One of my industry counterparts once told me there are more flakes than buyers in the G650 market, and I’m starting to become a believer. Witness a recent G650 web inquiry that went like this: “Let this be the force that drives you. Don’t forget we need Jesus too. We can buy one together.” To be sure, there are real buyers out there, and recently we have seen proof of that, but the 650 market does have me scratching my head trying to figure out what is really going on, instead of just writing it off as merely another soft market.
When the G550 was five years old the inventory was nearly non-existent, but that’s when the economy was roaring. The G650 selection today has grown to more than 11.6 percent of those in production. Factors may include the manufacturer protecting its turf by clamping down on position sales (no different from the direction of most other manufacturers), but that might encourage buyers to stay on track to delivery before placing their aircraft on the “used” market. While this strategy doesn’t cause any financial difficulty for this well heeled group of buyers, it has seemingly caused them to flood the market the day the aircraft gets delivered, causing an accumulation of very late-model, barely used, or not yet placed into service aircraft. This, of course, doesn’t tell the whole story. In fact, some may be residual caused by the $70 million plus sales prices, which have gone the way of the stagecoach this year. Once this information filters down to the owners, you may see some of the current offerings come off the market.
There are a host of other logical reasons for the inventory build, but one that might get overlooked is the seller’s mindset. These sellers do not need to sell and I’m sure in most cases wrote the check for the aircraft. So while buyers set the prices, especially in a down market, it seems they have met their match when it comes to the G650 owner. Does a $1 million here or there make a difference to someone of this wealth? I think the answer is a resounding yes, but maybe that has more to do with an owner’s psyche than his financial liquidity. More likely than not, this model, like any other that is thinly traded, needs a transaction or two to prime the pump so buyers and sellers can see some rationality to the market and accelerate the frequency of trading. That tipping point might be close at hand, with one recent sale and another pending. Once sales figures are broadcast, some owners might reconsider the sale of their aircraft, or at least their sales strategy.
Other Sales Slow
The G650 is not a lone wolf when it comes to thin trading and is joined by others; the G280 and Challenger 350 come immediately to mind, but both have fleet sizes roughly half that of the G650. Late-model aircraft often are thinly traded as few make it onto the market for sale, but in the case of the above two nothing has sold in the past 12 months, according to research firm AircraftPost. Two new G280 listings in May brought the number for sale to five out of 90 in operation and two of the nearly 120 Challenger 350s in operation are for sale. Pricing of both is mostly in the upper teens. Falcon 7Xs have also hit a slow patch, with only one selling since early February. Just over 10 percent of its fleet is for sale, ranging in price from the low-$20 millions for an early serial number and climbing to the $40 million area for the latest. At the current rate of sales, the 7X has a 28-month absorption rate. The absorption rate is the number of months, at recent sales levels, required to sell the current inventory.
No aircraft is immune to the fits and starts of the market, and inventory can be depleted as quickly as it rises, often in a couple of quarters. Overall, inventory has risen in the past year; perhaps not so coincidentally, the inventory build has occurred while the stock market has receded from its all-time high of a year ago. Toss on top of that the typical wait-and-see attitude of the jet buyer during an election year and we’re likely to see choices march marginally higher.