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COVID-19 strikes the business jet market

Buy, sell, or hold? We’re talking about a private jet, not your investment portfolio, as the preowned market deals with the symptoms of COVID-19, which render aircraft values largely unknowable and paralyze the mechanics of transactions. Indeed, you can do little to exercise your options responsibly until the world returns to some level of stability, but here are key considerations to keep in mind while you’re waiting.

First, recognize that the market had serious pre-existing health issues on the eve of the coronavirus pandemic. “Everybody was in agreement it would be a tough year,” says Jason Zilberbrand, president of valuation and appraisal service Vref. “We made [value] corrections at the end of last year and the beginning of this year.”

The arc of year-end retail business jet transactions going back to 2017 reflects a market that was “teetering” as 2020 approached, agrees Jay Mesinger, president and CEO of Mesinger Jet Sales. In December (usually a top month for deal closings), transactions totaled 405 in 2017; rose to 427 amid 2018’s market resurgence; and fell to just 267 in 2019.

With America’s GDP a primary market metric and driver, the International Monetary Fund’s downward revision last October to just 3 percent expected growth for 2019—the lowest rate since the 2008 financial crisis—evidenced a slowdown already in progress, says AircraftPost founder and president Dennis Rousseau. “In any uncertain times, [business aircraft] markets tend to drop,” he added.

Then COVID-19 hit. Monthly transactions declined 45 percent from March 2019 to March 2020 (from 201 to 110) because of the nascent COVID-induced doldrums, says JetNet’s Paul Cardarelli, vice president of sales at the transaction-data specialist. (He notes that these initial March 2020 figures may be slightly low, as the FAA imposed a 72-hour quarantine on submitted transaction paperwork due to this virus—just one of the new and evolving transaction norms.)

Moreover, inventory—which had declined to below 10 percent of the fleet in 2018 for the first time in a decade—is “on the precipice of exceeding” that benchmark and creating “a definitive buyer’s market,” says Cardarelli. 

Since the pandemic began to overtake the U.S. economy, transactions have all but ceased due to uncertainties about recalibrated aircraft values, widespread disruption of required services, and buyers’ and sellers’ own business and financial concerns, brokers say. Buyers have largely suspended all contracted purchases, even at the risk of forfeiting deposits. Aircraft owners venturing into the current market, rather than setting an ask price, are specifying “make offer,” to gauge buyer sentiment. 

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Among additional impediments to business as usual: financing is unavailable, as lenders don’t know where aircraft values will land. Also, with the U.S. having been a net importer of preowned business jets, COVID travel restrictions preclude aircraft based overseas from being brought into the country. Domestically, simply delivering an aircraft to an agreed-upon location for a customary viewing and/or prepurchase inspection is fraught with peril: How can flight crews return home without breaching social-distancing protocols and triggering the need for a quarantine period? Moreover, an inspection facility could be forced to shutter due to a virus crisis, stranding an aircraft in the midst of the process. And a part needed to comply with a purchase agreement may now be unavailable because of disruption of the global supply chain, another symptom of the epidemic.

Meanwhile, industry professionals are looking at past calamities in an effort to fathom where COVID will take the market. But they acknowledge that the dotcom bust, 9/11, and the Great Recession were finite events, with consequences and conclusions easier to calibrate than possible impacts of a mysterious and lethal virus.

Nonetheless, pros recommend steps you can take now to prepare for a market reopening. If you plan to sell an aircraft, take advantage of this downtime to get maintenance and upgrades performed that will make your jet stand out in what is likely to be an increasingly competitive marketplace. 

If you were about to list your aircraft, or if your aircraft is currently for sale, you’d be well advised to do nothing until more clarity emerges on pricing, financing, and the shape of the market to come. 

If you’re planning to take advantage of reduced pricing to buy your first jet or upgrade to a more capable model, start working with your advisers now to identify and research the best options for your needs. Another note for would-be buyers: as in previous market collapses, brokers report fielding calls from bottom fishers with cash and expectations of profiting off desperation, inquiries the pros typically disregard. (Indeed, sellers reportedly aren’t resorting to panic pricing.) But brokers admit cash deals with motivated sellers are available to buyers who know what they want, and seek reasonable discounts. 

Meanwhile, some in the transaction community are viewing this as an opportunity to find new ways to streamline and automate the process, from adoption of online tools for examining aircraft and logbooks to wider use of “desktop” aircraft appraisals sanctioned by the Uniform Standards of Professional Appraisal Practices. 

Long-term, many bizav boosters view the pandemic as spurring greater demand for aircraft ownership, and private aviation in general, due to increased concerns about the health risks of commercial air travel and its uncertainties in times of crisis. However, the consensus is that months of sluggish activity and declining values will characterize the market in the interim. But keep in mind that aircraft buyers and sellers just survived a decade of such conditions, so a few quarters of additional uncertainty shouldn’t present an insurmountable challenge.

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