Growing wealth in Asia to double its business aviation fleet

The latest figures indicate that despite the slowing economic growth rates China continues to expand its list of wealthy men. After all, the country is already a home to over 120 billionaires. The same trend can be observed in the entire Asian region – according to Forbes, in 2012 the yearly sales volumes of Asia-based small and medium companies grew by almost 50%. The ongoing strong formation of the middle class, as well as geographically widening ambitions of local enterprises have triggered the demand for a larger business aviation fleet, which is expected to reach up to 2200 aircraft in 10 years’ time.

 The growing wealth of Asia

Almost 340 names of nationals from various Asian countries have made their way to the recent Forbes list of the world’s richest people. According to the data, Chinese businessmen alone (excl. Hong Kong) control almost $260 billion-worth of assets. The number has increased by approx. 12-13% in comparison to the 2011 figures. Moreover, Forbes has indicated that today approx. 130 China-based companies are in possession of individually accumulated assets worth $1.3 billion or more.

 The positive trend is maintained by many other countries in the region as well. India currently has 55 billionaires with a total of approx. 190 billion-worth of assets. One of the world’s leading financial centres and a special Chinese administrative unit Hong Kong alone is home to 40 billionaires who control $192.1 billion of assets.

Table 1. Number of billionaires from Asia/Asia-Pacific in 2012. Source: Forbes

Needless to say, billionaires are not the only ones who benefit from the ever growing regional economy. The direct aftermath of the ongoing development is the significantly increasing middle class. According to various reports, today China alone corresponds to approx. 300 million citizens who may be considered to belong to the country’s middle class. This exceeds the combined population of Germany, the United Kingdom, France and Italy. India has the second largest middle class in the region with around 160 million people. According to the Asia Development Bank, the Indonesian middle class will reach the point of 150 million already next year.

 Along with their enrichment, the representatives of middle and upper classes have triggered a significantly higher demand for luxury goods. It is no secret that the Asian Tigers are the main drivers of the European luxury goods industry, the domestic market of which has significantly suffered during the crisis.  In line with the aforementioned demand for costly goods, the Asian region has one of the greatest potentials with regard to corporate and private jets, as well as complex business aviation services.

Current BizAv market in Asia

‘Today there are approx. 1400 various business jets in the region. That is almost 7 times less than in North America. Despite being the second largest economy in the world, China, along with the majority of other Asian countries is basically at the dawn of business aviation. Unfortunately, the region lacks proper infrastructure and does not have enough airports, left alone the sufficient number of providers who offer first-class services. As a result, the natural development of business aviation is put on hold,’ comments the representative of AviaIM Jet Trading Airida Kazlauskaite.

 Several Asian countries, including China and India, keep advocating protectionist approach towards aviation by maintaining high import taxes and lengthy customs procedures. With few or no possibilities to offer own effective alternatives, local BizAv markets are simply incapable of satisfying the growing demand.

At the same time the rapid development of commercial air transportation in Asia have encouraged both governments and businesses to invest into the development and renewal of airport infrastructure and relevant services. Furthermore, some Asian countries are becoming more liberal with regard to foreign presence on their markets. For instance, in September 2012 the Indian government has finally allowed foreign direct investments into national airlines thus potentially paving the way for a closer integration into the global aviation industry.

All of the above, along with the rocketing middle and upper classes, have increased the demand for both business and private aviation. Experts estimate that during the upcoming 10 years the Asian BizAv fleet will expand by 800-1400 business jets. According to Bombardier, during the period from 2011 till 2030 the Asian/Asian-Pacific region will require approx. 4700 new business jets.

Worldwide ambitions support the demand for medium and large business jets

It is not a secret that rapid economic growth and the minimal effect of the recent economic crisis have allowed some Asian countries to accumulate significant funds which have been used in the form of tremendous investments to other regions. While estimations are still underway, 2012 is already forecasted to be a record year for the U.S.-China economic relations. According to the Heritage Foundation, the Chinese investments to the American economy might have reached the $17.7 billion point. Moreover, the Chinese Investment Bank estimates that during the period of 2010-2020 China will invest approx. $250-500 billion in the European economy alone. At the same time, India has also significantly increased its ambitions. According to KPMG, India has invested $46 billion in various business segments in Africa. The figures are likely to be in the region of $70 billion in 2014.

Table 2. Chinese 2012 Outward Investment, billions USD (investments and contracts). Source: The Heritage Foundation

The aforementioned facts clearly indicate the highly intensifying communication between businesses in the East and the West. This, in return, has also upped the demand for private air transportation solutions. Considering the distance between main business aviation hubs in Asia and Europe (even with intermediate stops in airports in the Middle East), the needs of Asian businesses would be best served with aircraft which are capable of conducting long-haul flights.

Prices for new and pre-owned business jets, millions USD

‘More and more Asians travel outside of their region for business purposes. At the same time, an increasing number of people and companies can afford themselves either a fully owned jet or services of business aviation operators. This leads us to believe that there will soon be a much more considerable demand for such aircraft as Legacy 600, Gulfstream G550, Bombardier Global 5000 and others. However, the Asian market tends to prefer new, straight from an assembly line aircraft with no regard to the previously owned alternatives. This is partially the result of the overwhelming financial gains from the previous years, followed by the lust for splashing out on luxury items. On the other hand, with the expansion of the local BizAv fleet the industry will eventually develop a local market of pre-owned business jets, which are sure to find their buyers in the ever-growing region,’ concluded the representative of AviaAM Jet Trading.