Oliver Stone is the managing director for Colibri Aircraft Ltd. www.colibriaircraft.com a... Read More
private jet flying
2016 has been a year quite unlike any previously for buying used jets, notes Oliver Stone, Managing Director, Colibri Aircraft. Following are his observations on the year so far…
In general, during 2016 used business jets have continued their unprecedented decline in pricing at rates that have taken even the most seasoned industry veterans by surprise.
One of the more interesting occurrences is that the models most heavily affected by price declines have been the exact models that had been the most immune to declines in the last several years - namely the large cabin and ultra-long range (Heavy Jet) segment.
Prices of some models have declined by up to 30% in a year within this segment; something that was previously unseen even in the darkest days of the financial crisis.
Another surprise is that, fortunately, the level of transactions has not seen an equivalent decline. Typically, large drops in price are symptomatic of a large drop in demand. This has not been the case, however, with the number of transactions in the Heavy Jet segment remaining fairly consistent throughout the last several years.
So while aircraft are still seeing declines in market value, buyers are still buying and market activity is still quite robust.
Of note, since the beginning of 2016 Colibri has seen a significant increase of transactions involving a European buyer. In previous years we witnessed almost every transaction going to a buyer in the USA. This year’s trend of more European buyers of pre-owned aircraft is a substantial change to years prior and a reassuring sign for industry participants based in Europe.
Without question, the recent declines in market value have made transactions more complicated. Bargaining is more intense and the leverage is quite assuredly on the buyer’s side. While buyer and seller may agree early on pricing, we find that the terms of each deal are often bargained intensely, leading to prolonged negotiations in many transactions.
Another recent change has been the large number of aircraft transactions that involve large maintenance inspections. Typically, the larger inspections on aircraft occur at four- and eight-year cycles. 2008 was the peak year in terms of aircraft deliveries, with more new aircraft coming out of the factories than any other year in the industry’s history. As a result, large numbers of aircraft are coming due for these large eight-year inspections.
Given the numbers of units involved and the proportional number that are also ‘For Sale’, an increasing number of transactions will most likely involve extremely large inspections, adding not only increased time to a sale but also more negotiations as the inspection will uncover more defects than a standard pre-purchase inspection.
This makes deals more complicated to complete and requires increased vigilance from the owners’ and operators’ maintenance managers who are key participants in a deal that involves a major inspection.
For buyers, however, this is an ideal time to purchase an aircraft, since buying an aircraft fresh from one of its largest inspections will significantly reduce the total cost of ownership in future years. But for all parties’ expectations, be aware that the prolonged transaction time will add more complications to each transaction.
Overall, 2016 has so far been surprising both in positive and negative ways. I believe the price declines of this year will continue for the near future, but I am comforted that there is a fairly high level of activity in buying jets, and that the markets are quite fluid for aircraft that are priced in line with such a fast moving marketplace.