Finding The Fit Can Be Tough: The older the lift- the tougher the sale. Were you to ask a dozen dealers the ‘secret’ to their success- the answer seldom comes without one key phrase: ‘Satisfying clients’. After hearing that a few dozen times- you begin to consider the question simplistic. “Satisfying the customer” underpins virtually any and all businesses run for profit- except- maybe- running contract penitentiaries. Aside from that possible exception- success in business means ...
Finding The Fit Can Be Tough:
The older the lift- the tougher the sale.
Were you to ask a dozen dealers the ‘secret’ to their success- the answer seldom comes without one key phrase: ‘Satisfying clients’. After hearing that a few dozen times- you begin to consider the question simplistic.
“Satisfying the customer” underpins virtually any and all businesses run for profit- except- maybe- running contract penitentiaries. Aside from that possible exception- success in business means succeeding with those people with the money you want to make yours. So it’s time to try a different question: What challenges do dealers face today in their quest to satisfy customers?
Remember- those customers can come in two flavors: those with something to sell and those looking to buy. Understandably- those with a business aircraft to sell hope to receive the maximum possible return on their asset. The same goal applies whether the divestiture occurs to make room for a replacement- to expand the owner’s fleet or to simply eliminate the aircraft from the company’s list of assets. Equally understandable- those searching for new lift seek the best possible solution for the least possible investment.
Dealers stand in the sometimes un-enviable crossroads of these conflicting goals with a few goals of their own: to make a lifetime customer by making the deal the best it can be for buyer or seller – and- if it’s a buyer- finding the best possible match for that buyer’s unique travel needs. Political negotiators have got nothing in the way of challenges compared to these folks trying to carve out a living from the buying and selling of aircraft. And that raises another interesting question: Why- why- would anyone knowingly pursue such a profession?
Nevertheless- each year- it seems- buyers and sellers find more options available for their perusal. The reason is that there’s no end of people attracted to the idea of making their fortune in aviation – and the pre-owned market offers multiple opportunities to counter the challenges and frustrations. And these days- challenges abound. Whether they become frustrations depends on how well the dealer succeeds.
The Leading Challenge
A series of conversations with staff at a number of dealerships unveiled a number of challenges- among them finding suitable stock to match up with their potential buyers. But ask Business Aircraft Leasing’s Rick Smith what is toughest to find these days and he responds simply and flatly: “A price.”
Smith- speaking from his company’s home office in Nashville- Tennessee- echoed a perspective common within the community. “A guy may have an aircraft he’s thinking about letting go to make way for another- and he sees the prices asked for other aircraft and sets his bar way on the high side-” he explained. “It makes it tough for us to match up a potential buyer when the buyer knows other aircraft being discounted to move.”
In the pecking order of good- serviceable- up-to-date pre-owned business turbine aircraft- not all are created equal. Most dealers and brokers acknowledged that aircraft aged 10 years or less often command at- or above-market prices. “In fact”- said one dealer who declined to be identified- “often the price for pre-owned models of current-production models can go for more than the same model new from the factory.”
A Gulfstream executive recently affirmed that perspective for a newspaper article- noting that a pre-owned example of a model his company prices at $40 million new can often fetch $44 million – a 10 percent premium. Lengthy backlogs influence that phenomenon.
Less Than Equal
Move the age much beyond 10 years and pre-owned jets can become hard to move – and not because they lack features or currency. “I can have an older model with only a few hundred hours on the engines- below-average cycles and time- and have trouble finding a buyer if it’s much over 10 years old-” Smith explained.
Added a voice from another major dealer: “Jets 15 and 20 years old are becoming increasingly hard to move – but not because they don’t have current systems or excellent equipment. The buyers increasingly have the money and patience to wait on something newer – even if it’s far more expensive.”
Smith noted that older Learjets and Citations – the earliest 500s- Citation II and S/IIs – are increasingly depressed in value- if they sell at all. Even programs that re-engine and re-panel Lear 25s and early Citations - he observes - aren’t catching the public’s attention like you might expect for the improved performance- utility and economy these mods provide. “The tube (fuselage) is still old- regardless of what else they do to make the plane good-as-new-” said Smith. “And patient buyers are willing to wait.” Even among the mid-size jets- older Hawkers and Challengers have become more difficult to move because of their relatively higher operating costs.
