The tight inventory of used business jets is about to loosen up in the midst of economic and regulatory changes, according to a new report from Brian Foley Associates. “We’re at the trough now, in my mind,” Brian Foley, president of the firm, told AIN.
A 10-year run of declining used jets for sale is poised to reverse itself gradually from its current level of 9 percent of the fleet for sale to a historical average of 12 percent, according to the report. “It’s not going to be a big dump of equipment,” he added.
Signs of early economic fatigue in the U.S.—the country with the largest concentration of business jet buyers—is one of the reasons leading Foley to this conclusion. He said the effects of the 2017 tax reform that “juiced the preowned market” have worn off and buyers who benefitted from it have already made their jet acquisitions.
So are historical trends. The last two times used jet inventories contracted, in the 1990s and 2000s, the contraction’s duration was between six and seven years. The current contraction “has already exceeded those periods by three to four years, which suggests statistically that a correction is overdue in this cyclical business,” the report notes.
And the looming ADS-B mandate—which takes effect in the U.S. at the beginning of next year, followed by Europe in mid-2020—will force some jet owners to put up their aircraft for sale rather than comply with the rule because of the cost. “This will contribute to steadily rising inventory levels throughout the year consisting of undesirable aircraft that won't sell anytime soon,” the report says.
But slowly climbing used inventories aren’t expected to affect new business jet sales, according to the report, because those buyers aren’t interested in older preowned aircraft.
Used pricing also won’t see much, if any, increase because “basic capital good economics have caught up to business jets and softer residual values are now the norm,” the report says. “A new business jet now depreciates no differently than a Buick automobile.”