2005 Pre-Owned Aircraft: Business Jets

 - October 25, 2006, 9:44 AM

Looking back on the past year, no one could have predicted just how active the pre-owned market would be. While the last quarter’s final tally is pending, sales transactions for the previous three quarters suggest that this year’s totals are on a trajectory that will likely eclipse each of the year-end totals for the previous five years.

After taking a predictable nosedive in 2001, sales have increased each year since. In fact, through the first nine months of 2001 retail sales registered 947; during the same period this year the industry recorded 1,439 sales. In addition, the moving average of monthly sales continues to rise, lending credence to the forecast.

The thirst for late-model aircraft continues to be strong, as evidenced by the low availability among aircraft in the new to 10-year-old range. In this group, slightly more than 300 aircraft are for sale, or roughly 5 percent of the total number produced during those years.

As the supply of these late-model aircraft has tightened and manufacturer backlogs have lengthened, buyers have begun to pay closer attention to the more seasoned jets. Another 1,300 used jets fall outside the zero-to-10-year-old group, and a number of the more popular aircraft have seen their stockpiles reduced this year. Consider availability of the GIV, which this spring climbed to 23 and later lowered to 13 before ticking up a couple of notches to 15 in late October. An uptick in the Challenger 601-1A market, which saw its numbers recoil in the last six months from 14 to eight, is another example.

In slightly more than two years the Beechjet 400A has experienced a greater outflow than inflow, shedding a net of nearly 20 choices–from 50 down to 33. In the same time frame, the number of choices for the Hawker 800XP dropped by half, from 30 then to 17. The number rebounded to 23 in late October. Considering there are nearly 475 aircraft in the fleet, the recent uptick increases the availability to about 5 percent, once again establishing its standing as a sought-after commodity.

In spring 2003 the Falcon 50 market was saturated with more than 50 choices, but that peak has since fallen by more than half, to 23 today, bringing availability down to slightly less than 10 percent of the number produced.

In the light jet market, the CitationJet has picked up considerably from a year ago when there were 37 aircraft for sale. Currently, 26 are on the market, with sales pending on two of those, bringing availability to just under 7 percent. These are just a few of the growing number of examples that have either begun to or continue to exhibit a trend toward lowered availability.

Market Rationalization

Not all late models are moving toward lower ground. The ones that are not might be cooling because their once overheated markets are returning to normal supply levels. Two examples that come to mind are the Citation Bravo and Learjet 45. Last fall there were 14 Bravos on the pre-owned market, and by May of this year choices had spiked to 25. The overheated CJ2 market shed excess buyers in the direction of the Bravo market, moving inventory back down to about 20 aircraft at present.

Inventory of the Learjet 45, which as recently as August last year dwindled to five, has since ballooned to 23, prompting a lowering of some asking prices. The Learjet 45 market turnaround is probably more a product of how successful the aircraft is than anything else. Last year buyers clamored for the aircraft, and sellers (keenly aware of this demand) raised prices accordingly. As often happens, the price hike was more ambitious than buyers would tolerate, resulting in the move to higher availability.

Other model types are holding steady, but could get a fourth-quarter push. One such example is the Citation Excel. Currently, 16 are available, or fewer than 4 percent of the 372 produced. It’s a tight market and one that avoided much of the price carnage of a few years ago. No fewer than 10 Excels have been on the market since May 2001, when the production numbers were far lower than they are today.

A buying onslaught on the Excel is currently under way that could squeeze availability back into single digits. Of the 14 for sale now, five are listed as “sale pending,” so single digits or not there’s a real likelihood prices will experience a fourth-quarter bump. The new Excel XLS, now with more than 100 built, shows up on the used market with just one example, which delivered new last month.

An Alternativeto the Latest Models

While it’s not necessarily a news flash, one market radiating a significant amount of heat is the GIV-SP. It began the year with 14 for sale, but the number dropped to six by mid-year and has bumped up to 12 recently. With two of those spoken for, availability is at just 3 percent based on the 286 in service. Prices have moved up all year long, reaching into the high $20 million range and with good reason when you consider that the replacement production airplane, the G450, reportedly sells somewhere in the low- to mid-$30 million range and is backlogged into late 2007. Perhaps not surprisingly, none of the small number of G450s in service is for sale today; however, earlier in the year a lone, low-time G550 with an asking price in the mid-$40 million range took 100 days to sell at a figure suspected to be above what it sold for new. At the moment a second one is listed as having a sale pending.

The flock of late-model Falcons is depleted. One such example is the Falcon 50EX, a fleet that offers up just three of its 93 aircraft. This market has never seen more than a handful for sale to begin with–until this year, that is, when in the spring six became available before inventory dropped to the current level. Basically, it seems that any aircraft with an EX suffix is hot right now. The 158-strong Falcon 900EX fleet is offering up just three used aircraft, or slightly less than 2 percent, and not one of the nearly 75 Falcon 2000EXs is on the block.

This has buoyed the predecessor aircraft–the Falcon 50, 900B and 2000–which have perhaps not surprisingly become scarcer as well. The Falcon 50 started this year with 29 for sale, and that number has moved down to 22, or just under 10-percent availability. The Falcon 900B started the year with 14 and is now at 11 for sale, or 8.5 percent.

