Very Light Jets Weather the Storm

The economic downturn and high fuel costs are taking a severe toll on the aviation industry. Airlines are failing and major aerospace manufacturers face a bleak outlook as orders dry up. But the demand for very light jets (VLJ) is booming amid fears of recession and, unlike most in the industry, surging fuel costs might even be a good thing.

Analysts have long been divided over the potential size of the market for VLJs, which are defined as aircraft with a maximum take-off weight of less than 10,000lb. And, while things are looking up now, the sector experienced significant setbacks this year.

Turbulent year

First was the bankruptcy in February 2008 of the Colorado-based Adam Aircraft Industries, which was developing the turbofan-powered A700 VLJ, soon followed by Eclipse Aviation’s decision to lay off a third of its workforce in August 2008. The New Mexico manufacturer was then subject to a Federal Aviation Administration (FAA) review of the Eclipse 500 VLJ in response to union reports of safety problems when the planes were certified in 2006.

But those within the industry continue to have remarkable faith in the VLJ concept. A vote of confidence came in April when aerospace and defence manufacturing and development firm, AAI Acquisition, took over the assets of Adam Aircraft Industries and is now pressing ahead with the development of the A700. AAI Acquisition was formed by the Russian company Industrial Investors, a private-equity asset-management firm based in Moscow and London, along with a group of former Adam Aircraft employees.

In addition, although Eclipse Aviation may have encountered turbulence, it says that it has already produced 230 jets and had 2,300 outstanding orders as of the end of July. It also said that it welcomed the FAA investigation into the Eclipse 500.

Jan D’Angelo, a former Adam Aircraft worker and now head of customer support at AAI, said that his optimism about the prospects for the VLJ market in general, and the A700 aircraft in particular, is based partly on independent forecasts. One such forecast is The Honeywell Business Aviation Outlook 2007 which predicts that demand for VLJs will explode, with total deliveries ranging from 8,000 to 9,000 aircraft between 2007 and 2017. Honeywell’s projections are based on general aviation or owner-pilot survey data collected in 2005 and corporate flight-department interest reflected in a 2007 purchase expectations survey.

“We estimate, somewhat conservatively, that we can capture around 10% of the market or around 600 to 700 units, which is a lot of aircraft,” says AAI’s D’Angelo. “We believe there won’t be enough aircraft to meet demand in the VLJ segment. The evidence is there in the order backlog and if you look at the availability of various VLJ aircraft. Anyone who places an order today for a VLJ built by Embraer, Eclipse or Cessna, for example, won’t receive the aircraft until well into 2010 or 2011. It’s even possible that it won’t get delivered until 2012.”

He adds: “We are already seeing strong demand for VLJs from a combination of individual owners and from the commercial sector in terms of air-taxi and air-charter operators. But once the airplanes are flying and they have established a track record in terms of reliability and performance, we anticipate that demand from corporate customers will also take off.”

According to D’Angelo, demand isn’t just focused on the US. “We are seeing a tremendous amount of interest in Europe and Asia. We anticipate very high demand in China, India, Russia and Europe and we’re talking to a number of customers in these parts of the world.” Indeed, D’Angelo approximates that foreign customers will account for around 40% to 50% of deliveries of the A700.

Embraer, which is a leading player in the VLJ sector through its Phenom 100 aircraft, is also forecasting that sales will be strong around the globe and not just in the US. It expects to deliver more than 1,000 VLJ aircraft to Europe, the Middle East and Africa over the next ten years. Embraer predicts that while the traditional markets, including corporate buyers, are expected to account for around 400 aircraft, new business areas such as air-taxi companies will account for an even greater proportion of deliveries. The manufacturer hopes to gain FAA approval for its Phenom 100 in the coming months and plans to have delivered ten to 15 of these planes by the end of 2008.

Meanwhile, Cessna delivered its 100th VLJ aircraft, the Citation Mustang, in August 2008. The first Mustang entered service in April 2007 and Cessna had delivered 45 by the end of 2007. The company has stated that it expects to deliver 100 Mustangs this year and plans to increase production to 150 in 2009. It currently has orders for more than 500 of the aircraft and says that three-fifths of orders are from customers based outside the US.

Pulling factors

D’Angelo says a number of factors are driving demand for VLJs. “The aircraft are filling a void between single-engine turboprops and the aging fleet of cabin-class pressurised piston twins,” he cites as an initial attraction.

Furthermore, the VLJs offer big cost advantages over traditional business jets in terms of both the initial purchase price and operating costs, and that is bound to be a significant selling point in these straightened economic times.

In addition, high fuel costs are also helping to drive sales. “For the first time people are coming up to us at shows and saying they are looking for a more fuel-efficient aeroplane than the jet they are currently flying,” says D’Angelo. Increasing environmental awareness is also a factor.

“People want to be socially responsible. Thus, they are much more likely nowadays to embrace a fuel-efficient transportation solution than to use a Gulfstream to fly three or four people for 400 nautical miles.”

It has become a cliché that the aviation industry is currently facing a ‘perfect storm’ of adverse conditions, including high oil prices, the credit crunch and an economic downturn. But for the VLJ sector, these conditions – and other factors, such as the environment – might actually help to propel sales.