Preowned: Fractional Fallout

What happens to your airplane’s value when a major fractional program starts liquidating its fleet of the same model? 

Last year, this column addressed the expected impact on values as a host of new business jets enter service in coming quarters, ending production of some current models and rendering family lines one generation older. [See “In with the New…,” August/September 2015—Ed.] Now, as I report in my Inside Fractionals column, fractional providers are upgrading their fleets with new models, a development that likely signals the impending retirement of many older aircraft in the same category. 

Flexjet, for example, has said it plans to replace its Bombardier Global Express jets with Gulfstream G500s. And while NetJets hasn’t announced its full intentions, its midsize Challenger 350 and Citation Latitude buys could send its Citation Sovereigns and Hawker 800/900XPs out to pasture, while recent upping of its Phenom 300 orders could signal a phase-out of its Citation Encore and Excel series light jets.

As I explain in Inside Fractionals, these changes could have important consequences for shareholders. But the fractional-fleet upgrades could also have an impact on anyone who owns a model that’s being purged from a fractional program, because a glut of similar aircraft coming to market could erode already depressed prices. 

That said, owners of the models being retired from fractional fleets have reason to remain calm, says Brad Bruce, vice president, sales and marketing, at Pentastar Aviation. “The industry has become cognizant of that [potential problem], and while that impact can never be negated, the fractionals will try to meter out the re-fleeting, so you won’t have double-digit numbers [of aircraft] hitting the market at one time.”

Meanwhile, of course, whatever erosion in values does occur could be good news if you’re seeking to buy rather than sell. The aircraft being retired from fractional programs are “a good value for someone looking to enter the industry as an aircraft owner,” comments Bruce. “They say, ‘Maybe it’s higher time [meaning it has accumulated more flight hours], but it’s priced right and I know it’s been well cared for.’”

James Wynbrandt is a private pilot and longtime BJT contributor.

Show comments (1)

Trying to "meter out" the re-fleeting is a terrible idea because it will keep values depressed for much longer.

The market will price in the surplus inventory regardless of when the aircraft are made available for purchase. It would be a much better idea to flush out the surplus inventory now. Of course it will lead to some very nice deals on these jets, but that is really what this market needs - positive ownership experiences.

So instead of kicking the can further down the road, why not just let this market bottom out? This will flush out the excess inventory and soon values would start moving in the right direction again. Because if pre-owned bizjet values started increasing again it will be a nice spark for everyone in this business, especially the OEM's.

At this point, the direction of the price trend is more important than the price point because used business jet values have already been bouncing along the bottom now for years.