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Something bad sometimes happens when a population gets beaten too hard- too often- for too long. Sometimes that population develops an inferiority complex- possibly questioning its reasons for existence- or the legitimacy of its activities. As one analyst noted in January- owning a business jet amounted to something of a “black eye” for businesses these days.v You’ll have heard all the lines: “fat-cat executives” and ...

Dave Higdon   |   1st August 2009
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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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Business Aircraft Market
Good news- anyone? These days it depends on your view.

Something bad sometimes happens when a population gets beaten too hard- too often- for too long. Sometimes that population develops an inferiority complex- possibly questioning its reasons for existence- or the legitimacy of its activities. As one analyst noted in January- owning a business jet amounted to something of a “black eye” for businesses these days.v You’ll have heard all the lines: “fat-cat executives” and “Champaign-sipping bankers” using company jets for personal getaways- trips to resorts- and sundry other non-business uses. Thankfully- little in the way of such traits appears within business aviation or general aviation at-large. Quite the opposite- actually.

The community across the general aviation spectrum has firmly pushed back against outrageous portrayals of private aviation – sometimes- sadly- hampered by business use that defies the norm- but fits the stereotypical views of critics. While working to help the apparent retreat of some from their normal use of corporate aircraft- these efforts seem to mean little to reversing a market retreat of unprecedented proportions. Nonetheless- signs and indications point toward a market stabilizing- maybe even at the long-hoped-for bottom.

While these signs point nowhere near the direction of a market reversal- they do amount to the first bits of good news – relatively speaking- of course – in more than 18 months. Many other elements need to fall into line before anyone will predict a rebound- though.

Predictions of rebounds may be somewhat more conservative than the growth predictions coming even a year into the recession – just before the business aircraft market collapsed. Yet few doubt the prospect of a return – even if they feel unsure of predicting when.

Depending on your source- the pool of pre-owned business jets actively for sale hit bottom and reversed in April… or in June. According to J.P. Morgan’s Business Jet Monthly May issue- the inventory of pre-owned business jets available for sale dropped slightly in April- about 0.1 percent- the first drop in 18 months.

UBS Investment Research pegged June as the month when the pre-owned business aircraft inventory reversed direction – by about two percent – and- again- pointed to the reversal as the first drop in 18 months.

However- this marginal change feels a bit like a drop in a bucket- given conditions. Right now about one in six existing business jets is for sale. While not necessarily the highest percentage ever (it hit almost 20 percent in past slumps) the percentage today does reflect the largest number of pre-owned jets ever on the active pre-owned market.

Credit for this dubious distinction comes courtesy of the huge boom in new jet deliveries over the past five years; a surge that peaked in 2008 at a record 1-313 new jets delivered. The total for the 2003-2008 period hovers around 6-000 new jets – a staggering number compared to historic norms. Those new jet deliveries helped fuel a parallel boom in pre-owned sales- a surge now in reversal in parallel with new jet deliveries.

Information gleaned from various observers of the pre-owned market reveals large-cabin jets for sale dropped most in the recent reversal- while medium jets in the inventory grew in availability- and light jets held fairly stable. April or June: either way- who wouldn’t cheer the appearance of two different market analyses pointing toward a bottoming out of the pre-owned fleet for-sale?

A decline on top of that reversal feels a little bit like “icing on the cake-” one broker opined. “The ice cream would have been a report that values stabilized; a report of values increasing… well… that would be the hot fudge. But we’re nowhere near getting desert rewards- let alone just rewards.”

In conversations with brokers’ and dealers’ staff- the concerns and complaints rang only too familiar.

Among the complaints – call them “challenges to overcome-” offered one business jet marketer – are the same hurdles that popped up last fall:

Financing - Difficult but not impossible- to obtain; tighter qualification requirements; and more-restrictive terms.

Value - Prices remain depressed and are still dropping- slowly – thankfully slower than six months ago.

Sellers - Too many still balk at what the market will bear when an offer comes in- frustrating buyers- brokers and- sometimes- bankers.

Buyers - Sensing that conditions remain something of a buyer’s market- they too often insist on searching for that aircraft that’s one notch less expensive than what they know they can buy.

With the inventory no longer in perpetual growth- some sellers- dealers and brokers hold out hopes for a reversal in the values slide – or at least a plateau that encourages more prospects to stop their tire-kicking and to focus on locking in a purchase. That hasn’t happened- either. Blow-by-blow- the market picture today looks little changed from six months ago – except- of course- for not getting worse as fast as before.

