Heading into the homestretch of 2013, the upbeat mood that ushered in the new year has been building into the summer step-climb that gets a catapult shot–courtesy of the NBAA convention–to finish out the year. Someone must have hit the “on” switch after Labor Day weekend in early September, bringing buyers back into the market en masse. While deals have abounded in all model segments for some time, the recent activity is a strong sign of buyer confidence. From top to bottom aircraft are moving, and it’s no wonder considering how low prices have dropped. And while there is no shortage of decent buys, the landscape has changed for many model types.
At the entry level you see the Embraer Phenom 100 in far lower supply than year-ago levels, 27 then, 19 now, and only 11 of those are based in North America. The current supply represents about 6 percent of the total number in operation, making it a fairly tight market. At the upper end and with fewer than 3 percent of the active fleet for sale is the Gulfstream G550. This has to be considered the tightest market with only 12 for sale, down from nearly 20 in the first quarter, and only half of these carry “N” registration.
Not to be left out is the super-midsize category with the Bombardier Challenger 300 having the distinction of being one of the only jets with bragging rights to stable values in the latest Vref Aircraft Value Reference. Similar to the two models above, international appeal shows that nearly half of the current 24 available for sale are based somewhere other than the U.S. The supply in the U.S. is slightly above 5 percent and, like the G500, the Challenger 300’s fleet size would make any manufacturer beam ear-to-ear.
One aircraft trading off the radar are the Beechcraft Premier I and IA. Subsequent to a series of accidents over a short time frame, coupled with Hawker Beechcraft’s bankruptcy and exit from the jet market, there was an inventory build for the Premier and prices were shattered. At current price levels, buyers have decided the Premiers are a great value. Properly priced models move quickly, while overpriced offerings move the average-days-on-market needle higher.
Consider that the Premier I trades in the same range as the Cessna CitationJet, but with a gain of nearly 10 years on model type, greater speed and a roomier cabin for little more than a couple hundred dollars more per hour to operate. Right now the Premier moves in the low to mid $1 million range and the successor model IA from about $1.6 million up to nearly $3 million for the latest and greatest. Questions surrounding parts availability and support clearly have created the opportunity and risk, and that’s why the IA sits at its inventory high of the year at 20 aircraft for sale, but only half are based in North America. The predecessor model has maintained its offerings at 11 over the past year, with just seven of those based in North America.
Another bright light in the light cabin arena is the Cessna CJ3. There are about as many of them available as the Premier IA, but with a fleet size nearly 250 larger the current supply of 22 translates to 5 percent availability. Here, too, the supply offered is divided between North America and the rest of the world.
Coming Down the Pike
These are just a few of the highlights–there are others and certainly more will be coming. Consider the Challenger 604. If it were a stock, some brokers would say that it’s oversold and represents one of the better market buys. While there isn’t a shortage, should the recent uptick continue or accelerate, some of the oversold models could snap back. In a recent conversation, one broker pointed out that a 10-year-old 604 would typically sell in a range of 70 to 80 percent of new pricing. Now they are selling at just 34 percent. He even suggested that Challenger 604 valuations have the potential of bouncing back 25 percent by next year’s fourth quarter.
The statement is bold given the fact that most have ceased predicting when values would stop falling, having been convinced at several points during the last five years that market stabilization had taken hold. Any previous uptick proved to be nothing more than a dead-cat-bounce. However, looking back to 2007, one could easily argue that the market was overbought and so that lends credence to the oversold postulation.
Everyone wants to see the bloodletting end, even buyers. Just think of how many thought they were buying at the bottom during the last few years. Credit the wisdom of the same broker above, who quipped that no seller over the last five years has left any money on the table. Of course if his thesis about a rebound unfolds he may have to adjust that statement.
While we’ve certainly been fooled before, many model types look poised for a comeback and may already be inching in that direction, albeit slowly. There are 363 Challenger 604s in operation and less than one year ago about 70 were on the market! That’s nearly 20 percent of the 604 fleet. Since then, the market has been more ebb than flow and choices have been pared back to 47. While at 12-percent availability that may not cause sellers to do a victory sprint down the active runway, levels are getting closer to what’s considered a normal supply of 10 percent or lower. The telling sign of improvement is the linear march from 70 to 47.
Another long-time industry counterpart said his observation was that anytime there are more than 25 aircraft of a particular model type for sale, it’s a soft market. That was hard to argue with and seemed to have some credence and deserved further thought. So, with the following fine-tuning, I can accept that idea. I think if there are 25 aircraft of a certain model type for sale and if they are all located in the same country, I’ll agree that it’s a soft market.
With private aviation growing worldwide one has to consider where these aircraft are located. Today fewer than half of the 47 604s are based in North America, placing the total number for sale below 25 and the percentage of North American-registered 604s a tick below 10 percent. So, on both counts, the 604 continues to impress and. now in what is historically the business jet sale quarter of the year, the choices have a high probability of contracting further.
In comparison to North America, Europe continues to offer a high percentage of year 2000 and newer aircraft–not more aircraft, but about twice the percentage, which means one thing: Europe is a great place to be buying aircraft right now. While that fact is not lost on buyers, many in North America tend to shop at home if inventory levels are plentiful and prices are sane, but there have been many opportunistic buyers that have shopped abroad and have reaped the rewards.
Right around this time five years ago the jet market got pushed up against the ropes and then knocked down, but like a prize fighter, it has regrouped, is fighting back and is ready for the next round.
Bryan Comstock is managing partner of business jet brokerage Jeteffect of Long Beach, Calif.