2005 Pre-Owned Aircraft: Turboprops

 - October 25, 2006, 10:26 AM

ellers of used turboprops, many of whom AIN contacted at last month’s NBAA Convention in Orlando, Fla., generally remain optimistic that the turnaround that began last year will continue well into next year.

“Our market usually follows the rest of the economy,” said Dan Dickinson, vice chairman of the National Aircraft Resale Association (NARA). “I think the market is good, but you have to define what the market is.” He said the older turboprops constitute one market and the newer airplanes that are still in production are quite another market.

The older jets and turboprops face regulatory issues such as noise and RVSM, as well as efficiency and maintenance issues, which drive the value down, “so there are not a lot of people clamoring for those airplanes,” he said. “I think in that last downturn, the definition of old changed.”

Dickinson, chairman of General Aviation Services in Lake Zurich, Ill., opined that “old now is actually newer than it was and the old airplanes on the last downturn got a lot older quickly.”

The other factor that drives down the hull value of the older airplanes is the overhaul costs. On a King Air 200, overhauling the engines can cost $300,000 or $400,000. “Those are all things that a buyer takes into consideration,” he said. “Usually, if a certain aircraft model is on the market that is cheap, there’s a reason it’s cheap.” Older airplanes therefore are in larger supply.

Dickinson said NARA dealers are upbeat and positive going into the new year.

Mike O’Keefe, senior v-p in charge of aircraft sales for Banyan Air Service in Fort Lauderdale, Fla., said his company is optimistic about the outlook for sales of used aircraft. Sales of pre-owned aircraft types that are currently still in production–more specifically, King Airs–have been just as brisk as ever.

“They’re commanding dollars that were kind of equivalent to 1999 and 2000 levels, which were some of the highest prices they’ve ever fetched on the pre-owned side,” he said. “The nonproduction aircraft–Turbo Commanders, Piper Cheyennes, Fairchild Merlins, MU-2s–have not seen anywhere near the activity that we have in years past on those aircraft, and they are not demanding the dollars or the drive that current production aircraft are.”

This is less attributable to age, noise and RVSM requirements and more–with the exception of the Turbo Commander and MU-2–to the lack of a strong support network. “I think, too, that lenders and insurance companies are getting more stringent on lending for or insuring aircraft that are more than 20 years old,” O’Keefe said.

“Operators are getting more sophisticated, and the owner-pilots who fly these airplanes want later-generation avionics,” he suggested. “And again, perhaps with the exception of the Turbo Commander, none of those other manufacturers supports the fleets to that level.” According to O’Keefe, last year was, without a doubt, Banyan’s best year ever. He described the sales as phenomenal, with the majority to people associated with real estate or development or construction. “I think 80 percent of our sales were associated with those industries,” he added. “We’re super-optimistic, the phone is ringing and there doesn’t appear to be signs of softening of the economy.”

Along with aircraft sales, maintenance and avionics installations, a major portion of Banyan Air Service’s business is fuel sales. “Fuel sales have always been a barometer of how the industry is doing,” he said, “and they hit record highs here in the last couple of months. We haven’t seen much decline.”

O’Keefe did acknowledge there were declines in avgas sales, but not in jet fuel. “I think security concerns and the inconveniences that go along with airline travel are introducing more and more people to private aviation,” he postulated, “and they are enjoying what they experience.”

The Benefits of Backlog

He expects the next year to be even better because many of the manufacturers are experiencing backlogs in production. “If you wanted to buy a new Pilatus [PC-12] right now, the earliest delivery on new aircraft is August,” he said. “While that is great for them, it is even better for the resale market, because people who would perhaps consider a new aircraft but don’t want to wait will buy a used aircraft in the interim or in exchange for a new one.”

Cary Friedman, sales manager for Columbia, S.C.-based Bell Aviation, said sales of pre-owned aircraft started off normally but became more active during the second half of the year. “Because of that, right now we are optimistic,” he said.

“We sell more King Airs than any other company except Raytheon,” he continued, “and our King Air activity has been absolutely spectacular. The 200 market, especially for airplanes built between 1985 and early 1990, has been incredibly active. The prices of those airplanes are definitely getting stronger, and turnaround times on our King Air inventory have been diminishing.”

Bell Aviation is also seeing highly renewed interest in the King Air 300 and 350. “This year we have been so enamored of the strength of the market we have been buying and inventorying 200s and 350s because we know they are going to sell,” said Friedman. “That’s how strong the market is.”

