Pre-Owned Update: Soft market continues for business turbofans

 - May 8, 2008, 10:59 AM

In July 1998 there were 750 used jets for sale and today there are more than 2,000. Pessimism swapped places with exuberance in early 2001 and jet values came crumbling down. This year proved to be slightly different in terms of price degeneration, which on many aircraft seemed to occur at a slower rate than last. While there are no examples of increasing prices on the pre-owned market, some model types are in slightly smaller supply than last year at this time.

Last year, the November-December-January period posted lower monthly business-jet-inventory figures month-over-month. It was the first time in 24 months that a net decrease occurred. Looking back, it would appear that this three-month inventory retraction was not the beginning of the trend sellers may have been hoping for, but rather a response to September 11, coupled with what has historically been one of the most active trading times of the year. The temporary 90-day dip in the net level of used jets yielded to market forces soon after 2002 got under way. A more interesting drop occurred this past June, when, for reasons still unclear, the net supply of aircraft for sale fell by 35 units, the largest one-month drop in three years. Again, with no follow up, the pre-owned stock step-climbed up to and beyond 2,000 units for the first time ever in September. Thirty-nine months earlier, it had been at 1,000.

A collision of buyer and seller confusion caused by the mass pile-up of used aircraft caused market activity to stagnate last year. This year, however, as prices slowed their collective rate of descent, buyers have been acting as more willing participants and are cautiously wading back into the markets they perceive to have value. In fact, last month nearly one third of the more actively traded aircraft model types were lower in supply than during the same year-ago period and another 12 percent held steady with year-ago levels.

Every year for the last five, a greater number of aircraft have spilled onto the market than were absorbed. While December’s numbers cannot yet be tabulated, it is all but a foregone conclusion that 2002 will experience the smallest net increase on a year-over-year basis since the 115 net bump in 1999. At present, the net has risen just over 100 units year-to-date, well below the increase of 371 last year and 403 in 2000.

Perhaps an emerging sign that prices may be becoming more stable is the recent increase in dealer activity. Dealers, typically distinguished from brokers by owning rather than consigning their inventory, have ostensibly been absent from the market for some time. Choosing to keep their floor-plan money idle until the market becomes more predictable has forced many into the role of broker. Now, after about 18 months, their chameleon-like existence has seen them revert to the more traditional role of speculative buying, a sign that pricing in some markets may be establishing a bottom.

Any inventory or price stabilization or recovery is certain to be selective. A number of older aircraft have fallen out of favor, languishing on the market month-after-month. The Gulfstream III levels have increased every month this year. At 46 units, the GIII sits at two-and-a-half times the number that could be found on the market just two years ago and four times as many as in November 1997. As with all the markets, there is activity, and the “good” aircraft are starting to go away. Similarly, the GII, at 59 units currently for sale, is near its high-water inventory mark. Twenty-four months ago it stood at 28 units; and five years ago, in the white-hot market of 1997, there were just 16. The GII seems to thrive on market adversity, always staging a comeback like a cauliflower-ear boxer. Whether it’s been knocked down by tailfeathers that needed to be pulled, or wings that needed to be inspected, no sooner does it near the 10-count and this venerable aircraft pulls itself together and comes roaring back–this time perhaps with the quieter roar of a Stage 3 hush kit.

Stage 3 Gulfstreams are not immune to the softening, either. Take the GIV, for example, which has experienced a similar surge in inventory and a corresponding price drop. Right now, the 26 GIVs available are about double the amount of two years ago, and consider that there were only four for sale in the late fall of 1997, five years ago. What a difference a few years make. Consider that a few years ago, virtually no GIVs were dropping below a firm $20 million price floor, but now most carry asking prices beneath that level. The lowest-priced GIV, which also happens to be the earliest serial number currently for sale, carries a price in the mid-$15 million range, while the highest price is about $22 million. GIV-SPs jumped from seven in January of this year to 17 currently, equating to just over 6 percent of its active fleet, which will soon reach 300.

