““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
China’s jet buyers are opting for large models
With demand for business aircraft weak in traditional markets like the U.S., many manufacturers are looking to China for growth. At last year’s Asian Business Aviation Conference and Exhibition (ABACE), Canada’s Bombardier—which now claims about a third of the Chinese market—said it expects the number of business aircraft in the country to increase dramatically by 2030. The company predicts that by then Chinese customers will have bought more than 2,300 new business jets, resulting in a nearly tenfold increase from the present number. Embraer, meanwhile, forecasts that over the next decade China will need 635 such jets, worth $21 billion.
Such predictions explain why business aviation manufacturers continue to invest in China. In 2011, Gulfstream launched a Beijing sales office. Last year, the company opened a joint venture service center at Beijing Capital International Airport along with Deer Jet and Hainan Aviation Technik. And Dassault Falcon recently opened a Beijing customer service office.
Bombardier, which has also invested a lot of resources and expanded its sales team in China, has opened an office in Shanghai to complement its existing Hong Kong and Beijing offices.
“Traditionally, the market in China has favored larger aircraft like our Global jets,” said Michael Han, Bombardier’s regional vice president of sales for business aircraft in China. “Increasingly, we see a lot of interest in our Challenger and Learjet aircraft as well. Long-range travel remains a key requirement, but as travel needs within China and across Asia increase, there is a growing need for smaller aircraft.”
Bombardier delivers a handful of the large-cabin Challenger 850s each year, the majority of them destined for Asia. “I haven’t heard of an 850 that was sold outside of the area,” said Jahid Fazal Karim, co-owner of global aircraft brokerage Jetcraft, which has been involved in sales in the region since 2008. “I would say it’s 90 percent of the 850 market today.” That tallies with an assessment from Canadian 850 completions specialist Flying Colours, which sees its aircraft heading almost exclusively to Chinese owners. While the twinjet possesses the reliability of the regional jet from which it derived, and a spacious cabin on a par with that of its Global 6000 stablemate, the 850 has less than half the latter’s range.
“In general, Chinese clients like big cabins,” said Karim. “That’s why the Challenger 850 is relatively popular there. It doesn’t have much range but those clients really don’t need that much range because they are doing a lot of regional and domestic travel.” A penchant for big cabins has also fostered demand for aircraft such as the Dassault Falcon 2000, Embraer Legacy 650 and Bombardier Challenger 605.
Yet healthy demand also exists in China for long-range jets, as evidenced by the nearly 50 percent of the market claimed by Gulfstream. “We have a wide range of customers, but our aircraft are most popular with corporations, individuals and charter operators—in that order,” said Scott Neal, Gulfstream’s senior vice president for sales and marketing. “For many large corporations, the founder/individual is still at the helm and making the decisions. As the market matures and the second- and third-tier customers are exposed to business aviation and its benefits, we will see a change in the types of customers we encounter.”
Gulfstream’s products are among those favored by the nouveau riche in China who have earned their fortunes through the country’s burgeoning real estate business, according to Karim. “Their businesses take them a bit outside the territory, so they probably have more of a longer-range need, but they will also go for the best thing,” he said. Bombardier’s Global 6000, Gulfstream’s G550 and newly certified G650 and even bizliners such as the Airbus ACJ and Boeing BBJ rank among the preferred choices.
Given the high import taxes on business jets in China coupled with high operating expenses and the difficulty involved in finding qualified pilots in the region, Karim believes that those who can afford to import a jet are choosing the biggest models they can afford.
While the narrowbody, lower-end segment is battling headwinds in terms of Chinese acceptance, that attitude will change as the industry evolves, according to Karim. “As the market matures,” he said, “a lot of these companies, especially the domestic ones, will realize that if you are going to move people around on a two- to four-hour leg, you can do it much more economically in a Citation Excel, Lear 45, G150 or Hawker 900.”
Chinese buyers prefer new or late-model jets, but once the inventory of used airplanes grows, purchasers will have to think twice about whether to bring in a newer aircraft or buy one that has already been registered in the country. Purchasers of previously registered jets “may pay a little bit more,” said Karim, “but if you factor in the 20 percent tax on imports, they are better off buying a plane that is Chinese registered.” Another bonus for buyers of pre-registered jets, he said, is that they avoid the four- to six-month process required to transfer a foreign preowned jet to a Chinese registry. “Naturally there will be more in-country transactions like that,” he said.