Pre-Owned update: Sellers finally seeing the price floor

Aviation International News » June 2009
June 4, 2009, 7:26 AM

The flow of used aircraft to the market is slowing fairly dramatically, and some may wonder if that’s because all the aircraft for sale are already on the market. It might seem that way to some, but the more than 3,000 aircraft for sale right now–while not an insignificant number–represent only a fraction of the more than 16,500 jets currently in operation. Consider that of the roughly 3,000 for sale, nearly half were delivered before 1990 and fewer than 900 were delivered this decade.

The net increase in used jets to the market in the last three months is about 131, which is less than half of the previous average for the last nine months. In fact, during September, October and November more than 500 jets were added to the
used market and consequently values got slammed. Unheard-of, unimagined pricing took hold of the used market during the last quarter of last year, when activity
was at a veritable standstill. One benefit to such a violent correction, if it had to come, was that it condensed the price-slide time frame to months, which presumably brought buyers back into the market sooner than during some less dramatic downturns, which ratcheted down smaller percentage amounts but over a longer period of time.

While prices in some markets might still tick lower, there is a general sense that we are now at or near the bottom, at least in terms of price. The discounts that buyers are getting today, compared with what they would have paid a year ago, essentially pay for their cost of operation for years. Some sellers are starting to realize that if they didn’t own their current aircraft, they would buy it at today’s price, and once that epiphany strikes, a number of them are removing airplanes from the market, affecting the flow rate of new offerings to the used market.

It’s not all rosy, for sure. In fact, I recently gave a client an update on market activity for his specific type and model of aircraft. For those who are in it every day, it’s not a surprise, but when I told this owner that none of his aircraft had sold in the last 45 days, he stuttered, “You mean in the U.S., in the world?” Yes, I told him, not one of his aircraft has sold.

I had someone else take offense at the notion of encouraging buyers to make low-ball offers. The thinking here is that I’ve never seen someone come in on an initial offer, in this type of market, and make a high-ball offer. There has to be a starting point, and sellers always have the option of saying no, but consider how many would like to have back the low-ball offers made a year ago on aircraft that are still sitting on the market. Those offers would be grossly above what anyone would consider offering today.

Some of the most popular models have been trading at a rate of one per month since the beginning of the year, while others have been trading at a slower rate. Only one GIV has sold–for less than $10 million. That might be the first recorded at such a low level, but it won’t be the last. That former support level is now seen as a resistance level, which will probably hold for a while now that we have started to see asking prices short of $13 million on early serial numbers of the successor model, the GIV-SP. Buyers are beginning to understand that a GIV with a price tag of less than $10 million is very compelling. Imagine this type of aircraft for the price of what an Excel cost a year ago. That popular model, which held up so well in the last downturn, is no more immune to the price contraction than any other model. We’ve seen some early Excels drop into the $4 million range, which is another great value.

Can these and every other model whose prices have been slashed experience continued value destruction? Of course they could, and then we would have bigger problems. The sense today is that if values give any more ground it probably won’t be more than 10 percent. With aircraft beginning to sell, albeit at a slow pace, it establishes a trading range that brings clarity to the market for buyers, sellers and lenders.

Banks continue to do deals, although perhaps with more scrutiny than before.
The combination of some buyers not being able to secure favorable financing terms and some sellers not being able to sell has led to more owner-to-owner short- and long-term leasing transactions. Some sellers who do not want to discount their aircraft to current market levels and prefer to ride out the market are in some cases subleasing their aircraft in the hopes that market values will be buoyed as the economy regains its footing over the next couple of years.

Along the same lines are owner-to-owner trades, which can also have a
chance of working in this market. Unable to sell his aircraft, a frustrated trade-up candidate might connect with an equally frustrated trade-down candidate facing the same challenges. A match is made and the transaction follows. It’s not your mainstream sale, but these types of deal, which have little chance of working in an up market, can find traction in this one.

Buyers and sellers are getting creative. 

Bryan Comstock is a cofounder and managing director of aircraft broker Jeteffect

FILED UNDER: 
Share this...

Please Register

In order to leave comments you will now need to be a registered user. This change in policy is to protect our site from an increased number of spam comments. Additionally, in the near future you will be able to better manage your AIN subscriptions via this registration system. If you already have an account, click here to log in. Otherwise, click here to register.

 
X