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Ringing- Ringing...
Brokers and Dealers “a little” busier.


The change isn’t so dramatic that you’d notice an up-bubble in flight activity and pre-owned jet sales – at least- not by looking out of the window. Inventories- an informal survey of dealers and brokers reveals- are down slightly overall – but more in some areas than others.

This trend prompts some significant exhaling among aircraft marketers who’ve been holding their breath against worries of a further slide. But bolstering the sense of renewal are signs of a continuing up-tick in business aircraft flight activity. More flight hours translates to more fuel sales- more maintenance work and more people thinking they’d like to be flying better – not just more. Taken together- these elements engender a restrained sense of optimism- however slight- among those whose business is selling business aircraft.

HERE AND THERE… JUST NOT EVERYWHERE…
“It’s spread out – but it’s up here-” said a partner in a pre-owned aircraft brokerage – one that casts a wide net encompassing everything from piston-singles to large-cabin jets. “The phones are ringing more; we’re showing more and we’re selling more…well- we’re selling more of some types- and no more of others. After the last couple of years- anything we can say “More” about feels like success.”

This eastern-U.S. firm mirrors what we discerned in talking to others: large-cabin jets are still holding up best among the categories- with medium-cabin jets holding nearly as well – close but not quite as well.

Various reports put inventories of medium- and large-cabin jets falling to their lowest levels of the past couple of years- with the inventory of all pre-owned- in-production jets slipping slightly below 12 percent for the first time in about 20 months. The figures showing a decline in medium- and large-cabin jets was balanced by an increase in the inventory of light-category business jets- according to JPMorgan’s July edition of its monthly business jet report.

One southwest broker noted- “We’re finding buyers who aren’t balking at prices we wouldn’t call ‘distressed’. Pricing seems to have stabilized – at least in the markets we work: light and medium jets.” “A lot of people we deal with had their flirtation with going back to airlines for routine trips – and now they’ve had enough. Those folks are coming back to corporate aircraft- slowly- steadily – thankfully.”

FLY- FLY AWAY…
A variety of reports show flight hours continuing to rebound from the depressed levels of 2009 – when aircraft use plunged by more than 20 percent- according to some estimates. Specialty aviation firm ARGUS released a June report early last month that showed a 4.9-percent growth in June flying activity compared to June 2009. According to ARGUS’ TraqPak data- June’s growth in flight activity spanned the category spectrum- with large-cabin jets up 2.5 percent- light jets up 5.8 percent- and medium-cabin jets up most of all at a whopping 10 percent.

Turboprop flying also grew- albeit less than a single percent- according to the report. Brokers and dealers aligned with FBOs told World Aircraft Sales Magazine that they’re also seeing more fuel sales for piston aircraft. “We’re seeing more business operators flying more – and many of them never stopped- they’re just less patient about it today-” the ramp manager of a large Midwest FBO offered. “Our sales guys are out more- which is always a good sign.”

ARGUS’ TraqPak report mirrors JPMorgan’s May data- which reported flight-activity growth of 12.5 percent over May 2009. While welcome- the May and June numbers of Argus and JPMorgan may signal that flight-activity recovery is slowing.

The 12.5 percent JPMorgan reported for May 2010 lagged April’s year-over-year gain of 19.1 percent and an even healthier jump of 24.4 percent reported for March 2010. “Look at it from our angle: any upward movement trumps even the smallest downward shift-” the Midwest FBO manager noted. “Right now we’re going forward – and forward beats backward. Backward is our worst fear right now.”

THEY’VE TRIED THE ALTERNATIVES…
“The interesting thing for me-” explained one West Coast dealer- “is how many people want back in…18 months ago- they were on the run. What’s different? Well- a couple of things…”

The dealer explained that some clients’ needs to distance themselves from business aircraft is over. “They’ve grown up and now throw back challenges to their use with the prices their paying to fly – to fly and deal with the inconveniences. And that brings up the other angle – they’ve been back on airliners a lot in the last year or so…and they loath it.”

It turns out the loathing stems not from the other travelers they share space with- but the quality of the airline service itself. “Frequent-Flyer card-carriers are getting hit for baggage charges- unable to get Business or First Class on most domestic flights…and then… And then they get told that regardless of their mileage status- the airline wants eight bucks for four bites worth of a bland turkey-and-Swiss on a roll that could double as a wheel chock.”

Our East Coast broker echoed much of the West Coast colleague’s rationale – but from another perspective: inconvenience and unreliability.

“My typical homecoming conversation with former clients usually centers on the ability to get to Point B reliably on-time-” he said. “If the flight involves one of the Eastern U.S. Choke Points- few of them have any faith that the airline can do its job on-time.” The “Eastern U.S. Choke Points” cited cover Atlanta- Chicago- Baltimore- Boston- D.C. and the two New York airline airports: LaGuardia and Kennedy.

“One client called me recently from JFK-” the East Coast broker recalled. “He was stuck trying to get to Nashville. I asked why- when he knew better- he would ever book through JFK coming out of Boston; he hadn’t – that’s just where the flight got stuck when Atlanta couldn’t handle arrivals for a while…he was not a happy camper.”

The long and the short of this traveler’s nightmare travel day ended long – the next day. “When he called he’d just gotten word that his flight wasn’t getting through because of a crew issue. He was saying how he could have driven from Atlanta – but from JFK? No way.

“He wants to be back in a light jet or large propjet as fast as we can find him the deal. I want a dozen more like him and I’ll stop sweating 2010.”

