Have you bought any gold yet?
Rated AA+: If you were to assign that rating to any airplane or any segment of general aviation we would all be quite happy. However- that S&P rating and the political dithering surrounding it are causing widespread unhappiness. While most of the general aviation marketplace does not get a Demand Rating of AA- there has been a surprising amount of activity.
Early this summer- many dealers reported- “They’ve never been busier.” This was during the highly publicized debt ceiling talks. Could it be that we have grown numb to the incessant onslaught of alarming news? A good export market continues to bolster general aviation. Offshore and domestic buyers want in before the best deals are gone.
This- coupled with aggressive sellers who want out before a weak economy gets worse- has made for a brisk market – up until now. It is likely that most of us are less interested in what was- and more interested in what will be. More on that later…
Piston Singles and Twins
With few exceptions- piston aircraft are flat. For most of last quarter there was little or no downward pressure on prices. Remember- past performance may not be an indicator of future returns. Activity in the recent quarter was centered around the better airplanes or the better deals. Rough- run-out airplanes remain difficult (some say impossible) to sell at any price. Many of the better airplanes are being exported.
It is common to see a low-time Beech Bonanza or Piper Seneca bring as much as 20% more in Brazil than it would in Arizona. Buyers outside the U.S. will not knowingly take on a project. There is no way to tell if this offshore demand will continue if the World economy falters- again. The Vref Market Indices for the piston segments were virtually flat. The only exception was the Light Twin Index- which was up 1%. While some aircraft like Beech Dukes are more price-driven than ever- late model Seneca Vs are in demand. Not surprisingly- there is no one word that can characterize the entire market.
Turboprops and Jets
Most dealers in the turbine markets gave June and July of 2011 high marks (for activity). There were even a few pockets of slight upward price-pressure including ProLine 21 King Air 350s- Citation Excels and very late model Gulfstream GVs and G550s. Prices for most of the turbine market continued a gentle down-trend. As one Challenger 604 dealer put it- “Prices are drifting down- instead of trending down.”
The Vref Turboprop Index slipped 1.4% in the recent quarter. Light Jets were off an average of 1.5%. Mid-Size Jets were down 3%- while Large Jets fell an average of 1.6% in value.
Most of Washington- D.C. might be unwilling to compromise- but aircraft sellers seem to be more flexible (motivated) than ever. We see more ads claiming ‘We will not be undersold-’ or ‘Next one to sell’. This willingness to get a deal done has moved record numbers of airplanes into pre-buy.
Guns and Gold
We are just coming off one of the best quarters since 2008- and it’s tempting to keep thinking happy thoughts. However- since Washington seems to be officially dysfunctional- it’s best to stay in touch with reality. The big downturn of 2008 was relatively easy to predict. At that time- airplanes were grossly overpriced- and most lenders were eager to help out. When the easy money went away- so did the market. That’s what we call a no-brainer.
Now- the future is not so easy to foretell: Airplane prices have been bouncing along the bottom for more than a year. There are some world-class deals out there. Rightly or wrongly- several massive doses of stimulus have been administered - tax cuts and incentives- extended. Yet talk of a poor economy prevails.
It is not uncommon now when discussing the aircraft resale market with a dealer or airplane owner for them to mention they are buying gold and/or stocking up on ammo – yes- bullets. Justified or not- fear is persistent. Let’s- just for a moment- remove our elected officials from the realm of late-night comedy (where they belong much of the time) and assume they get smart and go to work for you and me. Be careful what you wish for. As it turns out Karl Marx was wrong - religion is not ‘the opium of the people.’
Today- the opiate of the masses is entitlements and tax cuts. What if we should try to get clean too quickly? Google ‘opium withdrawal’ - it’s not pretty! Most likely- lawmakers will continue to treat the American economy like a hard-to-start engine. Since no competent mechanic can be found- they will just pour in the ether and hope for the best.
What can we do now and what do we think? Some things will not change. Private aircraft will remain an indescribably safe and efficient way to travel. Remind your customers and your colleagues of this often. Will costs go up? Almost certainly: it might be taxes- it might be fuel- or it might be something else. However- corporate aircraft will always be- as Warren Buffet has said- ‘indispensable.’
What do we say? Well- we haven’t bought any gold...yet.