- 05 Oct 2022
- Brian Foley
- BizAv Market Insight
What are the big factors likely to shape the pre-owned aircraft sales marketplace for 2023? OGARAJETS’ Johnny Foster and Duncan Aviation’s Jeff Lake share their outlooks with Rebecca Applegarth...
As we enter Q4 2022, pre-owned aircraft inventory has stopped decreasing, rising slightly to just under 5% of the fleet at the time of writing. That’s still a long way short of the traditional average of between 10-12%.
With prices continuing to rise for now, there are plenty of economic factors at play that could potentially impact the market for pre-owned business jet sales moving into 2023. So how do two of the leading market experts see things shaping up? And what are the factors that are likely to impact the market the most?
Setting the Scene
“The market landscape today is certainly different than pre-pandemic,” notes Johnny Foster, President and CEO of OGARAJETS. “Different, and perhaps our new reality - but it’s not negative.”
OGARAJETS has enjoyed some explosive growth since mid-2020, and the story has been the same for many other dealers and brokers within the industry. Duncan Aviation, for example, has seen a high volume of customers becoming first-time aircraft owners.
Along with its pre-owned aircraft sales business, Duncan Aviation also provides an extensive portfolio of Maintenance, Repair and Overhaul (MRO) services, and can bear witness to an active market across the board, putting pressure on hangar space to facilitate the demand.
Pre-buys, according to Jeff Lake, President of Duncan Aviation, have been especially difficult to get into the hangars with customers having to schedule inspections further in advance than they may have been used to in the past.
“We have seen an increase, with people joining the Business Aviation community post pandemic, whether that’s fractional ownership or charter aircraft, or first-time buyers,” Lake explains.
According to Foster, the surge was led largely by an almost eight-times increase in first-time buyers entering private aviation ownership space.
OGARAJETS sees no let-up in demand as we head into the final quarter of 2022, and Foster believes it’s possible for sales to outpace the feverish Q4 recorded in 2021.
However, he points to the supply chain as a possible inhibitor of this, with both parts and labor continuing to provide a sticking point for the high pace pre-owned aircraft sales environment.
Duncan Aviation undertook a ‘Ten Year Look Forward’ back in 2015, seeking to predict what was likely to happen in regard to staffing, and realized that the industry would be impacted heavily by retirements.
“Business Aviation will see a lot of retirements in the next few years,” Lake predicts. Highlighting that a labor shortage was already an issue pre-pandemic, he adds, “There are more people leaving the industry and the workforce, than there are coming into it and the pandemic only exasperated this.”
“There simply is not enough labor or, in some case, parts, to support the increased amount of pre-purchase inspections, new conformity inspections, legacy aircraft being brought back to life, and new aircraft continuing to funnel into the system,” Foster agrees.
But labor shortages aside, Lake believes the real issue is the still very high demand and short supply of inventory, materials, and services.
At times like these, many of the frustrations being experienced by buyers can be avoided through clear communications with their brokers, Foster suggests. Brokers should be clarifying why things are taking longer than they once did, and working to manage expectations.
“Alignment with your broker and their technical department is paramount to a successful experience,” he adds.
What Lies Ahead (and its Impact on the Market)...
As the world moves on from – or at least learns to live with – Covid-19, the news headlines shift to speculation of a recession, rising interest rates, and other factors that could potentially spook the market.
“The interesting part is going to be what’s going on with the economy,” Lake adds. “Inflation across the board is having a big impact with wage increases. So, in the United States, I think that the Fed is okay with a recession if they are able to get inflation under control.”
“There certainly has been a lot of talk of a prospective recession,” Foster says, “but it is certainly not a ’here and now’ issue (in the United States), and we’re currently finding very little concern being expressed by our client base.”
More important than whether there will be a recession is the shape the potential recession will take. “How deep is it going to be, and how long will it last, if we have one?” Lake asks.
The pressures of increasing interest rates could make an impact, though... “Normally if [interest rates] rise, we can expect to see a reduction in our business levels, especially in the discretionary areas,” Lake observes of the wider portfolio of services offered by Duncan Aviation.
”Typically, we would start to see things like interior, installation, and paint start to drop off, but that hasn’t started to manifest yet,” he says. At the same time, the aviation industry has traditionally lagged the economy by at least six months, if not even longer sometimes, so the impact of interest rates and recession may not be visible until later in 2023.
In the here and now, Foster notes, demand remains very strong, and in the United States is further fuelled by 100% Bonus Depreciation ending in 2022 (decreasing to 80% depreciation in 2023). As a result, there should be plenty of demand to mask the effects of other economic concerns while people clamor to take advantage.
Ultimately, Foster anticipates the market slowing in Q1 2023, but suggests “this is perhaps as much ‘seasonality’ as it is a result of any inflationary or recessionary responses.”
And if truth be told, some slowing would serve the pre-owned aircraft sales market well, perhaps opening the door for the market to be replenished with some more quality options, while reining in the bull-run on prices somewhat.
Meanwhile, Duncan Aviation has noted a decrease in flying hours, indicating that demand for Business Aviation may have plateaued as we head into 2023... “They’re not down by extreme measures, they’re still close to 2019 levels, so they are still good,” Lake clarified.
”It will be interesting to see what emerges in Q4 this year, regarding flying hours - and whether those will continue to decrease, or if they level off for 2023,” he concludes.
More information from:
Duncan Aviation: www.duncanaviation.aero