Pre-Owned Update: Buyers keep heat on large-cabin aircraft

 - June 8, 2007, 7:24 AM

The Russians are coming, the Russians are coming! The movie title of 41 years ago seems fitting to describe at least the perception of what is contributing to the current uptick in the large-cabin segment of the used aircraft market. Tales of aircraft selling to Russians at extraordinarily high prices have begun to capture the attention of the market. In fact, the international market seems suddenly enamored of private jet travel, a fact that has spurred one of the most active periods since the late 1990s.

Last summer’s predictable inventory build-up just as predictably began to recede in the last quarter of last year, historically one of the busiest in aircraft sales. What caught many by surprise is that the traditional fourth-quarter activity poured into the New Year and has not stopped yet, five months into it.

Consider that last August, worldwide used-jetinventory rose to nearly 1,780 aircraft for sale before turning tail, despite a growing worldwide fleet, and now stands at 1,637 aircraft. If the 40 new-aircraft delivery positions currently for sale are excluded, the immediately available supply is just under 1,600 aircraft. Some individual model types have made big swings in availability, accompanied by equally big swings in asking price. The large-cabin segment, and specifically its late-model and current-production aircraft, seem to be testing new highs with each sale. The buying surge can be attributed to the manufacturers’ backlog of aircraft in this group, charter demand for large-cabin lift and international demand, stoked perhaps by the relative weakness of the dollar against some currencies.

High Prices Here To Stay, for Now
As summer approaches, we could see the market take its annual breather and inventory might be expected to rise; however, pricing will be at higher levels than in the recent past, if for no other reason than some owners might decide to test the waters by placing an aircraft on the market at an above-market price. In the past this pattern has served to quell the buyer frenzy; inventory tends to build and prices finally soften and the cycle continues.

Consider the GIV market, which just last fall reached 30 aircraft for sale during a three-month period. Since that point, inventory sank to about half by late spring, and most of the remaining aircraft have sales pending. Accordingly, asking prices of new market offerings are higher.

However, not all the attention is focused on the large-cabin market; in fact, CJ2 inventory, which late last year had risen to an all-time high in terms of used model choices, has been lowered by half, from 28 to 14. Many of the aircraft remaining on the market reportedly have deals pending.

Among the super-midsize class, the Falcon 2000 shed half of its offerings, from 12 to six, in a year. Like the GV and CJ2, it has become one of the hottest properties on the market.

Though not halving its number of choices, the 604 market, which reached an all-time high inventory level of 25 three months ago, has done an about face, dropping to 20 with three other sales pending. In the midsize-cabin arena, the Hawker 800A has experienced a noticeable drop in choices from 44 last June, to 35 today with another three sales pending; its successor model, the Hawker 800XP, has remained steady and currently has a 12-month moving average of 29 aircraft.

Among some large-cabin types, the used supply is non-existent, or nearly so. These include the Boeing Business Jet, four of which are for sale with two sales pending. Airbus’s A319CJ is non-existent. Gulfstream’s G550/ 500/400/450/350/300: five total, all of them G550s. Two are 2007 delivery positions, with one priced at $52 million and the other at $55.9 million. A flurry of G450 buying earlier in the year evaporated the supply. Pricing for the small number of offerings at that time was parked around $37.5 million. Bombardier’s Global Express: one for sale. Dassault’s Falcon 2000EX, one for sale; 900EX, four for sale; and the 900C, non-existent.

As some buyers wade into the market, it’s interesting to hear the dialogue between buyer’s and seller’s respective agents. In one case, a buyer’s agent is struggling to bring his client value, yet has chalked up four failed attempts, losing out to buyers who have apparently already played that game and have stepped up to a level of offer acceptance. Meanwhile, as some models test new market highs with each sale, the question looms, “How high is high?” The acquisition agent wants to complete the task but not at the expense of witnessing his client’s aircraft lose value soon after the transaction.

With some manufacturer backlogs extending into 2010, will the used market continue to stay hot, or will more product surface as new deliveries make their way into the fleet and owners relinquish the used rides? Fuel prices seem not to be a factor, and interest rates remain highly attractive, an element that favors continued buying. It seems inevitable that at some point buyers will likely cry “uncle” and the market will begin to settle down, but right now, no one feels confident predicting when such reluctance might gain traction.