Preowned Transactions Continue In Lackluster Marketplace

 - October 25, 2012, 11:10 AM
Bombardier Challenger 604

In looking for something to validate my feeling about what a lackluster year it has been in the preowned segment, I compared the year-ago inventory level with this year’s numbers at this time, and even though my gut feeling told me so, the results were still a bit surprising.

Last year’s inventory was 2,572, and this year’s number was exactly the same. In between there have been slight upticks and one small downtick that unexpectedly came this past summer, when inventory more often builds than diminishes.

Just because the year-over-year figures on this particular day happen to be exactly the same, that doesn’t mean deals aren’t happening. In fact, the rate of transactions has bumped up this year over last year, albeit amid a backdrop of weakening average asking and, presumably, take (sale) prices. Considering that inventory averaged more than 3,000 for sale a few years ago, the reduction to current levels shows a willingness by both buyers and sellers to make deals happen. The current plateau may prove to be the seasonal resting point before the results of the final quarter–typically the most active–get tallied.

While there should be no confusion that that there are still plenty of aircraft for sale, it is encouraging to see buyers take advantage of segments that until this year were largely dormant. Both the light jets and mid-size jets show transactional activity that hasn’t been seen since the boom years of 2006 and 2007. This may stem from a combination of factors, from the obvious, price destruction that has occurred, to perhaps the relationship between the owner’s current aircraft value and his bank note, no longer requiring him to pony up the difference on an underwater sale that may have stymied the market in prior years. While happy days are clearly not here again, the recent activity, if not a reason to cheer, certainly comes as a relief and perhaps a sign of things to come.

Election-Year Changes

Of course an election year can deal the market its own set of undercurrents, but generally these are transient and more often used as an excuse, rather than a reason, not to buy. Seriously, I’ve never seen any wholesale dumping of aircraft days after any election, or any noticeable increased buying. Everyone has known for quite some time that the economy is on life support and yet I don’t know any of my counterparts who have gone out of business, and that’s because there are still plenty of buyers and sellers of jets. No matter who is elected, or reelected, I don’t think owners are going to dump their jets on November 7 and start relying on commercial airlines for transportation.

Some might argue that regardless of the election outcome aircraft values have only one way to go–up! Of course over the last couple of years many have held that feeling while prices continued to fall, but as the fall continues the argument gets stronger and perhaps has even more credence. In general, the market has perennially been setting lower lows and lower highs in terms of average asking prices. Some types are still on that track, while others seem to have bottomed.

Take for example the Gulfstream GIV market. Even though choices have been reduced substantially since last year, pricing has trended lower, perhaps falling victim to the price pressure being exerted upon it by its successor model, the GIV-SP, which has seen at least one early model trade a tick under $7 million this year. That should leave little wonder why the G-IVs are sinking into the $4- to $6 million area and are trading fewer than one per month.

Choices among G550s are tight at nine, which is half what was available at the end of last year. That figure represents a paltry 2.5 percent based on the more than 350 in operation. Over the past few years, buyers have shown their passion for late-model, large-cabin, current-production aircraft and the G550 exemplifies this. It should take a while before the G650 filters into the fleet and kicks a few G550s to the street. If that happens at a rapid rate, G550 prices could feel the pinch. If G650 production rates mirror that of the G550 when it first entered service 10 years ago, it shouldn’t have much influence on pricing for the next year. Over the last six months, G550 sold prices have run from a low of $31- to $48 million, and that latter figure isn’t a misprint, but rather what someone paid for one. In his defense, it was a late-model, low-time aircraft.

Bombardier Buyers

You can see the same trend in the Bombardier lineage with the market absolutely saturated with 65 Challenger 604s, a growth of roughly 20 in the past year. Current stock represents 17 percent of the total number of 604s in operation. The availability of the successor Model 605 slips to 18–less than 10 percent–and the Global XRS offers up 15, about 9 percent of its fleet. Although there is a glut of 604s for sale, pricing is attractive and the aircraft is selling at an average rate of roughly two per month. The lowest priced sale brought in the high $6 million range and the upper end topped out at $14 million for a low-time 2005 model. The well-received Challenger 300 choices are about even with its 12-month moving average of 25, or 6.5 percent of the fleet. Average sale prices are at $14 million.

Buyers have identified the market soft spots and have been moving in to take advantage. This has brought attention to the super-midsize market segment. Consider that the Falcon 2000 inventory is moving ever closer to prerecession levels. In fact, early this month the choices dipped below 20 for the first time in four years. Pricing on recent sales has fallen within a narrow band between $9- and $12 million, and most of the trading action occurred on models from 2000 and after. Consider also that the Falcon 2000s for sale are predominately domiciled in North America and Europe, whittling in half the choices for the travel-averse.

Another super-mid that broke below a multi-year low is the Gulfstream G200. That model peaked a few years ago with nearly 40 for sale and early this year dipped to just 17, or about 7 percent of the fleet. Unlike the Falcon 2000, though, nearly all of them are based in North America. More than a dozen have moved in the last six months and pricing is attractive, with the majority selling at or below $6 million, although a couple of later models captured figures above $9 million. Eleven of 13 sales were on aircraft below S/N 100 between the 2000 to 2002 model-year range, leaving only three in that same grouping available at present: one 2000, one 2001 and one 2002. It should be noted that two 1999 models are also for sale, one of which has been on the market for more than 1,500 days and another that hit early this year. That latter single-digit serial number Falcon looks properly priced at $5.45 million. The run on early models has effectively pushed up the average asking price to nearly $10 million.

In the mid-cabin segment, Hawker 800XP sales are outpacing Learjet 60 sales by a two-to-one margin this year. The supplies of both are around 50 at present and both aircraft have arrived at current levels after reaching about 80 over the last few years. Consistent with the above-mentioned models, later variants show up in lower numbers.

There are far fewer Citation Excels: 30 in all and half reside in Europe, while fewer than half are based in the U.S. Similarly, there are nearly twice as many XLSs for sale in Europe as there are in the U.S. Contrasting the two models above shows Hawker 800XPs with an overwhelming supply in North America compared to Europe, 33 to six, and the Learjet 60, at 32 to 16. Clearly the Excel and derivatives play well in the European theater.

Light Sector

Even the light-jet sector is percolating, with the CJ1+ reducing inventory levels not seen in three years, but that makes it difficult to explain why the next-up model isn’t fairing nearly as well. The CJ2 is carrying 37 aircraft, or 15 percent of its fleet, onto the used market, which is about consistent with the past few years. This model may be the next one buyers will begin to assault as we move through what is historically the business sales period of the year.

The Learjet 31A is no better off with a few less for sale, but equaling the same 15 percent of its counterpart due to a slightly smaller production run. The Premier IA numbers, both in percentage terms and aircraft, are half of those of the CJ2, Learjet 31A and Phenom 100. The Phenom now has a fleet size larger than the Premier, Learjet 31A and CJ2, offering up 27 choices, or about 11 percent of it numbers–it had reached 40 a couple of years ago at a time when its overall production run would have been significantly smaller.

So while 2012 didn’t charge out of the box, it’s clear that throughout the year buyers have been picking off the best of breed aircraft. That activity seems only to heighten after the NBAA convention, from which the market seems to get a shot of adrenaline. Should this quarter stay true to form, the market could close out with the lowest total number of aircraft for sale since 2007.

Information sources: Amstat, JetNet, Aircraft Post