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Jet & Propjet Dealers Concur: Pre-owned market is on Air Brakes. Good times generally precede tough times and it’s hard to find a business aviation sales or marketing executive who won’t concede that the past several years exemplify the best of times. “If you’re offering new or relatively new jets or turboprops- the last five/six years have been truly good-” said Susan Sheets- president of the National Aircraft Resale Association. But – and you knew there was a ‘but’ coming – no bubble ...

Dave Higdon   |   1st October 2008
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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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Jet & Propjet Dealers Concur:
Pre-owned market is on Air Brakes.

Good times generally precede tough times and it’s hard to find a business aviation sales or marketing executive who won’t concede that the past several years exemplify the best of times. “If you’re offering new or relatively new jets or turboprops- the last five/six years have been truly good-” said Susan Sheets- president of the National Aircraft Resale Association.

But – and you knew there was a ‘but’ coming – no bubble ever lasts forever. Thankfully- the downturn in sales conditions currently underway is far short of earning the label of a ‘burst bubble.’

“We look at this more as a normal market correction than a collapse or anything drastic-” added Sheets- a business aviation veteran with more than 20 years experience. “Frankly- it’s a downturn that’s a bit overdue when you look at past cycles.

“When the last downturn is as far back as the last one is – back around the turn of the decade – you have to figure at some point things will stop expanding and start shrinking.” And that’s what is happening today- said Sheets and insiders at a number of dealers and brokerage operations.

“For a long time- the toughest part of this job was locking in a unit for a buyer at a reasonable price-” noted a marketing staffer at one southwest U.S. brokerage. If price didn’t matter- well- it didn’t matter.”

Today- though- this and other executives and staffers - Sheets among them - portray a slightly different image; one of a pre-owned market starting to slow… but it’s a mixed picture. The pace of pre-owned jet sales shows signs of braking- in contrast to a mixed rhythm for sales of pre-owned propjets akin to the rhythm of anti-lock brakes: off and on- off and on. What’s a seller to do? What’s a buyer to do?

And what’s behind this slowdown in the pace of pre-owned business aircraft sales. Market correction? Saturation? Elections? What else- other than the Economy?

Where things stand
Anecdotal evidence from a series of aircraft dealer and brokers conversations indicate that transactions in pre-owned business jets declined in both of the full quarters completed this year.

Sheets observed- “We had a July meeting and our members were reporting a slow-down in the domestic market. Our members are thinking that we’re sort of at the slowest point now- and that things will stay slow for a while – maybe through the first and second quarter of next year – and that business will start to recover in the second half (of 2009).”

The overall drop is hardly precipitous- most indicate- but the trend is worrying. “Think back to a couple of years ago- to get an idea of how pre-owned jet sales are going so far in 2008-” said a dealer from the southwest U.S. “We’re running noticeably behind 2007- but about equal – or maybe a little better than at this point in 2006… but not much better.”

Pre-owned propjet sales- on the other hand- experienced something akin to a ‘whipsaw’ effect this year- this same staffer noted – down in the first quarter- back up in the second- when compared to 2007. Compared to 2006- “We’re slightly better off- and getting inventory is a bit harder- which doesn’t help.”

Percentage drops- from these phone conversations- seem to be running between six and eight percent in jets – higher for older hardware – and three to five percent for turboprops…again- higher for older models.

Where the market saw movement of 1-077 pre-owned jets through the first six months of this year- according to NARA figures- for the same period of 2007- the number was 1-108.

“It’s enough of a change to tick off a couple of clients who last year decided to hold on to their existing planes thinking that they’d be able to get better money this year – or at least- no worse-” noted a broker working the phones for a southeast U.S. pre-owned dealership. “A couple are having a hard time coming around to the idea that their jets are fetching between five and seven percent less today than a year ago. It’s got them re-thinking the sale of their current jet and their mid-2009 delivery position on a factory-new plane.

“You can tell when they ask about the difficulty of taking a later delivery position – and the answer to that question doesn’t really give them a warm- fuzzy feel.”

Noted a northeast dealer- the best bet for someone in this position may be to try to sell that position and start all over again – with a new delivery date three or four years out. “That’s how long some of them worry it will take to get a workable price out of their old jet – and- of course- it will be still older with more issues by then. It’s painful. But if you’re talking turboprops- well- for whatever reasons- that segment seems more robust.”

Pre-owned propjet sales started out down considerably- when compared to the first quarter of 2007- but appear to be in the midst of a rebound that at the midpoint seemed to have them running slightly ahead of last year. Of course- there’s another impact related to the changing demands and softening prices for pre-owned jets.

If you want it- you can (probably) get it
To paraphrase an old Bob Dylan lyric- you don’t (necessarily) need a consultant to know which way the (inventory) winds are blowing. You need only to be in tune with the growth in ads- internet pitches and website lists to conclude that inventories are edging up – as you might expect when sales slow.

