BCA Article May 2012
(Text Pulled from Business and Commercial Aviation Magazine, May 2012, page 100)
By Robert A. Searles
inspiracreative@optimum.net
Perhaps at no time in recent memory has the long-term direction of the market for previously owned, turbine-powered business airplanes been more difficult to forecast. Ever since used-aircraft prices plummeted and inventories rose dramatically in late 2008, optimists have been searching for signs that a turnaround was imminent. As the economic malaise dragged on, however, predictions for recovery kept getting pushed out further and further.
Year-end 2011 numbers for the used aircraft market appeared to be a harbinger of better days ahead. However, the political uncertainty associated with a U.S. presidential election year – along with lingering concerns about the strength of the worldwide economy, the threat of a major conflict in the Middle East and the possibility of more European sovereign debt problems – could easily upset the market. Consequently, as the first quarter drew to a close, pundits remained divided on the long-term outlook for used airplanes.
The lack of consensus can be traced, in part, to mixed results for the first several months of this year. On the plus side, the first-quarter edition of the Aircraft Bluebook noted the continuing demand for top-ofthe-line jets and the improving activity and stable pricing of the turboprop sector. On the other hand, the Bluebook said, “For midrange and light-jet business aircraft, values continue to slightly decline. Until inventories of bargain-priced jets have been eliminated, expect values to remain artificially low.”
According to Jetnet, the January 2012 figures showed that the percentage of the fleet for sale in all market sectors was down compared to January 2011, with business turboprops coming in well below the 10% mark, “clearly moving it into a seller’s market.” Jetnet also reported that business jet and business turboprop sale transactions increased 3.7% and 1.4%, respectively, in January 2012, compared to January 2011. And pre-owned aircraft categories showed large increases in average asking-price percentages, compared to a year earlier. But those comparisons benefit from weak prior-year numbers.
Looking at a smaller slice of the market – in-production business jets JPMorgan’s financial analysts were not as sanguine. “Evidence of a recovery on the low end is still not compelling,” they declared. “Older used jets are still plentiful, while younger jets are gradually selling. Overall, used inventories, which have fallen from the peak and continue to improve in some portions of the market, are still not at particularly low levels. It is hard to envision a new jet pickup with so many low-priced used jets still available. Continued price weakness and a lack of sustained inventory declines for these models have increased our skepticism about a recovery.”
Dennis Rousseau of Aircraftpost.com pointed out that the number of aircraft for sale is actually rising for many types, while transaction prices are still dropping. Plus, the macro economic picture is not rosy.” By 2012, the economic recovery was supposed to be here. I don’t see it. Plus, fuel prices are going through the ceiling.”
However, Rousseau does see plenty of opportunities for would-be buyers. “What we are seeing is value. Pricing is more in line with the reality of the markets. We are running at about 30% under a normalized market,” which offers buyers “historic bargains.”
For the price operators paid for a small jet in 2008 they can buy a medium jet today, added Rousseau, and some operators are trading up. “People are buying not necessarily for their travel needs today, but for the foreseeable future.”
Gene Clow of Great Circle Aircraft, a Kirkland, Wash.-based aircraft brokerage, minces no words: “Thus far, 2012 is starting out as a dismal year for the pre-owned market.” Not only is the average number of planes sold each week down compared to the past two years, “the most alarming aspect of the market is the number of airplanes being added. On Jan. 3, I predicted, based upon 2010 and 2011 data, that 2012 would see continuing improvements. I can no longer support that prediction.”
| JBA Aviation’s Toby Smith said, “Depending on whom you talk to, some brokers seem to be very busy right now, while others seem to be quite slow. Personally, I have found a number of prospective buyers in various markets, but they tend to be extremely patient and very slow to move for one reason or another. Some of our listings are getting a lot of activity when priced right; others do not generate many phone calls at all, regardless of pricing.” |
| “I have not heard many buyers saying that they need an aircraft in service quickly because of travel demands,” continued Smith. “Most seem to have an interest in a particular model but are willing to sit on the sidelines until an opportunity arises that represents an incredible value. When a new aircraft that is priced right comes to market, or an existing aircraft announces a significant price change, buyers do seem to be prepared to jump on it. However, the opportunity must be well below market, which leads to further price erosion in markets that are already at historical lows.” |
| “The next few months should be very telling,” continued Smith. “I think we can expect a modest surge in buying and selling starting this spring and continuing into early summer. Things will likely begin to slow down inJune and July. I can also see a few pitfalls that might point toward a longer than usual summer slowdown.” |
Vref publisher Fletcher Aldredge observed, “Recent economic headlines have been, well, not that bad. Is this just a possible blip, or is it the real recovery? In an election year, it is almost impossible to tell.
“It took a few years, but sellers are coming to the realization that if they really want to sell, price matters,” added Aldredge. “Buyers and sellers have adapted to this strange new marketplace. Fewer sellers cling to high asking prices as they wait for a turnaround that’s ‘just around the corner.’ And fewer buyers are confident that prices will be even lower tomorrow. This may not be creating a Perfect storm, but it’sure has made it rain.”