Used Jet Marketplace Continues to Shrink
How has the used jet and turboprop market been performing in 2019 so far? What are the opinions and perspectives emerging so far this year? Dave Higdon pieces together the evidence…
Ten years ago, the pool of used business aircraft for sale ran slightly close to one in five of the total fleet. By the end of 2018 that number had reduced to about one in eleven. No wonder such a limited selection yielded a smaller number of sales in 2018, even as new airplane sales showed some solid signs of growth.
Unsurprisingly, market prognostications are for slightly slower sales again during 2019. The factors likely to influence the volume of 2019 transactions include the smaller inventory; a stronger US dollar; limitations on MRO upgrade capabilities; higher maintenance and pilot costs; increased loan interest rates; and the continuing element of an uncertain political situation.
A number of these factors weren't on the books 10 years ago when the Great Recession leveled its devastating impact on the economy. ADS-B; CPDLC; new RNP standards – the weight of these mandates coupled with the slow pace of solutions coming for some of them, and the expense of upgrading versus parking the aircraft are expected to combine to increase fleet retirements in the next couple of years.
And that can't help but shrink the used aircraft fleet for sale even more.
The Analysts’ Perspectives
Every segment other than piston helicopters saw a Year-over-Year decline in the available pool of used aircraft, JETNET noted in its 2018 year-end analysis. And only the pool of used piston aircraft showed an available inventory above 10%.
From the reports emerging so far this year, the same trend as was seen in 2018 continues into 2019, and price pressures appear not to be a factor (an unusual turn for a field where demand exceeds supply).
Mente Group’s CEO Brian Proctor doesn’t expect 2019 to produce some of the gains his company experienced in 2018. Proctor looks for prices of new and used jets to rise in 2019, with the likelihood of a decline in transactions for used business jets. “We see 2019 as a little slower than 2018, but still ahead of 2017,” he suggested.
Gulfstream specialist Hagerty Jet Group predicts a fractured used jet market this year owing to political uncertainty as well as volatility in the equity markets. “Demand for aircraft less than five years old will remain strong, but older aircraft will continue to decline in value, although at a slower pace than in 2017,” Hagerty Jet Group forecast earlier this year.
The last couple of years disappointed many prospective buyers with the paucity of used business jets, particularly the depleted inventory that was available in Q4 2018.
Moreover, stock market volatility this year has caused some prospective buyers to push the ‘Hold’ button on their purchase plans according to various sources, including Hagerty Jet Group. And that trend appears set to continue, pointing toward reduced demand for the aircraft already on the market.
Should that continue, the inventories of used business jets and turboprops could resume growth. But to date there are no signs to indicate that happening.
Consider the already tight supply of newer Gulfstream aircraft: With the entry of new G500s into service the upgrade cycle should feed more G450s and G550s aged six to 10 into the used jet inventory. That infusion should help ease supply pressures, but it won't match the demand for jets aged five and under.
The available inventory of ultra-long-range Gulfstreams such as the G650 and G650ER stood at a mere 3.2% of the 342 units in-service, according to Hagerty Jet Group’s data. Conversely, the market for used G280s remains healthy, fetching strong values.
Collateral Factors Work Their Influence
While the direct market forces always influence the sales action for used business aircraft, other factors come into play too. One of those occurred in late 2017 and had a full year to work its impact. The Tax Cuts and Jobs Act of 2017 will ultimately have a long-range influence, thanks to the extension of 100% bonus depreciation to used equipment.
Used aircraft were the beneficiaries of this tax law change. While the change seemed to have limited influence on the used business aircraft market, analysts anticipate that it's effect will grow over time, helping buoy sales.
Then there are regulatory factors influencing used business jet and turboprop sales. In addition to the cost of ADS-B upgrades, hundreds of aircraft face another airworthiness directive (AD 2012-17-5) with a price tag likely to exceed the market value of older jets powered by Honeywell's TFE731-4 and TFE731-5 powerplants (for example).
With an estimated compliance cost approaching $600,000 per aircraft, forecasts are for additional fleet retirements by the time the deadline for AD 2012-17-5 arrives next year.
This and myriad other data already paints a picture of a used jet market starving for quality inventory, while buyers are faced with spending more to get less. Those factors also seem to serve as a brake on used business jet and turboprop sales activity as we look toward Q2 2019.
So with a slow start, multiple variable factors and discomfort with finance and political issues, analysts expect the rest of 2019 to be the definition of moderation. “That moderation could be a good thing for us if it precludes another decline in sales – or worse, a spike in prices that slows sales even more,” a southeast US broker explained to AvBuyer.
“It also means there will be many of us vying to sell the same aircraft to different people, with all that entails for price pressures. So, my view moderation can be a good thing.”