Pre-owned aircraft market rebounds

 - October 10, 2007, 8:59 AM

As we embark on the final and historically most active quarter of the year, buyer activity by most accounts seems to be building steam. While the worldwide inventory of jets is holding relatively steady right now, in May it dipped to 1,810 aircraft, a level not experienced since July 2001. The fact that it has stagnated at a slightly higher level since then with a nearly steady inflow and outflow suggests that the market could be poised to reduce further the number of choices for buyers to consider.

The current inventory figure seems high, but consider that only about
15 percent of the offerings are 10 years old or younger. Stabilizing, even rising, prices have caused buyers to pay closer attention to some more seasoned aircraft, which have suffered significant price deterioration over the last few years. The price erosion on many of these aircraft may finally be coming to an end, as many brokers report an uptick in sales activity on these aircraft, yet there still remains a large number of choices.

Take, for instance, the Citation III, which Cessna produced from 1983 to 1991 before replacing it with the Citation VI and Citation VII in 1991. Four years ago it traded in the $5 million to $7 million range, but now prices are in the high $2 million to high $4 million range and buyers are sensing value. This year started with 40 for sale, which is right where it is today, after dipping down to 31 units last quarter. Two years ago choices had risen to 50, representing 25 percent of the roughly 200-strong Citation III fleet, whereas the current stock brings the percentage figure down to 17, which is still high, but with pricing at current levels should continue to experience a further reduction in choices.

Another example is the arch rival of the Citation III, the Hawker 800A. It started the year with 29 for sale but has grown to 35 today, or 15-percent availability. Of those, six have sales pending. That is a large percentage of aircraft to be spoken for at any time, and another indication that the market of late is paying closer attention to these 10- to 20-year-old aircraft. The Hawker 800A production run spanned from 1984 to 1992. The fleet grew to 225 before the popular Hawker 800XP replaced it. Speaking of the XP, its production eclipsed its predecessor’s total number in 2000 and will probably double it by early next year or before. The fact that fewer than five percent of the 423 Hawker 800XPs are for sale speaks to the desirability of the type.

Also in the middle-age medium jets category is the Learjet 55. It matched an all-time inventory peak of 33 units for sale in February (previously reached in July 2001) but has since dropped to 21. Of the 124 Learjet 55s produced between 1981 and 1986, 117 are currently in service. The 21 for sale represent 18 percent of the active fleet. In contrast, fewer than 10 percent of the 277 copies of the Learjet 60, which took to the skies in 1992 and is still in production, are currently on the used aircraft market.

Two subsequent variants of the 55, the B and C models, were built in small numbers. Of the eight Bs produced between 1986 and 1988, none is currently for sale. One of the 15 Learjet 55Cs produced between 1989 and 1990 is for sale today.
In the larger category the GIV serves as a prime example of what can happen when the supply of a successor model dries up. The number of GIVs on offer stood at 32 aircraft throughout the first quarter of this year and had never been higher. Two quarters later it stands at less than half of that, or 15, representing about seven percent of the slightly more than 200 built between 1986 and 1993.

The numbers for the Challenger 601-3A are not quite as dramatic. Twenty-three were for sale late last year; that number is now 13, or a fraction under 10-percent availability, based on the 134 that were produced. Almost mirroring the -3A is the Falcon 900B, 25 of which were for sale late last year. The supply has since dwindled to its current 13 out of a possible 125, for a fraction over 10-percent availability.

Older Model Aircraft
While these 10- to 20-year-old aircraft are starting to show signs of life, the 20- to 30-year-old group continues to be lackluster for the most part. Consider the Hawker 700A, built between 1977 and 1984. Of 181 aircraft built, 177 are still in service and 48 of them are for sale, for 27-percent availability. That number is not as high as it was a few months ago when it hit 53, but it is certainly more than most sellers would like to see.

Based on high availability figures, the Hawker 700A has plenty of company, including the Challenger 600, the Gulfstream II and III, Cessna Citation II, Learjet 35A and more. Compared with four or five years ago, today’s prices for these jets are essentially a half-price sale. Back then, the Challenger 600 carried an asking price in the high $8 millions to low $9 millions. Now, with availability at about 30 percent, the aircraft has a significantly lower price. While the Challenger is a Stage III aircraft the GII and GIII are not–perhaps another factor, on top of age, that is contributing to their continued softness. The GIIs chime in at 27-percent availability, based on the 189 currently in service, a figure 25 aircraft below its production run due to a number of aircraft being written off for one reason or another. The GIII has 21-percent availability based on 42 of its 197 currently on the used market.

The current trend is one that has seen late-model and current-production aircraft lead the pack out of submission and in doing so has cast more light on the 10- to 20-year-old aircraft segment. Current market conditions suggest that the steady level of buyer activity is set to continue throughout the remainder of this year, which will likely exert further tightening on the supply of many older types left adrift over the last few years as the market searched for the bottom.