I’m sure by now that everyone reading this realizes how attractive the pricing is on pre-owned aircraft today. Depending on the market you are considering, prices have fallen anywhere from 40-60% over the last year, even more in some cases. However, a lot of overpriced aircraft still remain on the market. So when you decide that the time is right to buy, what is the best way to go about uncovering the best bang for your buck?
The first step is actually determining what aircraft will best meet your mission requirements at the price point you have established. Do not be lured into purchasing the wrong aircraft for your mission simply because it was cheap. The cost over-runs you will experience by purchasing too much airplane will exceed the cost savings you achieved at closing more quickly than you think. And if the aircraft does not perform well on your most frequent trips, the resulting headaches will make the money you saved seem like a pittance.
Once you have established the right aircraft for your needs, take a “snapshot” look at where things stand. We compile a spreadsheet for our clients that summarizes the following details:
- How many aircraft are available for sale?
- What percentage of production aircraft are on the market?
- What are the asking prices of available units?
- What features does each unit have that materially affects value (airframe time, engine status, damage history, pending inspections, aesthetic condition, etc.)
- How many aircraft have sold this year and at what price?
Once you have a clear idea of the pricing trends over the past several months and some of the more attractively priced options available today, you can establish a reasonable goal for your acquisition. Something along the lines of….. “we would like to purchase a 2007 model or newer with 500 hours or less with a particular configuration”. You might also place value on certain options like HUD, EVS, BBML, etc. Based on the trends analysis, you should be able to reasonably predict what price such an airplane should bring in today’s market. Keep in mind, availability in certain markets like the G-450 & 550 has tightened up considerably, so you may have to pay a bit more than the last guy did.
With that goal in mind, locating your airplane becomes a relationship game. A significant majority of the aircraft on the market are represented by agents. As such, when an operator calls a sales agent for pricing on a particular aircraft, that agent will provide an asking price and perhaps a bit of guidance on realistic price expectations. However, most agents really don’t know just what price their client may be willing to take for their aircraft. So they encourage any reasonable offer in hopes that the offer may help to educate the owner.
However, when a sales agent receives a call from a broker that has an exclusive acquisition agreement, a lot more information is shared on the market, the client, and their motivation for selling the aircraft. Many times that sales agent may actually direct the buyer towards another aircraft because their aircraft may not represent a good value right now. This obviously doesn’t happen when an operator calls direct.
There are many places to look when trying to find the best buy. You will need to network with a great number of dealers, brokers, bankers and OEM’s to see if anyone has been offered an aircraft in trade that can be picked up at wholesale pricing (if such a thing exists today). You will need to be in regular communication with the agents of all the aircraft actively on the market in case motivation changes, which can happen very quickly. You might consider keeping an eye on 1031 tax deferred exchange deadlines to see if anyone is about to bust their window on a reverse exchange. But the bottom line is, you need to have relationships with a lot of people who trust you and know that you have the ability to react on good information.
We at JBA have been working hard for the last 33 years to develop those relationships and I think we have earned the respect of our clients and friendly competitors alike. In fact, most of our deals involve an agent on both sides of the table, so we consider some of our competitors to be some of our best customers. The mutual respect we have developed within the dealer and broker community is what allows us to find some of the most attractive opportunities for our clients.
If you have an interest in finding a good deal out there, please give us a call so we can show you what we can do. Back next week.
Toby J. Smith
JBA Aviation, Inc.