I would first like to apologize for a few missed blog entries over the last few weeks. Since I began posting this blog after NBAA 2008, I have been pretty diligent about putting down something in writing each week. Starting in July we hit a real busy patch and then I snuck in a last minute vacation the first week in August before the kids started back to school (can you believe their first day was this Thursday?).
I will eventually get back to my plan of hitting a particular market each week, but first wanted to give you some general thoughts on the overall marketplace. Earlier this week I was asked to contribute to an article about the market to BC&A magazine. I sent the same thoughts to them, so if you read the following you can probably skip reading that article when it hits the stands.
The market is no longer in the “freefall” mode it was in from 4th quarter 2008 to 2nd quarter 2009. The prices in most markets have leveled off significantly over the last few months and I would say that several markets have finally stabilized. Many supermidsized and long-range aircraft manufactured in the last 10-15 years have begun to sell at fairly predictable price points.
Buyers seemed to find value at current price levels on Lear 45XR’s, Citation Excel & XLS, Challenger 300s, Falcon 2000s and G-IVSP & G-550 markets to name a few. All of those markets were extremely flat from last year until the last 30-45 days. Since that time a number of buyers have surfaced and several of the best values have gone under contract.
Several other markets have continued to stagnate for one reason or another. Despite some very attractive pricing, the Hawker 800, Lear 60, Challenger 601 and Falcon 50 markets have seen very few transactions this year.
The primary factors driving current conditions are the same ones that have come in to play all year long: #1 - The economy, which drives #2 - Corporate Profits. On top of that you have #3 - Public image problems. The aircraft we have sold this year have all been purchased by privately held companies and individuals. The publicly traded companies are still not in a position to make any purchases, which is typically a huge segment of our customer base. Privately held companies do not require board approval to purchase an aircraft and typically only one or two people can make the decision. They also do not have to live in fear of a backlash from public shareholders. They see business aviation for what it is – the safest and most efficient way to move employees from one location to another.
Another factor influencing the market is pricing from the OEM’s. Many customers who had aircraft on order with the manufacturers have decided not to take delivery for one reason or another. When that happens the OEM retains a deposit, the size of which depends on the aircraft and the time remaining to delivery. In order to avoid “white tails” piling up on the ramp, the OEM’s seem to be willing to pass on the forfeited deposit to new customers in the form of a discounted price on that airplane. However, the availability of these aircraft at those prices is limited. Even with those discounts, the prices the OEM’s are offering do not compare with the huge discounts available on the used market. Unless bonus depreciation is a large incentive for a buyer, I think the used market still represents the best bang for the buck.
I think the remainder of 2009 will continue to be a struggle for most in our industry. The second half of the year has actually been pretty good to us with several closings taking place over the last 60 days including the Citation XLS, a Challenger 300, Challenger 600, Citation VII, King Air 350, G-III and a G-IVSP lease. We currently have deals pending on a G-IVSP and Hawker 800A sale and the acquisition of a Lear 45XR and Hawker 900XP as well as several offers to consider on various listings. I think this is a pocket of activity in certain markets where buyers see value, but unfortunately, I don’t think it is a trend just yet.
It will be difficult simply because there are so many aircraft for sale and so few buyers willing to move forward today. There are only so many privately held companies that need lift. Until the large publicly traded companies are profitable and out from under all the public scrutiny that an aircraft purchase seems to raise today, I am afraid that times will continue to be lean for the time being.
Have prices bottomed out? That depends on the Sellers. If Netjets or other large operators continue to throw aircraft onto an already saturated market place and continue to offer them at new record low prices, values will keep falling for now. But the buying activity taking place in the markets I mentioned above should definitely work to stop the value erosion on those models.
Toby J. Smith
JBA Aviation, Inc.