The momentum that began to build in the used jet market late last summer is rolling into this year. Overall inventory is about where it was a year ago, but after a significant month-over-month build-up through July, sales activity heightened and just as quickly reversed direction. Between August and the middle of last month, roughly 100 more aircraft departed the market than arrived.
Oil prices at multi-month lows and interest rates in check can mean only that this year seems to have all the indicators pointing toward continued vigorous activity.
The five-year average supply of jets for sale worldwide through last year is 1,875.
The years 2002 and 2003 were understandably high as the market slowly recovered from the economic effects of 9/11. In the following three years, 2005 had the lowest supply, with a 12-month average of 1,687. Inventory today hovers just below that low-water mark, but there are 11 months to go. What the numbers suggest is also backed up by accounts from manufacturers, dealers, brokers, finance companies, maintenance facilities and completions companies, all of which report high activity levels.
Deal or No Deal?
A question that occupied attendees at last year’s NBAA Convention still lingers. “In such an active market, where are the good buys?” While the answer might hinge on an individual’s perception of a good buy, for the sake of argument let’s say it is an aircraft that appears undervalued based on how its competitor aircraft are selling.
Occasionally, inventory of a particular model will spike and prices will often experience a correction before inventory returns to normal levels, loosely defined as 10 percent of a particular model for sale. The GIV is a possible candidate for a first-quarter push as inventory last year grew and prices responded by softening. At press time there are 25 for sale, or about 12 percent of the fleet. That’s down from 30 just a few months ago.
With softer pricing now and with its successor, the GIV-SP, on fire, GIV choices could continue to dwindle if the price spread between the two aircraft remains the same or widens further. Prices among GIVs range from the low $14 millions to close to $20 million. The GIV-SP picks up at $20 million and has been pushing close to $30 million.
Twelve months ago there were 43 Learjet 60s for sale, or about 15 percent, and while it’s still perched above 10 percent availability, the number for sale has fallen to 34. Although there is still good value in this market, lately there have been indications of ascending prices in the earlier serial numbers. While the Learjet 60 is an excellent choice for corporate operators, it is also a viable charter aircraft, and if the charter market is as active as has been reported, operators could be quick to pick up any excess inventory.
In the light jet market, CJ2 inventory expanded from 15 in the first quarter to nearly 30 in the last quarter of last year, pushing it above the 10-percent availability mark; however, a dramatic year-end buying surge pushed choices down to 20.
While the Gulfstream IV, Learjet 60 and Citation CJ2 represent good buying opportunities as a whole, there are deals in just about every market. Buyers stand to benefit from manufacturers offering Brand X aircraft, owners about to lose 1031 like-kind tax advantages, and owners who sell one aircraft when they buy another.
Position sales are continuing to run rampant and will likely stay that way for a while as some of the most sought-after positions have waiting lines that extend three years into the future. Premiums can range from a few hundred thousand for a CJ3, to $1 million to $1.5 million for a Challenger 300, to nearly $5 million for a G550. Even the newly minted Eclipse 500, with 14 positions advertised, is reportedly commanding a healthy six-figure premium.
While some would label these mark-ups excessive, consider that some early serial-number position holders contracted for these aircraft a few years ago at figures well below the manufacturer’s current base price, and they have had some earnest money locked up for quite a time.
It’s easy to capitalize on the delta between the manufacturers’ old base and the new, but the push above the current base can fluctuate depending on when the position delivers, if the delivery position can be spec’d and, if not, how it is spec’d. Typically, premiums move higher just before the spec date and then again right before delivery.
With no used Challenger 300s or G550s for sale right now (only positions) and only a few CJ3s, buyers will need to fork over big bucks for the privilege of getting their hands on one of these desirable rides.
While it is early days for 2007 yet, it’s not too early to tell that the industry is off to a start much different from the one a year ago. Buyers appear ready, willing and able to perform and sellers seem to be adhering to good price guidance, which should keep inventory moving.