Pre-owned Update August 2013: Inventory Remains Stable

 - August 4, 2013, 12:40 AM

The typical summer build in inventory is being held at bay perhaps by buyers’ sense that values have arrived at such attractive, even laughably low, levels that it doesn’t make sense not to buy. Some would-be sellers may be applying similar logic and removing their aircraft from the market as a result of those same low levels. Regardless of the reason, inventory is holding steady at a time when it often increases.

Certainly, the incremental pullback in total numbers should not be read as suggesting that all things are rosy. Consider the GIV-SP, which in each of the last two years has yo-yoed from glut to dearth. Each spring, inventory drifted below 15 offerings, or just below 5 percent of the total number in operation, making one believe the meltdown had stopped and that prices were poised to improve with any further reduction in inventory. That hope went out the window for sellers when offerings inexplicably doubled in the remaining months of the year and pricing continued its downward trek.

What Can I Buy for $10 Million?

I recall that years ago my industry counterparts were surprised when the first GIV-SP sale checked in below $20 million, then more recently $10 million. Now nearly half the fleet is priced at or below the $10 million level. A trickle of sales has occurred this year, about one per month, and only one of those has broken above $10 million. Softening successor models compress the models they supplanted, but competing model types can also play a role. The question buyers often ask is, “What else can I buy for $10 million?” and to that end there is just no shortage of quick answers. In fact, as a broker I almost find myself asking, somewhat tongue in cheek, “What can’t you buy for $10 million?”

As for what you can buy with about $10 million in your pocket, considerations might include the Challenger 604, GIV-SP and Falcon 900B in the large-cabin segment and, of course, all of their respective predecessor models. You could also pay far less than $10 million for these same aircraft types as that mark is beginning to represent the upper range, and trading off model years or total time can yield the same performance at a lower entry point.

In the super-midsize category most of the G200s, Citation Xs, Sovereigns and Falcon 2000s sit below that threshold; in fact, among each of those models very few are priced at more than $10 million, and the price of entry can dip into the $5 million range or even less in a few cases. The super-mid supply screams of lackluster activity, pretty much ensuring today’s deals will be replicated arguably through year-end and most likely well beyond. With regard to the 12-month moving average all, with the exception of the Citation X, are at or within one aircraft of their respective number. The Citation X offerings, at 25 (8 percent of the total number produced), are just marginally above their moving average. Approximately 5 percent of the current stock is based in North America, with the remainder in South America and Europe.

Just about everything in the midsize category carries a price tag of less than $10 million, but if you wanted to spend all of that, and in a few cases a little more, you could have the latest and greatest G150, Citation XLS+ and Hawker 900XP money could buy.

Perhaps in an effort not to alienate buyers, sellers are more often using “Make Offer” in lieu of an actual asking price. In fact, more than half of the 2,550 aircraft for sale today are currently being promoted that way. Some buyers will tell you they don’t like that; some brokers will tell you they invite offers to encourage calls from prospective buyers who might otherwise reject an airplane as too pricey. As for the breakdown of inventory, about 1,500 are based in North America. Of the remainder nearly half are in Europe.

If you look at aircraft model years 2000 and newer and compare North America to Europe, you see a divergence between the two regions, with North America offering 6.9 percent to Europe’s 14.9 percent, but both areas have shown improvement since early in the year.