Diversified conglomerate Honeywell International Inc. (HON - Analyst Report) recently offered a sneak peek into its forecasts for the commercial aviation industry from 2013 to 2022. Honeywell’s forecasts, outlined in its 22nd annual Business Aviation Outlook, is based on macroeconomic analyses, information gathered from interviews with over 1,500 non-fractional global business jet operators, and key inputs from industry experts and OEMs (original equipment manufacturers).
According to the excerpts from the outlook, 9,250 new business jets, worth over $250 billion, are expected to be delivered during this period. This includes the delivery of about 600 to 625 new business jets in 2013, with the pace of production expected to pick up significantly in 2014.
Honeywell’s survey further revealed that operators intend to purchase new jets to the tune of about 28% of their fleets over the next five years, either as a replacement or as a capacity extension. Most of these purchases are likely to be focused on larger cabin aircraft classes ranging from super midsize to the ultra-long range and business liners, accounting for over 80% of all expenditures on new business jets.
Geographically, these purchases are likely to be centered on key emerging markets, although reflecting a slight tempering compared with the year-ago period. Asia Pacific operators expect to have new jet acquisitions of about 24% of their fleet, down from 34% reported last year despite a solid Chinese performance. About 26% of the total fleet in the Middle East and Africa are projected to be replaced or added with a new jet, down from 32% last year.
Latin America is likely to replace or add about 39% of the total fleet with new jet purchases, which remains unchanged versus last year's result. New jet purchase plan for North America has improved to the world average of 28% from 25% reported last year. However, Europe's purchase expectations declined this year to 25% from 30%-33% reported in the previous three surveys.
The key takeaways in this year's survey include two common themes that emerged from operator responses around the world. Although demand from developing markets are expected to remain significantly high compared to mature markets, it would continue to be affected by short-term economic conditions and regional turmoil. On the other hand, government’s budgetary constraints, debt, and aircraft-related legislation and regulations are the factors that may influence near-term purchase plans.
Based in Morris Township, NJ, Honeywell manufactures a wide range of aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals and energy efficient products and solutions for homes, business and transportation.
Honeywell organizes its business into four operating segments – Aerospace, Automation and Control Solutions, Performance Materials and Technologies, and Transportation Systems. Honeywell’s diversified business portfolio mitigates operating risks and enables it to earn consistent above-average returns.
Honeywell has a Zacks Rank #2 (Buy). Other companies in the industry worth mentioning include Hutchison Whampoa Ltd. (HUWHY), Sumitomo Corp. and 3M Co. (MMM - Analyst Report), each carrying a Zacks Rank #2 (Buy).