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2016 Year-End Used Aircraft Market Update

Another year passes, used aircraft markets steadily slip

Dave Higdon   |   6th January 2017
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Dave Higdon Dave Higdon

Dave Higdon writes about aviation from his base in Wichita Kansas. During three decades in...
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Drawing together input from a variety of used aircraft Dealers and Brokers, Dave Higdon offers a review of the 2016 marketplace and looks to used aircraft sales prospects for 2017…

A Northeastern US-based used aircraft broker, speaking at NBAA-BACE in early November, noted of the market, “It's been a little bit like trying to stand on a skating rink that's tilted...things can't help but slide toward the low side. That's what we've been doing [in 2016]—sliding down. Not too fast, but steadily.”

If you haven't heard the news, you probably spent more time watching election coverage than following the used business jet and turboprop markets: things are trending down; decidedly down in terms of used aircraft sales, and up in the percentage of the fleet available ‘For Sale’.

Neither trend exacts much enthusiasm among the population of dealers and brokers as we head into 2017 – at least, not from most.

But a small collection of brokers AvBuyer contacted offered a slightly different perspective collectively. “On the plus side we've got plenty of inventory available to sell to our prospects.”

But even these ‘glass half-full’ practitioners admit that the market deceleration makes for fewer dollars flowing through the system – while the need grows to advertise, market and promote their wares. What little strength these brokers and dealers see exists mostly overseas.

With all of that said, the market has not “gone over the falls,” a West Coast dealer qualifies. “Nobody seems to be running for the lifeboats. But some are keeping their PFDs (Personal Flotation Devices) handy.”

The Brightest Spot: Turboprops

The used turboprop segment has held the closest to steady over the past year, with an almost imperceptible decline in the percentage of the fleet offered ‘For Sale’; an approximately 5-6% gain in the units sold; and virtually no perceptible change in asking prices. ‘Average time on market’ declined by almost two weeks over the year.

Not coincidentally, the turboprop segment provided the sole “bright spot” among new aircraft deliveries reported by GAMA for Q3 2016, where deliveries gained 1.3% to 379 shipments compared to Q3 2015.

According to our Northeast broker, “The trend is difficult to fathom when you have a growing job base, solid profit reports, good GDP (Gross Domestic Product) numbers and a stock market at all-time-highs. It feels a little like prospective buyers are holding back out of worries over an unknown they can't themselves explain. It's not the same as eight years ago, when everything was crashing down in the Great Recession.

“All in all, the US is doing pretty well,” he summarized, following the November 8 election. Indeed, UBS labeled the condition of the market as a “global bizjet malaise” in November.

North America & Europe ‘Soften’ Blow

According to UBS, Q3 2016 deliveries declined 5% globally – a drop that would have been worse had shipments to North America not grown 9% and those to Western Europe gained 13%. The strength of those two markets helped offset steep drops in deliveries to China, South America, Latin America, and lesser drops in Asia, Middle East and Europe's developing markets.

UBS' report mirrored data from JETNET, which reported global business jet transactions declined more than 2% through the first nine months of 2016 – with projections for continued declines in both business jets and helicopters going forward into 2017.

“All those international markets that helped buoy sales for the past 3-4 years started retreating late in 2015 and continued to contract,” explained a Southeast broker shortly after Thanksgiving. “Two, three years ago we could barely keep up with calls from China and the Pacific Rim markets. Today we can barely get through to prospects unless we have a large-cabin, long-range jet. Even then they're not exactly rushing to buy.

“As for the US market, some prospects aren't thrilled with GDP growth, even though we've had steady, if not stellar, gains in all but a couple of quarters going back to the start of the decade.”

The consensus view is that business aircraft sales perform better when GDP hits and exceeds 3%; the last quarters to show GDP growth of 3% or better came in 2013 and 2014 – including a couple of quarters with GDP growth of 4% or more. Sales of used business jets and turboprops fared well, but didn't exactly leap in growth during those periods.

Last year—2016—began strongly enough, with used aircraft sales showing gains in the first six months. But that changed in Q3 strongly enough to offset the earlier growth. According to various dealers and brokers, Q4 continued the trend of Q3. Only the Heavy Jet segment appears likely to show flat growth or a modest gain over 2015 when 2016’s final statistics are tallied in the next few weeks.

Late in 2016 the used Heavy Jet segment showed gains of between 5-6%. But at the same time the percentage of the Heavy Jet fleet available ‘For Sale’ edged upward throughout the year, approaching  8% as the year closed out.

Gulfstream Business Jet

A Year-End Rush?

With asking prices down, used aircraft inventory up and transactions down, many brokers and dealers were looking for some help from a year-end surge to close out transactions while buyers could still take advantage of favorable tax treatments. But not all dealers and brokers expected a year-end rush to boost the numbers enough to put them on an even footing with the end of 2015, or even the start of 2016.

“We've been slowing down for six months, and based on what we're hearing we'll be starting-off in a continuing decline going into 2017,” observed a Northeast broker. “If anything pushes some to make their deals in December, it's going to be the prospect of the Federal Reserve finally boosting interest rates, as its been hinting for weeks.

“Personally, with interest rates for aircraft finance where they are (below traditional levels) I don't think a Fed rate increase will be a motive source. The change won't be enough that it can't be offset with a little higher down-payment.”

Then there’s the market saturation, added a West Coast dealer. “Some Light Jet owners I've talked to recently say they're holding-off changing their airplane until some of the newer models begin delivering. Some are hoping to find delivery positions they can get for new production aircraft. That solves all their concerns about ADS-B mandates and retrofitting technologies in their current aircraft.”

Indeed, the ADS-B mandate seems to be on the minds of more than a few buyers, according to the Northeast broker.

“There are more solutions today for Part 25 aircraft than a year ago, but most of them are for older aircraft that aren't considered ‘prime metal’ today. The lack of solutions for so many Part 25 aircraft is a drag on their values, because the expense of upgrading most of them will fall in the ‘serious six-figure’ territory.

“Holding out for newer models with (ADS-B) solutions approved is keeping some buyers away from attractive deals right now – and as prices slide, they're looking for a price delta that lets them cover the cost of upgrading,” the dealer concluded.

And there are other technologies coming: Controller/Pilot Datalink Communications (CPDLC) and Required Navigation Performance (RNP), which put more affordable candidates at a market disadvantage - at least, until approved solutions make their way through the Supplemental Type Certificate (STC) processes needed for those aircraft to upgrade.

Those STCs themselves depend on avionics makers and installers tackling the process of developing systems and conducting the testing needed to win approval from airworthiness authorities.

The Sum of it all in 2017…

Taken together, it's not difficult to envision a used aircraft market facing more challenges than just model availability or asking price going into this New Year. And that could be the setting for the used aircraft market to continue its slide for the foreseeable future, say dealers and brokers from across the spectrum.

Read more about: Turboprop Aircraft | Used Aircraft Sales Trends | Jet Sales

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