Preowned: Sinking Values

Sales professionals continue trying to determine whether the post-2008 slide in preowned-aircraft prices represents a historical aberration or a new paradigm. In a recent report on depreciation trends, the National Aircraft Resale Association essentially proclaimed the valuation model that buoyed the pre-’08 market dead. “Microtrends” dictate today’s pricing, the report said, as volume has thinned and buyers have become more selective. 

“Sometimes a microtrend is not applicable across the whole industry, or across a fleet, or across a brand,” the report noted, “but it is applicable model-by-model, and sometimes year-by-year for each model.” The organization cited 2008–11 Phenom 100s, which “have really devalued and continue to”—despite being the kind of high-tech, late-model aircraft the market supposedly craves.

A business jet was historically assumed to have a 30-year useful life, retaining 20 percent of its original value at the end of that time, posits Dennis Rousseau, president of AircraftPost.com. But in a recent survey, “Market Depreciation vs. Declining Residual Values,” Rousseau found that after six years in service, eight randomly selected business jet models had depreciated much more than “what a ‘normal’ market would deliver,” in one case (Citation XLS+) dropping 50 percent. 

Meanwhile, retained values don’t necessarily reflect the “flight to quality” that’s often seen as a hallmark of the current market. Of more than 30 airplane models tracked by the Aircraft Value Reference Guide, (Vref), about the only ones that held their value between late 2013 and late 2014 were the two most depreciated: the Beechjet/Hawker 400XP and Hawker 4000 (pictured above), which retained 29 and 22 percent of their original values, respectively. (The Gulfstream G550, which industry reports suggested saw a collapse in demand and went from scarcity to glut during this period, topped the list in value retention, and declined only slightly, from 82 to 80 percent of its original price.)

Preowned jet sales are driven primarily by business travel needs, and studies conducted by reputable consultancies sponsored by the National Business Aviation Association have consistently shown that companies that use business aircraft outperform companies that don’t. So anomaly or paradigm shift aside, do today’s historically low prices reflect a diminished view of the value of a business jet in a global economy that seems in a permanent recessionary mode, or are they simply a stark demonstration of the laws of supply and demand in a very thin market? Either way, pressure on preowned pricing is expected to continue in the year ahead, creating pain on the sell side and a world of opportunity for aircraft shoppers. 

James Wynbrandt is a private pilot and regular BJT contributor.