Bad news, good news for turboprop sellers

 - May 23, 2008, 4:52 AM

Sales of pre-owned turboprop aircraft are a little like the old line, “I have good news and bad news. Which do you want first?”

Last year at this time, dealers predicted that the market was facing a rocky ride, with economic storm clouds already on the horizon and the presidential election still not decided. No one had any inkling of just how rocky it was going to become.

For the first few months of this year, many reported that their sales volume had dropped, and this was borne out by figures compiled by Amstat Corp. In the second quarter, there were worldwide sales of 193 pre-owned turboprops, compared with 350 in the same quarter last year.

That constitutes much of the bad news. The good news, in the wake of events that followed September 11, is that dealers of pre-owned aircraft have experienced renewed interest by potential customers–both those who may have been on the fence about a purchase and from new prospects.

The demand seems to be driven not so much by a fear of flying commercially, but rather by frustration over the inconvenience of reduced airline schedules–frequency and destinations–and the hassles and delays caused by new, tightened security-induced regulations.

Jim Amador, sales manager for Greenville, S.C.-based Stevens Aviation, said that currently there is a “significant” number of used airplanes on the market, about 15 to 20 percent of the fleet. “Once it gets past the 10 percent mark, you start watching things,” he said. “Once it goes the other way, and you’re less than 10 percent, like it was in 1999 and most of 2000, you have a pretty strong, healthy market.”

Looking back at last year, Amador continued, dealers watched the size of the fleet that was for sale grow through 10, 12 and, in some of the markets, 15 percent. Then in November and December, sales started to decrease and airplanes continued to come on the market.

Along with the significant dropoff in the overall sales volume, the number of pre-owned King Airs for sale, in particular, has grown all year. “We had around 650 airplanes on the market at the beginning of this year and now we’re at about 700,” Amador said. “So that’s a pretty good increase if you look at the King Air fleet [5,200] as a total.”

The plethora of pre-owned airplanes also affects the sales of new aircraft, because as the market becomes saturated, sellers are forced to lower their prices, and it makes marketing a new version tougher. “You get that differentiation between new and used; the gap opens up a little bit and makes it a little more challenging to sell new airplanes,” Amador noted.  

Stevens Aviation has not seen sales of pre-owned aircraft affected much by fractional ownership, because, as Amador put it, once someone has owned an airplane they stick with it. “Occasionally you’ll see somebody go into the fractionals,” he acknowledged. “What we are seeing, though, are people who fly in our charter fleet in a turboprop–in a King Air 200 or 300, for example–who want to move into a jet and into ownership at the same time. They will try fractionals because the environment is very similar between charter and fractional.”

But he added that Stevens “does not see a lot of people who are today operating a King Air 200 on their own who go into a share of a jet.”

Growth Spurt?

Stevens Aviation has seen bookings at its charter department rise significantly. Further, it is working with two companies that have made the decision not to fly, at least currently, on the airlines and have budgeted money to buy an airplane. “They have made that decision, and the turboprop is the logical place to start,” said Amador.

According to Amador, a lot of people are predicting corporate aviation will experience real growth. “In the short term we are not seeing that super growth,” he admitted. “In the long term, I think it’ll come. But the economy is holding things back right now.”

Paul Strack, sales manager for resale aircraft for Piedmont Hawthorne Aviation, concurred that activity should increase in the aftermath of September 11. “I think we were in a downturned market already,” he said, “and since September 11, people have recognized the opportunity that a corporate airplane affords.”

He suggested that the surge in activity for charter operators and the fractionals is also being felt by the resale marketplace, although some of the airplanes that had been for sale have “been taken off the market. I think people now are more reluctant to actually turn loose from their airplanes.” From Piedmont Hawthorne’s perspective, Strack said, it seems as if the company is receiving more inquiries for turboprops.

