Pre-Owned Aircraft Market Update – Q2 2023

The past few months have brought significant changes in the weather and the financial markets. As temperatures have risen, however, the aircraft sales markets have cooled, making this an interesting period with some notable developments.

In recent months we have experienced three bank failures, three interest rate hikes (ten in the last year), and 81 S&P 500 companies issuing negative earnings, per share guidance.

Additionally, there have been some industry-specific setbacks, including the conviction of Wright Brothers’ Debbie Mercer-Erwin, the sharp decline in Wheels Up’s stock price – dropping 96.66% from their per-share $11 peak in 2021 to $0.32 as of this writing – and the discontinuation of Jet It’s operations.

These circumstances bring to mind sayings like “the higher you climb, the harder you fall”. Growth will inevitably face setbacks, and despite the belief of some that they can purchase a business jet, operate it under Part 135 and be financially successful, there are numerous obstacles making such business models exceedingly difficult to achieve. Indeed, there are far more failures than successes.

But amid the general doom and gloom it's worth noting that the stock market remains in positive territory for the year (even if it is being carried by a half dozen companies and the debt markets are straining under rising interest rates). Consumer spending also continues to be strong, and unemployment rates are historically low.

Pre-Owned Aircraft Availability Increases

Although aircraft sales have slowed, transactions are still taking place (mostly cash purchases). Generalized statements about the overall health of the aircraft market are no longer applicable, and the market's resilience ultimately varies depending on the aircraft type and region.

The number of aircraft models falling under the Sellers’ market category (less than 5% fleet availability), has decreased to levels not seen since before the pandemic. Notably, even the previously favored models are experiencing monthly inventory increases indicating an imminent return to the normal range of 5-10% availability.

It's important to acknowledge that even the best- performing aircraft, in terms of time on the market, have seen shifts. Previously, these aircraft would find buyers within 30-45 days, but now the process takes over 100 days. The top performers of 2022 (with less than 2% fleet availability) have also experienced a doubling in availability, meaning they are approaching normalized market availability ranges.

The most significant correction has been seen in the Super Mid-Size Jets and larger, particularly those older than 15 years.

Inventory levels for aircraft such as the Bombardier Global Express, Bombardier Challenger 601, Challenger 604, Challenger 605, Dassault Falcon 50 and Gulfstream GIV have reached their highest availability levels since 2019 – and all exceeded 9% fleet availability at the time of writing (excluding off-market availability which would easily push most of these models into traditional ‘Buyers’ market territory, potentially with over 15% availability).

Older Jets: Is the End Near?

Several factors contribute to the pressure on larger airframe business jets, including technical obsolescence, rising maintenance costs and limited financing options.

This situation will likely worsen as lenders seek to transfer the risk to borrowers by requiring more than a 30% down payment to secure loans.

In some cases, older airframes may face dismantlement as parts become increasingly scarce and the cost of refurbishment exceeds the value of the aircraft’s hull. With most of these older aircraft no longer enrolled in engine/airframe programs combined with the cost of overhauling their engines alone, the end is near for many of these vintage jets.

Some examples can be seen with the Gulfstream GIV where there are only 152 in operation today, 45 having been scrapped; the Dassault Falcon 50 which today has 180 operational aircraft, with another 59 being discarded; and the Bombardier Challenger 601-3A which has 111 aircraft left in its fleet after 23 were either parted-out or recycled.

A Drop in Business Aircraft Demand

Almost every business jet and turboprop model has experienced a decline in value and demand. Models such as the Beechcraft Premier 1A, Cessna Citation M2, Citation X, Cirrus Vision Jet, Dassault Falcon 900EX EASy, Embraer Phenom 100, Phenom 300, Gulfstream G550, Gulfstream G650, Hawker 400A, Hawker 800XP, HondaJet and Piper Meridian, have all seen corrections as sellers seek to attract buyers.

It's worth noting that the Gulfstream G700 will start delivering shortly, and with that a bunch of pre-owned G550s and G650s will be placed on the market, which, unfortunately, will place even greater pressure on an already stressed market.

Today’s market environment is clearly drastically different from 18 months ago, and even from this time last year. Price reductions have replaced the premiums buyers were previously willing to pay as sellers struggle to find buyers for their aircraft.

This marks a correction point in the market, where the seemingly boundless upward trajectory of values has at last been met with buyer reluctance. It remains to be seen whether manufacturers can sustain their current sales numbers without resorting to traditional Q4 (fourth quarter) discounting tactics.

While things have been favorable so far, we anticipate model-specific discounts to emerge as demand for new jets begins to wane, influenced by the growing availability of like-new pre-owned aircraft options.

The Aircraft Financing Sector Takes a Hit

The aircraft financing sector has taken a significant hit, with many lenders who were previously major aircraft financiers either exiting the market or becoming much more selective in their lending choices.

While this may be a temporary issue, obtaining a loan for an aircraft has become increasingly challenging with owners who purchased aircraft with adjustable-rate loans feeling mounting pressure, and large fleet operators unable to generate enough revenue during the peak of the aviation market now faced with the unfortunate scenarios of shutting down, or accumulating more debt and struggling to turn a profit.

There are only a handful of banks and financial institutions lending now, and lenders are all reporting the same thing: caution, and a slowing in the market. Many report deals failing to close for one reason or another.

A Rise in Principal-to-Principal Private Jet Deals

Although the current situation is not as dire as in 2008, several economic, political and environmental issues will ultimately shape the industry's future.

For the first time I can remember, numerous transactions are coming across my desk that are principal-to-principal deals, meaning no broker is involved. While this might not seem like a big deal the news is a little disturbing considering the opaque ownership history of aircraft, the recent escrow issues, and the trouble completing due diligence. I am a huge fan of using a broker, and buying a business jet is no exception.

As we approach a US Presidential election year in 2024, more volatility will undoubtedly lie ahead as the Federal Reserve still cannot tame inflation and further interest rate hikes look like a certainty.

On the economic front, we must watch the credit squeeze as the consumer faces higher delinquencies, lower credit, and defaults. If the recent EBACE event in Geneva was any indicator, there is not much positive news in aviation currently. Nevertheless, our industry is resilient, and this, too, shall pass!

Having reviewed some of the trends impacting pre-owned aircraft sales in Q2 2023, check out how the business jet, turboprop, helicopter and piston aircraft markets are trending. Continue reading in the AvBuyer July digital edition by clicking the button below, or continue reading online by clicking ‘Page 2’.