Last week I was asked to give a talk to the North Texas Business Aviation Association (NTBAA) about the used aircraft marketplace. The meeting was scheduled for the next day, which is a little less time than I would usually like to pull my thoughts together. However, I do talk about the market everyday, all day long and figured I should be able to wing it.
While waiting for my flight the next day I received an email announcing the agenda for the meeting. My talk was titled – Advantages of the Current Market. This title threw a little wrench into my plans and I spent the flight to Dallas trying to figure out what good news I could talk about in the current jet resale marketplace. I have heard such bad news from all sides lately I was actually surprised that I could come up with so many positives about the current market. I’ll try to point out a few over the next few weeks.
The first thing I came up with is obvious. If you are a buyer with nothing to sell first it is nothing but good news. Values on most aircraft are 40-50% lower than they were last fall, the supply of aircraft for sale has doubled from first quarter 2008, interest rates are low (if you can get a lender to talk to you), pre-buy facilities have plenty of available ramp space and bonus depreciation is available if you are looking to buy new. However, most people seem to be sellers today, or at least have to sell something before they can move forward on a planned purchase. So what is the good news for them?
The good news is that for those who are upgrading, the trade difference between what they are selling and what they want to acquire is likely lower than it has been in quite some time and that delta is likely to go up from here. The primary reason has to do with the premium some aircraft were demanding before this downturn set in.
In 2008, many used aircraft were demanding a significant premium above new aircraft purchase pricing because they could be put into operation immediately, whereas the factory would be unable to deliver an aircraft for several years. This premium “bubble” was an emotional response to the lack of availability and just about everyone knew it was unsustainable. When the bubble burst, that premium seemed to evaporate overnight, where other used aircraft experienced a more reasonable slide in values.
Most of the midsized aircraft and aircraft manufactured prior to the year 2000 did not demand this premium, so their values did not drop quite so precipitously. This results in a reduced trade difference for anyone looking to upgrade from an older or midsized aircraft to a newer or larger cabin aircraft. Even without this bubble, the trade difference between a smaller aircraft and larger aircraft has come down in terms of dollars, even if the percentage value drop was equal. Both mean more dollars in your pocket.
That being said, it continues to be a struggle to put deals together in this environment. Even though the trade difference has come down for most prospects, it is difficult to accept the reality of today’s prices. However, if you can just focus on the dollars and cents of both parts of the transaction, rather than how much you might be losing on the sale of your current aircraft, I think you will see many advantages to today’s market.
My stock broker likes to throw out terms like “dollar cost averaging” when pointing out the benefits of falling stock market prices. I usually nod and say, “I know”. I guess I do, but it remains an emotional time to be buying in the stock market. I know the same holds true in aircraft.
A friend of mine recently launched a website that focuses on the positive news stories of the day. The address is http://www.theupbeatreport.com/. If he were to have launched this last fall, I’m certain it would not have had much traffic over the last six months. I have to think today people are getting tired of the continued bad news coming out of the television and their computers. Here’s hoping his site is a success and that people start looking for the good news in 2009.
Toby J. Smith
Vice President
JBA JETS, Inc.
918-834-9100
toby.smith@jba.aero