The State of the Preowned Market

Lately, sellers have been more tentative than buyers about closing deals.

After the recent capitulation in the equity market, an asset manager who is in charge of preserving his boss' capital was taking the temperature of the aircraft business. He was doing so at least partly because he saw a correlation—though admittedly not a clear or definitive one—between the appetite for corporate jets and the overall health of the economy.

He was surprised when I told him that lately, sellers have been more tentative than buyers about closing deals. I recently had a seller offer to pay twice my contracted fee to undo a deal he'd agreed to, even though the terms would have provided him with a significant upside from his base in the aircraft. Owners have begun to realize that once they close a sale, they will have to ante up for a replacement aircraft—if they can find a viable one.

The asset manager I mentioned above expressed concern about what effect a credit crunch might have on the markets. I told him that I continually hear from industry finance people that their biggest competition comes from would-be buyers who want to fund an aircraft purchase out of pocket or from company coffers. So a credit crunch isn't an apparent concern for these companies and individuals at the moment.

Of course, credit problems do have the potential to derail the overall economy, which could certainly affect aircraft transactions in some manner. At this point, however, it's doubtful that worldwide players in the business jet market are particularly concerned about what's being referred to as the housing industry's "sub-prime slime," which triggered credit concerns in the U.S.

Activity this year has been astounding, perhaps not in terms of finalized sales, but in terms of the clamoring for both new and used aircraft from all over the world. The heightened activity has tasked brokers and dealers with trying to pry loose the iron grip that reluctant sellers wield on their prized possessions. That hold loosened slightly as of mid-August as used inventory reached an unimpressive 2007 peak, which I attribute to seasonal, rather than economic reasons. Now let's see what happens in what is traditionally one of the busiest times of the year.

THANK YOU TO OUR BJTONLINE SPONSORS