- 03 Apr 2023
- Brian Foley
- BizAv Market Insight
How should buyers and sellers of business jets respond to today’s gradually changing pre-owned aircraft marketplace? Central Business Jets’ Jay Duckson speaks to Matt Harris about his reading of the market and offers advice for aircraft owners...Back to Articles
Various traditional markers suggest the pre-owned aircraft sales market is slowly coming down from the feverish pace set in the immediate years and months following Covid. Since the end of Fall 2022, used aircraft inventory has gently increased from a baseline of a little more than 3% of the in-operation fleet, and prices have been flattening out gradually.
While the changes have been slight, they’ve been sustained. But are they anything to get excited about just yet from a buyer’s perspective?
“We still seem to be living within the Covid bubble,” Jay Duckson (pictured), Founder and President of Central Business Jets argues, suggesting we are still some way off seeing a balanced buyer/seller market. “We still see some shortages for newer, more popular aircraft models, as well as long lead times at the OEMs.”
On the latter point, Duckson suggests traditional buyers of new aircraft continue to create demand for nearly new used inventory, which is having the effect of keeping the market from moving towards a more traditional buyer/seller balance more quickly.
“Eventually we will see normalcy return – or at least a new normal,” Duckson says. “But questions remain as to when that will be.”
While his estimate is sometime in 2024, there are many questions Duckson believes need answering before the picture becomes clearer. “Many buyers today still seem to be cash purchasers. At what point will more buyers start relying on financing? And will the higher interest rates deter some?” he asks.
“Will users of Business Aviation start to feel that inflation is making business aircraft travel too expensive for them? If so, how many? And when recession hits, how hard will it impact the travel budgets of current and would-be aircraft owners? Until we have the answers to some of these questions, it’s difficult to predict an exact timeline for a return to normalcy.”
Another element of the Covid era which inflated the market was the wave of first-time users flooding the charter and fractional ownership markets and entering aircraft ownership for the first time.
Whether they were stepping into a private jet to maintain necessary business travel when the airlines were reducing their schedules, or for personal travel reasons to provide a safe option for family or friends, there’s no doubting a significant portion of the inventory was absorbed by many newcomers to aircraft ownership.
Another unanswered question is how many of these first-time buyers will remain in Business Aviation for long enough to become second-time buyers.
“There’s little doubt that Covid drew new users to the marketplace,” Duckson affirms. Among the buyers were those who were previously concerned about the optics of business aircraft ownership/use; those who had once actively steered clear of Business Aviation.
“Everyone reading this article knows Business Aviation is about so much more than optics, and we’re all very glad to be welcoming these newcomers to the market.” Nevertheless, Duckson agrees with several industry analysts that a percentage of these first-time buyers are likely to experience buyer’s remorse when faced with the cocktail of rising costs of living and the realities of day-to-day business aircraft operating costs – especially as scheduled airline services continue to recover.
“It is astounding to think that a person or entity with little or no experience of business aircraft ownership would try to go it alone,” he says. “The costs and complexities associated with an aircraft will only increase the chance of failure. It’s so important to know what you’re doing and have a full picture of the costs associated not just with buying an aircraft, but with owning and operating it, too.”
According to Duckson, Central Business Jets still has aircraft owners contact them after several decades of buying new and pre-owned aircraft. “They know the value an experienced broker adds in minimizing the likelihood of a bad ownership experience,” he highlights.
Duckson believes that the percentage of buyers who are new to Business Aviation and are on a path to failure is higher than it needs to be (though others will have done their homework, found their ideal travel solution, and never look back).
“Buying a jet isn’t just limited to paying the right price for the initial purchase. Once you’ve bought it, you’re responsible for its operations and upkeep every day you own it,” he stresses.
“You inherit the responsibility for every aspect of that aircraft, whether that’s hiring fight crew, undertaking scheduled and non-scheduled maintenance, refurbishments and upgrades – everything. These need to be discussed with an experienced broker, aviation legal and tax counsel, and other professionals in their respective fields so that you don’t end up paying millions more in fixed and variable operating costs than you budgeted for.
“A relatively small up-front fee for a pre-purchase inspection, for example, could save millions in the long term,” Duckson illustrates.
On the flip side of the coin, while prices shot up to reflect the scarcity of inventory during the post-Covid years, Duckson disagrees that the more experienced buyers have all been sitting on the sidelines waiting for the market to cool off.
“Most seasoned aircraft owners and buyers didn’t alter their plans much,” he says, placing emphasis on ‘much’. “They have always realized the advantages of business jets, and, in our experience, they have continued to replace and/or add planes as their business needs warrant.
“So, in essence, the new buyers entering the market, plus the more experienced buyers, equaled a smaller supply for both groups to shop from.”
Despite the experienced buyers being active in the marketplace all along, Duckson does see some pent-up demand that is likely to impact the market in the near- term. “Most that we’re seeing is more towards new aircraft purchases,” he reveals.
“There are several seasoned aircraft owners that haven’t experienced the fact that it will take more than two years to receive the aircraft they ordered from the manufacturer (in some cases they could even be waiting four years).
“Although an exact match for their requirement may not be available on the pre-owned market, we’re still able to find and acquire most pre-owned aircraft models, albeit some off market, that will help bridge the wait time.”
Meanwhile, there are sellers who would have liked to sell at the top of the market, but who needed to buy the right replacement jet first. As supply grows, these sellers are likely to account for some of the pent-up demand, Duckson reckons.
“Others play the ‘difference game’,” he adds. “That means the acquisition budget is the value of their existing plane, plus $X. Getting more can usually help remove the stigma of paying more – but can also lead to frustration as the buyer waits for the right airplane that falls within their budget.”
With activity still very strong today, Duckson doesn’t discount opportunities for patient buyers looking for a ‘steal’ and who may be waiting for a company or high net worth individual to become over-leveraged financially, or desire to send a ‘reverse-optic’ message and dispose of their plane.
“These most likely will be off market deals,” he says, adding that if over 10% of owners were to fall into this category, it could spark a substantial spiral in prices. And as prices fall, he explains, more buyers will pause on the decision to buy as they wait to see where the market will bottom-out, which would further exacerbate the price drops.
For those owners opting to wait for more favorable market conditions, Duckson says “Thankfully, most aircraft are built to last ‘a lifetime’”. He and his colleagues at Central Business Jets are happy to see that for some owners there’s no reason to change for the sake of change when their current aircraft is doing the job it was intended to do.
Though he cautions there will come a time to reassess whether the value equation still makes sense.
“Gone are the days when the replacement from turbojet engines with turbofans was such a gamechanger, though unbelievably the original glass cockpit displays that were installed in some business jets are now twenty years old.”
While different aircraft models pose different questions over what makes it worth keeping, when market prices do return to ‘normal’ a more overarching question of value will become the focus.
“Does it then make sense to pay for all the maintenance, heavy checks, engine overhauls, and do all the necessary cosmetic and cockpit upgrades to a twenty-year-old plane?” Duckson asks.
“The cost to perform all of this could equal or exceed the value of the airplane. Then it will be time to give up the aircraft you’re holding on to and replacing it with something newer.”
Duckson says he and his colleagues are telling their clients not to wait, but to buy value now. “There are some top-quality planes available for sale currently,” he concludes.
“We’re advising buyers to buy now and then sell their current airplanes while the market is still commanding higher prices. After all, it’s always an owner’s treat to sell for more money, in less time than expected.”
More information from https://cbjets.com