How normal was the aircraft sales marketplace in H1 2017?
Mike Chase and Marj Rose offer an analysis of H1 2017 new business jet deliveries and used jet transactions, courtesy of JETNET >>KNOW MORE data…
What does the current market for new and used business jets look like? Many within the industry are hoping that the upward trend reported to date in 2017 for the used jet market, along with expected improvements in the US and world economies, will continue to push more new aircraft purchases.
Currently, we continue to see a buyer’s market environment with used jets ‘For Sale’ running slightly below 11%. Over the following paragraphs, we’ll examine in greater detail the industry’s progress thus far in 2017.
New Business Jet Deliveries
Before jumping into our H1 2017 review, it’s worth providing a little perspective on new business jet deliveries between 1964 and today, including seven different US Recessionary periods. Historically, there was a period of flat industry growth, which we have labeled the ‘No Change Years’, running from 1983 to 1994 (see Chart A).
The market essentially suffered a 17-year trough, after a 1981 peak, followed by a high-flying ‘seesaw shape’ period in the late 1990s and early 2000s. Deliveries in 2016 only exceeded 1981’s deliveries by 14%.
New Vs. Used Business Jet Markets
New and used worldwide business jet delivery cycles have certainly followed different trends during this latest downturn, as depicted in Chart B. Historically, there has been a one-year lag in the recovery of new business jet deliveries, versus used sale transactions.
New aircraft orders are based on the successful sale of existing aircraft in the used aircraft market. New purchases are often coupled with sales or trade-ins of existing equipment. Thus, a single new purchase can often result in added availability and sales of at least one additional used aircraft per sale, and sometimes more.
We have seen a diversion from the historical coupling of the new and used business jet purchases/sales. New jet deliveries were delayed as the owners/operators of existing aircraft struggled to find buyers due to an oversupply of used business jet inventory ‘For Sale’ and the large decline in used aircraft prices.
Most of these order-holders were keeping existing aircraft longer with the hope that prices would stabilize, which has yet to materialize. Thus, the decoupling impact of new versus used.
Questions about the recovery still linger. A common feeling is that we are just not there yet. Some believe this is the new normal. However, our analysis suggests that the industry is on the right track. From the Buyer’s point of view, the current market provides an attractive buying opportunity when seeking a used business jet. There is still ample inventory of most business jets at near-record low average asking prices.
What is the Market Recovery Shape?
Over the following paragraphs and tables, we will reflect on the ‘big unknown’: what will be the shape of this recovery? Will it be a ‘V’-shaped, ‘U’- or ‘L’-shaped recession for new business jet deliveries? The used market has followed the classic ‘V’-shaped pattern (see Chart B), but the new business jet portion of the market has clearly shown an ‘L’-shape to date.
As we reflect on H1 2017, Table A shows new business jet deliveries by OEM over the past ten years. Business jet deliveries are up 1% in H1 2017 compared to H1 2016.
It’s interesting to note that Cessna moved into the lead in 2016 and 2017 for deliveries, and leads H1 shipments for the past 10 years, capturing 27% of the 3,478 new deliveries made during this period. Bombardier ranks second with 25% of the deliveries, followed by Gulfstream (18%).
However, when reviewing the dollar value of these deliveries Gulfstream leads with a 33% market share compared to Bombardier at 32%. Dassault Falcon Jet (12%) and Cessna (10%) make up the remaining Top Four OEMs, who account for a combined 87% of the total dollar value.
We witnessed a bifurcation of the business jet market in Chart C (courtesy of Teal Group), with growth occurring among business jets costing >$26m compared to declines among business jets costing <$26m. Before 2008 there was little separation between the two lines.
This separation started in 2008 and has continued to the present time. Recently we have witnessed these two bifurcated lines moving toward each other with the large market value decreasing in business jets costing >$26m and no, or little change in business jets costing <$26m.
H1 Used Jet Transactions
Table B reflects H1 2008-2017 used jet transactions (including wholesale and leases), by make, over the past ten years. H1 2017 used business jet transaction results are up 5.6% compared with H1 2016, as reported by JETNET on August 8. (Currently, H1 2017 new business jet deliveries and used sale transactions are above the 1H 2016 numbers by 1%.)
Of the H1 2008-2017 total of 10,631 used jet transactions, Cessna accounted for 35.1% (3,730); Bombardier had 2,264 (21.3%); Hawker Beechcraft 1,534 (14.4%); and Gulfstream 1,443 (13.6%). All told, the Top Four OEMs accounted for 84.4% of all total used business jet transactions.
As we reflect upon the current market conditions we are experiencing in 2017, we recall some sage advice offered by Joseph Carfagna, Jr., Leading Edge Aviation Solutions, at an industry conference in 2013:
The one missing ingredient, as Mr. Carfagna, Jr. put it, remains the same today: Confidence. Confidence from aircraft buyers and potential buyers holds the key to picking up the pace in both the used and new business jet markets.
We will continue to track the industry’s progress and hold on to the status quo. However, the used business jet market is trending up. Our expectations are for solid market improvements in 2017.