Bottoming Out

Oct 3, 2017 - 2:30 PM

Preowned-aircraft market watchers, eyeing a downward spiral and wondering when we’ll reach bottom, keep asking the same question you hear from kids in the backseat on a long car trip: “Are we there yet?” The answer is no, says JetNet IQ managing director Rolland Vincent, but the destination is in sight, with the “beginning of an uptick” probably coming in 2019.

Vincent presented supporting data for this forecast at the European Business Aviation Conference and Exhibition (EBACE) in Geneva in May. He noted then that a relatively large pool of available preowned aircraft is eroding residual values, as are historically low utilization rates of the current fleet.

The average business jet flies 352 hours per year, with half ­flying fewer than 300 hours. That’s the same utilization rate as in 2003, though corporate profits have almost doubled since then, and usage rates, based on historical trends, should have reflected that increase. Meanwhile, 11.1 percent of the world’s 21,817 in-service business jets are currently for sale, according to JetNet, a figure above the 10 percent considered the high end of a balanced transaction sphere.

“It is clearly still a buyer’s market,” says Paul Cardarelli, JetNet’s vice president of sales, but many owners hesitate to take advantage of opportunities because of the hit they’d face on the sale price of their jets. “The gap between aircraft trade-in values and new aircraft [prices] keeps getting wider,” a symptom of cratering residual values, Cardarelli adds.

The forecasts in JetNet IQ, one of JetNet’s data offerings, are based on quarterly surveys of 500 bizav users, and in the latest quarter, “about half of the owner/operators we’ve surveyed told us that low residual values caused them to delay purchase of either a new or preowned aircraft over the past two years,” Cardarelli says. But the aging fleet, mandates for new equipage, next-generation cabin comforts and capabilities, and cyclical demand will revive sales, indicators suggest.

Vincent believes the recovery will be led by Europe, where buyer sentiment has turned increasingly positive, with 61.8 percent of survey respondents now saying the market is past its low point. The percentages of respondents who see a turnaround are only slightly lower in North America and Latin America, at 57 and 59.1 percent, respectively. Sentiment in the rest of the world, dominated by emerging markets, is much more negative. More respondents (32.7 percent) believe the market has yet to hit bottom than believe it is past the nadir (28.6 percent), while the rest (38.7 percent) think it has now reached its depths.

Last year, 2,442 preowned aircraft sales and leases, and 661 new jet sales were recorded. JetNet expects new business jet sales to fall 5 percent this year, Vincent says, but the company believes that once the recovery takes hold, purchases will rise steadily. It forecasts 7,489 new business jet sales between now and 2026 and, if similar trends apply to preowned aircraft, we’d see just shy of 30,000 preowned jet transactions (29,931) over the next decade.

We may not be there yet, but this report offers hope that we soon will be.