AIN Special Report: Pre-owned aircraft

 - May 23, 2008, 4:48 AM

The sales inventory of pre-owned corporate jets has nearly doubled in two years, according to statistics obtained from JetNet of Utica, N.Y. A consistent month-over-month increase in inventory, which began in December 1999, has pushed the number of used business jets up for sale to nearly 2,000. Consider that in 1997 the inventory level was at a low of 737 units during a time when buyers were clamoring for business jets.

With low interest rates and falling prices, one might expect this trend to level off, but some seasoned vets see a turnaround at least a year away. If that’s true, there will continue to be some great buys in just about every business aircraft category, as many are revisiting the price levels of nearly a decade ago.

Forecasters were painting a rosy picture for this year, but the “wheels came off the wagon,” according to Jim Welsch of Welsch Aviation, Huntington, N.Y., who referred to the drop as a classic downturn. “Not much is going on,” he said, while adding that any action seems to be in the high-end, near-new aircraft, pointing to the GIV-SP as an example of a market bright spot. He admitted, however, that since September 11, “never have I been as busy in my entire career.” That is quite a statement, considering Welsch has been trading aircraft for nearly half a century.

While it was perhaps inevitable that September 11 would cause many to consider the relative safety of corporate jet travel, Welsch offered, “If it comes down between fear and economics, I’ll bet on economics every time.” To that extent, he sees the overall market mired in the trenches at least through the end of next year: “If the U.S. economy improves by mid-2002, the aircraft sales business should trail by two quarters.”

Another seasoned player, Marc Foulkrod, president of Burbank, Calif.-based Avjet Corp., echoed Welsch’s assessment. Though he currently has four large-category aircraft in pre-buy, which is positive by anyone’s standards, he projects the market will get “worse before it gets better.”

The GII/GIII Market: Grounded or About To Take Off?

When queried about the Gulfstream II and III market, Foulkrod said, “Whether it’s the noise or age issue, or the perception of it being an aircraft not to own, the activity is slow to nonexistent.” Welsch concurred, offering that the older Stage 2 Gulfstream market is “a little less than slow, which I guess means it’s in reverse.” Asked whether the upcoming Stage 3 hush kits might breathe new life into these aircraft, Foulkrod envisions current owners opting for the modification. “But I don’t think you’ll see guys rushing out to buy aircraft just to modify them.”

Taking a look at these markets in greater depth lends credence to Welsch’s and Foulkrod’s assertions. Between Jan. 1, 1997, and Jan. 1, 1999, there were 20 or fewer GIIs for sale, reaching a low of only 12 units in August 1998. For nearly two more years the inventory fluctuated between 20 to 30 units, but at the start of this year there were 34 for sale. The numbers climbed to 38 in August, 48 in September and 55 at the beginning of last month. That placed the GII availability at 30 percent of those actively flying, up nearly 10 percent since early August. The hybrid GIIB has fared better, beginning the year at 10 units for sale; as of last month, 12 were for sale.

In February 1999 there were 23 GIIIs on the market, a figure not seen in the previous six years. It stayed in the 20 to 30 range throughout that year and actually improved by the second half of last year. In fact, by November last year the number of GIIIs had decreased to just 16 units, but less than six months later the supply had nearly doubled. At the beginning of last month, GIII sales inventory stood at 39 units, representing 19 percent of its active fleet. One AIN reader, a GIII owner, pointed out that the percentage figure would be slightly higher if military-operated Gulfstreams were removed from the equation.

With few exceptions it is the later-model variants that are holding up better. Consider that only 10 percent of the active GIV fleet is on the sale block, yet the net number up for sale has increased eight units since the beginning of the year. Since 1998 (when JetNet began tracking the GIV-SP separate from the GIV), never were there more than five pre-owned GIV-SPs to choose from. This past January’s figures were in keeping with tradition, with only four units for sale. Just two months later, however, the figure went to eight and by last month stood at 10 units.

Even with that growth rate, the GIV-SP market remains relatively tight with inventory, offering just 5 percent of its active fleet. Early SPs can be found in the $22- to $23.5 million area, with later serial numbers trading up to $25 million. These trading ranges are about $5 million less than the late-1990s values.

“My impression of the GV market is that it’s flooded,” said Foulkrod. There are three out there with possibly three more coming. Foulkrod said GVs can be bought for around $35 million.

Pre-owned aircraft inventories have been piling up during the last 12 months, and turn times have grown. A few years ago it would have been a rarity to see an aircraft languish on the market for more than a year. In fact, any that were unlucky enough to have had a birthday were not so privately joked about.

The ‘Active’ Market

Out of a group of slightly more than 50 actively traded models (and this year “actively traded” is a relative term), all but a handful have higher inventory levels now than when the year began–but just barely. In fact, the most positive spin one could put on this small group of aircraft is that their respective inventory levels are slightly less than stagnant.

The aircraft model types that have shown this minuscule improvement are somewhat surprising. The Beechjet 400, Astra 1125 and Astra SPX each sit just one unit below where their stock sat at the beginning of the year. The Learjet 31 shed two units during the same timeframe and the Learjet 35A, perhaps less of a surprise, trickled down three units, from 95 to 92.

