Preowned Update: Prices down from last year, but inventory remains stubborn

 - August 2, 2010, 10:42 AM

The used aircraft market often synchronizes its pace with the lazy days
of summer, usually resulting in a seasonal adjustment in activity. A slowdown in a slow market can be excruciating, but perhaps it is a respite before one of the more active times of the year. Inventory levels have dropped steadily since last summer. In fact, the supply has whittled down by nearly one aircraft a day (down 364 since this time last year). That might not be an eye-popping drop, but it is noticeable nonetheless.

What is being brought up more and more is aging aircraft and their effect on the pre-owned market. It’s a point well taken. If you look at how many aircraft manufactured since 2000 are in operation and figure out the percentage of that group that are currently for sale you arrive at a figure that is slightly below 10 percent, the number often used to define an average supply. The number rises to 15 percent if you factor in all aircraft currently for sale against all aircraft produced and in operation. While older aircraft are selling, buyers are clearly paying more attention to newer aircraft.

The good news for buyers of some older aircraft is that the question is no longer about acquisition cost, as some are nearly being given away, or might need to be, but about cost of operation. It’s hard to fathom that some of the old stalwarts accumulating on the market–with surprisingly low prices–were mainstream aircraft a few years ago. Right now you can purchase an older–but still viable–aircraft, run it across the U.S., maybe stopping once for fuel, carry eight people and go Mach 0.83 all for about $1.5 million. Astras, Citations, Learjets, Hawkers and everything above, below and in between offer incredible value right now, if a buyer can tolerate the higher cost of operation compared with something newer. While there’s been some recovery in the large-cabin segment, the small- and medium-cabin segments have at least stabilized, with a coherent trading range allowing buyer and seller to effect transactions.

Changing Market Sentiment
Here are a few anecdotal accounts of what has transpired in the nearly two years since the economic crisis beset the private jet segment. A year ago there were 36 GIV-SPs for sale and buyers were in short supply. Today there are 19, or 6 percent of the number currently in operation. There were only 16 for sale just before the roof caved in, in August 2008. Think about that for a minute. There are only three more on the market now compared with then, yet the average price for a GIV-SP in 2008 was in the upper $25 million range and now it’s $15 million. Clearly it’s market sentiment that has changed, but perhaps also it’s the more challenging finance environment and the fact that GVs now occupy the price range forcefully vacated by the GIV-SPs. As demand increases, you can expect to see prices bumping up in the fall if action in this market continues.

Taking a sample of the mid-cabin segment, there are currently 59 Hawker 800XPs for sale, or about 14 percent of the operating fleet. That number is nearly
identical to the inventory of a year ago. Average pricing last summer was $6.2 million; now it’s $5.2 million. Consider that two years ago there were half as many with average prices at $9.2 million. Nothing has changed with the aircraft except that it’s two years older and now trades at almost half its former value.
One of the best performing mid-cabin offerings is the Citation XLS. The summer before last (just before the Lehman collapse), there were only 11 XLSs for sale. Less than a year later, the number of choices tripled. Inventory has since dropped to 18 earlier this year and ticked back up a few–fairly typical during the summer months–yet even at that, the supply represents just over 6 percent of the XLSs produced.

The original CJ represents the light jet segment and its presence on the pre-owned market grew from 39 aircraft two years ago to nearly 70 before ratcheting back down to about 60 (or 17 percent of the fleet) today. Average asking prices over the two-year time span have declined by about $600,000, from $2.5 million then to
$1.9 million now.

While the market turned the corner a year ago and continues to see a greater outflow of inventory than in, it still has a long way to go, which should have buyers doing back flips, while sellers collectively cross fingers that pricing stabilization takes hold. Clearly, with some model types showing well above 10 percent of their respective fleets for sale, average asking prices offer just an idea of the figure for which the aircraft can actually be purchased.