Additionally, the company recently has seen the Cessna Conquest market strengthen in a big way. Friedman estimated that in the previous 120 days, his company had sold four Conquest Is and had a lot of activity on the three in inventory.

“We just got done selling another Conquest II,” he added. “Our problem with Conquest IIs has been that we haven’t been able to get our hands on many of them. The ones we’ve had this year we’ve been able to sell quickly, so that market is definitely getting stronger again.”

As for other aircraft that Bell has dealt with in the past, Friedman said the company is seeing “little action” in Turbo Commanders. He conceded that may be because it had no Commanders in stock at the time he spoke with AIN, but he said even when they had a few “we just didn’t see much action.”

The company had sold a Piper Cheyenne IA that week, but again, like the Commander, Bell Aviation no longer carries many. “I don’t think the Cheyenne market right now is as strong as that for some of these other airplanes,” Friedman observed. “And that may be just because we are not spending as much time with them as we used to.”

He explained that in the case of Turbo Commanders, it is a much older airplane. “If you look at a 1977 to 1979 Turbo Commander, versus a 1978 or 1979 Conquest II or a 1981 Conquest I, the Turbo Commander lineage goes further back,” he said. “Its basic design is coming out of the 1960s and early 1970s, where the Conquests were coming out in the later 1970s; even the King Air 200 was coming out in the mid- to later 1970s. So there’s at least one generation of newer technology and newer design.” He emphasized he was not being negative about those airplanes, but rather was just reporting what the market was doing from his perspective.

Having spent several days at the NBAA Convention and following an annual meeting of NARA, Friedman said that dealers generally felt the market is reasonably strong. He added that no one has said the price of fuel has affected aircraft sales.

“I’m hoping that we are going to have a carry-through from this year to next year,” he said. “If there is anything that could possibly affect our activity level, it is if the government continues to raise interest rates. If they climb to a level where people no longer want to make investments in real estate, manufacturing or the other infrastructure in our country, of course that also affects our aircraft sales activity, more so than fuel.”

Friedman also asserted that the emerging very light jet market should have a negligible effect on the used turboprop market, because the new airplanes will have small cabins and be extremely range-limited. “They are probably going to be great airplanes, but they are tiny,” he said.

Tom Mekis, v-p of aircraft sales, charter and management of what is now Landmark Aviation (formerly Garrett/Piedmont Hawthorne/Associated), said the Winston-Salem, N.C., operation is still active in turboprop sales, and King Airs “are really the sweet spot for us at this point.”

“Piedmont has always been a King Air, Beechjet shop,” he said, and he estimated the company would probably sell a total of 40 turboprops this year–a mix of 200s, 350s, 300s and C90Bs.

“It has been–I hate to overuse the word–but it has been phenomenal,” Mekis recounted. “I just can’t keep airplanes in stock for more than a couple of weeks.”

He said the company has been selling airplanes literally from about the time the advertisement appears in trade magazines or on the Internet. “It’s been a while since we’ve had this level of activity and it’s very refreshing,” he admitted.

Mekis said sales are running about 40 percent higher over the same period last year, “a significant increase for us in overall sales volume, units, revenue and gross margin–a good year by any measure.”

Asked about the outlook for next year, he believes the opportunities are still there. Landmark is focusing on buying inventory and focusing on volume as opposed to trying to make large margins on a few airplanes.

“I’m working on smaller margins over more airplanes,” Mekis continued, “and that seems to be a pretty good recipe right now.”

He explained that “seems to be the model that is working for us. Pay a little more, take a little bit less, but do more of them. You just make it up in volume.”

Mekis believes that next year will be another pretty strong year. “I don’t know that we are going to increase over this year–I don’t know that there is that much room to go–but I think we could have an equally strong year in 2006,” he said.

With Raytheon still producing King Airs, Mekis said, there is a fair amount of moving in and out of airplanes and into newer models. As a Beech dealer, he gets a number of trade-ins every year.

Even so, he said the hardest part is actually buying the airplanes. “Selling them–and I don’t mean to trifle that–is not that difficult,” he said. “Buying them right for inventory is the hard part.”

Landmark now focuses a fair amount of energy on the buying side and created some buying incentives for its salespeople, he said, and has an acquisitions manager whose “sole purpose in life is to go buy airplanes and buy them right.”

According to Mekis, the market is good for nearly everyone. “Everybody I’m talking to [at NBAA] is having similar success,” he said. “We’re all selling airplanes in 90 to 100 days, turning over inventory. It’s a robust market.”