage what it thinks will be a significant slowing in new aircraft demand. "While the stocks have already fallen, we think looming weak order activity and building risk that backlogs deteriorate are likely to continue to pressure valuations," wrote Strauss.

Cessna Citation photo: Cessna