Before September 11, he said, the market had flattened out because  pre-owned airplane prices were continuing to appreciate. He likened the market to that of the early 1980s, when prices kept climbing until there was some buyer resistance. “I think we experienced something along those lines before September 11,” he said. “Prices had gotten to the point where a lot of people were sitting on the fence.”

Since then, Strack believes, downward price adjustments have helped stimulate recent sales activity. According to industry sales analysis, there were 2,042 total turbines for sale in January last year, but that by June the inventory had climbed to 2,352. By this past January the figure had risen to 2,860, and this past June it reached 3,235 airplanes.

Strack, who works out of the Piedmont Hawthorne facility in Winston-Salem, N.C., said he too has not experienced much fallout from fractionals or entry-level jets.

“The fractionals probably attract the people who can’t justify owning an airplane on their own, and have limited use for an aircraft,” he said. “I don’t think fractional has taken a whole lot away from us.”

Strack said he used to focus “pretty heavily” on the international marketplace, both buying and selling, mainly in Europe. “I think the international opportunities have dried up to some degree,” he told AIN. “Typically the international markets, especially Europe, seem to follow the U.S. market. Europe has been a little on the flat side with both selling and buying activity.”

Strack, however, retains an optimistic outlook and sees things improving as time goes on, primarily because customers feel they might be better off providing their own transportation.

A Tough Sell

Skytech Aviation, which operates at Martin State Airport in Baltimore, Md., and Rock Hill/ York County/Bryant Field in South Carolina, works almost exclusively in single-engine turboprops. It is a dealer for Piper and Pilatus and is a Cessna-authorized sales representative for the Caravan.

Mike Fitzgerald, executive vice president, said that as a dealer in new aircraft, especially in the past year, Skytech has inventory requirements. “We ordered our new Pipers for this year in August last year,” he said, “and we all expected and hoped this year would be much better than it has been. Since we have pretty serious new airplane inventory pressure, right now our used activity is limited to trade-ins that have something to do with a new airplane or brokerages, where we’re just representing the airplane for a customer.”

Adding that Skytech will not actively go out and solicit and buy used airplanes, Fitzgerald observed, “That says a little something about the market, though, doesn’t it?”

Overall, he noted that this year has been difficult on both the new and used sides, and he described the activity level through July and August as “very slow.” Although nobody knows how to figure September, he conceded, “activity is actually coming back for us fairly well right now, and the activity that we do have appears to be on the high end of our product line, which of course is the Pilatus.”  

Absent any apparent economic recovery, he agreed with others that much of the current interest is generated by people who don’t want to fly on the airlines. “September 11 has been a motivator for anybody who was sitting on the fence,” Fitzgerald said. “I’m not trying to be an ambulance chaser. But let’s face it, who wants to get on an airliner if you don’t have to? And what service there was is now decreased.”

He also cited the time constraints imposed by increased security requirements. “We’ve been telling our customers that we can beat a jet to just about anywhere in a turboprop with a two-and-half-hour head start, which is what we’re getting over the airlines,” he said.

Fitzgerald recalled that the first half of the year was “fairly decent,” but the activity was in airplanes that were ordered last year or previously. While he described the middle half of the year as “very slow,” he said “we are seeing some tendencies” of picking up.

At the time he spoke to AIN, he had taken a PC-12 in trade about 10 days earlier, and it appeared he had a verbal commitment to sell it within the week. He said the buyers were prospects from about 18 to 24 months earlier, and they specifically resurfaced after September 11.

According to Fitzgerald, most of Skytech’s customers are owner-pilots, and the airplanes the company offers are basically the biggest these people can fly routinely and easily as well as obtain insurance for. “That’s why the single-engine turboprops as a line of aircraft seem to have an advantage right now over some of the multi-engine turboprops and jet equipment,” he said.

