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How Long Is This Going To Take To Turn Around?
A look at the trends in the pre-owned aircraft market.
By Michael Chase & Marj DeLong

The 10th annual European Business Aviation Convention & Exhibition (EBACE) ended its three-day conference with sold out exhibit and static display spaces- 11-174 attendees and a general air of optimism that the global industry’s economic outlook is on the upswing. Halls 6 and 7 of Geneva PALEXPO and the Static Display of Aircraft were full with 436 Exhibitors and 65 aircraft out at Geneva International Airport.

While it was generally agreed that the air was full of optimism- questions still lingered. “Are we there yet” and “How long is this going to take” were common thoughts among many attendees- without many clear answers being provided. Consequently- this month we provide a review to consider these very questions - reflecting on some historical data with the goal of examining and understanding the metrics that underline our recovery.

Since we know that new aircraft orders are based on the successful sale of existing aircraft in the pre-owned market- a good place to start would be with the pre-owned market. Chart A shows the recent history of build up in the inventory of “For Sale” business jets as reported by JETNET. Depending on who you ask- most would agree the market went ‘negative’ sometime in 2008. After around five years of record sales and rising aircraft values the bubble finally burst amid a world economic collapse and banking crisis of historic proportion. Following- we review a few key months highlighted by Chart A.

JUNE 2008
In terms of pure market numbers June 2008 appears to be when the resale market demonstrates it was in obvious peril- which is significant because it was the last time the ‘For Sale’ business jet market consisted of less than 2-000 aircraft.

OCTOBER 2008
In October 2008- there was an increase of 216 airframes ‘For Sale’ from the previous month - a single month increase of 9.8%. This is a substantial number- and it happened even before the ‘Big Three’ automakers flew to Washington D.C. on their disastrous quest for a bailout in November 2008.

AUGUST 2009
Starting in August 2009 ‘For Sale’ inventories started to decline- and have continued to do so through the first four months of 2010. The fall in values of some pre-owned jets may have convinced some less-than-serious sellers to remove them from the market. Others decided to start flying again. On the flip side of the for sale inventories- we have the full sale transactions.

There was a rapid decline in ‘Annual Full Sale Transactions’ for two years in a row (2008 and 2009) for both business jets and business turboprop aircraft. At last- we are now seeing an increase in the Pre-owned Full Sale Transactions in the first four months of 2010 compared to 2009- as reported by JETNET in Table A.

As the “For Sale” inventory has declined- the number of pre-owned full sale transactions has increased by 45% in the first four months of 2010 versus 2009 which is very welcome news indeed. However- when the first four months of 2010 (at 561 transactions) is compared to the first four months of 2008 (at 669 transactions)- pre-owned full sale transactions are down by 16.1%.

Looking at other recent industry metrics- the current average number of days that a pre-owned business aircraft remained on the market is 327 days (or 63 more days in the January to April 2010 time period compared to the same period in 2009). Also- the average asking prices during the first four months of 2010 fell by -0.5% (or no change) compared to the first four months of 2009.

Just as the increase in Full Sales Transactions is excellent news- the first estimate for the First Quarter of 2010 U.S. Gross Domestic Product (GDP) grew by 3.2% as reported by the U.S. Bureau of Economic Analysis. This is the third consecutive quarter that the U.S. GDP has shown growth after four quarters of decreases.

Additionally- the FAA reported that U.S. based Business Jet flight operations in the First Quarter of 2010 grew by 11.3% compared to the First Quarter of 2009. So more companies are flying in 2010 compared to last year when flight operations had declined by -30.5% in February 2009 compared to February 2008. While this flight operations increase is again welcome news- it is still 21% below the first four months of the 2008.

As shown in Chart B- U.S. FAA reported Business Jet Flight Operations are split between Domestic and International. Domestic flight operations account for about 86% of all flight operations in the U.S. - and these have been increasing rapidly in recent months. But they are still well below the 350-000 (average) recorded during 2007 by about 100-000.

International flight operations reached a new peak in March 2010 and account for an 18% share of all flight operations compared to a three year average of just 14%.

BUSINESS TURBOPROP AIRCRAFT
The inventory levels for pre-owned business turboprop aircraft for sale at the end of April 2010 have followed the same pattern as the business jet aircraft market Table B. The percentage of pre-owned business turboprop aircraft for sale was 11.0% in April 2010- and has declined from the peak set in both May and June 2009 of 12.0%. The number of business turboprops for sale at the end of April 2010 was slightly less than 1-400 aircraft- half the number of business jets currently for sale.

The number of pre-owned full sale transactions for business turboprop aircraft increased by 6.6%- while the average days on the market for business turboprop aircraft was 317 days from January to April 2010- an increase of 12% compared to the same period in 2009. Also- the average asking prices increased by 4.4% in the first four months of 2010 compared to the same period in 2009. This average asking price increase is some additional good news indeed.

SUMMARY
The reality is that the current business down-cycle will last 'longer than you would like'. Yet the good news is that we are on the right track! Recently- some industry analysts have predicted that the new business jet market is about half way into this difficult three year business cycle downturn. This leaves 18 months to go but expectations are that the pre-owned business jet market will rebound ahead of this prediction. We will continue to monitor and report future progress.

In the meantime- we would do well to remember the words of Abraham Lincoln: “The best thing about the future is that it comes only one day at a time.”

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

* You can now follow JETNET on Twitter at
www.twitter.com/JETNETLLC


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