The business jet industry is expecting 2012 to mark its first year of growth in deliveries since the financial downturn, but more pain could still be ahead for the low end of the segment that has been hardest hit.

2011 did not play out as we expected to see the growth and orders being placed, so we're shifting our hopes to 2012, said Jens Hennig, vice president of operations at the General Aviation Manufacturers Association, a Washington, D.C.-based international group that tracks noncommercial aviation.

Honeywell International , maker of avionics and engines, also thinks better times are coming.

We believe 2011 will be the low point, said Rob Wilson, president of Honeywell's business and general aviation unit.

Unit deliveries will rise 3 to 5 percent in 2012 as new models such as the long-range Gulfstream G650 enter service, Honeywell projected in its annual business aviation outlook released on Saturday.

Demand for business jets fell in 2009 after five years of growth in deliveries as companies clamped down on spending after the global financial crisis peaked in 2008 and tighter credit made purchases difficult.

Business jet shipments fell again in 2010 and were down about 27 percent through the first six months of this year, according to GAMA data on worldwide deliveries.

(For a graphic of shipments click on )

Volatile financial markets and fears that the economy could get worse are weighing on buyers.

The classic indicator for business jet deliveries is corporate profits, which are at record levels, said Richard Aboulafia, an aerospace analyst with Teal Group. The problem is that people are reluctant to spend.

Larger jets, used by bigger companies and extremely wealthy individuals, have fared better than smaller ones whose chief clients include small business customers that have been pinched in the downturn.

Deliveries of large jets rose 13 percent from 2008 to 2010, while light-jet shipments fell 61 percent during that time, according to data from the manufacturers' association.

Companies that offer larger business jets include General Dynamics' Gulfstream unit. Those that cater to the smaller end of the market include Textron Inc's Cessna and privately held Hawker Beechcraft.

The larger the jet, the more positive the market feeling is, said Eddy Pieniazek, director at the global aviation consultancy Ascend. That small end is bouncing along the bottom and requires some more consistent economic growth to push it forward.

The lower end of the market could see more restructurings or consolidation if a recovery takes longer to play out, some said.

There's too much private jet manufacturing capacity, and I don't think it all survives, said Kenneth Ricci, principal at Directional Aviation Capital, a private investment firm. I don't think we have all this production capacity five years from now.

Slumping orders and rising cancellations led smaller-jet makers such as Cessna, Hawker and Bombardier to cut U.S. jobs in recent years. GAMA said its members have laid off 20,000 people in the United States since the fall of 2008.

Companies that specialize in smaller aircraft will have difficulty in the longer term and could see significant structural changes, Ricci said.

I think there'll be mergers, there'll be consolidation, said Ricci. The net result will be less manufacturing capacity for the private aircraft business, less supply and I think ultimately that will then drive the recovery.

Teal Group's Aboulafia also said the smaller-jet sector could be in for more pain.

If there isn't some kind of recovery, then something needs to happen, said Aboulafia. Either you'll see growth or someone needs to go.

(Reporting by Karen Jacobs; Editing by Tim Dobbyn)