Even GVs are not able to escape the deluge of corporate iron raining down on the pre-owned market. There are now 12 GVs for sale, and they hover in the low- to mid-$30 million range. Trading activity has occurred, on more than one occasion this year, below the $30 million level. The dozen currently for sale (two of which have sales pending), represent slightly more than 7 percent of the fleet.

A review of all large-category aircraft tells a similar story. In fact, out of the nearly 20 large jets, only three show up on the market this year with fewer than last, and the reduced levels for those three are not exactly stellar. The three? The Lycoming-powered Challenger 600, down three net units from 29 to 26; the later GE-powered Challenger 601-3A, shaving five units down to 20; and the tip-tanked GII, or GIITT (what few there are remaining), went from one a year ago to zero–a nonevent.

Bombardier’s Picture

Just two Bombardier Global Expresses are positioned on the used market ramp, and each carries an asking price above the $36 million level. A trade earlier this year reportedly commanded just shy of $35 million, but with few pre-owned sales to track it’s not yet possible to cite a trend. The Challenger 604 has held its supply fairly steadily all year, offering up 11 units, mostly priced at or below $20 million, although a couple have ambitions of attaining numbers in the low 20s. The 601-3R increased to 10 units from seven last year. While roughly two years ago -3Rs were trading in the $17.5- to $18.5 million range all day long, they have slipped back into the $15 million area.

The 601-3A, which had been approaching 20-percent availability in late summer, has ratcheted back down to 15 percent, perhaps as a result of aggressive price reductions that pushed some down into the low-$10 million area. The earlier 601-1A variant is in line with the -3A’s availability figure, offering up 13 of its 64 units (18 percent) to the used market. Owners of the first Challenger, the Lycoming-powered 600, have their hands full. It was common for these aircraft to trade in the $8 million area a few years ago, but with 34 percent of the fleet on the market, the old 600 has since yielded to market forces. This year seems to dictate that these aircraft move for between mid-$5 million and low-$7 million area.

The Dassault Score

With a couple of exceptions, Falcon 2000s carry sub-$20 million asking prices. Seventeen are currently for sale, representing about 9 percent of the roughly 190 in active service. There are only three 900EXs on the used market right now, a figure matching its percentage of availability since there are about 100 in service. Its predecessor, the 900B, shows up in plentiful supply at 21 units, resulting in a softer 18 percent availability. A similar swelling among the Falcon 50 ranks this year has pushed this model to levels never visited before. One of the more versatile aircraft produced for corporate applications, the Falcon 50 inventory sits at an all-time high of 41 airplanes, or 16 percent of its active fleet. Asking prices currently run from a low of $6.6 million for one of the earlier S/Ns up to the $13 million area for one of the last 25 aircraft produced with fewer than 5,000 hr and RVSM certified. In contrast, the successor 50EX offers just five of its 73 units, or 7 percent availability. Pricing for an earlier variant is in the $16.5 million area and climbs to just under $19 million for one of the latest choices.

The Citation X Factor

Seventeen Citation Xs are for sale, a couple of units above where the speedster sat last year, but when factoring in the additional units produced during the last 12 months, the percentage of availability remains the same– roughly 8 percent.

Of the 17 currently for sale, Cessna has been burdened with half of them, enough that it decided to enlist the aid of five independent brokerage firms to help find new homes for them. Of these 17 for sale, 10 are fairly early models–all below s/n 50, or the first quarter of the fleet. Four of those are among the first 10 built. One of them, S/N 750-0003, a 1995 model, had been owned by Arnold Palmer, who now drives a 2002 model, S/N 750-0176, if anyone in Arnie’s Army is keeping score.

Prices in the market run from the low-$12 million area up into the low-$18 million range for an airplane delivered just last month.

Midsize Jet Listings

The medium category is not without a couple of standouts when you observe the number on the market this year compared with last. The Sabre 65 is down to 10 from 16 last year; 18 months ago, 20 were on offer. The percentage drop was one of the greatest of all model types, recoiling to 8 percent of the fleet from 21.5 to 13.5. The Learjet 55 supply dipped four units from 31 to 27, and the classic Astra went from eight to five.

