A few years ago at the NBAA show we witnessed more than 1,000 Dow points melt away during the three-day convention. That was the beginning of the biggest downward trend that corporate jet sales had ever experienced, and the remnants of the price carnage that ensued are still with us.
Today it’s a tale of two markets, with some the large-cabin, long-range current production types in favor, actively trading and with notable price recovery. Others, such as third-generation variants, the owner-flown segment and mid-cabins have taken considerably longer to revive. The resuscitation has been in terms of aircraft sales, not aircraft prices, which are still on life support and appear to be grasping blindly to feel for a price floor. Alas, as some of these aircraft started selling for about 25 cents on the dollar from the peak this brought about renewed vigor into this group that had clearly fallen out of favor with buyers.
“Can you believe what you can buy that for?” seems to be a topic common among purveyors of used jets. This refrain applies to a large number of models, from a sub-million-dollar Astra that can get you from the U.S. mainland to Hawaii, or a $1.495 million asking price set on a higher-time Falcon 50 or a $5 million GIV. Throw-in-the-towel pricing such as this has brought about renewed interest in a number of aircraft, including those mentioned above.
With pricing like this, the decision is all about operating costs of an aging aircraft rather than acquisition cost. At these prices we now have throwaway aircraft. Buy it, fly it, write it down and write it off. Any residual value at the end of ownership becomes a bonus.
While these sales and asking prices represent sector lows, it’s not likely deals will go away anytime soon. Given the economic challenges that beset regions with the greatest population of jets–the U.S. and Europe–these areas are not likely to be fertile grounds for jet buyers into the extended future.
Many aircraft model types currently are available in numbers well above the 10 percent of their production run considered by many to be a normal supply. In fact, seeing 20- to 25-percent availability of a particular model type has not been uncommon over the last few years, and some show these percentages today.
Opportunists are providing the silver lining in today’s otherwise cloudy backdrop. They have actually pushed inventory down to a point below where it stood three years ago as the market tanked. In fact, following 2008 when it all started, inventory worldwide peaked in 2009 and then began slowly ratcheting down to the point we are today, at a three-year low, just a few ticks under where it was at the NBAA’08 convention.
This significant reduction comes amid a growing worldwide fleet and could be the result not just of outright sales, but perhaps owners refusing to–or unable to–accept current fair market value for their aircraft and withdrawing them from the market. Others may have gone the way of the stagecoach as the market crushed some values so badly, while some wings were clipped and parted out, worth more in pieces than as a whole.
If some of those 10,000-hour-plus wings could talk, just think of the stories they’d tell. From the day they rolled off the manufacturer’s floor into the hands of a new pilot at the beginning of a burgeoning new era that has become known as corporate aviation, to the stress of breaking in a new pilot, to shooting approaches with what are now considered antiquated steam gauges that most new pilots wouldn’t recognize. There’s no pleasant retirement party for these aircraft, but certainly a testament to the longevity of the product and with no inherent planned obsolescence that impacts the market and values.
The general public doesn’t chase after 30- to 40-year-old cars unless they’re fans or collectors, whereas the same vintage aircraft can serve a viable role for a company for decades. A few upgrades along the way and an aircraft’s sunset can be extended. This is one reason why we are beginning to see new life breathed into this segment of the market.
Of course, with an older-generation aircraft come higher operating costs. The severe drop in prices seems to have more than offset this part of the equation as buyers have begun to descend upon the market like it’s a yard sale and they’re rummaging around looking for a treasure. A couple of years ago buying these aging aircraft–20-years or older–was difficult because many finance institutions were shying away from this market segment. While there are still lenders in this segment, the collapse in pricing could see more buyers just writing a small seven-figure check.
No longer can you talk about used aircraft and have a U.S.-centric conversation. In fact, if you break out model year 2000 or newer aircraft that are currently for sale, just a tick over half–406–are in the U.S. Europe now accounts for one third of all aircraft from 2000 and newer that are in operation and are for sale, leaving a balance of slightly more than 100 that are based in other parts of the world.
When you look at older aircraft–model years ranging from 1980 to 1999 that are for sale–you see that the U.S. offers nearly 75 percent of them, compared to 15 percent of this same group that are for sale in Europe. In both the newer and older aircraft groupings the totals between the U.S. and Europe combined account for 85 percent of the worldwide fleet for sale. Interestingly, Europe’s late-model offerings equal twice the percentage of the older group, while the U.S. has a greater percentage of older aircraft for sale.
Consider that 80 percent of the Cessna Citation Excels, 70 percent of the Hawker 850XPs and all eight of the G550s (excluding positions) offered for sale are based outside the U.S. Clearly there is growth in other parts of the world. In some cases there may be more aircraft going into regions of the world than are coming out, as some countries, like China, have a preference toward buying new. Another bright spot has been South America, where a significant number of aircraft have been going in recent years.
Back and Forth
The ebb and flow of aircraft moving to one region only to reverse direction is not uncommon. Like the Asian contagion of the late 1990s and Mexico’s peso crisis earlier in that decade and more recently the U.S.’s financial challenges, it’s not uncommon to see aircraft sold off. Now the focus seems to be on Europe. Trade links and financial channels can spread the ugliness over country borders in a short amount of time and can create great buying opportunities.
One noticeable difference today is perhaps a lower dealer participation rate to inventory these aircraft. Sometimes these purchases, while great values, can be trying on a retail buyer and are best carried out by seasoned professionals. I recall when one of my coworkers was purchasing a Citation out of Indonesia in the late 1990s and the civil unrest hampered the deregistration process as some governmental agencies were either closed or operating at half staff; not to mention some nervous moments of being in-country during this unsettled period.
While these economic hiccups or heart attacks wreak their havoc, once the dust settles, the affected countries always seem to recover and shortly thereafter start receiving an inflow of aircraft, both new and used. While this doesn’t happen overnight, it does happen.
As we move through the final quarter, typically an upbeat one for aircraft sales, buyers continue to flow into the market, picking up good aircraft at great prices and with enough supply among many model types to ensure that bargains for buyers abound.
Data sources: Jetnet, Aircraft Post