‘Overhang’ Clouds Bizjet Recovery, Says JPMorgan

“Will the overhang finally abate enough in 2011 to drive new [business jet] orders?” JPMorgan North American Equity Research aerospace analyst Joseph Nadol III asked in his firm’s latest monthly business jet report, released on Tuesday. Citing a “significant overhang” of pre-owned jets available at attractive prices, the report said business jet demand remains “anemic” while new aircraft backlogs continue to decline. “We see potential for further rate cuts if orders do not pick up. However, there are reasons for optimism,” Nadol wrote. “Global corporate profits were up an estimated 46 percent in 2010, and they have historically been correlated with bizjet deliveries, though there is a one- to two-year lag.” In addition, pre-owned inventories of in-production business jets have “gradually” trended down since mid-2009 and are now 3 percentage points off the peak; this includes a “solid” 0.4 percentage point drop last month, to 11.3 percent. “The bad news is that even after this decline, inventories remain at a level identical to the 2001 peak,” the report added. If demand begins to pick up later this year, JPMorgan believes that business jet deliveries could meet its forecast for about 20-percent growth in 2012. However, the report said, “If orders do not start coming in, the recovery will get pushed out.”


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