NBAA Convention News

2001 Pre-owned Aircraft Report:

 - June 18, 2008, 11:33 AM

The thought that the market for new and used corporate aircraft as well as corporate aviation itself may very well be the innocent beneficiary of terrorism would be a tough reality to accept. Is it possible that the corporate jet, long looked at by industry detractors as a perk, or symbol of luxury, may henceforth be viewed as a necessity?

If that were to occur, the pre-owned aircraft sales business could experience a 180-deg turn in what had, for the most part, been a lethargic year, seemingly destined to be remembered for its falling aircraft values and rising inventory levels. In the blink of an eye major corporations issuing moratoriums on executive airline travel, coupled with some now reluctant sellers removing their aircraft from the market and on-the-fence buyers getting off the fence, could have a dramatic consequence on the industry as a whole. While one cannot accurately predict that this new-found attention to corporate aviation will survive the reactive stage, for now bizav has been thrust into the forefront.   

This has not been a good year for aircraft sales. The only positive thing that can be said about this year’s dropping prices is that they did so quickly, rather grandly and without prejudice of model type. This swift adjustment seemed just recently to offer more seasoned buyers the confidence that the downside price risk was becoming tolerable. By all indications the seasoned buyer and neophytes alike had and are still having a great time at the bargaining tables.

If you think that buying a business airplane in today’s market is not almost a sport, think again. In an effort to bring home the biggest trophy, buyers with cash have been casting offers in the hope of catching sellers who are desperate to unload inventory. Simultaneous offers on multiple aircraft, or multiple offers on a single aircraft, have been the strategy of buyers attempting to net the best buys in 2001.

For sellers, transactions have often approached closure only to be cancelled at the last moment. Deal making moves ahead smoothly, only to hit a pitfall and slide back to square one. A potential sale may get back on track, or the seller may lose out to one of the other players. In fact, reports of aircraft sales going under contract, and then moving to prebuy, only to fall apart before closing have been all too common occurrences this year. Without doubt, buyers and sellers armed with accurate information on values can get to the finish line, and those are the deals that are getting done.

Information flow can also be part of the challenge. The swiftness with which information passes has accelerated to Internet speed in recent years, and while that can help to move markets, it can also at times hinder them, creating what experts in the game refer to as analysis paralysis. As word of the “deal de jour” passes like wildfire, it can serve as the catalyst that derails a deal that seemingly was on track. If a buyer suspects he might be catching a falling knife he is more inclined to get back on the fence and wait for the next deal to surface.

Some Sellers Crushed

The sellers who have been most crushed are those who bought into the market during the last 36 months as inventory levels hit new lows and pricing reached new heights. Pit a seller who bought recently against one who purchased the same model-type aircraft between 1990 and 1995 and the latter will win every time, as he is able to drop his price a substantial amount and still make a reasonable return. As a result, current sellers who purchased their aircraft in the early- to mid-1990s have accelerated the adjustment in prices of older aircraft. Aircraft that didn’t enter production until the late 1990s have not had this same element to contend with, and as a result have held up somewhat better.

During the past few years when it seemed there were three buyers for every aircraft, prices held. Now the trend has reversed to where there seems to be three aircraft for every buyer, or in many cases more than that.

Now, after eight ugly months of price unwinding, where seven-figure reductions have been commonplace and buyers decidedly rule, there seems to be a small undertow emerging, a slight resistance from sellers on just how far they are willing to be pushed. It will take more than seller resistance alone to stop a market that has been in freefall. Buyers will need to perceive value in the marketplace, which has already occurred to some extent. There have been a few benchmark sales in all categories that clearly confirm that all aircraft will sell. But as usual, the question remains, at what price? As information of the last transaction price circulates among similar model-type sellers, it seems to offer the confirmation needed to rationalize selling at a price that may have previously been below their expectations.

Occasionally sellers have set their prices so right that the length of time their airplanes sit on the market is well below the average, in some cases trading in as few as 30 days or less. That is in a market where many aircraft have languished for six to 12 months. Some sellers, however, continue to ride the market down, often negotiating to within $100,000 on any deal that may surface. It seems that getting out ahead of the curve and setting the benchmark transaction, rather than having to react to it, in this market is vital.

Prices of many older aircraft now are at, or approaching, price levels seen 10 years ago, which may actually have some stabilizing effect on the market. Right now, however, it is the late-model, large-category aircraft that are experiencing more fluid trading. Perhaps due to a more aggressive seller, or perhaps just a better heeled one, the fact remains that this area has held up well in terms of inventory levels. In fact, nearly 80 percent of the aircraft offering 5 percent or fewer choices of their active fleets for sale fall into the large-category arena. They include the Boeing BBJ, Challenger 604 and Global Express, Falcon 50EX and Falcon 900EX and Gulfstream IV-SP and V (see chart on page 104). Close in trail are the GIV, Galaxy, Falcon 900 and 2000 and Citation X.

Reportedly, pricing on the GIV and IV-SPs has rolled back 10 to 15 percent from year-ago levels. One broker points out that nice, later model GIVs, described as in the 1100 serial number and higher range, having roughly 3,500 hr, fresh mid-lifes and new paint and interior, can consistently be found for under $20 million. Over the last few years, that price was considered a firm floor, through which only a small number broke and usually for a good reason, such as high time, or because an airplane was in need of a mid-life, or a similar price negative. Reports have surfaced recently showing that prices of some earlier models can be found at or even below the $17 million level.

Newer Airplanes Attracting Buyers

The real heat being generated in this market continues to come from new or near-new aircraft offering full-factory warranties, as well as the latest in avionics and fuel-efficient, quieter powerplants. The thirst for new technology is evident when comparing earlier model aircraft inventory numbers to later model variants. There are 39 GIIs for sale, representing 21 percent of the active fleet. The percentage number is mirrored by the GIIB. The GIII is roughly in line, with 37 for sale, or 18 percent of its fleet. Looking to the Stage 3 GIV market, however, the numbers are significantly improved. Fifteen GIVs were are on the market last month equating to 7 percent of its 214-member fleet.

