Recently I was asked to contribute some thoughts on the state of the marketplace to an article in BC&A magazine. Following are some of my responses, which you will likely see some excerpts of in next months issue:
How do you characterize the current state of the previously owned turbine aircraft market? What factors are driving current conditions? Which, if any, aircraft models are hot?
It feels as if the turbine aircraft resale marketplace has progressed into a more normalized state, as opposed to the extreme conditions of the previous 18 months. After dismal sales over the 12 month period from the fall of 2008 to the summer of 2009. The fourth quarter of 2009 was extremely active, which carried over to a busy January and February for most of us. Things seem to have let up a bit from the frenetic pace of those five months, but there are still a good number of real buyers making offers and looking for the best deals. While a lot of the deals negotiated at the end of 2009 were driven by motivated sellers and buyers attempting to capitalize on current pricing, the buyers I am talking to now are more driven by the need for lift, which is what a lot of us have been hoping for.
Other than a notable exception in the new ultra-long range aircraft category, I would not say that any particular aircraft models would be considered hot right now. There is activity on many models of mid-sized, super-midsized and larger aircraft produced over the last 10 years. The hot market seems to jump from model to model depending on where buyers see value. Aircraft produced more than 20 years ago continue to generate little interest from buyers, despite some ridiculously low pricing.
How do you see the U.S. market compared to the international market?
The long range aircraft we are currently representing have generated interest from a broad spectrum of the world market. I would say that a majority of the inquiries have come from the U.S. (a refreshing departure from previous years) but qualified buyers from south of the border, the EU and the Middle East have also expressed interest. A vast majority of the inquiries we receive on mid-sized and smaller aircraft are from the U.S which is pretty typical.
How is your business faring in the current environment? What are your customers saying?
A lot of us who make our living buying and selling aircraft are finally taking a deep breath right now. Even though activity has let up a bit, I think most of us are confident that this pause is driven by the cyclical nature of our business and that activity will percolate again very soon. The annual meeting for NARA (National Aircraft Resale Association) is taking place in Puerto Vallarta this spring, and most members plan on attending. In 2009, any meeting planned in a resort town would have been sparsely attended.
Several long-time customers of ours have replacement aircraft delivering soon, which provides us the opportunity to help them sell their relinquished aircraft. It is refreshing to know that those customers are now set on going forward with the new acquisition, rather than considering walking from the new aircraft delivery position and forfeiting their deposit to the OEM. I think the heat seems to be off the publicly traded companies for now, and taking delivery of a new corporate jet does not seem to be taboo like it was this time last year.
Can you provide an example of a recent transaction that typifies the current state of the resale market?
My company has facilitated several closings over the last few weeks. Several of those aircraft were bank-owned aircraft that were placed under contract to sell before year-end, but took several months to push through pre-purchase inspection. Those transactions would have been very typical for the market we were seeing during the 4th quarter of last year. However, we just closed on a G-450 last week which I think does a better job of representing today’s resale market.
The airplane had been owned by a fortune 100 company since new. Due to reduced usage of the G-450 in 2009, the company decided to downsize the fleet by one aircraft (incidentally, usage of the company’s 550’s was strong during that time). The aircraft was purchased by a domestic operator who had been eyeing the 450 market for quite sometime. Although prices probably bottomed out in the 450 market last year, it took a reduced supply of aircraft and the threat of increasing prices to motivate this buyer to move forward with the transaction today. A contract was signed in early February, a pre-purchase inspection turned up minimal squawks on the 4 year old aircraft and closing took place 4 weeks later.
How do you see the rest of 2010 shaping up, both for your company and the market overall? What factors will influence the market going forward?
I think most of us are expecting 2010 to be a year of getting back to normal. There should be months of brisk sales interlaced with some months of lighter activity. I am not sure that we have gotten back in sync with the typical sales calendar year just yet (slow winter / busy spring / slow summer / busy fall), but we are getting closer. Barring any unforeseen “Black Swan” events in the global markets this year, I have hopes that the market could fall in line with normal seasonality by NBAA.
Toby J. Smith
JBA Aviation, Inc.