As used aircraft values got pummeled over the last few quarters, it seemed that the buyers had all but disappeared. They hadn’t. Now that the inventory of most model types is at unprecedented highs and prices are at unprecedented lows, buyers are reemerging in more noticeable numbers and scoring big time on CJs to G550s, often executing a trade some 30- to 50-percent below the prices accepted at this time last year.
Some model types have arrived at a more predictable trading range and have stemmed the freefall in pricing, while others still search for that ground. In either case the rate of value deterioration has gotten, as many stock traders put it, less worse. Certainly buyers will have the upper hand for quite a while, but we could see the inventory, which appears to have stabilized, actually ratchet down. If you can assume that the sellers who placed their aircraft on the market in response to the economy hitting the skids have already done so, this should slow down the rate at which additional aircraft are added. With stable prices, slightly improved economic conditions and a re-emergence of buyers, the inventory curve could turn marginally lower.
If business jets were real estate, the 40 GIVs for sale would represent a 10-year supply, based on the number currently for sale and the one-per quarter rate at which they are selling. Fortunately, this rule of thumb doesn’t transfer to our industry, which can see a model type go from overly abundant to tight supply in as little as two quarters. While six months might be optimistic during this dramatic cycle, it’s clear that buyers are reengaging and bringing to the market price definition that essentially primes the pump for increased sales activity. The about face can be brought about not only by buyers, but also by sellers, who decide to keep their aircraft due to improving conditions or because conditions are so bad they decide it wouldn’t be prudent to sell a business tool for such a low price.
Whether a trend or an anomaly, some recent and interesting developments include heightened buying activity on the international market, perhaps spurred by a weak dollar against many foreign currencies and made more noticeable by the lower U.S. jet buying population right now. Another involves some former fractional owners trading up to whole aircraft, presumably due to the narrower gap between the cost of these two options at present. And it is quite amazing to see GIVs selling now for what Citation Excels were bringing a year ago, and Excels selling at the CJ2 price point. Sure prices could go lower, but that seems unlikely as buyers increasingly wade back into the market. We have even experienced a reverse auction process, whereby a participating seller provides details about his aircraft along with his best price to the prospective purchaser, who may use an intermediary.
One similarity to real estate is the high number of aircraft that are for sale as the result of foreclosures, or repossessions. While the exact number is hard to pin down, it’s definitely greater than 50 and probably lower than 100. These aircraft are typically parceled out to mainstream brokers to remarket, in most cases at attractive prices. Others may offer attractive short- or long-term rental or lease rates. Leases are also being employed by sellers who can’t find buyers and buyers who can’t find suitable financing, or who are perhaps not ready to commit to a market they believe has a further downside. A number of retail-to-retail, short-term leases have been structured this year and offer a short-term solution to both parties.
Some markets may appear stagnant but are actually experiencing some activity. For example, while it looks like little is happening in the GV market, two aircraft that never surfaced on the open market are being contracted off market. Some of the blow-out deals never reach the general public because savvy buyers often use an acquisition agent to dig beneath the market surface to locate a situation. These stealth deals can affect the markets due to their low pricing when compared to their peer aircraft.
Other markets are indeed stagnant. These left-for-dead markets need to do something drastic in terms of pricing to stimulate buyer interest. Sellers stuck in this vortex may be reluctant to accept the new market price, and the result is an aircraft that languishes on the market.
Everyone asks where the best deals are, and the answer is that deals are available pretty much everywhere. Gulfstreams, Challengers, Hawkers, Citations, Falcons and so on offer more value than at any other time in recent memory. The problem for sellers is that not many buyers can take advantage of it right now for either financial or political reasons. We often see entrepreneurs buying in this market as they seem to be immune to scrutiny from corporate governance, stockholders and the press.
While the summer is historically the slowest time of the year for aircraft transactions, it is typically followed by one of the busiest times. This summer, however, is running counter to the norm, as buyers seem to sense that the deals that have abounded for the last several months aren’t going to get much better.
While no one is expecting a rebound of prices anytime soon, few expect any greater price destruction than what already has been wrought on the market. For those who can, now seems like a great time to go shopping.