““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
Preowned Aircraft Annual Report
The general population may think jet owners are insulated from economic downturns, but the growing fleet of used aircraft suggests otherwise. Since the beginning of the year, available used inventory has risen considerably.
Many brokers now find themselves in an unusual position. Last year, some of them came close to harassing owners in an effort to find more aircraft to list amid a dearth of inventory spurred in part by unprecedented worldwide buying activity. A weak U.S. dollar heightened the international spending spree, which continued through late summer. What a different market we have now.
While not unexpected, the change came fast and furiously. There's nothing like a 1,000-point decline in the Dow index during the three-day National Business Aviation Association convention in October to emphasize the point. Brokers are becoming increasingly selective about the number and types of listings they will accept. It seems downright unnatural for a broker to say, "No thank you," when given the chance to sell an airplane, but that's what some are saying. There's a limit to how many aircraft a brokerage can take on before it begins doing a disservice to its clients and itself. Listings that aren't properly priced can be costly to the brokerage-both financially and by damaging its reputation-if they languish on the market.
Some brokers are responding to the oversupply of aircraft for sale by upping commission rates, while others are requiring retainers. Some have asked for advertising reimbursement, as marketing campaigns can become more expensive when aircraft take longer to sell in a downturn.
The suddenness of the reversal of fortune on Wall Street may have a silver lining for the used aircraft market; at least sellers seem clear on what needs to be done to produce a sale in today's environment. During the last correction, it seemed as if sellers were riding the market down $100,000 at a time. Now, they're setting realistic prices and entertaining all reasonable offers. There's no real shortage of buyers, but most are looking for the best opportunities and seem willing to wait for the market to come to them.
The Best Buying Opportunities in Years
For now at least, gone are the days of used aircraft selling for 105 percent of what they went for new. Some aircraft values are revisiting price levels reached during the last downturn, creating one of the best buying opportunities in years. Unlike the last few years, when it seemed there were five buyers for every aircraft, it now seems there are five aircraft for every buyer. As such, values abound.
Falcon 50s (1990 and newer), which had been priced near $12 million earlier in the year, have slipped into the $10 million area and below, in some cases.
Gulfstream GV market choices have nearly doubled in a month, from five to 11, and three GVs have sold over the last six months. Based on that rate, a 22-month supply is now available. The average asking price on the three that sold was $46.5 million, while the average asking price on the 11 for sale now is $41.5 million-a clear indication of the downward trend.
The Challenger 604 market has been remarkably resilient. There are about as many available today as there were a year ago and they've been selling at a rate of two per month. The average time on the market is about 150 days. This compares with about 90 days for the GV and 250 days for the Falcon 50, according to research firm Aircraft Post.
In the mid-cabin arena, the Hawker 800XP has been hit hard, with the number for sale edging ever closer to 50. Over the past half year, sales have averaged slightly more than one per month, while average pricing has softened.
Now and for the foreseeable future, compelling values on many makes and models will be bountiful. Buyers might be well advised to engage the services of an acquisition agent or buyer's broker to weed through the opportunities. Prices are attractive, but buyers may mistake a major price reduction as a sign of a distress sale and overshoot. An acquisition agent can zero-in on a realistic value model and help a client actually buy an aircraft, as opposed to having a seller disengage because he senses someone is out to take advantage of him.