GO
Loading...

Special Report: Private Jets Get Bigger, Faster, Cheaper

Private Jet
Private Jet

The private jet industry is gaining altitude again after its death spiral during the recession. But jet makers, brokers and fractional companies say it will be years before the industry reaches its pre-crisis peak – if it does at all.

Used jets are still selling for half of their 2008 prices, while inventory remains high and jet use remains well below peak levels, as companies and the super-wealthy pare back their flights. As the industry rapidly reinvents itself to adapt to the shifting demand, the price of flying private is falling to record lows.

“It’s been a brutal downturn for this industry, followed by dashed expectations for recovery,” said Richard Aboulafia, analyst at the Teal Group, the aviation-research firm based in Fairfax, Va. “But the features are in place for a recovery and I think we’re already starting to see some slow and steady progress.”

This year, there have been a total of 172 new jets sold in North America – a drop of more than 70 percent from the 658 new jets sold during the same period in 2008, according to JETNET, the Utica, N.Y.-based jet research firm. The volume of used planes sold is about on pace with 2008 and 2009, yet prices for used planes are still down by a third or more from their 2008 peaks.

Inventories of used planes remain high. The inventory of used business jets remains at 13.7 percent of the total fleet, according to JETNET, with jets taking an average or more than a year to sell. That’s down slightly from the 17 percent levels in 2008, but still above the 11 percent levels before the crisis. (Read more: A Peek Inside Boeing's New VIP Jet)

In its most recent industry report, JP Morgan said there are scant signs of an imminent bounce for private jets. While “corporate profit growth since the recession may have generated some pent-up demand, the outlook for slowing profit growth does not bode well,” according to the report.

Aboulafia said he doesn’t expect a recovery until 2016 or 2017.

The weak demand and prices has led to a radical restructuring in the private jet business, forcing all segments of the industry to conform to the new realities of flying private.

For jet makers, the future is about emerging markets like China, India, Brazil and the Middle East. Jet manufacturers are ramping up their sales staffs and expanding offices and support teams around the world to capture business from companies and the newly rich in these regions.

The jet makers are also launching products better suited to the new market. The top end of the market – with the biggest, fastest, most expensive planes – has been the most resilient. Gulfstream, for instance, has had strong demand for its new G650, an ultra-large cabin, ultra-high-speed jet that has a range of 7,000 miles. The price: $70 million.

In the mid-range and lower end of the market, aircraft builders are aiming for faster, more efficient planes. Learjet and FlexJet (both units of Bombardier) are rolling out the new Learjet 85 this fall, which is nearly 50 percent larger than the Lear 45, allowing passengers to stand in the cabin. It’s also far more fuel efficient, since it’s made from lighter carbon-fiber composites.

For fractional and charter and companies, the new game is providing lower prices, better service and more flexible offerings. The industry has seen a large rotation among jet owners and short-term customers, as those private fliers who used to own planes outright now opt for lower-priced fractional shares or charters.

Private Jet Sales 2009 Vs. 2012

Sales 2012*
Sales 2009
Jet Sales New Used New Used
North America 172 1155 419 1097
Outside North America 172 393 423 458
Total Jets 344 1548 842 1555
*Through SeptSource: JetNet

Jet cards are also becoming highly popular among customers. The cards allow users to pay for a certain number of flight hours without the hastle or expense of ownership. Flexjet customers can pay about $200,000 for 25 hours on an eight-passenger Challenger 300. (Read more: A Big-Spending CEO Says, 'Simpler Is Better')

The surplus of jets in the market has led to a boom in the sales of seats or shares on individual flights. JetSuite, the California-based charter company, is now offering last-minute deals for $499. Travelers this week could charter one of JetSuite's Phenom jets – which seat four people – from Los Angeles to Las Vegas or from Washington to Boston. The $499 price was valid as long as the customers registered through Facebook.

Many other charter companies are offering larger jet charters for $5,000 or less per flight.

“Before the recession it was all about who had the biggest equipment on the jet ramp,” said Alex Wilcox, CEO of JetSuite. “Now it’s about who can be the smartest. People don’t want to fly commercial, but they are very value focused.”



-By CNBC's Robert Frank
Follow Robert Frank on Twitter:
@robtfrank

Symbol
Price
 
Change
%Change
JPM
---
BBD.B
---

Featured

  • A reporter and editor, Robert Frank is a leading authority on the American wealthy for CNBC.