Business aviation brokerage and Gulfstream aircraft specialist Hagerty Jet Group agrees that the G650 market must be closely watched as inventory has sharply risen and prices softened. Deutsche Bank analyst Myles Walton recently downgraded the stock of Gulfstream parent General Dynamics, citing concerns about the effect of rising pre-owned G650 inventory on new sales and deliveries. Walton noted for-sale G650 inventory has risen from nine to 22 this month, up from four last March.
“It was less than a year ago when pre-owned G650s demanded a sizeable premium, earning several order holders as much as $10 million or more from their initial contract price,” said Hagerty Jet Group in a new report. But that has changed, with the pre-owned G650 supply increasing 320 percent since this time last year, the brokerage notes. “The supply of G650s is much higher than the G550 at 6.8 percent and even the GV at 7.1 percent. This segment shifted from a buyers' market to a sellers' market in mid-2015.”
Given the rate of sales in the past several years, “the current supply…for sale means we have almost a two-year absorption rate,” Hagerty said. Hagerty believes that demand for new 650s could be softening as many buyers turned to used aircraft. But potential sellers are struggling to secure deals. “It’s time to acknowledge that buyers no longer need to pay a premium for a new G650 and they don’t need to get in line at the OEM,” the brokerage firm said, predicting, “with increased market weakness, there’s a good chance that Gulfstream will begin to see a trend of canceled orders.”
The brokerage, noting that Gulfstream already has cut production for the G450 and G550 in the face of international market weakness, said it could slow production of the lucrative G650 line as well. Other options would be to continue current rates, which could flood the market or “pray that the global economy has a dramatic recovery in the next 24 months.