According to a pair of reports from two investment houses- pre-owned inventories of available aircraft are growing – and growing fast. From around five percent a year ago- today’s levels of pre-owned aircraft for sale inventories are closer to 10 percent – about the level before the last downturn of the late 2000-end-of-2002 timeframe- when inventories grew to about double that percentage.

Fortunately- even pessimistic calculations don’t put unsold inventories at anywhere near the peak of the prior downturn. “We’re seeing about 12 percent- give or take a little-” Sheets said of NARA’s members. “The number is absolutely up- though- no question.” Part of the reason is seller shock- as alluded to above.

“A couple of my clients are still hanging on to the hope that we’ll find that match made in heaven- the buyer who covets exactly the airplane they’re selling- in those colors- with the included equipment- and beg to pay the seller’s asking price-” explained a northeast broker’s representative. “One of them actually had a probable buyer a few weeks ago- but that company insisted on holding out for last year’s going prices – even though the difference was less than five percent. Today- they can’t get an offer within 10 percent below the asking price – and you’re talking to the only person more frustrated than them. As inventories grow – and they are growing – it’s only going to get harder.”

According to Sheets and others- entry-level and smaller light jets are seeing the brunt of the sales decline among newer-model aircraft for sale. “When you see a build-up in inventories of some CJ models and the Mustang – best sellers in their class – it makes it pretty clear that this is hitting operators with more modest means and marginal needs-” she said.

Larger jets – mid-cabin- in particular – are still selling strongly- while large-cabin aircraft are slowing and growing in the unsold inventory… and this is among aircraft built in the past 10 years or so.

“For aircraft with a good maintenance history- no damage and under 10 years- things are still pretty good-” Sheets observed. “As you look at jets older than that – particularly those 15- 20 years and older – sales are really slowing. We’re getting to the point where we have a lot of hardware that is no longer economically feasible to operate.”

When these finally have no place to go but salvage- things should begin to look up for younger old models - but likely not until.

Business Flying Down
Unexpectedly- during these conversations with NARA- dealers and brokers- a couple of sellers and a handful of buyers- another aspect of the current situation also emerged: companies are flying less.

Estimates of how much the decline seems to vary- according to the source- but somewhere a point either side of 10 percent seems to work as a consensus view.

The reasons for the decline in business travel also vary- in almost equal measure - but with higher fuel prices usually cited first. But business uncertainties have companies re-assessing their use of the company aircraft- as well as looking more closely at alternative methods for accomplishing their goals – from teleconferencing over the Internet to the most-dreaded of all alternatives: commercial airline travel.

According to an executive for a large fast-food company based in the middle U.S.- her company is now even asking regional representatives to consider driving on trips up to 300 miles. “We’ve found a different way to apply (NBAA’s) Travel$ense program since Jet A started hitting the $6 per gallon range-” she explained.

The bad news for the new-plane sellers comes in predictions from large financial houses- predictions that the sniffles being suffered by the pre-owned aircraft for sale market is contagious and will inevitably impact sales of new aircraft.

And the root cause again…? Jet A did it! So did The Elections – The Presidential Elections in the US... Or it’s the overall uncertainty about The Economy… Or it’s some combination of the above. In reality- there are regions of the world with economic struggles and others in which money is flowing like oil through a pipeline.

As Sheets explained- “There are some buyers that are just impervious to downturns… the oil- and energy-rich regions- Russia- the Persian Gulf states- Asia and parts of South America’s market.”

Conversely- the East European and European markets are feeling the economic squeeze of higher fuel costs and a reversal in the slide of the U.S. dollar. “The U.S. dollar going up- as it has been recently- will absolutely affect the lighter end-” said Sheets. Otherwise- NARA members expect international sales to help take some of the sting out of the current slowdown occurring in the U.S.

“We’re optimistic that international (pre-owned transactions) will help pull us through in the end-” Sheets said- “so that overall- in the end- our members don’t actually feel a downturn from the slowing in the U.S.”

What to do in the interim
With Sheets and her members anticipating a last-half-of-2009 reversal of today’s moribund pace of pre-owned aircraft sales- the question arises: what’s a client to do?

For sellers- she advises; “That pent-up demand from waiting buyers will come back and make more demand for those airplanes not selling today. We’ve just got to sweat it out and let the adjustment occur.”

For those lucky enough to be getting the deal they want- one area with little apparent worry is in the area of aircraft finance. As Sheets noted; “Credit is one area in which we see no tightening yet.”

Executives with a trio of aircraft finance firms note that credit is available and terms are attractive. “We’re seeing record-low interest rates for airplanes for sale right now-” said Al Lang- a regional vice president of Dorr Aviation Credit working out of the Minneapolis region (www.dorraviation.com).

In addition to low rates- terms are generally as liberal as ever- with closing costs and title services highly competitive. “For the buyer who finds the right airplane- now is a pretty good time to buy-” added Lang.

Speaking for NARA’s 70-plus members- Sheets would concur: sales activity that can be made- that satisfies both sides- can’t be strong enough.

“We’ll see things come back in the latter half of next year – we’re confident of that-” she said.

More information from: National Aircraft Resale Association: www.nara-dealers.com 

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