SWEATING THE MARKET
A number of brokers and dealers have already stopped “sweating 2010-” based largely on forecasts for the next 18 months. “New sales aren’t rebounding- the experience of flying common carrier continues to be a turn-off- and prices have started firming up-” our Midwest broker explained. “People are firming up their buying plans knowing that today’s deals will likely be the best of the next couple of years. Once the economy starts to hum along again- he explained- the bargains will stop.

“Anybody who waits for new jet sales to point the way will miss out on the bargains available today-” he said. With Textron confirming plans to invest in new products from Cessna and Bell Helicopter- and new products already in the pipelines at Embraer and Gulfstream- new plane marketers have their eyes on 2011-2012 as the timeframe for a renewal of new jet sales. You don’t want to wait that long – unless you like paying more-” said our West Coast broker. “Prices are already showing slight – one percent- two percent- mind you – gains over last year.”

And when prices are rising- they aren’t apt to fall. “The big wild card in all this is still the overall economy-” noted the Midwest broker. Interestingly- the stock market has moved down and up and down- but the phones continue to ring – and that’s different from 2008.”

TIPS FROM YOUR SALES STAFF:
1: SHOP MISSION-MINDED

“The rationalization we hear least of all these days is about the company plane being a good investment on a financial basis-” the West Coast dealer explained. “What we hear now is that a smart aircraft choice is a smart investment in the company’s long-term prospects – that people want to get one-up against their competition.”

That’s a smarter approach than was being practiced in 2006- 2007 and into 2008 – back when speculators bought delivery positions on high-demand models in hope of flipping the contract for a profit; and without ever actually seeing or touching the aircraft.

“That would be about the dumbest idea I can think of – probably for the next decade-” said the West Coast dealer. Buying to meet the mission- as usual- wins the day- several dealers and brokers advised. “You might even consider buying a little below the typical mission – and planning staff use more stringently-” the East Coast broker explained. “The company will save on staff travel after saving on the aircraft investment.”

“Remember-” they all said- “you can always charter” for those rare needs beyond the capacity or capability of the owned aircraft. According to the West Coast dealer- “If you can get by with sending three instead of four- you may find you can get along with a light jet instead of a medium.” Echoed the Midwest broker; “If you can’t see a time when you need to go farther than 500 miles- you can put five in a light jet – fueled for the mission- of course – and save millions over making people more comfy in a medium jet. That’s one of the angles we’re explaining to people who should already know better.”

2: SHOP SMART
The issue for some- the West Coast broker recalled- is comparing what you need today against what you flew three years ago. “Many of the people we see got out of a medium – and that medium-cabin was the only jet they’d ever used-” he explained.

“They look inside a light jet- gasp ‘Oooh- that’s tiny-’ and- of course- no one ever told them that for 75 minutes the ‘tiny’ jet can make the trip for thousands less per flight – and millions less invested. We’re doing a lot of education.”

Really- the most-important education is reminding the prospects of how different private business aviation is from flying common carriers. “That’s drawing people back- people who have confidence in where their businesses are going-” said the Midwest broker.

3: FINANCE SMART
Bankers and lenders who serve the aviation market continue to report relatively low interest rates – some- still “historically low” as many said in past conversations. Down-payment terms may command more in the form of up-front investment in a plane compared to two or more years ago. But the net result generally comes in the form of smaller loans for less principal and reduced overall costs for the transaction.

“Smart- savvy buyers will explore their options-” observed an executive at one well-regarded aircraft-finance shop. “Just as with selecting the aircraft- should one neglect to shop around for financing- one might spend more than necessary-” the executive noted.

Others also advised potential buyers to stay mindful of opportunities to improve terms by volunteering more up-front money or agreeing to different term-lengths. “There’s a lot of competition for less business – exploit that-” said a loan officer working a large bank’s aircraft loan desk.

“We try to be creative to win business and most of us will listen to a different proposal; if it’s not out in the tall grass somewhere- we’ll likely be able to get the loan committee to sign off – and the buyer wins.” An accountant with numerous aircraft-towning companies in her practice added another twist for the times. “Congress is looking again at extending bonus depreciation for business equipment purchases – some specifying aircraft sales as their goal for further incentivizing purchases-” she explained. “Line up financing in advance- go shop- and keep in touch with your accountant. When the extension passes – and we expect it to pass – you can jump in and take advantage.”

This angle for lowering short-term costs may get some extra benefit if Congress allows depreciation losses to get carried backward to prior years or forward to future years- a number of accountants and aircraft sales staffers explained. “Expect to see some sort of added depreciation incentives for as long as it feels like we’re still in recession – regardless of whether numbers support the feeling-” the accountant predicted.

RETURN TRIP: ADAPTING TO A NEW “NORMAL”
“For things to really return to the ‘old days-’ we’ll need an economy like the old days-” observed the Midwest broker. “But I don’t think anyone wants that downside looming from the boom-bust-boom cycle we’ve endured three times in the past 15 or 16 years.”

Prepare- he said- for a new “normal” absent uncharacteristically rapid sales growth- artificially high stock prices and extreme imbalances between the holdings and the debt held by banks and private businesses. “Profitability- stable stock market- people getting jobs again – those happening together will really help us sell more airplanes-” the Midwest broker said. Until those three elements come together- right now dealers- brokers and sellers seem happy just to hear the phone ring. Observed the West Coast dealer- “Extremes tend to achieve balance through reversals – from extreme growth to extreme decline. Give us modest- sustainable and ongoing growth and we can all learn to make a comfortable living.” Getting back to a “comfortable living” still feels some time away- the consensus opinion concluded. “It’s not imminent – but at least it’s finally coming back in sight.”

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