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Solid Input For A Year End

Jay Mesinger offers his perspective for the near future- based upon his observations of the year that is ending. For Directors- the message is that aircraft transaction opportunities exist - but caution is advised.

Jay Mesinger   |   1st December 2012
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Jay Mesinger Jay Mesinger

Jay Mesinger is the CEO and Founder of Mesinger Jet Sales. With over 40 years’ experience in the...
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Jay Mesinger offers his perspective for the near future- based upon his observations of the year that is ending. For Directors- the message is that aircraft transaction opportunities exist - but caution is advised.

Directors are expected to exercise good judgment by using their knowledge and training. Budgets are compared with actual results- and variances are analyzed. But assessments often are difficult because boards operate without the final tally until the end of a period or project. This has been a very fluid and active year- and many factors need to be considered by Boards in their assessment of what lies ahead.

• First- look at the industry from the perspective of available inventory- recent sales and pricing.
• Second- identify outside factors that can affect the future of the industry- distract the marketplace and be real game-changers.
• Third- examine broad-based financing opportunities that influence the health and valuation of the market.

INVENTORY LEVELS
The number of pre-owned aircraft for sale is reported to be down slightly. Corresponding transactions- however- are not up sufficiently to account for the overall reduction in year-to-date inventory levels. Therefore some of the reduction in availability levels is due to owners removing their aircraft from the market.

Fewer used aircraft for sale may be the result of better optics of owning and operating a business aircraft. Companies are getting back to the business of flying! Reduced inventory could also be the result of lower selling prices causing owners to retain their aircraft until the selling environment is more attractive.

With respect to sales and sales volume- the market now is more active than it was earlier this year - driven in large part by price. Real buyers who can demonstrate a sincerity and ability to purchase will be rewarded with exceptional pricing. There is far greater supply than demand- even though inventory levels are slightly lower. Real buyers get real deals!

The market is actually enjoying this activity at all levels. Aircraft of all varieties—newer- larger- older- smaller—are selling if the price is right. As a seller- it is vital to listen carefully to your trusted aviation professional and price the offering correctly.

OUTSIDE FACTORS
In measures of inventory and pricing- the market for business aircraft is affected by outside factors. Many people were waiting until the US elections- anticipating that the market would rebound due to a ground swell of buyers seeking to capitalize on low prices and thus shifting quickly the demand/supply balance.

The real game-changers coming in our nearterm will be the Economic Cliff facing the US government in January- and the current significant downturn in economic growth in Europe. These are situations that can severely affect the economy of the United States- and in turn influence the health of our industry.

FINANCING
The continued lack of financing opportunities for pre-owned aircraft is a significant factor in today’s as well as tomorrow’s market. Most of the lending that is available is “relationship based”- and limited to newer aircraft. Very few lenders work on the basis of the old days when the relationship was not the only entry point to lending and the aircraft’s age was not a factor.

Of course age and condition may have always affected loan-to-equity ratios- but they seldom determined “yes or no” to the approval of the loan. Lack of financing will greatly impair our recovery until some lenders begin to expand their thinking to reinstate the norms of previous days.

ALL IS NOT BLEAK
If you are a seller- take heart that there are buyers looking for good situations. If you are a buyer- there are opportunities that have never been as abundant as they are now.

Along with abundance comes caution- however. Approach the market with wisdom and capture the best aircraft for the price. All offerings are not alike- so look very closely at records and maintenance history. Do not be swayed by pretty cosmetics- and always exhibit sound judgment and prudent due diligence.

 

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