The later variant IV-SP, with only nine for sale, represents less than 5 percent of its group. Only three of Gulfstream’s flagship GVs are for sale, equaling 2.25 percent of the total number delivered. Asking prices near or at the $40 million level are common for the GV but reports of some earlier aircraft selling for closer to $35 million have surfaced.

The picture is the same with Bombardier and Dassault. One third of the Challenger 600 fleet is for sale, while the 604 has reached only 5 percent. The 601-1A, -3A and -3R fall between 12 and 15 percent of their total numbers. At 30 units for sale Falcon 50 choices have never been more plentiful, but considering its healthy production run of about 250 aircraft, the percentage of the active fleet number is a respectable 12 percent. Contrasted to the 50EX, with roughly one quarter of its predecessors’ fleet size at present, the choices are diminished to two units, or about 3 percent of its fleet. 

Galaxys, what few are offered right now, are priced in the $18 million area. Citation Xs have sold from $13 million and change up to asking prices as high as $18.5 million. Asking prices on the Falcon 2000s are hovering on either side of $20 million, while the Challenger 604 is situated in the low-$20 million area. The two Globals for sale right now are offered in the low forties.

It is not that the older aircraft are not selling. They are, but well off the pace many may have become accustomed to in recent years. To sell an aircraft in today’s market, it seems sellers either must have the best aircraft, or the least expensive.

Medium-class aircraft such as the Hawker 800, Citation III, Learjet 55 and Astra have added girth to their respective stock this year. Availability of the first two models has risen to 18 percent of their active fleet, where in early August about three-dozen units of each were for sale. The latter two combine to offer one quarter of their total number in service. All variants of the Learjet 55 account for 32 units for sale, while there are about 10 Astras and seven Astra SPs for sale.

Once again, the successors to these aircraft fare considerably better, perhaps evidence of the preference for later technology. Around 10 percent of the Citation VII, Learjet 60 and Astra SPXs are up for grabs and just a tick under 5 percent of all 800XPs are for sale. The fleet size of the XP is more than twice as large as the Citation VII, which ended its 119-unit run last year after eight years in production. The XP currently is in its seventh year. Roughly 220 Learjet 60s have rolled out since 1993 (with at least another 20 units lined up for delivery) and 65 SPXs have been stamped out.

Some Weather Market Storms Better

While the general malaise in the pre-owned market has intruded upon the small- to medium-category environment as well, there are aircraft that while perhaps not bucking the trend are weathering it somewhat better than others.

Where are the hot spots? Cessna’s CJ2, Excel, VI and VII as well as Bombardier’s Learjet 45 and Raytheon’s Beechjet 400A all are examples of aircraft with 10 percent or fewer choices available. Only two models in this category, Raytheon’s Hawker 800XP and Hawker 1000A, offer only 5 percent of their respective fleets for sale. It should be noted that 26 of the 43 Hawker 1000As now in service carry “QS” at the end of their registration numbers, marking them as members of Executive Jet Sales’ fractional family (the QS stands for Quarter Share). Holding 60 percent of any fleet, as Executive Jet does in the case of the Hawker 1000, can skew the numbers.

Perennial favorites in recent years such as the Citation Excel and Learjet 45 have continued to remain staples for those with smaller-cabin-size appetites, though even here pricing has pulled back and most speculating has evaporated. Just last month when 500- to 1,000-hr Learjet 45s appeared to find a trading range in the mid-seven-million-dollar range, out of the blue came a factory-new unit, with full factory warranty and a decent options package priced at a market-rattling $7.995 million. Information now travels so rapidly that any prospective 45 buyers knew about it within days, and then used it as a weapon against sellers of all Learjet 45s in an effort to push the market lower.

While no longer enjoying the frenzied pace they have experienced since rolling out of Wichita back in 1998, the Excel is still excelling. There were 12 for sale at the beginning of last month, one third of which were delivery positions. Paring down the list to only those that can be delivered immediately and the market is left with 4 percent of the total based on the number that have been delivered to date.

One of the hottest tickets globally this year is the CJ2, which is one of the very few models that actually commands a premium above its contract price. Premiums recently have been around $300,000, though the range had been as low as $250,000 and as high as $450,000 earlier in the year. Some who are unwilling to pay a premium are reevaluating the Bravo market, where in the last 12 months inventory has ballooned, from five units to a whopping 29. While there may be a few trade-offs, the price differential as well as the immediately available stock may offset these. Earlier in the year the $4 million floor for the Bravo caved in and there are now probably a handful that can be captured beneath it. Pricing can run up to the low-$5 million area, about where the CJ2 is priced, but at that level the factory seems daunting competition.

Citation Vs and Ultras, which the aircraft database company Jetnet began separating a few years ago, are also grouped together on the bar graph (see page 100), which shows 14 percent availability. Separating the two, however, uncovers a slight preference toward the later Ultra variant. There were 43 Citation Vs for sale at the beginning of last month representing 16.5 percent of the 261 Vs in service, whereas the Ultra offers only 11 percent of its 278-member fleet. With few transactions to track at this early stage, the jury is out on what type of following the latest adaptation of the 560 series, the Encore, will attract. Currently there are a handful on the market, carrying asking prices ranging from just under $7 million to slightly over.

For now, the future has become murkier than ever. On the one hand, security concerns and reduced airline schedules may attract numerous buyers in search of safety and more efficient air travel. On the other hand, the shrinking economy and tumbling stock market may make it harder for these very same buyers to come up with the money needed to buy.