Both the Hawker 800A and 800XP trended lower in supply, with the earlier version catching the watchful eye of savvy buyers. As a result, the 800A posted a sizable net depletion of 15 aircraft during the 12-month span, from 44 down to 29. That figure still represents 13 percent of the its 221-airplane fleet, but is down from 19 percent a year ago. Selling at an average of more than three-and-a-half units per month for the past year, the aircraft has experienced one of the greatest net-percentage decreases and is second only to the Citation II in that category. Early 800As can be picked up in the low- to mid-$5 million area, while later models can push well into the upper-$6 million range.

Pricing on Citation VIIs slid into the $6 million range last year and can now be found regularly at that level. The price can run up near the $10 million level for one of the last copies produced. The 800XP tightened its supply line further, dwindling to 18 from 21 a year ago, yielding only 5-percent availability, the lowest figure of all the mid-size jets.

The Learjet 60 choices increased by a handful since last year, from 25 to 30, but the percentage-of-availability figure is in line with last year’s 11-percent number, due to the growth in fleet size during the year. A few early airplanes, 1993 models, carry sub-$7 million asking prices, while the 2002 models can exceed $10 million.

On the opposite side of this equation are the Citation III and Hawker 700A, which both stand bloated with inventory. The Citation III ballooned from 32 to 49 units during the last 12 months and now has amassed 25-percent availability. Roughly 70 percent of those currently for sale are from the first half of the production run. Prices here have pushed back to levels of 10 years ago, beginning in the low $3 million area and clambering up to the mid-$5 million level. The 700A remains at roughly the same level as a year ago, neither adding to nor decreasing from its 44 choices. As with the Citation III, this figure represents a quarter of its fleet size. The 700A’s pricing runs from the mid-$2 million area up to the high $3 million level.

Though still highly sought after, hot properties that have cooled off include the Citation Excel, CJ2 and Learjet 45. Position sales commanding premiums above purchase prices a few years ago have gone the way of the stagecoach in the last 12 months to the point where a seller is doing well now to recoup the contract price. At the moment, that marginally satisfactory outcome will most likely occur only on the CJ2.

An Excel, one of the most popular aircraft to come along in years, can push above $10 million for a factory-new aircraft with all the bells and whistles, yet it is unlikely that any position buyer will meet that figure. Only a couple of positions are on the market today and are priced around the $10 million area. Two others currently for sale rolled out of the factory within the last 60 days. Used variants this year have traded in the mid-$7 million area and can run into the mid- to upper-$8 million range. The 19-aircraft availability is down slightly from the 22 available in the first quarter of this year and represents roughly 7 percent of the Excel fleet. Cessna is closing in on delivering its 300th Excel before year-end, a model that entered service only in 1998. In contrast, Bombardier delivered its 200th Learjet 45 earlier this year; 19 are currently on the used market, representing 8-percent availability. A nearly $2 million price spread separates the lowest and highest priced aircraft. A low-serial-number Learjet 45 shows an asking price of $6.5 million, while a couple of 2002 units push well into $8 million territory.

The small-jet market shows the greatest number of model types that are rarer in inventory today than a year ago; however, all remain in plentiful supply. While the large category has one and the midsize category six, the small has 14 in this group. Citation models make up half of them, including the CJ2, II, II/SP, S/II, Bravo, V and V Ultra. The other half is composed of the Beechjet 400 and 400A, the Falcon 10 and 100, the Premier I and the Westwind.

Whether 2003 brings the market closer to inventory influx and outflow parity is anyone’s guess, but for now the pre-owned stage continues its fight for direction. Taking the side for a reduction in inventory are extremely low finance rates–aided once again last month by a half-basis-point reduction in the Fed funds rate. And aircraft values have tanked to levels that are beginning to seduce buyers. Resistance, however, comes from an economy that is not convincing many that a sustained recovery is a foregone conclusion. It’s unclear how many potential buyers are among those hurt by a stock-market trend line that resembles an instrument student shooting his first ILS approach–up one minute and down the next.