A snippet in the Wall Street Journal in the middle of last month pointed out that the Dow Jones Industrial Average began the new year by logging its worst 13 sessions ever. This eyebrow-raising item seemed incongruous against the backdrop of unusually high levels of activity in the pre-owned jet market, or perhaps the robust action is spillover from last year as deals in the pipeline are just now being completed.
Unlike last year, when almost anything late-model seemed to command ever increasing prices, or at the very least hold steady at high values, there is now a clear handful of models backing off from their highs, while others continue to maintain lofty perches.
Typically, as new models begin to deliver, we see current owners of the predecessor model (who are expecting delivery of the replacement model) place this aircraft on the market. In single-aircraft operations, most owners prefer not to own two aircraft at the same time, but they also don’t want to be left without one. Often, an owner will place his aircraft on the market, sometimes several months in advance of the slated delivery date of his new airplane, but at a high asking price. This more often gives the perception that a given market is softening, when in fact any given number of those on the market might not truly be ready to sell, unless someone wants to pay a hefty premium.
That said, most in the industry aren’t anticipating a year like last year. Any time the President has to unveil an economic stimulus package, it doesn’t exactly give buyers a warm and fuzzy feeling. Nor should it give sellers a great deal of confidence. Sellers might react to a slower-growth economy by setting realistic prices and not going for the long ball that was so achievable last year.
There is no question that buying activity outside the U.S., aided in no small part by a weak U.S. dollar, has had a measurable effect on the current market. This worldwide buying spree has affected new aircraft sales by pushing delivery dates out farther and farther, which in turn puts additional heat on the pre-owned market, as many who can’t have a new aircraft for two or three years turn to interim lift in the used market.
Current market choices sit below 1,700, about where the number was a year ago, but consider that more than 1,000 new jets were added to the overall fleet last year. About 40 of the current market offerings are delivery positions of one model or another. As the year unfolds, position inventory might be a telling indicator of buyer confidence going forward as some who ordered these positions a few years ago in a rosier business climate might not have the same appetite for them now.
Some might decide that it makes better business sense to capture the premium that positions are yielding. The speculative play might then be to turn around and place the upside return on another position, with a delivery date in the 2011-2012 range.
Here’s a brief rundown of the paltry choices buyers have to weigh right now. There are no Gulfstream Vs for sale, according to Jetnet, which regularly takes the pulse of owners’ intent to sell. When the aircraft have surfaced, prices have ranged from the mid-$30 million to mid-$40 million range and are turning over in fewer than 100 days. Five GIV-SPs are listed, one of which is for lease only. Four of the five have been placed on the market within the last 45 days; the fifth first appeared last May. The GV-SP was one of the most dynamic last year, with prices reaching new heights seemingly with each sale.
A year ago it would have been inconceivable for late models to burst through the $30 million ceiling and hold. While early serial numbers can be had in the low $20 millions, the thirst for later models is pushing the moving average toward $28 million at present. The turn time here is slightly more than 100 days. As for the G300/350/400/450/500/550, there’s not much to talk about. There is one G550 touting a $57 million asking price and three G450s, one of which has a sale pending. The word on the street is that G450s are fetching prices in the low $40 million range, with asking prices in the mid-$40 millions.
Challenger 300s were averaging mid-$23 million take prices last year, but many of those were positions, or had very low hours. That average is likely to slip slightly, but only because the current offerings have logged some more time. Consider that three of the four Challenger 300s currently for sale have an average of just over 1,000 hours. Take prices on this will likely hover near the $23 million area, probably a tick under, while the latest will still find a market in the mid- to upper-$23 million range.
Similarly hot is the Global Express, which is touting pricing as high as the upper $50 million range, while earlier models currently begin in the mid-$40 million area. Both the Challenger 300 and Global Express sell in about 100 days.
No Falcon 2000EXs are listed for sale, and only four 2000s are for sale–all priced at $20 million or more. There are three 900EXs and four 50EXs. The 900EXs run from the high-$20 millions to the low-$30 millions, and the 50EXs have a $2 million spread between $16 million and $18 million.
Manufacturer extended backlogs are clearly the culprit for the low supply of late models and unless near-term positions are dumped on the market in great number, the late-model segment should continue strong, with perhaps a few more offerings than over the last year.