Parts of an Industrial/Transportation 2024 outlook report
Business Aviation—Underlying Trends Remain Healthy
• Global Jet Capital published its Q3/23 summary of the business jet industry. We would highlight the following:
1) OEM backlogs increased 5.9% Y/Y to US$4.6B and industry-wide book-to-bill was 1.2x;
2) Aircraft listings increased Y/Y. Aircraft listed for sale YTD as of Q3/23 was 1,965, up from 1,602 in the same period in 2022;
3) The percentage of business jet fleets for sale stood at 6.6%. While this is higher than the recent low of 3.1% in Q1/22, it is still below average levels of 10%-11% over the last decade; and, 4) Average business jet residual value increased 4.8% Y/Y, with older aircraft performing better than younger aircraft. Values of aircraft 13 years+ were up 7.4% Y/Y compared to a 3.9% Y/Y increase for younger aircraft.
• Business jet traffic exhibited some softness earlier in the year—business jet traffic was trending below 2022 levels in March-July—but has rebounded since September. For example, business jet activity exited November up 5% Y/Y vs. down 4% in April-May. We continue to see traffic trend above pre-pandemic levels. The positive underlying trend is constructive for the industry against a slowing economic backdrop.
• Flight activity on BBD aircraft continues to outperform the broader industry trends. In November, for example, BBD aircraft traffic was up 11% and has been above 2022 levels since September; we view this as a positive tailwind for BBD’s Service revenue. For BBD, we are forecasting 145 deliveries in 2024, US$8.49B in revenue (US$1.88B from Services), an EBIT margin of 10.3% and FCF generation of US$690MM.
• We remain optimistic on BBD’s ability to execute against its multi-year plan, which includes hitting more than US$9B in revenue, more than US$1.625B in adjusted EBITDA, more than US$900MM in FCF, and leverage of 2.0x-2.5x by 2025. We also estimate the company will deliver 138 aircraft in 2023, increasing to 145 units in 2024E and to 150 planes in 2025E.
Target at 62$ (up 2$)
BBD.B continues to benefit from the tailwinds in the business aviation market (i.e., flying hours above pre-pandemic levels, historically low number of used aircraft for sale, surge in new customers, two-year backlog), and its ability to hit its 2025 targets is significantly de-risked. That being said, our Neutral rating on BBD.B reflects our view that business jet deliveries will peak in 2025/2026 and that there will be a step-up in capex closer to D&A post 2025