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The Cusp Of A Change

Is this the face of a change in the pre-owned business for sale market?

The second quarter 2008 results are in for the Pre-Owned Business Jet for sale market. What has happened in this second quarter indicates a change in market trend is in the works. In this month’s article- we will review the JETNET numbers for Business Jets ‘FOR SALE’- ‘FULL SALE TRANSACTIONS’- and ‘AVERAGE MONTHS ON THE MARKET’ comparing these factors to historical data to provide a full assessment of the current market environment.

In the first half of 2008- NEW business jet aircraft market stimulus has come from announcements from a number of OEMs like Gulfstream (G650)- Cessna (Citation Columbus)- Embraer (Legacy 450 and 500 models)- and Bombardier (Learjet 85) with planned deliveries in 2012 or beyond. More new model announcements are expected to come later in the year at NBAA from Dassault and again from Gulfstream.

Since the start of 2008- existing and new business jet model deliveries have continued their record-setting pace with the latest introduction of the Hawker Beechcraft 750 and 4000 and with the deliveries of more VLJ aircraft for sale.

New aircraft models or derivatives are usually born because some enterprising manufacturer sees a market niche for an aircraft defined by payload- range- and currently- the important factor is called “efficient cost-ofoperation”.

While the industry second quarter report of aircraft deliveries has not been released as of this writing- we are anticipating that the market for new business aircraft will continue to move in a very positive direction. This is the good news- but as we have mentioned before - this climate forces lead times for OEM deliveries to climb which can be the bad news for some buyers.

Aircraft manufacturers continue to receive more orders and increase production rates to help reduce the record-setting backlog. We understand that the backlog is in excess of 4-000 aircraft- or more than four years at today’s production rate of more than 1-000 aircraft per year.

New aircraft orders are based on the successful sale of existing aircraft in the preowned market. Many aircraft Dealers and Brokers will take advantage of these opportunities by supplying an interim solution of a pre-owned business jet- but many may find themselves spending much more time sifting through aging fleets. Getting their hands on the aircraft the customer wants- and at the price they want to pay- has its challenges as this current strong market demand continues.

Pre-owned business aircraft inventories are following patterns parallel to economic cycles of the past and we are experiencing similar demand for low-time aircraft. Of course the more informed buyers know it’s not the year the aircraft was built but how many hours and cycles the aircraft has flown that is important. So an interesting issue to continue to explore is the “aging” fleet of pre-owned corporate aircraft for sale.

Obviously the buying majority might be looking for something newer than a 1992 aircraft model so this leaves fewer jets and turboprops for customers to choose from and fewer slightly pre-owned inventories for savvy dealers and brokers to buy and sell.

Having the latest and most accurate aircraft market data available from JETNET/AvData and effectively educating the buyer on the current make/model status may help dealers and brokers market some older aircraft more effectively.

Targeting the need for temporary lift while a corporation waits three or four years for their new executive aircraft delivery may also bring the demand for some aging aircraft to a new high and no doubt a higher price to go along with it.

As illustrated in Table A- (previous page) currently 66% of business jets “For Sale” are more than 15 years old as the population of the aging business aircraft fleet continues to grow. Turboprops are not any younger as 71% of the fleet “For Sale” are 16 or more years old.

We may have witnessed some spring cleaning going on during the second quarter as more “For Sale” signs went up as shown in Chart A- left- (sourced from JETNET). In fact- in June the jet market exceeded 2-000 for-sale airframes- a peak not seen since late 2002 and early 2003. As shown in Chart A- the number of jets for sale has doubled from the first quarter 2000 at 1-059 to today’s number for sale. End-users may be doing some of their own spring cleaning to move their existing fleets out of their hangars to prepare for new deliveries. Any way you look at it- there should be plenty of new opportunities for all Dealers and Brokers during this 2008 summer season.

The largest increase in the “FOR SALE” numbers- as shown in Table B (left) are coming from the Light Jets with 157 more aircraft than there were in June 2007- and the Heavy category is close behind with 130 more aircraft for sale than a year ago. The Light Jets accounted for 50% of the total aircraft for sale in June 2008. The full sales transactions shown in Chart B (left) on a quarterly basis are trending down rather steeply in the first two quarters of 2008.

The largest decrease in the “Full Sales Transactions” numbers- as shown in Table C (opposite)- are coming from the Heavy Jets with 69 less compared to June 2007 and the Light Jets with 68 fewer. The Light Jets accounted for 51% of the total full sale transactions in June 2008 though.

Chart C (opposite) shows the Average Months on the Market for all business jets for sale at the end of the second quarter at 8.24 months and trending down from nine months at the end of the first quarter and 10.2 months in the second quarter of 2007 as reported by JETNET/AvData.

The Pre-Owned number of Full Sale Transactions in the first half of 2008 vs. first half of 2007 resulted in a decline of -13.2%. Also shown in Table D- (opposite) are the monthly comparisons from January to June 2008 compared to 2007.

The number 389 at the foot of Table C (2-054-1-665) is the difference in ‘number for sale’ in June 2008 vs. June 2007. The number -156 (1029-1185) is the difference in the total full-sale transactions for the six months from January to June 2008 vs. 2007.

There were 15-664 business jets in-operation at the end of June 2008 with 13.1% for sale compared to 14-549 with 11.4% for sale in same period in 2007.

Our summary includes the sharp reality that in March 2008 Pre-Owned Full Sale Jet Transactions started to decline compared to last year and that trend has continued now for four months. As of June 2008 the overall Pre-Owned For-Sale Jet numbers were up significantly by 389 aircraft from one year prior with nearly 75% of the increase coming from the Light and Heavy business jets for sale. The Full Sale Transactions are down -13.2% after the first six months of 2008 compared to 2007. This decline- which started during the month of March- unfortunately- has continued into June 2008. We will continue to track and report these market changes in future articles.

For more information:
• Michael Chase is president of Chase & Associates- and can be contacted at 1628 Snowmass Place- Lewisville- TX 75077; Tel: 214-226-9882; Web: www.mdchase.aero.
• Marj DeLong is president of MarketLift- Inc. and can be contacted at P.O. Box 595036 Dallas- TX 75359; Mob: 214-862-8992- Web: www.market-lift.com.
• JETNET can be contacted at 101 First Street- Utica- NY 13501; Tel: 800-400-2298; Web: www.jetnet.com or www.avdatainc.com

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