Using data from JETNET >>KNOW MORE, Mike Chase and Marj Rose assess trends in business jet market values, comparing the present marketplace with that of 2007.
Back in 2007, who could have foreseen a decade later we would be dreaming of a return to those levels of business? Times were good, and it felt as though they would never end. Even though the percentage of business jets for sale hovered around 11% - a bit higher than what was previously held to be “normal” – demand for aircraft was strong, sales were brisk and aircraft depreciation held steady at 5%. In some cases certainly nearly-new used models actually commanded higher prices than new, such was the demand.
We saw many firsts back in 2007, including first deliveries of the new VLJ category aircraft that contributed to the record-breaking new aircraft deliveries. There was plenty of activity during 2007 in the used jet and turboprop markets too, helping make the year memorable.
Fast-forward ten years. In 2017 we find ourselves somewhat distracted by today’s market challenges, including trying to pinpoint what a new or used business jet is worth in this market.
If nothing else, the last decade has taught us patience - but we continue to wonder how long the industry will remain flat or in low single-digit growth mode.
Growth as measured by new jets installed to the global fleet was less than 4% in 2015.
‘Bifurcation’ is a new term we garnered during the period, describing the separation of business jets valued >$26m, and those valued <$26m. In 2016 we witnessed a large decrease in business jets valued at >$26m for the first time since 2009, compared to unchanged values for those at <$26m. We also witnessed the rapid growth of the international business jet market (specifically BRIC transactions) and their subsequent decline.
Understanding today’s aircraft values is not easy, and the industry shift in inventory supply and demand over the last 10 years has been interesting to watch. Because of the uncertainty, JETNET launched a new tool called JETNET Values at NBAA-BACE2016 last November, providing reliable pricing data on aircraft sold.
JETNET Values provides subscribers access to reported sold prices as well as tools for better analysis of pricing data. Following, we’ll compare some of historic market data from 2007 with current trends and include insight from JETNET Values…
Business Jets ‘For Sale’
Historically, 2009 was the peak year in terms of business jets ‘For Sale’ (2,782 aircraft, or 16.3% of the fleet in December of that year). Since then, the lowest number of business jets ‘For Sale’ was 2,202 (11% of the fleet) in 2014. The following year brought an increase (2,359/11.5% fleet ‘For Sale’), and 2016 a minimal decrease again (2,315, or 11% fleet ‘For Sale’).
As demonstrated by Chart A, the 11% fleet ‘For Sale’ in 2016 falls within the pre-recession range of business jets ‘For Sale’, and is no longer regarded as being a high inventory level relative to the number of business jets in operation.
Having reviewed the market going back to 2005, the global business jet inventory has not dipped below 10%, which as a rule of thumb has traditionally separated a buyer’s and seller’s market based on supply and demand. (Of course, the 10% rule of thumb applies on a model-by-model level too.)
Will we see a seller’s market (below 10%) in 2017? For that to occur, there would need to be a reduction of over 200 business jets ‘For Sale’, or a similar reduction in the number of business jets in operation (which could be obtained by aircraft being retired).
Average Days on Market/Average Ask Price
Two further leading indicators on the condition of the used jet market are ‘Average Days on the Market’ and ‘Average Asking Prices’, as shown in Chart B.
Compiled from JETNET data, we can see that in the prerecession the average days had fallen from the peak in 2004 at 305 days (10 months) to 275 days (9 months) in 2007. Note, the average length of time to sell in 2007 was still higher when compared with 1998 and 1999, when it took an average of a little more than 150 days (five months). One reason for this longer sales cycle could be the sheer volume of business jets to choose from, which had doubled from 783 in 1998 to 1,635 ‘For Sale’ by 2007.
By 2016 the number of business jets ‘For Sale’ had increased to 2,315 (almost triple the level of 1998). Interestingly, the 2016 percentage of business jet fleet ‘For Sale’ was 11%, compared to 10.8% in 2007, but at a much higher level of inventory in 2016.
Chart B also shows a positive change in the ‘Average Asking Prices’ in 2007, with an increase of $510k (+6.0%) over the 2006 average. The 2007 average asking price for a business jet was $5.54m (versus $5.03m in 2006). Today the average price is nearly $7m.
There is an underlying assumption that when average asking prices are higher, the average days on the market should also be higher. However, plotting these two indicators over the 20 year period from 1996 to 2015 on Chart B displays some interesting patterns to the contrary.
From 2010 to 2014 the relationship of these two metrics fully decouples with prices increasing while days-on-market decreases.
Note: The metric of average days on the market before a business jet sells is a straight forward calculation. However, the average asking price may not be since an asking price is not always recorded or it may change, leaving some uncertainty in its representation.
If we focus on the post-recession period from 2009 to 2015, we see a large decrease in the ‘For Sale’ inventory and a correlating drop in average asking prices—but the average days on the market increased before business jets sold. This relationship continued for the five year post-recessionary period (2010 to 2014) averaging just over a year for business jets to sell, until 2015 when the average dropped to 10.5 months (approximately 320 days).
A comparison of average asking prices between the two periods resulted in prices being 8.8% higher in the post recessionary period. We watch with interest to see what the used business jet market will do in 2017.
As mentioned above, the new JETNET Values tool can offer insight on a particular aircraft’s current market value by examining reported sale prices (the final contracted price that is reported by the seller/buyer) from recent sale transactions.
As an example, there were approximately 250 full-sale retail transactions of various Gulfstream pre-owned business jets recorded in JETNET during the prior twelve months. 57% of those transactions have been posted with a reported sales price in JETNET Values. This and four other selected examples of sale prices collected over the past 12 months are represented below:
Using the JETNET Values tool, specific business jet models can be compared showing the asking price (as set by the owner with the help of a Dealer/Broker) and sale price by year/vintage, AFTT and more.
We have come a long way since 2007, and I think we can safely say that none of us came close to predicting what has subsequently occurred in our industry. But many of us still have a spirit of optimism for the coming year. We want to believe that the US and global GDP growth will get stronger.
Even though jet fuel prices are on the rise again, lower fuel costs actually made little impact on flight activity. Basic supply and demand economics for business jets are due to come together to calm used jet values. These laws of economics as well as political factors may hold the keys to the pace of new and used business jet sales picking up this year. We will continue to monitor progress in 2017.
Next time, we’ll compare the 2016 vs 2015 used business jet markets, reporting on the full retail sale transactions, days on the market and average asking prices - data that are still a work-in-progress at press time.