Pre-owned Update April 2013: Market Heats Up
With one quarter of the year in the rear-view mirror, the pre-owned market enters one of its historically busier quarters, and with some key economic indicators showing improvement, this year may be setting up to be busier than many recent ones. So many aircraft values have done nothing but fall for nearly five years. Now some are showing signs of resisting that perennial trend. A number of segments continue to edge ever closer toward right pricing, but others have fallen so far that they are beginning to move quickly.
Like the stock market, the aircraft market has at various times been oversold and overbought, and while predicting the end of a correction is based more on luck, the odds improve with each passing year of falling prices.
Take the G200, for example. At market peak it had an average asking price in the low $16 million range, and today the average is half that. Nearly half of the G200 sales over the past 12 months have moved in the $5 to $7 million range. Many of those were early serial numbers, but with that segment picked over much of the recent retail activity has occurred on post-S/N 100 offerings, with prices in the mid-$9 million to $13.5 million range, according to AircraftPost stats. Only one of the sales in the last six months was on a pre-S/N 100 aircraft, a noticeable change from the previous six-month period in which 13 of those early aircraft were sold. Current G200 offerings number 20, or about 8 percent of the total number in operation and reason enough for the value bloodletting to cease.
While the G200 offers one of the more dramatic market examples, having fallen nearly 50 percent in five years, it is far from the only example. Five years ago the Falcon 50 was still widely sought-after, and the market offerings then were about equal to the number offered today. In fact, at that time I was in pre-buy with a buyer who risked losing a respectable six-figure deposit if he didn’t conclude the sale. The results of the pre-buy inspection showed a well maintained aircraft, yet the prospective purchaser, as was his contractual option, chose to reject the aircraft and walked away from his sizable deposit (making what turned out to be one of the more savvy business decisions of his life). While making no predictions or having any advance knowledge about where the market was headed, he avoided the considerable seven-figure drop in value that has occurred since: average pricing of this model has withered from about $8.5 million five years ago to less than $3 million today, according to JetNet. On the other side of that equation, I had a seller reject a huge offer on a large-cabin aircraft, and he has since witnessed the market chop $15 million off that airplane’s value. Accounts like this abound over the last handful of years as month-over-month price destruction wrought havoc on the market.
Pricing Pressure from Newer Models
It’s like pulling teeth to get a GIV buyer to the table these days, despite the fact that some early models have traded in the $4 million range, about two-thirds below where they were at the 2008 peak. Market compression seems to be what has kept buyers at bay. If G450 values pressure GIV-SP values (which they have done and continue to do), GIV-SP values in turn compress GIV values and, with some exceptions, until buyers are convinced in large numbers that the compression has stopped, they wait out the market, which exerts further downward pressure on pricing. The GIV market showed some mild signs of movement over the last year, but little of it came during the last six months. To be fair, during that time frame, there was a U.S. election and a host of other economic frailties that have presumably influenced buyer psyche. With those mysteries solved it will be interesting to monitor this segment going forward. The average price for a GIV five years ago was $18.3 million; now it’s $7.3 million. As the market began its long fall from the precipice, owners in a state of disbelief held their pricing, which served only to boost market offerings from 24 to 45 within six months. Choices have since settled down and have actually fallen to 31 at present, the lowest level in the years since the GIV hit that all-time high; but this inventory still represents 16 percent of all GIVs in operation. Right pricing and an improving market could see the GIV and a number of other ravaged markets start to perform.
The Challenger 604 is another example of great bang for the buck. As market choices climbed to an all-time high of 66 last year, buyers recognized the price/value ratio, unholstered sidelined cash and began to push market choices lower. Values in this segment can be found below $6 million and climb to about $13 million. Fifteen percent of the active 604 fleet is for sale now, about where the GIV offerings are perched. Unlike the GIV, however, where all but one is U.S. based, the 604 choices are far afield, with slightly fewer than half of the selection U.S. based and the bulk of the remainder spread about equally between Europe and Asia.
Total worldwide inventory continues to edge lower. Now, with so many low-priced aircraft for sale, supplies still ample and a marked improvement in the economy, a number of models could snap back at a much quicker rate than has been experienced over the past few years. Even if that doesn’t happen, buyers are making their collective presence felt as, checkbook in hand, they continue to assault the market.