The world leader in automobiles, Honda Motor Ltd (HMC), is making an entry into the commercial aviation sector by launching its own brand of business jets, the Honda HA-420, also known as the HondaJet. Targeted at wealthy business owners who want to own a private jet, the HondaJet has a base price of $4.5 million. It will compete against offerings from jet makers like Beechcraft Corporation, Bombardier, Cessna Aircraft Company, and Embraer S A (ERJ). (Related The Industry Handbook: The Airline Industry)

In this article, we’ll discuss the current market for business jets and future forecasts. Will HondaJet be a hit and, if so, is now a good time to invest in Honda Motor stock? (Related What is the aerospace sector?)

The Recent Jet Market Developments

The private jet market was hit hard by 2009 recession. A large percentage of its customer base were startup entrepreneurs, financial sector employees, and high-risk businessmen who suffered severely from the global recession.

As the economic condition improves, HondaJet’s seems to be timing its entrance perfectly. Lower interest rates, increased demands from corporations, and the need to replace old jets with new improved ones will fuel the private business jet market in the coming years. A new diversified set of clients may be available in near future with the financial background for owning high-priced assets like private jets. 

The Future Potential of The Jet Market

  1. The Bombardier Business Aircraft Annual Market Forecast report expects “9,000 business jet deliveries from 2015 to 2024 valued at $267 billion.” Around 45 percent of these sales are expected in North America, 17 percent in Europe, and the rest in South America followed by Asia.
  2. CNBC cites predictions by Honeywell International, which makes aviation and aerospace parts, that 9,250 new business jets will be sold in the next 10 years.
  3. Honda predicts “the business jet market in Asia to overtake that of South America around 2020,” indicating the increase in global demand and developments of new markets.

The Honda Advantage

The HondaJet was introduced only after rigorous, time-consuming, and reiterative cycles of development, testing, improvements, and innovations spanning over three decades. HondaJet features higher fuel efficiency, improved aerodynamics, higher weight-carrying capacity, longer flying distance, larger cabin space, and lower manufacturing and maintenance costs. Compared to existing private jet offerings, it looks like a clear winner.

As Honda enters a new market segment, it can expect to bank upon its established brand name, financial stronghold, global presence, and engineering expertise. It is reported to have already received 100 pre-orders, even though the jet has yet to receive final approval from the Federal Aviation Administration. If such developments are the initial trend indicators, then Honda is set to be a strong contender in the small business jets segment. 

As quoted in a CNBC article, analysts “believe that Honda will be able to capture about five percent of annual deliveries by 2020, rising thereafter” and that “Honda will deliver about 300 aircraft by 2020.” Honda is expected to face initial difficulties as a newcomer, but will be able to capitalize upon its brand name and the improving economic situation.

The private jet industry forecasts that over the next decade, a majority of jet orders will originate in the United States. As Honda Aircraft Company has strategically located its manufacturing facility in Greensboro, NC, it is well placed to capitalize on the U.S. demand for private jets. International competitors like Brazil-based Embraer or Canada-based Bombardier are not so fortunate. 

Although a newcomer in aviation, Honda has the advantage of being a global player. Its brand is known around that world for safety, quality, and reliability, and it already has a global infrastructure for sales, operations, and manufacturing. This greases the path if Honda Aircraft decides to expand. 

Depending upon the initial reception for the HondaJet, Honda is well placed to introduce modified versions of similar jet planes, adding more variety to its portfolio. All in all, initial developments look promising. In the long run, Honda can expect to benefit from HondaJet.

The Challenges

Conceptualized in 1997 and with final commercial launch expected in 2015—the HondaJet is a product of innovation, trials, and experiments. But three decades is still is long time. Imagine a competitor, such as Chinese jet maker Comac, coming out with a new innovative jet—how much time will Honda take to build something better? As an investor, one may not be willing to wait 30+ years even if there is a potential of windfall gains.

In March 2015, Honda received the “provisional type certification” from the Federal Aviation Administration. It is now only one step away from getting final certification and being able to deliver jets to customers. Though a last stop, this mandatory requirement will remain a major impediment until received.

The real value of HondaJet will only become apparent after the product is commercially launched. The market dynamics can change based on observed parameters like performance and efficiency. Markets reflect negative perceptions in stock prices very quickly; it usually takes longer for stock prices to rise on the back of positive perceptions. Even if positive, investors may need to wait before seeing the HondaJet significantly impact Honda stock prices.

The Bottom Line

The business jet plane market is very niche and full of well-established existing players. Based on the initial trends and indicators, HondaJet appears to be well placed for for a good start. It’s an addition of whole new segment to Honda, and it will take time for stock price to reflect the benefits. Investors looking to benefit from HondaJet developments need to allow sufficient time for benefits to materialize.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.