- 08 Dec 2022
- Brian Foley
- BizAv Market Insight
In Brian Foley’s opinion, 2023 is likely to be a ‘give-and-take’ type of a year within the Business Aviation industry. Here, he reviews what lies ahead...Back to Articles
Bad news and good news, one must take the bitter with the sweet. This best sums up how 2023 could potentially play out for Business Aviation participants.
Take aircraft brokerage for example, which has seen all-time highs in the number of transactions over the past few years. While the level of activity is expected to see further softening in 2023, on the flip side there will inevitably be more pre-owned inventory available, the shortage of which had been the bane of brokers of late.
Although buyer demand was certainly there, the ability for brokers to find an aircraft for their client was a constant source of frustration. Now, as the fleet for sale starts to build in 2023, there will finally be more selection – albeit at the expense of reduced demand.
Similarly, aircraft buyers will see certain trade-offs in 2023. Along with the brokers, they will benefit from a greater inventory of used planes to choose from, and as demand tapers they’ll even begin to see more noticeable price decreases. But this long missing luxury comes at the price of increased lease and finance rates for those who are unable to pay cash.
Moreover, for business aircraft buyers in the US 100% bonus tax depreciation is no longer available (having decreased to 80% this year).
The tax issue is not anticipated to be catastrophic to future sales since strict aircraft usage requirements limited the number of buyers who could qualify. Further, it’s believed that many of those who could benefit from such a tax scheme have already purchased aircraft.
A dose of good and bad news could affect sellers in 2023, too, depending on several variables.
Those who paid over the asking price during the preowned buying frenzy are unlikely to ever recover this premium. The number of days on the market is also expected to climb as transactions decease and inventory increases, particularly for those selling older equipment.
All sellers will be bitten by the effects of inflation. For example, if a buyer paid $5m for a used jet in 2017 they’d have to sell if for over US $6m today just to break even. Thus, it’s believed those who sell early in 2023 will fare better than those who wait and risk rising inventories, reduced prices, and inflation eating away at value.
New aircraft manufacturers will face a different set of good and bad news this year. On the one hand they’ll be blessed with ever-increasing backlogs of profitable aircraft sold at (or near) list prices.
However, they’ll be dogged with the next available delivery positions being stretched out to 2025 and beyond. This is longer than an OEM would like, since the wait may turn off prospective customers or make them seek alternatives.
The long-standing supply chain and labor shortages will be a draw, hampering near-term production ramp-up but fortunately improving throughout the year.
Read the rest of this month’s Business Aviation Market Overview – including flight activity trends and pre-owned fleet maintenance trends – in our digital edition by clicking on the button below...