Pre-owned Update: Another Year of Limbo for Buyers and Sellers

 - June 3, 2012, 12:35 AM

An old axiom for Wall Street players advises to “sell in May and go away” and clearly most investors would have done well to follow that advice last year, as the stock market began a several-month slide. The correlation of the stock market to the vitality of the aircraft market is easy to see when looking at used inventory levels from May and June a year ago and the ups and downs experienced since then. Some model types that were in recovery mode and looked nearly poised to go from falling in value to increasing in value, or at least maintaining stable pricing, have once again appeared on the market in larger quantities.

Consider the market for the Learjet 60, a mainstay of corporations as well as a staple of charter companies, with more than 300 in operation (as well as nearly 100 more of its successor model). Choices had grown to 80 in the summer of 2009 when the entire market was in disarray, but slowly, month after month, the midsize Learjet began shedding excess inventory until reaching 44 last June, a level not visited in a few years. Unfortunately for sellers, factors causing the stock-market sink spilled into the market like a red tide and inventory reversed direction and began to climb again, to nearly 60 in the first quarter of this year, once again putting prices on the ropes.

The example above is anything but a one-off. The GIV/IV-SP, another popular model among buyers, experienced a similar pattern. It peaked at about 40 in 2008 and slowly and methodically–often at 50-percent discounts from peak pricing–pared its offerings to just 12 last May, but due to market forces doubled in five months and continued to build until topping out at 30 at the beginning of this year. As market conditions improved last fall and spilled into this year we have seen a corresponding reduction in IV-SP inventory. Choices have dropped from 30 to 20 but remain well above year-ago levels at a time that could see buyers go away in May once again as the challenges in Europe seem to mute any sustained recovery that would propel prices upward. In this segment, it seems like a tale of two markets as the later models garner the lion’s share of attention. According to research firm Aircraft Post, no GIVs in the 1200 serial number range have sold, which generally means buyers perceive prices still need further downside adjustment.

One more example is the Hawker 400XP, the successor to the Beechjet 400A. The number of choices available grew from 24 last June to 30 by last fall, but as the stock market began to improve, buyers resurfaced and have since moved choices down to 18 at present, or 7 percent of the total number in operation. At that level, prices should at least stabilize and with any further reduction might be positioned to move higher.

Economic Concerns Remain

You might think that with the price destruction visited upon many aircraft models since 2008–shrinking 50 to 66 percent in some cases–outside influences shouldn’t be an overwhelming concern for buyers, but it’s clear by the action over the last 12 months that it is and likely will continue to be. So, yes again, we are in hover mode, sitting right where we were last year, where buyers pay heed to the direction of the stock market and economy in general before placing bets on the aircraft market.

While impacted by the downturn like every other model type that was struck in 2008, the large-cabin, long-range aircraft was first to bounce back, but a couple of models in particular are now under the watchful eye of market participants. G550 and GV owners seem the most likely upgrade candidates for the Gulfstream G650, and there is some question as to how values of both of these model types will be affected in the coming year(s), as a greater number of G650s are delivered. These, I would guess, will not be going to first-time buyers and so an inventory build should be anticipated. As this occurs, it will be interesting to see how aggressive sellers of GVs and G550s become. Some who believe Gulfstream can be expected to take trades it may have already agreed to will price aggressively, leaving other owners to follow the lead, or let their aircraft languish on the market. Of course this will all be affected by the number of G650s delivered over the course of the years.

OK, so let’s talk austerity. Greece comes to mind, or at least the idea or suggestion of austerity such as it is. JetNet, an MLS to the broker/dealer community, shows 37 business jets on the Greek registry. Eight show up as being for sale, which is actually fairly significant in percentage terms. However, only three of these eight were placed on the market this year. Curious about what is happening, or what might happen, in Greece or any other Euro-zone country, I asked one of our Europe-based industry counterparts what he felt was the likely outcome. He seriously doubts owners will be dumping their jets, citing the fact that owners are still making fantastic money. In Greece, he says, it’s the government that’s broke, not the companies. He did expect to see a rush to register them in foreign places if they’re not already and set up trusts to protect the owner’s identity.

So, for now, this year is looking a lot like last year. While there are still lots of concerns on the economic front that seem likely to be with us for the foreseeable future, there are opportunities for buyers. Worldwide inventory is currently hovering around its 12-month moving average of 2,596, perhaps waiting to take its direction from the market forces.