These are exciting times for General Aviation! Record breaking sales- increasing backlogs- new aircraft models being announced and still not a ‘like-new’ pre-owned aircraft to be found. The aircraft market has never been hotter- and I see no end anytime soon. For those of us that have been around long enough to witness the cyclical aviation market- this current market is a breath of fresh air and a risky environment all wrapped up into ...
Aircraft Market Update
Another record-breaking quarter!
These are exciting times for General Aviation! Record breaking sales- increasing backlogs- new aircraft models being announced and still not a ‘like-new’ pre-owned aircraft to be found. The aircraft market has never been hotter- and I see no end anytime soon. For those of us that have been around long enough to witness the cyclical aviation market- this current market is a breath of fresh air and a risky environment all wrapped up into one package.
The current excitement is justified - after all- how many times in the past five years have we passed the previous quarter’s record breaking sales numbers? We are not just talking about sales numbers that would keep a board of directors happy; we are talking about in some cases a mind-numbing seven-year backlog for new large cabin class aircraft.
The vast majority of the sales numbers fall into one of two categories: the “heavy iron” or “VLJ” category of aircraft. Those international cabin class aircraft that have limited production numbers are now pushed so far out that even the wealthiest customer is prepared to wait- and then wait some more. The VLJ market is so hot you could recalculate your predictions for growth every month.
For the first time we are no longer seeing three-year backlogs from the larger manufacturers. Bombardier- Gulfstream and Dassault have all booked orders for their large cabin class aircraft well into the next decade. But what has changed? Firstly- there has been a shift in the marketplace: The United States once drove the industry with 80% of new aircraft deliveries. Today those numbers have shifted to only 30% delivering to the United States. The emerging markets that everyone speaks about have truly begun to develop and offer a bit of competition for the American dominated market.
Just imagine what it could be like in five to 10 years time- once these markets have matured. Imagine these regions with the infrastructure to house these large aircraft- and with executive airports to allow their users to travel more easily. Now assume over the next five to 10 years these cultures will also accept these aircraft. What we would have is a market that shows no signs of weakening.
Secondly- the new generation of aircraft being built today are superior from nose to tail. The offer of improved technology- comfort and efficiency have definitely helped stimulate market demand. Those potential owners who might have been sitting on the fence a couple years ago now see greater value in the newer aircraft on offer. The improvements go beyond the typical mid-model make over. We are seeing new floor plans for greater passenger capacity. In some cases the new designed floor plan was the only thing needed to take a stagnant aircraft in to the realm of amassing backlog orders. The new passenger areas have also been made quieter to help battle one of the largest complaints all manufacturers have.
When combining these huge improvements with composite materials- environmentally friendly powerplants and a cockpit that will not need an upgrade for 10-years- you begin to see why people have been lining up to buy new- instead of refurbishing older aircraft.
Finally- when looking to purchase an aircraft the most critical part of the transaction is often the financing. No matter how strong a credit you have- finance companies would prefer to have a newer asset on their books. Bankers and financers of aircraft are a trusted source for information- and if your bank tells you that you will get a better loan on a newer aircraft- the chances are you will look at a new aircraft.
When the market is strong manufacturer research and development is equally as strong- and the new aircraft models that will be built in years to come are just the tip of the iceberg in terms of the technology we will see implemented. The lack of available new aircraft often means buyers will look to the “like new” Pre-Owned market- which has also seen record-breaking transactions. In the past- industry experts warned of paying too much for a used aircraft in a heated market- but today there are no warnings- no ceilings to the price- and more importantly not much reaction to price increase happening.
An educated buyer knows he is paying too much for an aircraft and often he will sit on the sidelines waiting for a correction. Since the globalization of general aviation began a few years back the corrections have been far and few between and those educated buyers are now factoring in the backlogs for new aircraft to help justify the extremely high retail dollars being spent for like-new.
If the first three quarters of 2007 have been any indication of what is to come- all I can say is “buckle up- the end of the year is going to be one wild ride!”
Jason is co-founder of The Zilberbrand Group- LLC- which offers brokerage- sales- acquisition and consulting services. He is also vice president- operations- Aerospace Group. During more than ten years in aviation- he has worked extensively with Fortune 100 clients- and maintained the accounts of some of the largest corporate flight departments in the United States. More information from Jason@zilberbrand.com or www.zilberbrand.com