Tighter Credit, Uncertain Government R&D Funding, and New Competitors Among Challenges Facing U.S. Business Jet Manufacturers

The U.S. business jet manufacturing industry is facing new challenges as it competes in a market environment characterized by tightened credit, uncertain government funding for research and development (R&D), and new entrants into the industry, reports the U.S. International Trade Commission (USITC) in its publication Business Jet Aircraft Industry: Structure and Factors Affecting Competitiveness.

The USITC recently concluded the investigation for the U.S. House of Representatives' Committee on Ways and Means. As requested, the report covers the period 2006-2010, with data from 2011 as available, for business jets at or below 50,000 pounds maximum takeoff weight.

The report provides an overview of the structure of the U.S. and global business jet industry; discusses the global market for business jet aircraft and the effects of the recent economic downturn on business jet demand; reviews government policies and programs involving the business jet industry, including those related to financial support, aircraft R&D, and certification; and examines factors that may affect the future competitiveness of the industry, particularly in the United States, Europe, Brazil, Canada, and China. Highlights of the report follow.

• Three of the world's six leading producers are headquartered in the United States, where the majority of production occurs. However, all six of the original equipment manufacturers conduct at least one production-related activity in the United States. All six firms are part of larger corporations, most of which have diversified interests, varied manufacturing experience, and a broader resource base.
• Global deliveries of business jets fell sharply during the period studied, with customers for the very light and light business jets, the market segments in which U.S. producers are most active, being the hardest hit during the recent recession.
• The U.S. and European markets continued to account for the largest number of business jet deliveries during the period studied, despite declines in total business jet deliveries. At the same time, the share of global deliveries to emerging markets such as China, India, and Russia grew during the period. Prospects for the continued growth in business jet deliveries to these markets may be limited, however, by inadequate airport infrastructure and regulatory and tariff concerns.
• Investment in R&D, along with business and technological innovation, are keys to success in this industry. In addition to funding from business jet manufacturers and suppliers, financial support for aeronautics R&D is provided by most governments to foster important national goals. The business jet sector, however, reportedly has had the least government R&D participation among aerospace sectors globally, a trend exacerbated by recently constrained government budgets.
• Export credit agencies (ECAs), such as the U.S. Export-Import Bank, Brazil's BNDES (Banco Nacional de Desenvolvimento Econ“mico e Social), and Canada's Export Development Canada, are available sources of funding for export sales of business jets. ECAs are likely to play an increasing role in providing sales finance to the industry.
• The future competitiveness of the U.S. business jet industry may be influenced by changes in such factors as regional demand, new entrants into the industry, workforce characteristics, government regulations pertaining to the environment, airspace usage, and aircraft user fees. In some cases, the impact of these changes, such as the opening of airspace in China, may benefit U.S. industry, whereas other changes, such as a proposed aircraft user fee in the United States, may pose challenges.

Business Jet Aircraft Industry: Structure and Factors Affecting Competitiveness (Investigation No. 332-526, USITC Publication 4314, April 2012) will be available on the USITC's Internet site at http://www.usitc.gov/publications/332/pub4314.pdf. A CD-ROM of the report may be requested by e-mailing pubrequest@usitc.gov, calling 202-205-2000, or contacting the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. Requests may also be faxed to 202-205-2104.

USITC general factfinding investigations, such as this one, cover matters related to tariffs or trade and are generally conducted at the request of the U.S. Trade Representative, the House Committee on Ways and Means, or the Senate Committee on Finance. The resulting reports convey the Commission's objective findings and independent analyses on the subject investigated. The Commission makes no recommendations on policy or other matters in its general factfinding reports. Upon completion of each investigation, the USITC submits its findings and analyses to the requester. General factfinding investigations reports are subsequently released to the public, unless they are classified by the requester for national security reasons.