Private aviation market sources are encouraged by the global figures: demand for executive jets recovered in 2015, following the major recession and prolonged stagnation in the sector caused by the 2008 global economic crisis.
Figures from Jetsetter, which manages, sells, and buys business and organizational aircraft, show that 34 tycoons and companies in Israel own executive jets. Jetsetter CEO Gal Peleg told "Globes" that in view of the looming recovery in most of the global private aviation markets, the number of Israelis buying executive jets for themselves would rise. "Anyone wanting to buy a private airplane for himself goes through an almost predictable process: first he hires a plane, then he rents one, and at a later stage buys one. There are four or five Israelis who are at the beginning or in the middle of this process. These airplanes are functional - they are designed to help their owner in their work tasks - to provide rapid access to remote locations, to work while they are flying, or to rest between tasks. In these cases, we aren't talking about super-luxury airplanes. There are no gold faucets or caviar. They aren't exactly austere, but these airplanes are definitely designed mainly for work. They are equipped with communications systems that provide a reasonable Internet speed. In the past, they also had fax machines," Peleg says.
The 2008 economic crisis forced the world's tycoons to tighten their belts, even when they were outside their planes and on the ground. Many of those owning executive jets sold them, others who could afford it preferred to buy used jets, and the manufacturers suffered a steep and prolonged decline in demand. One of these manufacturers is Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1), which among other things produces executive jets or converts planes to executive jets, and markets them all over the world through General Dynamic subsidiary Gulfstream Aerospace.
Following the drop in demand for executive jets, IAI's civilian division lost tens of millions of shekels, thereby exerting a significant influence on the company's business performance. As part of IAI's partnership with Gulfstream, it produces the G-150 and G-280 executive jets. "The sector's recovery in the global markets could certainly have a positive effect on IAI also in the next two years. The G-280 has a significant market share, and competes with Bombardier's Challenger 350. The prices of these planes are estimated at $24 million each," Peleg explains.
$70 million per plane
Jetsetter today conducted a special prestigious conference for potential customers and those working in this sector in Israel. Peleg says, "There is great interest in the event. Hundreds of people interested in this field have registered." The conference, which took place in Jaffa, was closed to journalists; the possible customers seeking to upgrade themselves with their own executive jet expect discretion. "I'm aware of the concern among tycoons in Israel on this point. It's a sensitive point, and no one parades the fact that he owns a private plane, because it can be interpreted as a caprice or an attempt to attain a status symbol. It is very important to realize that a private plane is no longer a status symbol. People who buy them are trying to increase their productivity and be more effective at work," Peleg declares. "The economy here is good. More and more people can afford to break through the psychological barrier, and are starting to recognize their need for a private airplane in order to work. People come to me and say in a moment of honesty that they never dreamed that a time would come when they would tell themselves they needed a private plane. They hold many business meetings around the world, and it is more worthwhile for them in both money and time to own an airplane than to fly on the commercial airlines all the time."
Figures compiled by Jetsetter before the conference show that there are 20,000 executive jets worldwide, 700 of which were added in 2015.
According to Jetsetter's forecasts, which match the forecasts by leading executive jet manufacturers around the world, there will be a demand for over 9,000 new executive jets by 2025, which will cost no less than $270 billion.
The company's data show that in 2015, the private aviation market approached its 2007 volume, before the global economic crisis. If this trend persists in 2016 and 2017, the market will return to its pre-crisis volume. "The main recovery last year was in North American countries, Canada and the US,, where activity totaled $2.5 billion, while the European market remained stagnant. In economies classed as emerging, such as Brazil, India, and China, business activity declined last year, as did the procurement of executive jets. The same thing happened in Russia," Peleg said in explaining the demand trends in executive jets, adding, "Most of last year's demand was for large model executive planes, which cost $70 million. The demand for these airplanes is at the expense of the smaller models, which are worth an average of $20 million or less."
Peleg, a former Israel Air Force combat pilot, lawyer, and Boeing pilot captain, founded Jetsetter for the purpose of providing diverse services to people operating private jets or helicopters. These services consist of pre-purchase consultation, a valuation for aircraft, operating management and recruitment of flight personnel, and advice in the purchase processes, including legal advice and referral to financing groups.
According to Peleg, an Israeli tycoon seeking to buy a private jet for himself will have difficulty obtaining an attractive package from Israeli banks. "You could say that the banks are not in the picture where this market is concerned. The main banks involved in these deals are foreign banks, such as UBS and Bank of America. Many banks are horrified at the thought of financing an airplane that can be here today and in Africa tomorrow."
IAI: The recovery in the sector will continue for the next two years
Jetsetters figures for the global executive planes market come as no surprise to IAI Civil Aircraft Group head Gadi Cohen. Cohen told "Globes," "The sector is clearly recovering, although it is still slower than we expected. We expected to return in 2014 to the level of 2007 and 2008, before the global economic crisis, but it didn't happen. I predict that in the next two years, we'll see a continuation of the recovery trend in the sector."
According to Cohen, IAI produced "several dozen" executive aircraft, which were delivered to Gulfstream Airways under the close business cooperation between the two companies. "Keep in mind that the first to be hit in an economic crisis and the last to recover from it is the executive jets market. Customers who want these jets will not buy them unless they are sure beyond a doubt that the economic recovery is stable, not a flash in the pan," he said.
Published by Globes [online], Israel business news - www.globes-online.com - on January 19, 2016
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