It has been almost 30 years since Honda Motor Co (HMC) started developing the idea, but now the company is getting close to delivering its first aircraft: the HondaJet.
Honda received certification from the Federal Aviation Administration on Tuesday, which was its one final hurdle before kicking production of the business jet into high gear.
The jet, which can seat up to seven and is priced around $4.5 million, has already received over 100 orders in North America and Europe.
HMC Stock’s Airspace
The HondaJet shines light on some actionable developments throughout the aviation world.
At such a low price point (relatively speaking, of course), it’s going to create some pressure on other executive jet manufacturers who tend to sell entry-level aircraft at $8 million and up. The space may not be a huge piece of the business for companies like Bombardier (BDRBF), but Honda’s competitive costs will be a drag nonetheless.
Such a disruptive price point could open up executive travel to companies that otherwise couldn’t consider running their own planes.
“Light” regional business jets have been a real slow spot since the 2008 market crash, even though high-end luxury travel is thriving in the U.S. in particular, where there are executives — some I know personally — who “hate flying commercial.”
If you can afford a corporate jet, odds are pretty good that you’re flying a big plane. Activity at the small end is still tentative, with only half the sales we saw in the pre-2008 boom. In the current market, there isn’t as much wealth being generated to turn small companies into big players, so the low end of the consumer ladder isn’t as robust as it once was.
When it comes to luxury travel, Bombardier is the top dog. Its management doesn’t care as much about the low end, which is where HMC’s HondaJet wants to open up the market to new customers — disrupting a core business for Cessna — of Textron (TXT) — and Embraer (ERJ) in the process.
Bombardier may face some pressure on its light jets — the traditional “Lear” that corporate honchos ride around in — but it probably won’t be enough to have a significant impact.
HondaJet Could Appeal to a New Market
Where HondaJet might get especially interesting is that it’s cheap enough at $4.5 million for wealthy individuals to lease or own outright. This is a new class of luxury toy for those who might have otherwise bought a yacht or a whole garage’s worth of cars. That’s good news: it extends the existing private aviation market.
Cheap fuel makes it even more affordable, which has been a drag on commercial aviation — Boeing (BA), Embraer, Airbus (EADSF) and the like — because of the wall that carriers have hit in terms of commercial capacity. Enough planes are flying now that the carriers are making pretty good money, and the relief on fuel turns that into profit, which is all fine and dandy.
But the moment a company like Virgin America (VA) tries to buy planes in order to grow, suddenly everyone hollers “overcapacity!” and it’s disaster for the group.
Companies are scared to buy planes because it fosters the fear of a price war for a limited pool of passengers three to five years down the road.
Enter Honda, slipping into a part of the airline market that’s been anemic for the past few years.
This project had been delayed by about five years or so, but ironically the timing might actually work in HMC stock’s favor — if the company can avoid getting stepped on by the giants in that same space.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media. As of this writing, she had no position in any of the aforementioned securities.
