Preowned Update: Latest signs point to a pre-owned market on the mend
While a year ago it seemed as if buyers were beginning to emerge from harsh winter hibernation, in fact inventory was still a few months away from reaching its all-time peak. At the same juncture this year, we find inventory a couple of hundred aircraft below its 12-month moving average, yet still a couple of hundred above the pre-Lehman collapse figure. Given the tumultuous time between then and now, the fact that more aircraft are going off the market than coming on is nothing less than remarkable.
Playing no small role has been the pricing freefall. Since prices have dropped by 10, 20, 30, 40 and even 50 percent in some cases, aircraft ownership has become so compelling for some buyers they just couldn’t resist any longer. The pricing reset, which appears to be overdone, has snapped back the market to stable levels among many model types and modest price appreciation in a select few. Still others are searching for firm footing. Just the fact that there is no longer across-the-board price destruction comes as great relief as the stabilization begets greater buyer confidence and seller pricing clarity. Both are key ingredients to moving the market.
A prime example of a market that sprang back to life with a vengeance is that for the G550. Consider that roughly a year ago there were 31 G550s for sale; prices had tanked and premiums on future deliveries were a distant memory. The price reset pushed buyers off the fence and chopped more than half of the inventory from the market. Four of the G550s currently for sale are delivery positions priced in the upper $40 million range, and one is offered for lease. Another is listed as “sale pending.” Reportedly some of the others are in a similar state of presale, a turnaround that has hoisted prices off their lows. The average sale price based on the 14 that have moved in the past 12 months is about $38 million. At the low end a 2003 model sold for approximately $33 million last September while a 2008 model more recently commanded $45 million, marking the high end, according to Aircraft Post. Excluding the positions offered, the remaining five G550s for sale represent just 2 percent of the nearly 250 G550s currently in operation.
Bombardier’s popular Challenger 300 is another comeback kid. During the good times buyers paid seven-figure premiums for the must-have aircraft, only to see values diminished through the latter part of 2008 and throughout last year. Here again pricing seems to be the catalyst. Consider that last September there were about 36 Challenger 300s for sale, according to aircraft data service Jetnet, and since then the used options have been reduced to 24. Of that number four indicate “sale pending.” Two-thirds of the aircraft listed are based outside the U.S., indicative of the worldwide buyer participation in recent years. Average pricing is a tick under $15 million, a far cry from the $20 million plus mark that defined the market in 2007. The aircraft has been selling at a rate of one per month over the past 12 months. At the low end was a nearly 5,000-hour 2004 model that sold for $10.5 million and at the high end was a 2008 model with less than 1,000 hours that sold for $17 million.
The Citation XLS is the standout in the mid-cabin class, halving its pre-owned choices in the past 12 months from about 36 to 18. Here again, U.S. buyers might have to look far afield as just under half of these are available to view within U.S. borders. The number for sale represents roughly 5 percent of the XLS fleet and is by most measures a low supply, which could bring about price increases, especially in the U.S. as the supply is less than half of that. Generally, unless there is a compelling reason to shop abroad most buyers opt to buy close to home, which could trigger a price increase among XLSs.
The Learjet 60 deserves an honorable mention. While there is still a glut on the market, it’s a clear improvement since last summer, when the inventory ballooned to 80, or a quarter of the Learjet 60s in operation. The figure now stands at about 50. Anytime there is 25 percent of a model type for sale, you can expect sizeable price erosion, and the Learjet 60 didn’t disappoint. Buyers last quarter bought five Learjet 60s, four of them in the $2 million range and one a 2001 model at $4 million. A few years ago, it was rare to see a Learjet 60 break the $5 million floor.
Given the paradigm shift over the last 12 months it now appears equally rare to see anything break the $5 million ceiling. In fact, Aircraft Post shows just three that have done so in the past 12 months.
Given all that owners have endured over the last 18 months, the recent buying activity is impressive and seems sustainable, even if that is hard to believe. The market, perhaps surprisingly, seems to be gaining steam as we head into what is historically one of the busier quarters in terms of sales. Reports of bank repo supplies drying up and manufacturer backlogs extending provide indicators of a market not just on the mend but in full recovery. A visit to the March 11 NBAA Regional Forum at Van Nuys provided a barometer perhaps on the local scene, but an important scene nonetheless based on the number of corporate operators in and around the area. The major manufacturers–all of which were well represented–no doubt recognized the importance of the venue and perhaps the shift again toward buying.
Bryan Comstock is a cofounder and managing director of aircraft broker Jeteffect.