A business jet.
A business jet was historically assumed to have a 30-year useful life.

Preowned: Sinking Values

What’s driving today’s faster depreciation rates?

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.

Show comments (1)

There has always been a "real" depreciation versus an inflation adjusted depreciation rate. Many people have used the 5 year old aircraft purchase and shown how in 10 years the model has not depreciated very much. However, those models should have been adjusted for inflation to provide an inflation adjusted residual value. Inflation adjustments paint a much more accurate picture. In non bubble years with strong demand, most aircraft depreciated in real terms when adjusted for inflation but their residual as a percentage of original list was very high.

Late model aircraft values have been impacted by new aircraft discounting. The pre 2008 model would have shown a 75% or higher residual value on a Hawker 900XP. However in late 2009, new models were selling at 68% of list! New discounted prices adjust the depreciation models from a list price to a new "real" selling price. If this adjustment is not made, then other adjustments must be made to account for the real sales prices. When you start the normal depreciation models back to the new actual sales prices the percentages are not near as scary.

Will resale prices come back to normal rates adjusted by inflation and what is the new normal are still valid questions.