Pre-owned Update: Indicators Point to 2012 Turnaround
Someone with more energy than I have is one day going to come up with a gauge that will accurately forecast the direction of aircraft sales just as the list of leading economic indicators predicts the future direction of the economy. Most of us in the industry seem to use our gut instincts to figure out where we are headed, but every day we get bankable hints. One of our sales directors mentioned to me the other day that exclusive aircraft listings are becoming harder to get, adding, “I think that’s probably a good thing.” He’s probably right. During the downturn, blindfold, you could throw a rock and hit someone who wanted to sell an aircraft (often, unfortunately, at an unsellable price). During that time, those who thought it best to embellish the price their aircraft could command usually got stuck with an aircraft that was overpriced in a declining market. In some cases, disenchanted sellers shuffled the deck and relisted with more reasonable price expectations.
The gut feeling brokers rely on is generally much more than just that. Indicators are all around if one looks. Of course the stock market trajectory is probably a telling meter, but there are more to aviation-specific measurements. There’s no shortage of sources (industry counterparts, escrow companies, attorneys, finance companies, maintenance and completion facilities, NBAA attendees and exhibitors) from which to gather information to give a fairly accurate and articulate account of where the market is headed. Heck, I can even get a grasp of how busy things are by the wait time it takes to reserve our aircraft photographer, an independent contractor, whom other tier-one brokers also use.
Indicators over the past few years pointed to a culling of the herd that saw used aircraft inventories reach unprecedented levels. As prices corrected and–in some cases–continue to correct, buyers began re-engaging to a point that clearly shows some markets reached the price bottom last year. A few years ago that call would have been hard to make as no one had a grasp on just how far values would fall and when or if the market would ever recover. However, the last few years have seen a steady net drop in the number of aircraft for sale, about 400 since the peak, and it has occurred amid a backdrop of new aircraft continually streaming onto the market. New aircraft deliveries can be another measure of the used aircraft market, sometimes running countercyclical. A glut of used aircraft for sale can often hurt new sales, but as the late-model used inventory starts to fade and prices rise, buyers can be persuaded more easily to make the jump to new aircraft.
On Track for Rebound
So far, the 2012 indicators are looking as if this year could be a break-out year compared with the last three. Interest rates remain low, the economic outlook appears nominally better this year in many regions of the world. And so what if in the U.S. it’s just the ether being pumped in for an election year? Europe, while beaten up, might be at a turning point, but for now may well be the buyer’s paradise that the U.S. has been since 2008.
Right now Europe has a sizable number of good, late-model, 2000 and newer aircraft on sale. In fact, you might go so far as to say that if you’re in the market for a 2000, or newer, aircraft you probably want your acquisition agent to shop for you in Europe, where the supply of newer aircraft stands at 15 percent availability, compared with 7 percent in the U.S.
If you’re looking for something a little older, the U.S. has an enormous number of viable aircraft that are just waiting for offers. They’ll be more costly to operate, yes, but considering we’ve seen at least a 50-percent reduction in price on just about everything from the light to super-midsize segments, the cost of operation argument doesn’t have legs. A few years ago on average the aircraft we were selling were relatively new, but now we have buyers clamoring for some of the older aircraft because of the low price. Right now we have at least five aircraft in prebuy and successor models have supplanted every one of them. That indicates to me that buyers have identified these market pockets as being where the value is and I would expect to see that trend accelerate as we roll into the normally active second quarter of the year.
These low prices are bringing in first-time buyers and buyers who may have previously owned and have been watching the market waiting for what they perceive to be the right entry point. Many of these buyers tend to under buy. Oftentimes the realization strikes six months after a purchase, which is about the time it takes for an owner to come to grips with the fact that he needs something more capable. The benefit for these buyers now is that they are not getting buried in an aircraft and can (assuming there’s no pre-pay penalty on their note, or they’re not locked into a lease without an EBO) roll out of one and upgrade into some other equally crushed market relatively painlessly. Not that too many owners are looking to buy and flip, but this is the type of market that is allowing savvy buyers to carve out a screaming deal on a viable aircraft and possibly have some upside in it, something that no one imagined just a couple of years ago. The indicators for 2012 seem to be pointing skyward.