Market remains overly price-sensitive.
Uneven…Mixed… These words continue to plague today’s pre-owned marketplace. When we take a closer look- however- this market continues its transition to normality – or at least ‘the new normal’. Inventory is eroding away- ever-so-slowly.
Prices are no longer plummeting- as many owners proclaim- ‘enough is enough.’ We have been through a kind of mini-recovery early this year – good activity and wide-spread optimism – but- as soon as sellers perceive the market is heating up- asking prices jump and activity slows (more about asking prices below). This can cause a stalemate just when the market needs it least. With few exceptions – we can count them on one hand – the market remains overly price sensitive.
PISTON SINGLES AND TWINS
Most piston aircraft bounced hard off the bottom sometime last year – and- as a group- they are slowly trending upward. Let us be very clear- not all light aircraft are appreciating in value - as many as a third are so neglected and so over-priced- they will probably still be for sale when my unborn grandkids go airplane shopping.
Just a couple of words about value and the state of the piston single and twin markets: There are so many airplanes that have not aged well. They are limping along through the good graces of a gracious mechanic – possibly not enduring a tough annual in many years. Though airplanes tend to be very well built - some would say overbuilt - even simple aircraft require methodical inspection and repair.
We have even noticed a new nomenclature emerging as standards are lowered on older aircraft. One misused phrase is ‘New Engine’. To us- this used to mean there was a gear up or a propeller strike and the owner elected to put in a New Engine. That term might still be a tip-off for damage- but more often than not- it is the way the owner refers to an overhauled engine.
There is another misused term: ‘Major Overhaul.’ The FAA is pretty clear on what engine overhaul means- yet we hear it describe everything from lapping a valve- to replacing a cylinder- to a top overhaul- to just a general teardown.
In Vref- when we use the term major overhaul- we mean a major overhaul by a shop that has a good reputation for doing overhauls. There are lots of airplanes that are advertised with ‘lots of time remaining’ on the engine. However- if the previous overhaul was done more than 12 years ago- both Lycoming and Continental say it is due now.
One final new phrase regarding aircraft value: ‘What they’re going for.’ To us this means ‘what they are actually selling for’. Unfortunately many sellers confuse ‘What they’re going for-’ with asking prices listed in magazines and online. ‘Asking price’ is usually very different to the final selling price.
On a more positive note: Let’s look at the airplanes and the buyers responsible for moving the piston segment forward. Early in this downturn- we noticed a new kind of buyer - one who is not only looking for the ultimate bargain- but one who also knows a bargain when he or she sees it.
The cheapest price is almost never the best buy (see above). These savvy buyers- both domestic and foreign- can be credited for bailing out General Aviation. A pristine $200k Cessna 182- 210 or Bonanza can be a fantastic deal - especially when you compare it to a $500k-700k price tag for new.
This segment (more than the others) signifies stability – nearly no up or down trend. Prices- at this point- seem more related to the quality of the airplane instead of market forces. It’s true that no airplane is cheap to operate- but in an era of high fuel prices turboprops are looking good.
One dealer paraphrased Mark Twain when he said: “The news of this recovery is greatly exaggerated”. Is the market better than it was a year ago? Absolutely. Is it a recovery? Yes - but a painstakingly slow one.
Conversely- this recovery is so lopsided that to some- it does not exist. The market for very late model- long-range jets has thinned out and prices are firming up. Demand from BRIC countries (CRIB- if you prefer)- continues to have a positive effect. However- if you move back a few years to airplanes built before the year 2000 the market is much less exciting. Activity is happening- but only if everything is right – namely price. Following is a summary of some areas of the jet market:
• Beechjet- mercifully flat;
• Premier- down;
• Challenger 300- stable;
• Challenger 601- tough sell;
• Challenger 604- gaining momentum;
• Global Express & XRS very active- several pending;
• Citation Is- IIs- IIIs- VIs- VIIs & 560s- down;
• CJs- better but mixed;
• Excels & XLSs- active;
• Falcon 50- soft;
• Falcon 2000 & 900EX- flat;
• Falcon 2000EX- down;
• GIV & GV- unchanged;
• GIVSP- upward pressure;
• G450 & G550 thinned out;
• Hawker 800A/850XP- off slightly;
• Lear 45 & 60- flat and that’s good.
It is getting increasingly difficult to take a guess at the future. Take a look at all the colossal events of the last few months – tsunami- nuclear meltdown- Arab Spring- record tornadoes and flooding- escalating fuel prices and the demise of bin Laden. That is not to mention all the politicized doomsday talk as campaigns gear up for 2012: the threat of inflation- runaway National debt- global warming- and on and on. Why would anyone take on aircraft ownership in such a turbulent- uncertain world?
The term ‘new normal’ has been vastly over-used- and (we think) wrongly used in previous recoveries. In the current recovery there are significant differences that suggest normality might look different than it did in the past. In other words- with the absence of a new bubble- we really are looking at the new normal – a sluggish- almost flat line recovery. It is important we all get back to the fundamentals of what makes aviation so attractive- so essential.
To quote Market Leader 2009 Volume 1- “Corporate airplanes are exceedingly convenient- safe and efficient. They are time machines- making each day vastly more productive- more competitive- more secure- and sometimes – more fun. None of this applies to an over-crowded- dirty bus-ride called the scheduled airlines.”
Why would anyone take on aircraft ownership in a turbulent- uncertain world? Because it’s a turbulent- uncertain world – that’s why.