Dave Higdon reviews the thoughts and projections of used jet and turboprop dealers and brokers along with aviation analysts and economists. Will the positive trends seen in 2018 continue into 2019?
Optimism. It's a state of mind directly influenced by our perceptions of the wider world around us. And for the bulk of 2018, within Business Aviation that state of mind was trending upward. Compared to the low-point for market optimism of 2016, today's market for used business jets and turboprops continues to ‘sail along’, thanks to a medley of factors.
A strong, somewhat volatile market for stocks helps. So do the new tax breaks from the Tax Cuts and Jobs Act of 2017. While interest rates edged up through 2018, the incremental rate increases by the Federal Reserve failed to dampen industrial and business transactions.
And then there’s the increase in flying, particularly in Europe and (to a lesser degree) North America. From all appearances 2018's bullish market for used jets and turboprops appeared to be heading for a strong finish.
As of this writing, barely 9% of the total business jet fleet was actively for sale, which is lower than at any other time since the great recession of 2008.
That dwindling pool of available aircraft was putting pressure on prices (particularly for the Mid-size and Large-Cabin Jets in high demand). The Light Jet segment, according to a variety of sources, remains the most moribund with prices slowly depreciating as a result.
But overall the scarcity of popular jets continues into 2019 with the result reflecting in higher ask prices within some of the markets.
Brokers, dealers and attorneys all note the continuing optimism heading into the New Year, and analysts say the used market morphed into a solid seller's market in the latter half of 2018. Dealers and brokers expect a continuation of the seller's market into 2019 and possibly beyond.
The seller's market has certainly complicated the process of shopping for a desirable used business aircraft, particularly for jets aged less than 10 years old.
The optimism and revived demand have even influenced pricing for new business aircraft, with OEMs reporting firm (or improving) pricing despite some still sitting on some unsold inventory.
While total utilization increased in Europe and North America, brokers note that individual use declined slightly, with the growing utilization attributable to the continued expansion of the total business turbine aircraft fleet.
US Market Drives Growth
In the marketplace for used business jets and turboprops, the US remains the biggest player. About three-quarters of all transactions were sales of US-based aircraft, mirroring around 60% of new aircraft deliveries that are going to the US, according to JETNET.
The strength of the US economy and the increased profits outlook merge with a forecast for 2.9% growth in gross domestic product (GDP) to energize the current level of optimism.
That growth coupled with over $2tn in corporate profits and the new tax code help buoy this optimism. Reports show US consumer confidence near an all-time high while unemployment in the US dropped to about 3.8%, a level unseen in decades.
Disruption on the Horizon?
Regardless of today's optimism, however, analysts see potential for some disruption in the coming years. Some economists project the global economy is heading towards a slowdown in 2019 as the top economies react to new pressures.
Those key economies (the US, Europe, China, Canada and Australia) account for a combined total of 80% of the global business jet fleet. There’s plenty of potential for disruption, ranging from trade tensions emanating from the ongoing tariffs battle, to currencies weakening compared to the US dollar, to ongoing uncertainty surrounding the UK's withdrawal from the EU.
Concerns over higher US inflation and interest rates have yet to materialize into tangible effects.
If there are factors likely to act as a brake on business aircraft sales it’s just as likely to be from the personnel side. Operators are already struggling to fill pilot slots and positions for maintenance technicians. Avionics technicians are also in short supply.
The airlines are absorbing nearly 60 new single-aisle airliners per month, helping keep ATPs in high demand, and the growth in the business jet fleet adds another layer of demand.
2018: A Growth Year, Despite the Challenges
From the trend shown by the new jet and turboprop deliveries reported by the General Aviation Manufacturers Association, 2018 appeared to be heading toward higher deliveries than in 2017 and 2016. Pre-owned transactions also appeared to be in the ascendency, as evidenced by the declining pool of aircraft available in the market.
Another positive sign was seen in the avionics sales figures released by the Aircraft Electronics Association, which are also ahead of last year and indicate increased use of avionics upgrades on existing aircraft.
As one southeastern US broker noted, “some prospective buyers of newer used aircraft find they can obtain the improvements they want by upgrading avionics on their existing airplane, spending far less company money in the process. These upgrades also help increase the useful load of the updated aircraft and its residual value.”
But, as several brokers stressed, the world's politics and challenges could still send the market in a southerly direction. Barring any major blow-ups or deepening trade tensions, however, they remain guardedly upbeat – optimistic about the future, but cautious about each step forward they contemplate.
Q4 2018 was shaping up to be the best of the year, according to the dealers, brokers and attorneys handling closings. Overall, and with a little luck, the Business Aviation community could see the consensus forecasts from the NBAA convention hold true for several more years before the predicted dip in 2022 to 2024 materializes. The year ahead could be very good indeed!