Falcons- such as the Falcon 50- can draw interest if upgraded engines and flight decks are part of the deal. But in reality- one East Coast dealer noted- it really depends on matching up an aircraft with someone who’s not set on something newer and can live with something older.
As things stand- however- business jets 15 years- 20 years and older are declining in value- some of them precipitously- making them buyers’-market material. “I’ve seen some decent Citations drop more than a half-million in value just since the first of the year-” noted a West Coast dealer with a strong US presence. “There’s nothing wrong with them and many have been nicely upgraded – but buyers don’t seem interested.”
Domestic Strife- Foreign Growth
Driving much of this explosion in values for 10-year-and-younger aircraft originates in the overseas market outside U.S. borders.
An explosion in economic growth in emerging markets like Russia- Asia and the Middle East has brought a parallel increase in personal wealth and high net-value individuals. These newly wealthy increasingly see the advantages of the private jet and have the funds to buy what they want.
“And they want what they want-” said a sales staffer for a west coast dealer who deals frequently with the market in Asia. “They don’t want old and they don’t want small. What they do want is range and comfort- commensurate with where they live and do businesses.”
Smith concurred- noting that such buyers help contribute to the increase in prices on popular Citations- Falcons- Globals- Gulfstreams- and Hawkers. The shift in new plane market dominance from North America to overseas is evidenced in delivery numbers going back to 2004- the last time the U.S. represented more than 50 percent of the new-plane deliveries.
In 2005- the U.S. share dropped below 50 percent for the first time; in 2006- the U.S. share dropped below 40 percent and in 2007- the trend continued with the US representing under 30 percent. While deliveries of new jets exceeded 1-000 for the first time last year- the U.S. share has not only represented a smaller percentage- but a shrinking whole number- as well.
Some of this- analysts explain- can be attributed to an uncertain business environment in the US; some by a US market nearing its saturation point. But some of it- others note- can be attributed to competition for new from those overseas markets. “Some US buyers are balking at paying the inflated prices-” said our West Coast broker. Smith concurred- “New prices are getting out of sight – particularly for the more-popular models in the mid-size and large segments.”
High new-aircraft prices also make it difficult for dealers who try to provide for their own stock. “And if you can find someone with a delivery position willing to sell it – and a company that won’t balk at the delivery position sale – you can get a premium for that position- as much as a million for even a helicopter-” Smith added.
Past as Prologue
With jets 10 years and under drawing a premium – a really big premium if under five years old – and backlogs stretching into the next decade- some of today’s problems could well resurface in seven to 10 years.
Business Aircraft Leasing’s Rick Smith was the first – but not the last – to point out that when today’s crop of new planes are fully depreciated and owners look to cycle up to new again- the used market may look askance at the age of those now-veteran business jets and assign them a value far lower than their remaining life and utility would reflect.
“It could be like this all over again in 10 years-” Smith asserted. Still- seeing aircraft offered with the notation of “One Owner” may seem attractive. But if that one owner held on to the jet for 10 or 15 years- the jet may go begging for a buyer if today’s pattern repeats.
Smith also noted an issue with older aircraft where some nations are concerned. “A guy with a 10-year-old King Air B200 may have a buyer interested in the Middle East only to run up on national restrictions on the age of the airplanes imported. They don’t want older planes imported – though existing planes on that country’s registry are not a problem when they get beyond the age limitation for importing them.” The major market shift to overseas buyers may also prove an issue when those owners start looking to replace them – particularly if those owners see the U.S. as a ripe market.
“Getting a US-built- foreign-registered plane back on our registry is a lot more complicated today than it used to be-” Smith noted. “A lot of US buyers won’t want to deal with the hassle; others won’t want an airplane that’s been out of the US all those years because of a range of concerns.”
Either way- dealers seemed to agree: Increased demand is working wonders for the new and barely used models – and wreaking havoc with older jets. And it’s apt to happen all over again in the next decade. “I don’t look forward to that-” concluded Smith.