Perennially one of the hottest properties is the Falcon 2000, and this year is no exception. There are only two for sale, but one of those is not available for delivery until the second quarter of next year. So only one of the 286 Falcon 2000s in the fleet is available today.

Another large aircraft in tight supply is the Challenger 604. Thirteen of a possible 327 are for sale and two of these are under contract, effectively lowering availability to about 3.5 percent. Pricing runs from the mid-$16 million range for a 1997 model with nearly 6,000 hours to $23 million for a 2002 model with fewer than 1,000 hours. The Global Express is also a hot property, with just four of 149 for sale, with one sale pending, representing roughly 2-percent availability. Pricing runs from $38 million to $40 million.

The Global’s counterpart, the GV, has a half dozen of its possible 193 for sale, with a sale pending for one of them, translating to 2.5-percent availability. Asking prices are huddled around the $36 million to $39 million range. Similarly, Gulfstream’s super-midsize G200 has been on a tear since the year began. The market outlook was abysmal early this year as choices swelled to about 20 of its then 100 for sale. By May, however, the total had drifted to 15, and as of early last month there were only six.

Some Markets Remain Flat

While some markets have shown dynamic changes this year in terms of inventory and price, others have trodden water, defying the upstream currents. One example is the Learjet 60, which has held fairly steady for quite some time. The market is neither hot nor soft. It sits right on the fulcrum, at about the 10-percent availability level, which is often used to define a normal supply. A couple of years ago there were 28 for sale; last year, there were 25 and this year 33. Accounting for the annual production figure increases, the supply of used variants in percentage terms has stayed fairly consistent over that time frame.

The Learjet 31A is charting much the same course, with 26 for sale currently. A year ago there were 26, two years ago 25, three years ago 28 and four years ago 26. That’s about 12.5-percent availability, through what arguably may have been the worst markets as well as what is now one of the better ones. Prices range from the high $2 million area and break into the low $4 million range for a 2001 model. The fleet size has remained roughly the same over this time span. While the aircraft was in production in 2002 and 2003 the numbers added were insignificant. Not including the original Learjet 31, a total of 208 Learjet 31As were produced between 1991 and 2003.

The CitationJet garnering the most attention these days is the CJ3. The last one to sell, actually a delivery position (as most are right now), surfaced on the Internet one day, received multiple offers within days and went under contract shortly thereafter. Before word of the CJ3’s desirability began to circulate, some early position holders looking to get out of their obligations were pleased to recover their deposits. Now they seem dissatisfied if they don’t pocket a $400,000 or $500,000 premium. Five positions are available right now, with the earliest slated for delivery late in the first quarter of next year.

Mixed Reviews for Aging Aircraft

The Astra SPX has halved its available choices from the beginning of this year, falling from eight to four, reducing the availability to less than 7 percent. Since only about 60 were produced, the perception of this market’s health can change rapidly. Right now it’s decidedly upbeat, considering that none of the 21 G100s (essentially a nameplate change) is on the market. Including the Gulfstream aircraft in the equation squeezes availability down to 5 percent.

The earlier Astra variants–the original, now often referred to as the “Classic,” and the SP–are both trading at figures well above a couple of years ago, despite their abundant supply. The Classic tips the scales at 25-percent availability, but the Astra SP market is tightening rapidly. Seven are currently available, with sales of two pending. Only a portion of another one of the seven is for sale (by a private owner) and, reportedly, there’s action on at least one other, effectively lowering the choices to three.

While aging aircraft will likely continue playing second fiddle to newer variants, a long-awaited recovery for some might be taking shape, but for others their day in the sun may have passed. Consider the GIII, which for years had been the mainstay of a number of large flight departments. While it had plenty of company during the downturn, it has been slow to recover. Currently 29 are for sale. The number available hadn’t dropped below 30 in four-and-a-half years, and at one point, three years ago, reached 50.

Another example is the Learjet 35A, which had hovered on either side of 100 for sale from November 2002 to 2004. Then last year at this time the market tightened and has since depleted the stock by 25 percent, bringing renewed vitality to the model.

Learjet 35A owners are experiencing the benefits of a fledgling recovery for their aircraft, while owners of Falcon 10s, Citation IIs and GIIs and others have not fared as well. While sales are occurring, they are doing so at significantly lower prices than before the market downturn.

The Falcon 10, for example, has seen prices fall but is still plagued by high inventory. In fact, there are 36 for sale today, down eight from a year ago. The all-time peak occurred in September 2001, when choices topped out at nearly 50. With 189 built and nearly 25 written off, today’s stock represents nearly 22 percent of the active total. The Citation II is also stymied by market indifference. Inventory since mid-2002 has fluctuated between 100 and 125 and currently stands at 120, or 20 percent of the active Citation II fleet.

As this year draws to a close it leaves many late-model choices ratcheting lower, with prices ascending accordingly. Older aircraft could go either way at any time, but right now enthusiasm defines the outlook as buying has picked up. Despite small increases in interest rates and wildly fluctuating fuel prices, a number of positive factors moving the market ahead this year are still solidly in place and a lack of any surprises should keep the market on firm footing heading into next year.   

Source: JetNet, Utica, N.Y.