Not All Oldies but Goodies on the Comeback Trail

 - March 30, 2007, 11:01 AM

Since the pre-owned market began to back off from its massive inventory figure nearly a year-and-a-half ago, much focus has been given to the movers, which for the most part have been just about every late-model current-production aircraft. In contrast, several model types have yet to experience much reduction in inventory. In fact, some are bucking the overall trend, highlighting the dichotomy among model types. Could this be the time to capitalize on these market laggards, or will their values continue their decline?

The Citation II and Learjet 35A, at one time barometers of the market’s direction, are two examples in the light jet category that have trailed the market. The Citation II currently presents 121 aircraft for sale–10 more than its 12-month moving average. It’s a far cry from the white-hot days of 1997, when the average supply of Citation IIs was 45 airplanes. The 121 aircraft now offered represent the highest number in 12 months, this after pressing down to 103 last August. There is no shortage of early Citation IIs in the $1 million to $1.5 million range, and late models can climb into the high $2 millions. While DRVSM is closing in, jet-tracking service JetNet revealed that only a small percentage of Citation IIs are already compliant. Perhaps this has contributed to the about-face that has occurred since last summer.

One might think the tightening Citation V market would stimulate Citation II sales. Consider that in the past 12 months the Citation V has experienced a big swing, going from 42 aircraft for sale last April to 22 today. Perhaps another family tree member, the Citation III, has conspired against its younger sibling. In the last year, the Citation III has joined the Citation V in encroaching on what had been for some time pricing territory owned by late-model Citation IIs, bullying it out of the low $3 millions and chasing it into the $2 millions.

Learjet 35A stock currently hovers near the century market, nearly triple the average supply back in 1997 and roughly 40 above its 10-year average. Prices tuck in around the $1.4 million area and run up just shy of $3 million. Unlike the Citation II, the Learjet 35A has slightly reduced its numbers, from 112 last May to 98 today, still a considerable supply based on the total number in service. In its 17-year production run, Learjet built 608 Model 35As before supplanting it with the Learjet 31A. The current supply represents 17 percent of the 572 still in service. Considering the U.S. Air Force operates another 75 Learjet 35As that might never see civilian service, perhaps a more accurate availability figure is closer to 20 percent. This is roughly twice the amount typically used to define an average supply.

GII, Falcon 10 Supply Sky High

The GII–or perhaps “gee, too bad” might better describe this model’s market woes–has experienced some performance anxiety perhaps wrought by its descendants, all of which seem to be tightening their respective supply lines. There are probably as many compelling arguments for buying a Gulfstream II at Citation II prices as there are for not buying one. Right now there are 55 GIIs for sale, which is high but less than the roughly 60 that crowded the market in late 2002.

The Falcon 10 continues to vacillate, balancing right now at its 12-month average of 36 aircraft. That figure is five above last December’s 31 units, a low for last year, but below the 40 reached and held last May, June and July. The yearly average is actually trending down, albeit at an excruciatingly slow rate. In 2001 the average supply of Falcon 10s was 42 airframes and a year later it had dwindled to 38, followed by last year’s average of 37. While that’s progress, the type is still above the 10-year average of 31.75 units. Prices are tempting, with a fair number priced just a tick above a million bucks, but asking prices can run into the $2 million area for the latest, lowest-time examples, though it’s questionable whether they will trade above the mark.

Hawker 800A Chain Reaction

At 50 aircraft for sale, the Hawker 700A inventory sits at twice the 10-year average. That equals 27 percent of the 181 produced. Last August the supply had drifted down to 30, still a large supply but not out of step with the market. But unlike most model types since that time, the numbers have advanced rather than retreated and now sit at an all-time high supply, eclipsing the previous July 2001 high of 48 units.

Pricing fell off the precipice in 2001 after averages hovered above $4 million–they now average less than $3 million and there is plenty to choose from in the low $2 millions. The supply of Diamond IAs is bloated, currently holding steady at around 30, more than one third of its complete fleet. There’s plenty of product here in the low $1 millions and some are slightly below, while a few surface above $1.5 million.

Age and upcoming compliance issues have contributed to pushing inventory higher and prices lower. Some models might also be hampered by the softened prices of successor aircraft. For example, the soft Hawker 800A prices may have been a catalyst in dragging down Hawker 700A prices. Late in the second quarter of last year, Hawker 800A inventory climbed above 40 aircraft for the first time ever, but as prices continued to ease the market began to shed aircraft to its present level of 32–three of which have sales pending. That equates to an above-average inventory figure based on the 233 produced. However, assuming the three pending sales actually close, the Hawker 800A supply will have fallen roughly five points in an eight-month period, from 18 percent to 13 percent. If in the next few months it should drop to below 10 percent supply, it could very well relieve the current pricing pressure on the Hawker 700As and initiate a recovery.

Should the nascent recovery, which decreased worldwide pre-owned aircraft inventory by 10 percent, continue, it should eventually open the door for the market sloths to play catch-up. Over the last year-and-a-half we have witnessed buyers tip-toe into flooded markets, where prices were crushed on the perception that downside risk had been mitigated. It has often resulted in buoying the market, lowering choices and stabilizing prices.