The only large-category jet to make the list is the Dassault Falcon 900EX. In fact, if you traced these same 50 or so models back to the beginning of last year, only the 900EX has reduced its pre-owned stock on a year-over-year basis. There were five in January last year, three at the beginning of this year and two today,  representing roughly 2 percent of the Falcon 900EX fleet.

Except for the 900EX, the aforementioned models’ downside is that they all have a significant surplus of units for sale. The inventories of Learjet 31s, Astra 1125s and Beechjet 400As are huddled between 23 to 27 percent of their active fleets. The Learjet 35 drops to 16 percent, but if you removed the Learjet 35s pulling military duty, the figure would approach 20 percent. The Astra SPX sits at a more respectable 10-percent availability figure.

The Citation S/II and Gulfstream IIB each could finish the year with the same inventory level they started with in January–23 and 10 units, respectively. The S/II availability hovers around 16 percent, while the GIIB is at 24-percent availability of its active fleet.

While the above examples may offer some encouragement to sellers of these models, the information by no means is intended to signal a trend. By the same token, the following list, which presents aircraft that have significantly added to their supply since the beginning of the year, is not intended to diminish their standing or viability in the marketplace. In fact, one might actually view those aircraft in high, or increasing supply, as being an area to look for great value.

It is not uncommon to see the used stock of relatively new model types multiply exponentially in the first few years of production. For that reason the following list does not consider aircraft that have not enjoyed at least a five-year production run. As a result there are five model types that have at least doubled their supply since January, four that tripled and one that quadrupled.

Doubling of inventory size encompasses the Citation Bravo, Astra SP, Hawker 800XP, Challenger 601-1A and Gulfstream III. Inventory levels of the Bravo jumped from 12 units to 24; the Hawker 800XP climbed from eight to 17; the Astra SP advanced from four to 11;  the Challenger 601-1A increased from four to seven; and the GIII soared from 20 to 39.

The Citation VII, Citation X, GIV/SP and Falcon 50EX inventory tripled this year, while the Falcon 2000 supply quadrupled. The increase in Citation VII inventory pushed it into the 15-percent availability range, while the other three remain between 5 and 10 percent based on their respective fleet size. The 13 Citation Xs for sale represent roughly 6 percent of that fleet, while the Falcon 2000, growing from three to 11 this year, stands at roughly 7-percent availability. The 50EX went from one to three (statistically the inventory tripled but the model remains one of the lowest in terms of percentage of availability at just 5 percent).

The GIV-SP choices have jumped, from four to 10, but the increase translates to just 4 percent of its active fleet, which makes it one of the tighter markets. In fact, 80 percent of the aircraft offering 5 percent or fewer choices of their active fleets for sale fall into the large-category arena. They include the Boeing BBJ, Challenger 604, Global Express, Falcon 50EX, Falcon 900EX, GIV-SP and GV.

Newer Is Better

It should come as no surprise that the focus of many buyers is on new or near-new aircraft. Factory warranties, the latest avionics and more fuel-efficient, quieter powerplants have wooed buyers and often pointed them in the direction of newer technology rather than retrofitting their current aircraft.

Consider that one-third of the Challenger 600 fleet is currently on the block, and the 601-1A and -3A are presenting 17 percent of their respective fleets. The later-model 601-3R drops to 8-percent availability, while the latest Challenger, the 604, drops to just 5 percent, on par with its larger sibling, the Global Express.

With 38 Falcon 50s on the market, buyers are being provided many choices. Pricing has begun to reflect this, with some great buys emerging. Even after taking into consideration Dassault’s healthy Falcon 50 production run of about 250 aircraft, the percentage of the active fleet number has spiraled to 15 percent. Pricing has now fallen below $8 million for an early serial number up through $14 million for one of the last produced. Compare this with its successor, the 50EX, with roughly one-quarter the fleet size at present, and the choices diminish to three units, or about 5 percent of its fleet. Pre-owned Falcon 50EX prices hover around $20 million.

The few Galaxys that have been offered are going for about $18 million. This year Citation Xs have traded as low as $13 million and can charge up into the mid-$18 millions. Asking prices on the Falcon 2000s are either side of $20 million, while the Challenger 604 is situated in the low-$20 millions. The three Globals for sale right now are being offered in the low $40 millions.

Medium-class aircraft such as the Hawker 800, Citation III, Learjet 55 and Astra have added girth to their respective stock this year. Availability of the first two models has risen to roughly 18 percent of their fleet, which translates to 38 Citation IIIs and 36 Hawker 800As for sale at present. The inventory of Learjet 55B/Cs is approaching one quarter of the in-service fleet. All variants of the Learjet 55 combine to account for 33 units for sale, while there are eight Astras and 11 Astra SPs for sale.

Around 12 percent of the Citation VIIs and just over 10 percent of the Learjet 60s and Astra SPXs are up for grabs, and just a tick under 5 percent of all 800XPs are for sale. The fleet size of the Hawker 800XP is more than twice that of the Citation VII, which ended its 119-unit run last year after eight years in production. Roughly 220 Learjet 60s have been produced since 1993.