NBAA Convention News

Pre-owned market

 - October 1, 2008, 8:06 AM

The pre-owned market this year has been buoyed somewhat by a continuing flurry of international buying activity coupled with new aircraft backlogs, which by all accounts are full for years to come. That doesn’t mean this segment is immune to cyclical price corrections, such as the one it is experiencing now. Any aircraft will sell.
The question is, at what price? Once prices reach levels that become attractive, opportunistic buyers will appear, and while there is a modest flow of deals at present, clearly the growing inventory among most model types suggests they haven’t hit bottom.  

This is one of the more interesting sales environments to bear witness to. On the one hand we have seen some fairly desperate sellers affected by beaten-down business sectors. On the other, fairly desperate buyers in counter-cyclical sectors seem to be minting cash. Consequently, many sellers this year have not had to take the major financial hit they may have otherwise experienced.

The first two quarters of this year were quite active, but when July hit, the phones stopped ringing. Summer is typically the slowest time of the year, so this isn’t a news flash, but after experiencing uncharacteristically active summer periods in 2006 and 2007, the trickle of activity this past summer came as a disappointment.
With the presidential election approaching, no one expects to set any sales records this fall, but it is typically one of the most active sales periods.  

Inventory offerings have grown month over month since last year’s NBAA Convention, beginning with 1,653 business jets available for sale a year ago and ratcheting up to over 2,300 in mid-September. That figure is actually the highest it has ever been, eclipsing the previous high of roughly 2,050 aircraft five years ago. While that looks like a big jump, consider that between 2003 and today another 4,200 new aircraft have joined the worldwide fleet. The percentage that is currently for sale stands at 14, yet after culling out aircraft older than 10 years, that figure plummets to fewer than 8 percent for sale at present.

While currently strengthening, the heretofore weak U.S. dollar, when weighed against a number of major foreign currencies, undoubtedly helped to prop up the market. It now remains to be seen what, if any, effect its nascent recovery will inflict. If, as some believe, the dollar’s run proves long lasting, the market might get a pop, as international buyers waiting on the fence decide to exercise their advantage before it wanes.  

Last month I met with an owner who was ready to upgrade. On the ramp standing in front of this beautiful, near-new aircraft, he began to tell me how he doesn’t have a great amount of wealth and that his purchase of the jet was a big step for him.
Now, when someone is saying he doesn’t have wealth and you are showing him a
$25 million jet, it’s hard to keep a straight face. It’s all relative, of course, and it is nice to be in a business where your clientele doesn’t feel it is wealthy, yet can override those feelings to make these types of purchases. The client added that, if he waited until he was 90 to make the jump, he probably wouldn’t need it anyway, so life and the enjoyment of it can take precedence over any financial considerations in some circumstances.

A corporation buying an aircraft isn’t as emotional, and many have implemented scheduled fleet upgrade programs, perhaps due in large part to manufacturer backlogs. Aircraft positions have been a sweet spot for sellers. The positions get treated like  used jets as far as remarketing goes, in that they are handled by brokers for the most part and resold, or assigned. While efforts to discourage the practice are typically implemented by manufacturers, it continues. Some brokers are easy to work with when reselling and others just are not. In the last couple of years we have seen seven-figure premiums made on selling large-category aircraft positions, and while that is still occurring, as availability of these positions increases, we are beginning to see a corresponding erosion in the amount of premiums being commanded.

Last year the GIV was consistently talked about in a good light, at least from a seller’s viewpoint. In fairness, this model type, like many others, has retraced its steps in terms of inventory. It’s now at 37 available for sale, up from 10 a year ago, and it has eclipsed its previous all-time high of 30 reached in October 2006. Frankly, many model types are in the same boat, so to speak. The Falcon 50EX presented just one offering a year ago, and there are currently 11 available. These across-the-board inventory increases, some of them more profound than others, probably speak more to how active last year’s market was than to how slow the current environment is, though time will tell if that’s true.

On the other end of the spectrum we see some models that are heading in the other direction. Consider the Challenger 604, which last October presented 21 used opportunities to the market and this year has tightened to as low as 15 recently–that’s just 4 percent of the number in operation.

Another Gulfstream model adding to its supply is the G200, which grew from 10 last year at this time to 23 today and now tips the scales with 12-percent availability based on the number in operation. This year there has been roughly one G200 sale per month, with the average sale price in the mid-$16 millons, and with the high in the upper $18 million range and the low near $13 million. The time on market for those that have sold is six months.

Another super-midsize model, the Falcon 2000, has also increased its choices, doubling from a year ago–but here again the increase speaks more about last year’s supercharged market than it does about today’s sales environment. There were only six for sale last year, meaning used choices plunged to only 2.5 percent of its fleet, compared with today’s 6 percent. The current inventory is low and last year’s was excruciatingly low if you were a buyer. In line with the G200, the Falcon 2000 also sits on the market about 180 days before finding a new home. Pricing runs from the low $17 millions to the upper $25 millions.

Consider the Challenger 300. Right now there are 14, four of which are future delivery positions, which place the model a handful above its 12-month moving average of nine. These aircraft are moving quickly, though, averaging only 83 days on the market before finding a new home. Asking prices are running from about $22 million up to the mid-$25.5 million area. Over the last 12 months, seven have sold at an average price at $23.25 million. The high reached $25.5 million and the low, $21.5 million. Bombardier has stamped out nearly 250 of these highly sought-after models. The number currently for sale translates to 6-percent availability.

Rounding out this category is the Cessna Citation Sovereign, which has exploded from one a year ago to 20 today. Prices run from under $15 million to nearly $20 million. That still represents just slightly more than 8 percent of the fleet.

On the lighter side, Beechjet 400As jumped from 22 at the start of the year to 42 today, but despite the increase remains a few ticks below where it stood year ago. The average price is $3.1 million, with a high of $4.5 million and the low at $1.999 million. Another big jump came from the CJ2, which rose from 10 a year ago to 24 today. Posted asking prices are hovering between $4.8 million and $5.5 million.

On the very light jet front, the Eclipse offerings stood at 20 last October and have now reached 55, or slightly more than 17 percent based on the numbers produced. Nearly half of those are delivery positions. Prices run from $1.5 million to nearly $1.9 million.

Large-category aircraft are beginning to show some strain. The Falcon 900EX has significantly increased supply from four in January of this year to 16 at present. This was predicated by many who wagered the model type would build as 7X deliveries picked up. Pricing is bracketed between $30 million and $35 million.

The GV has risen from one to seven in the last six months, and buyers who have seen supply choked off for a very long time are hardly distraught over it. Still, this slight uptick in offerings accounts for just under 4 percent of the nearly 200 that are in operation. Pricing here begins at just about $40 million and runs to $45 million.
There are an equal number of Global Expresses for sale, though with fewer produced that percentage is closer to five. What’s unique here, however, is that the seven for sale represent the fewest that have been available in the last 12 months. There is an $11 million price spread from the lowest to highest priced offering, with the average being about $50 million.  

Sources: JetNet, Aircraft Post