Preowned Update: Inventory continues steady decline from last year’s record high
The eye-popping total of 2,750 pre-owned aircraft for sale today is a lot based on historical standards, but it is well below the peak reached a little more than a year ago. The broker community and OEMs monitor the total number of aircraft for sale because it is an important measurement on which to gauge the health of the used aircraft market, but when you scratch beneath the surface you realize that the sky is not falling.
Consider that of this number today roughly 100 are aircraft that are not yet even in operation–delivery positions, which is another chapter to the story and probably causes more grief for the new aircraft segment than the used. More important are the more than 600 aircraft that have been on the market for more than two years, perhaps calling into question the level of commitment of the seller to accept market pricing. “Yes, we have an aircraft, but we’re trying to sell it” might be the path of least resistance for operators who want to avoid criticism from the press or stockholders. In fact, last year one broker was getting paid a commission to make it appear that an aircraft was for sale, but not to sell it. Based on conversations with others, it was clear that while the practice was not widespread, this was not a unique request.
While research database Jetnet shows that aircraft in the for-sale fleet spend on average nearly 500 days on the market, some might never sell and never be removed, skewing the average. In fact one of the aircraft making up this average has been on the market for more than 3,900 days, which muddies the figure for average number of days on the market. Further contributing to the distortion are a 1965 aircraft that has been on the market since 2002, and a 2015 position. There’s a better-than-even chance that when the ball falls in the Big Apple in 2015, both will still be available for sale, so you can see how these numbers get twisted and the market can look more dire than it is.
It seems that aircraft for sale today should be placed in some subsets, to bring a measure of transparency. Perhaps headings such as overpriced, listed for sale only for political/image reasons, waiting for the market to recover, age challenged and so on would show that activity may be lackluster in given market segments for good reason. Aircraft Post, a database that tracks a select group of aircraft, implemented its own set of criteria with which it determines if an aircraft is legitimately for sale and in doing so weeds out a lot of the clutter for its subscribers.
Managing Seller Expectations
While the deer-in-the-headlights reaction to the across-the-board pricing reduction has largely passed, some sellers–it would seem–still need their respective agents to give them the “I’m a broker, not a magician” speech, as some are still focused on selling in the market that was, not the one that is. While the speech is not well
received and the messenger can wind up getting shot, it eventually helps both parties. In fact, I was pushed under the bus nearly a year ago when I recommended pricing that was apparently unacceptable to the seller’s pain threshold at the time.
He shuffled the deck and selected a new representative, one presumably offering more hope. A year later, the airplane is still on the market–approaching the asking price level I recommended months ago.
Brokers should be OK with the loss of an unrealistically priced listing, if they’ve done their best to convey current market pricing accurately to a seller who refuses to listen. It frees them to go on to sell sellable aircraft and bogs down the replacement broker who may have embellished the value to secure the listing and is then stuck attempting to achieve an unachievable price.
Age and total airframe time are increasingly becoming an issue as well. Consider that nearly half of the aircraft currently for sale that are in operation are 20 years or more old and the percentage available for sale is about twice that of aircraft that are up to 20 years old. It’s this latter group that most finance companies have the greatest interest in chasing and may just be another element dragging down sales
activity among the older aircraft.
As we head into the final quarter, typically the most active for our segment, we should see a continuation of the buying trend that began more than a year ago. Price stabilization was the first step in bringing the buyers back to the negotiating table, and with their greater numbers has come a modest decrease in inventory.
Some model choices have been reduced by half in a matter of months, and if the activity remains steady we might see price appreciation among a few select models by year-end.
Bryan Comstock is a cofounder and managing director of aircraft broker Jeteffect.