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Used Aircraft Market Q3 2016 Update

The used aircraft sales numbers look better.., but at what cost?

Dave Higdon   |   10th October 2016
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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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Analysing data from various sources and piecing together several conversations with brokers and dealers, Dave Higdon notes the first half of 2016 brought some improvements in sales of used jet sales - but at what cost?

Inventories of Light and Medium jets for sale during the first half of 2016 exceeded the historic norms. The impact of that inventory glut came in the form of average asking prices dropping by low double-digits that, in turn, help sales edge up by low single-digits. That was the good news of the first half of 2016.

In parallel with pre-owned sales, the industry saw deliveries of new business jets and turboprops all decline, with the biggest hit landing on the Large jets.

Used Aircraft Market Overview

According to market analyses, used aircraft sales during the opening six months of 2016 edged only slightly above the number of transactions in the same period of 2015, with JETNET putting the gain at 1.9%, and feedback from the dealers and brokers we polled (see below) supports that view – but selectively, and by segment.

Markets started turning sluggish right after the midpoint of the year and signs (per the feedback from our dealers and brokers) point toward a slowdown in-progress.

According to JETNET's August report, asking-price averages declined in the first half of 2016, down by a hefty 11.2%. For the same period, the inventory of available pre-owned aircraft grew to 11.7%, a half-point increase over the available pre-owned business-turbine fleet in the same period for 2015 – but still below the historic average of 13%.

Brokers and dealers indicate that the inventory growth trend continued into Q3, with more available aircraft and lower asking prices prevailing through July and August.

Said one broker specializing in international transactions, overseas weaknesses contributed most to the bad news: “Africa cooled off, China cooled off and South America cooled off. Meanwhile business aircraft use in Brazil dropped; a reflection of that country's economic struggles.”

One East Coast dealer's top marketing executive concurred, offering that the slowdown in sales of both new and pre-owned Large jets reflects the economic struggles in Asia and South America. “Even the Middle East has slacked off, but not as steeply as other parts of the world.”

And as inventories grow, sale prices will likely continue to slide. “When it hits here, whether it hits here, nobody knows,” the East Coast executive added. “The US market has held up better than many of us expected for longer than average.”

A Growing Economy Helps

A Southeast US broker believes there are some signs of the US market cooling, but he and others don't believe it is economics that has some potential buyers hesitating. “Most of it is the political environment. Some folks have simply decided to wait out the weeks leading up to the election. Overall, our economic indicators are better than our political indicators.”

He points to solid gains in the stock market; a market that rose to record highs in July and early August with steady, respectable job growth, decent profit reports and continued low interest rates. “The recent hints of a possible interest rate increase from the Federal Reserve don't seem to be a big issue because the increase will almost certainly result in interest rates still well below the historic norms,” the Southeastern broker continues.

“And there's more finance available and it's available across the board – for new, pre-owned, older pre-owned and really old pre-owned.”

Nevertheless, he adds, some prospects fear the election result could spur another recession. “These folks are frankly worried about which way the country will go depending on the results of November 8th.”

Not Enough...

Other indices reflect a continuation of a weak market for used business aircraft, and one in particular has seen little change all year. The UBS BizJet Market Index started trending downward early in the year, and it remained at 29 points in July's report - not only the lowest the index has seen since 2009 but far below the 50 point mark that indicates strengthening in the market.

Other indicators during 2016 have wavered only slightly, with inventory moving down and back up by a single-digit percentage point through the year. The latest observations and surveys put the current inventory upward toward that 13-percent historic average while growing about a point per month as it edges upward, according to a consensus figure from several brokers.

“What's troubling to many of us,” elaborates one West Coast broker, “is that what has kept the number from growing faster and higher has come from the withdrawal of aircraft from the active ‘For Sale’ marketplace.

“A small percentage of the aircraft listed don't really seem to be ‘For Sale’ – the owners aren't lowering their prices and many are no longer getting offers because they've refused offers that could have moved the airplane into the 'Sold' column previously. But this seems to be the trend across the board – new, pre-owned, jets, turboprops...almost everything.”

Latent Optimism Holds...

“Know anyone looking? Whatever they need, we can find them the airplane…” That was the opening of a conversation with a Midwest broker who works with high-performance Piston Singles to Large jets and even Businessliners. “The choices may not be at an all-time high, but they are higher than we like to see – and likely to get higher.

“That should make it easy to match up a prospect with a seller! Now I just need to hear from more prospects,” he added. This broker questioned why prospective buyers wait when what they need is available, airworthy and ‘a good deal’. “A couple of my clients are ready to take an offer – I know because they're calling me, weekly, to remind me that they are ready to negotiate.”

But with new-aircraft sales slowing, the used inventory growing, and prices trending lower this broker is confident that things will start to break open and people will begin dealing again. “When they hear that the interest rate increase from the Federal Reserve is a percentage point – or less;  when the election is over and people stop worrying about what could go wrong; when prospective customers see their accountants to get ready for year-end adjustments....that's when we expect things to pick up. We won't see the pool hit 13 percent.”

He cautions that he’s not predicting the strong swing upward experienced in the aftermath of the so-called ‘Great Recession’, but a swing strong enough to start used jet sales moving again, help transactions close and stimulate money changing hands.

Read more about: Buying Jets | Used Aircraft Sales Trends | Jet Sales | Business Aircraft Dealers & Brokers

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