Finance companies- while certainly less eager in their quest for aircraft and less liberal in their terms- still hunger to write loans. “Money is available- and interest rates remain near historic lows-” one aircraft finance company executive asserted recently. “Unfortunately- we’re struggling against two factors that slow the pace of writing loans.”

One issue is all business: lenders no longer offer once-in-a-lifetime terms. “That was the last lifetime – and it died when the finance world developed lockjaw-” our finance company executive explained. That ultimately means higher down payments with 20 percent to 30 percent possible – depending on the age of the airplane and the length of the term.

“We can find a way to 15 percent for those same ‘well-qualified buyers’ who can get the ‘sweetheart terms’ for those new luxury cars you see on TV-” added our finance executive. “The airplane also needs to be in that same ‘well-qualified’ strata: no older than five years in use- with nominal usage (an average not exceeding 350 hours per year).”

At five to 10 years of age- 20 percent down-payment meets the requirement; at 10 to 20 years- the going gets tougher. Older than 20- “It had better be the deal of a lifetime – and you will need to put down 30 percent-” our executive revealed. Terms of 10 years remain possible- as do longer terms. But- again- the plane makes the deal- and the down-payment and interest rate may be less attractive.

Talking to a number of dealers- brokers and analysts yields little to encourage sellers hoping for a reversal in fortune through higher prices. Price declines typically lag the change in inventory by four to six months according to most. In today’s market- seeing a reversal in prices six months from now would seem like a boom- some said.

For now- today’s prices are unlikely to be the worst sellers will see. “Prices will keep going down through year’s end-” predicted Brian Foley of Brian Foley Associates. “The swing in prices typically lags the market change in pre-owned inventory by about six months- and that’s what we expect right now – that prices stop declining around the end of the year or the first of 2010-” Foley explained.

Was there any good news to share about inventory and prices? “Well- inventories may be at the bottom in some segments- while others may continue to see some increase-” Foley added. “Values will continue to drop at a rate of about three percent per month through the end of the year – if we’re truly at the bottom and inventories have stabilized.”

The buyer’s market plays poorly with the sellers- particularly those who decided to make a change before the market tanked last fall- but well after pre-owned inventories exploded and values plummeted.

Reflecting the banking and finance-companies’ approach- the sellers getting the most action these days seem to be the ones with the newest equipment. But that doesn’t mean the sellers are getting offers that reflect what they expect for their airplanes- or- even tougher- what they have in their airplanes.

“Folks that bought with ‘sweetheart loan’ deals are in the tightest spot- because values of even late-models may not match with what the owner owes-” observed one broker with a lot of late-model inventory to access. But these are the airplanes the analysts believe will recover earliest. “Late-model- ‘cherry’ examples will move first-” said Foley.

Our aircraft finance executive added- “People in older airplanes may find it toughest in the long-term- since they’ll be harder to finance.”

Foley’s advice: “Buyers shouldn’t wait if they want anything late-model.”

The antithesis of the hesitant seller is the overly-optimistic buyer; the one who sees recent price declines as a signal to offer silly money. It won’t work in most cases- Foley said. But the calls are keeping brokers and dealers busy.

“Brokers’ phone lines were dead until March/April-” Foley observed. “Then buyers started the phones ringing again - but too many are shopping but not buying.” That age-old hesitancy to make a deal today out of fear it will get better tomorrow keeps some buyers eating up the time and resources of brokers and dealers – and the hopes of sellers.

“Some are sincere- they just want to get a deal that doesn’t exist – at least- not yet-” an East Coast aircraft reseller explained. “They ask- ‘How much lower do you think it will go-’ and if you don’t say- ‘Prices are about to go up-’ they want to keep shopping. It’s frustrating. But at some point- many of these people will sign the deal and buy something.


An assessment of several analysis puts large-cabin jets as the strongest- with light jets next in strength- and medium jets the farthest off – and the hardest to move among the late-model inventory. And when the market begins to regain its strength- said Foley- “Late-model ‘cherry stuff’ will move first.”

But like many independent observers- Foley doesn’t expect a wholesale reversal to come quickly. In new jet sales- most expect the market to remain in a trough through 2011 before crawling back into growth mode in 2012.

In pre-owned sales- the story looks much the same – weakness continuing through this year and 2010- and not returning in any meaningful way until 2011. “Even that hinges on other factors beyond aviation – the business climate- the global economy- the availability of suitable financing… this is likely to remain ugly for some time to come-” Foley predicts.

In Foley’s view- the market overall stands to remain well below 2008 levels all the way through 2018. “It’s unlikely the new market will ever return to what we saw over the last few years-” he said.

With new plane sales a driver of pre-owned activity- that means sales of existing business jets may be years in the doldrums- never resuming the heady pace that existed until late 2007.

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