Despite being in the middle of what is typically the quietest quarter for aircraft sales, brokers are finding plenty of reasons for enthusiasm.
The U.S. stock market has experienced relatively wild gyrations this year, but it never hurts sales to have major indexes perched at record highs, or interest rates at historic lows. These two factors, coupled with rampant price destruction, have created a great entry point for buyers. Noticeable are some first-time buyers, while others are considering rolling out of their current fractional lift in favor of whole aircraft ownership or merely upgrading.
While some models are still getting crushed, many appear on a course toward more palatable price depreciation, and that alone can spur sales; combined with the other factors mentioned, we could see strong buying ahead. Of course, as we have all witnessed in past years, these spurts can be upended by any number of global events.
The UK vote to exit from the European Economic Union was one such recent event. In the days immediately following the vote you would have thought the financial world was nearing an end, but as of this writing the markets had reversed course, with the Dow establishing a new high last month. Any negative effect on used inventory and aircraft sales remains to be seen. Right now, Europe’s percentage of inventory sits a bit higher than any other continent’s at 13.5 percent of its fleet of 2,534 aircraft for sale. That’s followed by South America at 12.9, Asia at 12.2 and the U.S. at 11.5.
Those numbers are slightly higher than the 10 percent we often use to define an average supply, but to get a clearer picture, consider the mix. Now, as the aircraft boneyard lays witness, aircraft do reach an ultimate end and are either parted out or chopped up for recycling. Consider that some of the aircraft still in operation in the U.S., if they were human, would be getting their AARP membership invite. Nine of them that show that they are in operation, according to JetNet, were built between 1961 and 1965, and there are many more in operation built in the 1970s and ’80s. The supply of 2000 and newer jets gives the U.S. a much healthier outlook, with inventory dropping to 8.2 percent for sale; inventory in the other continents, with their younger fleets, are reduced from the above figures by only half a percent. The U.S. fleet of 14,243 aircraft in operation drops to about 7,500 when pre-2000 aircraft are shed from the mix. No doubt the pre-2000 aircraft are still viable to a certain segment of the market, but for the purposes of an apples-to-apples comparison the U.S. market is in decent shape.
Options for Buyers
Right now there is great value across all segments and manufacturer lines, and that’s not news to buyers zeroing in on these discounted models. Just one of several examples of late is the Falcon 900 series.
Consider that the supply of Falcon 900EXs on the market has dropped 50 percent, to 11 aircraft from 22 in June last year, or 9.4 percent of the fleet. Five are in the U.S and Canada, the remainder in Europe. Asking prices range from $13.95 million to $24.5 million and the average is $19.4 million, down 9.6 percent from the beginning of the year. The average time on the market has climbed to almost 600 days as buyers presumably picked over the most desirable offerings, leaving others to languish.
As far as transactions go, five Falcon 900EXs have traded so far this year, matching last year’s pace. Sales prices have ranged from $13.95 million to $26 million and the average 900EX sold for $20.9 million after 364 days on the market. The low was for a one-owner 2004 model with 5,200 hours and the peak was for a 2013 model with 1,200 hours. Values might stabilize over the next few quarters if the supply continues to decline further or global growth picks up.
Inventory of the predecessor model has also slimmed, with 11 Falcon 900EX Classics for sale, or 9.3 percent of the fleet, down from 17 listed in March. Since the beginning of the year, average asking prices have declined 8 percent, to $9.8 million from $10.6 million, as the stronger dollar has allowed overseas owners to pare prices to stimulate demand. Year-to-date, four 900EXs have sold, compared with five in the same period last year. Sales prices are grouped in a narrow range between $9.1 million and $9.75 million. Buyers have focused on the lower-time models with 5,000 to 7,000 hours total time, engine program coverage and recent C inspections.
Buyers are also keeping a close eye on the Citation X, which for the past three months has held inventory levels below 10 percent, a trend not seen in well over two years. This decline was driven by six pre-owned transactions, all of which had less than 5,000 hours total time. Half of the Citation Xs now for sale have logged 7,000 hours or more. The bottom end of the X market is around $2 million for an aircraft with 10,000 hours or more and engine coverage programs. The top end of the market is more of a mystery, as there has yet to be a pre-owned transaction this year on a 2005 or newer Citation X. A large driver for this lack of activity may be the sheer number of substitutes, such as the Challenger 300, Falcon 2000 and G200.
With the amount of activity occurring this summer, it would not be surprising to see more model types shore up their used ranks, setting up for what might be an interesting September to December, traditionally one of the most active sales periods.