Fractional programs have had little effect on Skytech’s customer base because most of its prospects are owner-pilots. “The good news is that our core group of prospects is not affected by the fractionals,” Fitzgerald said. “The bad news is that there are a few prospects who would buy our airplanes (and have a company pilot) who are instead opting for the fractionals.” He estimated that only about 15 or 20 percent of the Pilatus PC-12s or Piper Meridians his company sells are crewed by a salaried pilot.

Dan Dickinson, chairman of General Aviation Services of Lake Zurich, Ill., concurred with his competitors that the first nine months  were slow and that every month more and more airplanes came onto the market. But many of them were airplanes that needed a significant amount of maintenance and just didn’t sell, he said.

“The market was in the newer aircraft–the newer the aircraft the stronger the market seemed to be, and the higher the dollars were too,” he explained. “But the lower-dollar turboprops were definitely slow.”

After September 11, “we’ve seen a significant uptick,” and Dickinson predicted that “the last quarter of the year, for us, is going to be very good. We’ve had a good year anyhow. I don’t know why, but we’ve seemed to do well the whole year.”

Market Similar to 1991

In Dickinson’s opinion, the market has hit bottom. He compared it to 1991, when the country was just “kicking into a recession and the Gulf War came along, which finished things off.” More aircraft became available on the market, he recalled, and then that set the industry off on a 10-year boom.

But unlike some other dealers, Dickinson’s company has seen a lot of people go into fractional ownership, and a lot of those companies or individuals have since decided that they would like to own a whole airplane. “I think the time-share folks have brought a lot of new people into the market who weren’t there before,” he said. “A lot of the prospects we have own a quarter-share airplane someplace else. Now they’re saying they want to look at buying a whole airplane, especially since September 11.”

While he admitted initial concern that fractional ownership would eat away his customer base, Dickinson believes that it has just made the customer base bigger. He said that for the most part, the vast majority of people going into fractionals are new to aviation and “from an industry perspective that’s good.”

Dickinson said that two factors are buoying the market–security and convenience–while the deteriorating economy is pushing it down. “But I think the up-force is winning,” he declared.

According to Dickinson, there are a lot of good turboprops that can be purchased for under a million dollars. “At the end of the day, it’s not the age of the airframe, it’s how it’s been maintained,” he said. “Our perspective on the definition of low-time and high-time has changed.”

Dave Lipski, president of Eagle Aviation in Columbia, S.C., said his company specializes in Cessna Conquests and Citations, but “will sell a little of everything.” The company concentrates on Conquests as opposed to other makes of turboprop because it knows the product, and support from Cessna remains strong even though the types have been out of production since 1986.

“One of the reasons we specialize is that we carry inventory; we are not just a broker,” Lipski said. “To carry aircraft in inventory you really need to know the market or you run the risk of making a bad decision.”

Although Eagle Aviation began the year optimistically with “a fair bit of business,” he said it slowed dramatically in the spring and early summer. But in late summer and before September 11, Eagle Aviation started to see “a pretty strong comeback,” although Lipski could not pin the late-summer surge on anything other than falling prices.

John Gantt, president of Georgetown, Texas-based Gantt Aviation, said that after a three-week lull following September 11, “we have had more activity than the rest of the entire year.” He said he had sold some aircraft and in the previous couple of weeks had received “a lot more inquiries.”

Gantt Aviation specializes in King Air 200s, and most are bought by corporations. “Even those with jets like to have some in their fleet for trips averaging 500 miles or less,” he said.

The company shies away from brokering, and instead buys and sells its own airplanes. “Half of our business, either buying or selling, is overseas,” Gantt told AIN. “When the dollar is down we sell. We are getting airplanes when the dollar is strong.” Although he usually deals more in fixed-wing aircraft, Gantt had just taken delivery of helicopters from Japan and France.

Gantt said that fractionals are “really not competition to us. If they are going to fly only 100 hours or less, they may be interested in a fractional share.” But he argued that the person who is going to use more than that can buy a pre-owned aircraft for about the same investment. Further, he noted that a lot of people who the fractionals introduce to business aviation end up buying their own aircraft.