MEBAA Convention News

Seller’s Market Complicates GJC's Financing Efforts

 - December 2, 2022, 1:55 AM
Simon Davies, Global Jet Capital sales director

The business aircraft market is today a seller’s market, and demand has meant that the time needed to close with financing has not always been granted by sellers during the past 12 months, according to Simon Davies, Global Jet Capital's sales director for the UK, Middle East, Africa, Turkey, India, and Eastern Canada.

“Cash deals became prevalent during 2021 and early 2022, with some buyers even foregoing a pre-purchase inspection,” he said. “However, there are signs that the market is starting to return to a more traditional cadence for acquisitions and that aircraft sellers are starting to be more accommodating of the time needed to conclude the financing for the purchase.”

The Middle East and North Africa (MENA) region was relatively active during 2021, especially in the latter half, with more than 50 new and used business aircraft transactions being concluded. “As was the case in all regions, the biggest challenge for the region during the past 12 months was trying to find a suitable aircraft at a reasonable price,” Davies said.

“As we move towards the end of 2022, the region is mirroring many of the other areas around the world in that we are seeing strong usage of the existing aircraft, but fewer new and used transactions than in 2021 due to limited availability, he noted. Nevertheless, our data suggest that the region should continue to grow in 2023.”

Financing sources for the MENA region have remained relatively constant over the past two years. Large private banks continue to cater to high-net-wealth clients with their loan products, while financiers such as Global Jet Capital continue to offer loans and alternative products for the consideration of buyers seeking financing.

“The bigger challenge faced by financiers in the region during Covid was the build-up of cash reserves on balance sheets,” Davies remarked. “Upon realizing that Covid was not going to generate the same liquidity issues as we saw during the financial crash, buyers used their cash reserves to acquire aircraft. It is only now that we are starting to see those buyers returning to the market, seeking to refinance their acquisitions so that they can deploy their embedded capital into more lucrative opportunities.”

Airshows had traditionally been used as either sales or marketing opportunities by exhibiting participants, but with the impact of Covid on supply chains and demand for aviation products, many of these aviation companies had order backlogs that would last well into the future and were therefore less driven to firm up orders at airshows this year.

“Further, exhibitors such as aircraft brokers may not have any aircraft available to resell at events like the MEBAA show, so they may not book space,” he said. “However, I still expect total attendance at the MEBAA show this week will be strong as many people seek to network for future opportunities, even if the exhibitor attendance may be down.”

Overall, Davies believes Covid-19 has had a positive effect on business aviation. Health concerns when traveling and lack of alternative commercial travel options drove more people to try business aviation in some form during Covid than in any other prior period.

“This increased demand has led to reduced inventory levels for sale in most models of preowned aircraft,” he said. “We continue to see an ever-increasing utilization of the business aircraft globally. MENA has been no exception to this phenomenon. With fewer aircraft being made available for charter sales use, charter rates have increased which has been a benefit to operators, but one that has also come with increased complexity in arranging the flights for those in the charter sales business.”

The size of the current Middle East bizav fleet depends on how to define what should be counted in the fleet. “What I can say is that in 2022 we expect there to be a slight dip in the total aircraft transactions in the region compared to 2021,” he said. “Starting in 2023, we predict a steady growth in the total number of aircraft in the region. However, there are many factors that could alter the trajectory such as the price of fuel, any change in geopolitical conditions, and/or a resurgence of Covid.

Davies concluded, “One note of interest to us is that we are seeing more preowned purchases now being made in the region, whereas new aircraft transactions had traditionally dominated this market. This situation may be due to the long lead-time in the OEM backlogs for new aircraft and buyers’ desires to have an aircraft of their own, for health or other reasons, without too much of a delay.”