Pre-owned Market ’08
Last year demand for pre-owned business jets and turboprops remained strong. High oil prices and financial turmoil, however, have applied the brakes and inventories are reaching new highs. Buyers are waiting for the deals to come to them, leaving airplanes languishing on the market longer and sellers accepting less just to get out of the market.
If an aircraft seller shouts out that he has a screaming deal, but the buyer refuses to hear him, is it a deal? That’s about where this market is right now, but the year didn’t start out that way. In fact, during the first two quarters aircraft brokers’ phones were lit up with prospective buyers at the other end of the line, many of them international, pursuing aircraft and subsequently closing transactions.
Come July, however, those same phones and buyers went quiet, and the silence was deafening. Everyone was prepared for a summer slowdown, and this summer didn’t disappoint. On top of that, insiders had already begun to speculate that the typically robust fourth quarter was going to be dreadfully flat. While an election year can serve as a catalyst for a slowdown, this year it was overshadowed by the much more daunting financial crisis and looming threat of a global recession, which continues to cast its pall over the industry and most likely will for several quarters to come.
Perhaps the only silver lining is the quickness with which the market tanked. The last downturn seemed like death by a thousand cuts, where sellers rode the market down $100,000 at a time. This go-round is less about how much sellers are going to lose and more about just getting out. Right now, getting out is not so easy. At the beginning of the year, there were just over 1,700 aircraft on the market; that number is now 2,701. The previous high inventory mark–reached five years ago–was roughly 2,050. This year we hit that figure in June and it continued up from there. While that looks like a big jump, consider that between 2003 and today an additional 4,450 new aircraft have been added to the worldwide fleet. The percentage of the fleet that is currently for sale stands at 16, yet when you eliminate aircraft older than 10 years, that figure drops to fewer than 10 percent for sale at present, a number generally considered to be a normal supply.
Prices have now at least been reduced to a level where market watchers–read: opportunistic buyers– are starting to call again if not to buy then at least to take the pulse of the market as they plan a future purchase. While these buyers can pull the trigger on an aircraft purchase whenever they want, as anyone selling aircraft has found, few who have acquired this magnitude of wealth like to see it diminished in any way, especially on a discretionary purchase. They can easily afford to sit on the sidelines while the market comes to them.
One area that has been a sweet spot for sellers–and a thorn in the side of manufacturers–has been aircraft position sales, which get treated much as if they were a used jet as far as the sales process goes, in that they are typically handled by brokers for the most part and resold, or assigned. While the manufacturers do implement efforts to discourage this practice, it continues nonetheless. Some are easy to work with when reselling and others just are not. In the last couple of years we have seen sellers make seven-figure premiums on large-category aircraft positions. While sellers are still making premiums, their levels have eroded significantly.
Last year the Gulfstream IV became one of the most dynamic markets, rising to an all-time high of 30 for sale in 2006 only to pare down to fewer than 10 last year. Now, like so many other model types, it has retraced its steps, climbing through the old high-water market to reach 45, a quadrupling of choices since last fall. Frankly, many model types are in the same boat, so to speak. The Falcon 50EX presented just two offerings at this time last year, but has since climbed to 14.
One interesting airplane is the Bombardier Challenger 604, for which the build-up began in earnest in September. In fact, in August only 15 of the 365 built were for sale. Two-and-a-half months later that number had doubled.
These across-the-board inventory increases, some of them more notable than others, seem more dramatic in light of the fact that the pendulum swung so swiftly from one of the strongest sales environments to one of the weakest in recent memory. The same aircraft that were routinely breaking new price levels are now the same ones littering the ramps. There is absolutely nothing wrong with these aircraft and you can’t even say they are overpriced.
It’s just a matter of buyers–even opportunistic buyers–waiting for some compelling reason to buy. So far that hasn’t come.
Gulfstream’s G200 has experienced a doubling of choices from a year ago and stands at 25 today, representing 12-percent availability based on the number in operation. Average pricing hovers in the mid-teens, with a low of $13.7 million and a high of $20.9 million. The average number of days on the market is 200 days. So far only one has been sold per quarter.
The Falcon 2000 has also increased its choices, doubling from a year ago. There were only six for sale last year, meaning used choices plunged to only 2.5 percent of its fleet, compared with today’s 6 percent. The current inventory is low and last year’s was excruciatingly low if you were a buyer. The Falcon 2000 is spending about 150 days on the market before finding a new home. Pricing runs from the low $17 million range to the $26 million region. Only a handful has sold since the beginning of the year.
Consider the Challenger 300. Right now there are 24 for sale, five of which are future delivery positions, which places the model well above its 12-month moving average of nine. A half-dozen have sold this year and are taking about 100 days to move, according to aircraft research firm Aircraft Post. At the time of this writing, one broker reported that he had lowered the price of his client’s Challenger 300 from $20.9 million to $16.5 million. The number of immediately deliverable aircraft that are for sale translates to 9 percent based on the 212 that are in operation. Rounding out this category is the Citation Sovereign, which nearly mirrors the supply of the Challenger 300. The for-sale fleet has grown 26 since last year and here, too, a handful of delivery positions make up the number.
On the lighter side, Beechjet 400As jumped from 22 at the start of the year to 46 today, but despite the increase the type remains a few ticks below where it stood a year ago. The average price is $3.1 million, with a high of $4.5 million and the low at $1.976 million. Another big jump came from the CJ2, which rose from 12 a year ago to 27 today. Posted asking prices are hovering between $4.8 million and $5.6 million.
With regard to VLJs, the Eclipse offerings have skyrocketed from 27 in January to 88, a significant number of those tossed onto the growing pile in the last few months. Jetnet shows 56 of those aircraft in operation, while the remainder consists of delivery positions. Prices run from about $1.5 million to the $1.9 million area.
Large-category aircraft, a market hot spot for the last few years, are beginning to show signs of some strain. The Falcon 900EX has significantly increased supply from four in January this year to 17 at present. This increase was widely anticipated as observers wagered the model type would build as 7X deliveries got into full swing. Pricing is bracketed between $30 million and $35 million. Speaking of the 7X, only a couple of positions have surfaced, one for 2010 and one for 2011 deliveries. Both are being touted in the high-$40 million area.
The Gulfstream V has risen from zero last December to 12 today, and buyers who have seen supply choked off for a very long time are buoyed by this change. This slight uptick in offerings accounts for about 6 percent of the nearly 200 that are in operation. The price spread from highest priced to lowest is $6.5 million, with the average asking price at $40.5 million. There are a nearly equal number of Global Expresses for sale; fewer of those were produced, equating to about 8 percent of the fleet on the pre-owned market. There were only four Globals for sale at the beginning of the year.
The final quarter of the year often ends on a high note as far as transactions are concerned, but if sales follow a linear scale, this year might be one of lower sales quarter-over-quarter. To no one’s surprise, this is the exact opposite of what occurred last year. The quick build-up in inventory and the resultant unwinding of prices should actually get us to a market bottom sooner rather than later.
Right now, however, the market is stacked with more offerings than buyers can digest. All aircraft will sell; the question is, at what price? Those buyers who are not satisfied with the answer to that question might end up re-evaluating their commitment to selling and remove their aircraft from the market. This could help to stem the inflow of new offerings and stabilize the market, which would prompt buyers to re-engage.