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Activity fluctuated so wildly in the first half of 2010 that some brokers questioned whether their phones were working. The summer slowdown is always hard to take- but even tougher now as we look for signs of recovery – or as some fear- a double dip.

Fletcher Aldredge   |   1st October 2010
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Fletcher Aldredge Fletcher Aldredge

Fletcher Aldredge is publisher of the Vref Aircraft Value Reference, the industry’s modern price...
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Pre-Owned Aircraft Sales Trends
The Dot-Com recession versus the Housing recession.

Activity fluctuated so wildly in the first half of 2010 that some brokers questioned whether their phones were working. The summer slowdown is always hard to take- but even tougher now as we look for signs of recovery – or as some fear- a double dip.

The bursting of the housing bubble resulted in what nearly everyone agrees is the worst recession ever. Just how bad is it? In the tables that follow we compare the recent collapse to the recession which followed the dot-com bubble and 911. There is no way to tell where we are in the current cycle – whether middle or end of the recession- or beginning of the recovery.

A little background: By the beginning of 2001- the nearly decade-long ramp-up of prices was over. Piston singles and twins were flat. The attacks of 911 seemed to start the piston prices on a steady downward trek. Even when the turbine markets shifted into full recovery mode in 2004- most piston airplanes just leveled out.

Operating costs and shrinking demand kept values from becoming over-inflated. Then- when the housing bubble burst in 2008- the drop in the piston segment was comparable with- or not much worse than the dot-com recession. Surprisingly- a few light aircraft are fairing better in the housing recession (so far)- than they did in the dot-com recession.

Currently- piston singles and twins appear stable. The small up-trend in prices seen in early 2010 has flattened- while buyers assimilate the higher prices and more importantly- the World situation. The Vref Light Single Index managed a 1% climb in the recent quarter. Complex Singles were up 1.3%. Both twin indices crept up less than a percentage point.

By checking the Market Indices at VrefOnline.com- one can see that turboprops and jets do really well in the good times- then come roaring down when the bubble bursts. Before the 1990s ended- turboprop and jet prices flattened. Well before 911- they were clearly on their way down- leveling out at the end of 2003. We did not know what it was at the time- but the housing/sub-prime mortgage bubble was starting to form.

Easy money flowed into the airplane market. It seemed that almost anyone could have a big house and an airplane to go with it. By the time 2007 rolled around- the large jet market was white hot! (My Golden Retriever was shopping for a G550 at the time. He wasn’t worried about getting a loan to cover the 10 million dollar premium- but the deal fell through when he was told about the four-year wait. Big breed dogs don’t live that long and you see he was already nine.) Yes- it was a crazy time.

Then- before the end of 2008- the granddaddy of all bubbles blew apart. Money quit flowing- and the over-heated jet market came tumbling down. Backlogs quickly turned into whitetails- as premiums gave way to deep discounts.

That brings us to present-day – a market in which there is an over-abundance of caution- and which is still very price driven. All turbine segments continue to trend down. Turboprops are nearly flat- losing less than a percentage point. The Vref Light Jet Index lost 3.8% in the recent quarter. Mid-size jet prices were off an average of 4.1%- and Large Jets dropped 3.3%.

This has to be the best of times to be a professional economist – lots of data- and lots of people desperately willing to pay for a forecast. The truth is- no matter how brilliant you are- a forecast is an educated guess at best. One of our favorite economists says that he correctly predicted five of the last three recessions.

Barring a widespread calamity- we fully expect demand to slowly improve for late model- no negative airplanes - of all sizes. However- some segments – older- out-of-production- hopelessly out-dated airplanes - are bloated and may never recover. At least part of this is due to lending constraints for 20+ year-old airplanes.

Challenger 601s- Cessna Citation IIIs- Lear 35s and 55s- Falcon 50s- GIIIs- and Hawker 700s may be tough sells for a long-time yet. These airplanes all represent great buys- and a lot of airplane for the money- but operating costs can be staggering. Their predecessors (Challenger 600s- Lear 24s & 25s- Falcon 10s & 20s- GIIs- Hawker 400s & 600s) are still mired in the dot-com recession.

There are many airplanes over 20 years old that are probably just too good to go away. Many piston singles- like older Beech Bonanzas- Cessna 210s- Mooney 201s- and Piper Cherokee 180s and Arrows- all most likely will have a bright future because they are cheap-to-own. Relatively speaking- so are older King Airs- Conquests- and Cheyennes. Also- Citation Is and IIs - they might be slow jets- but they are real- affordable jets. For years we have espoused a bubble economy. Well- now we are thinking it is more a Fear Economy – fear of Obama bailouts or Obama double-dip… maybe it’s fear of an Obama oil spill.

Try this: Next time you are on the interstate (not Internet)- look at the train tracks next to the highway. If it is like the train that runs along I-40- it is packed with containers going to or from you- me or China – it is stuff that someone is buying or selling. Then- look on the road. It seems there are more trucks than cars- which means they are also full of stuff we are selling to each other. Commerce is happening- just not fast enough to trickle up to aviation – yet.

Probably the most important thing at this point is: Stay in touch with reality- whether it’s politics or the airplane market. President Obama cannot help- or hurt us anymore than - say - a Mama Grizzly- but don’t forget to vote. Finally- do you want to make the phone ring? Then put a realistic asking price on your airplane.

More information from www.vrefonline.com or www.vrefpub.com

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