A ‘Fundamentally Changed’ Preowned Market

After a decade of wishful thinking and 2017’s banner year for transactions, the long-awaited market turn appears to finally be upon us, marked by stabilizing prices and a shrinking supply of aircraft.

“This is a fundamentally different marketplace than just 12 to 18 months ago,” says aviation consultant Rolland Vincent, who notes that buyers are no longer “blessed with the luxury of time and a variety of good inventory from which to choose.”

Bizav data research firm Amstat reported “a tightening of aircraft inventories across all market segments” in its mid-year “Business Jet and Turbo-Prop Resale Market Update,” which cited the 9.1 percent of the business jet fleet for sale as “the lowest overall percentage since 1998.”

In June of this year, 1,966 preowned business jets were for sale globally, according to JetNet, compared with 2,301 a year earlier, a 1.7 percent drop from the 10.8 percent available in mid-2017. Meanwhile, JetNet recorded 1,344 retail preowned business jet sale and lease transactions through the first half of this year, 0.2 percent more than last year’s record-setting 2,700-plus deals. Crowed Jay Mesinger, CEO of Mesinger Jet Sales, “We haven’t enjoyed this phenomenon of high demand and low supply since the ’08 downturn.”

Even Aircraftpost.com president Dennis Rousseau, a reliable glass-half-empty observer with the data to back up his views of an ongoing decline in values, admits to seeing “relatively small upticks” in some prices, an indication that “there’s value for the dollar” for buyers and sellers in the market.

As a buyer of preowned aircraft, if you don’t accept that the market has shifted toward the seller’s side, you “may have to miss a few deals to realize the message is honest,” says Chad Anderson, president of brokerage Jetcraft. “[Buyers] out-wager the negotiations to the point where they miss the airplane they really want. It’s painful. It’s awkward. Even when we’re the seller.”

If you’re a seller yourself, you don’t have to take the first offer for fear of not getting another, and though an upward price adjustment may not be possible, you can be more demanding in the sale agreement than you probably could have been a year ago. “Most sellers today want hard transactions, not soft transactions,” says Mesinger. “The deposit becomes non-refundable at contract signing, and the contract should include very specific delivery conditions.”

Even as signs point to a market rebound, people are asking how long it can last. Brian Proctor, CEO of private aviation consultancy Mente Group, sees a sales slowdown ahead. Proctor, who chairs the International Aircraft Dealers Association (formerly NARA), points to “an incredible contraction in availability of late-model airplanes,” which will reduce sales, along with a shortage of prebuy inspection slots as FAA-mandated ADS-B technology upgrade work occupies maintenance-and-repair facilities.

Others question whether the preowned market has even turned. While noting “genuine stimulants that bode well,” Paul Cardarelli, a JetNet vice president, said he’s “still reluctant to declare the market in full recovery.” He cites “real challenges” that include “soft residual values on nearly all models, fleet utilization sharply down from pre-recession levels, and a market that is geographically concentrated and in general oversupplied.”

Aircraftpost’s Rousseau also disputes talk of a supply shortage, dismissing such claims as “rhetoric.” Citing stats for various models, Rousseau says, “No one can make the comment that there’s no inventory at this stage of the game.”

Buyers and sellers alike have to realize that the market remains thin and that the outcome of any deal is about the individual aircraft more than any surrounding noise about trends. Also remember that all data services track their own group of aircraft, so their numbers and percentages rarely agree, but the general trends reflected usually do. Still, even within each provider’s reports, there’s enough data to dispute or corroborate just about any generalization you might make about the market.

Value-retention percentages, which have plunged over the past decade, can also be deceiving, as the factory-new prices they’re based on may be incorrect. Moreover, the raw figures don’t show the shape of descent, which reveals changing valuations that are part of every market, as preowned airframes come in and out of demand.

But if you’d like to know in simple terms how a particular jet has performed in the preowned market recently, you can check new charts from Aircraftpost that show the change in value over the past 24 months of a specific model year business jet. According to the data, despite the vaunted power of large-cabin aircraft in the preowned market, the 2012 Citation CJ4 ($6.1 million), 2014 Lear 75 ($6.2 million), and 2012 Embraer Phenom 300 ($6 million) led the field in value retention among the tracked jets, with each up 1 percent in value over the past two years. The 2000 Hawker 800XP was the worst performer, dropping 30 percent over the same period. Bombardier’s 2012 Global 6000, in the twilight of its flagship reign with the impending arrival of the Global 7500 and 6500, is down 9 percent over the period.

Whether you’re a buyer or seller, of course, you want to know where the market is going, not where it has been, and in the near future you may not need to sift through tea leaf–like data or peer into a rearview mirror to identify a trend. Vref, the aircraft valuation and appraisal service, in October released its first annual “15 Year Residual Value Forecast,” covering all new, in-production business jets; piston, fixed- wing, and light sport aircraft; and helicopters.

If you buy a 2018 Phenom 300 today ($9.45 million), it will be worth $6.46 million in 2033 (68 percent value retention) according to Vref’s data, which shows the projected value for every year from now until then. The midsize jet may not have the range or speed of a new Global 6000, but it will still outperform it in the preowned market, Vref says, with the Global retaining only 26 percent of its $62.31 million value, or $16.22 million in 15 years.

Computing the values is “part science and part experience, with new data needing to be correlated daily,” says Vref CEO Ken Dufour. If his company is correct in its forecasts, the data could be market turning in its own right.