Last week I received an electronic newsletter from AIN Online. The newsletter featured an article written by David Wyndham, VP of Conklin & de Decker. In my opinion, the article does an excellent job of analyzing our current position in the pre-owned jet marketplace and providing some good guidance on where things are headed. Following I will highlight some of the statements I found most interesting and give a little of my own thoughts on the subject.
“A current snapshot shows 15% of the active fixed wing turbine fleet is for sale.”… However, “greater than 25% of the active fleet of older business jets is currently for sale”.
I think a lot of buyers tend to lump the entire marketplace together and assume that inventory levels are sky high and will remain so for some time to come. In reality, supply on some of the newest aircraft is rapidly adjusting, and getting very close to balanced numbers in some markets. Historically I have used 7-10% of a fleet as a normal range of supply. Some markets are already within that range. Others would be if the operators that are unwilling to sell at today’s prices were to remove their aircraft from the market.
“Values for business jet aircraft built before mid 1990s are in dire straits – and they won’t likely recover. Even looking back at 2007 and early 2008 (pre-downturn), those aircraft weren’t strong sellers. Many of the early, first generation business jets are probably at or near their salvage value.”
I would agree with this statement. I have been asked by some operators of aircraft built prior to the early 80’s when I might expect values to increase again. I can only look to history and say that the values of aircraft 25 years old in 2001 never experienced any value increase before the current downturn. In my opinion, most of these aircraft are now trading at their new price point and I would not expect any market appreciation in the future.
“Values for business jets less than about five years old will recover first and strongest.”
“If the current aircraft you operate is in the oldest group we would recommend upgrading to get reduced operating costs, updated avionics, and greater availability. Don’t worry much about trying to time the market for a recovery in its value – it won’t mean much. You are better off replacing the aircraft sooner as today’s values for newer models are about as good as it gets.”
“If you are operating aircraft newer than mid 1990s, and if you plan to upgrade to a more capable aircraft, try to do it sooner rather than waiting. Yes, if you wait your aircraft value will likely recover, but not as much as the potential price increase for the newer models.”
I’ve been trying to convince customers of just this exact thing all year. Focus on trade difference and meeting your mission more efficiently, not only the value of your aircraft. If you are upgrading (going newer or bigger), that trade delta is about to start getting bigger. Move now or you will be chasing the market from here on out. If you are downsizing, and your aircraft is 5 years or newer, you probably don’t need to be in too big of a hurry. Of course, if you are downsizing, that probably means you could use the cash injection, so you might want to hurry anyway.
NBAA is a little more than 6 weeks away. Activity has been relatively strong the last two months and if there are no big hiccups out there, I have hopes of a robust third quarter in the pre-owned market.
Toby J. Smith
JBA Aviation, Inc.