Dave Higdon pieces together the picture of the current used aircraft sales marketplace, sharing the insights of those well placed to read the various indicators…
When GAMA released its Q2 2019 assessment of new aircraft deliveries, market observers got a surprise. In contrast to some expectations for slower sales of new business jets, GAMA’s report showed an increase. For turboprop OEMs the news wasn't so good, and sales came up short of 2018 levels.
Meanwhile, the pre-owned business aircraft sales market already shows signs of slowing while, counter intuitively, prices seem to hold firm in a market pool where almost one in 10 aircraft is available for sale – up about a percentage point from a year ago.
Last year was a strong one for sales of used jets, according to Rolland Vincent, with over 2,800 transactions (about 2% more than in 2017). At that level, he adds, transactions of pre-owned jets beat shipments of new business jets by a 4:1 factor. That level of sales activity reflected a healthy market where transactions equated to about 12.9% of the in-service business jet fleet.
From the start of 2019, used business jet sales have shown signs of a slow deceleration, and are on a pace to equal about 2,000 transactions (~28% below last year’s level), according to some forecasters.
And looking ahead to any threat of an industry downturn, Brian Foley, of Brian Foley Associates, projects “…it's very unlikely that the next industry downturn will be as cataclysmic as the last, when deliveries halved. Instead, a 10-20% correction is more within reason.
“This is lower than typical downturns of 30% or more, but each of those were preceded by a multi-year spike in [new aircraft] deliveries. In contrast now, deliveries have been flat for the past decade.”
Equipment, Age & Equipment
For the time being, declining used aircraft sales may reflect age and equipment issues applicable to an array of otherwise capable and affordable aircraft.
Surprisingly, conversations with corporate pilots, air traffic controllers and dealers and brokers, indicate some business aircraft never received the equipment upgrade needed to use RVSM airspace.
The owners of those aircraft largely decided their flying didn't warrant the expense of equipping to use the higher flight levels of RVSM airspace. While they continue to enjoy access to the national airspace system, they can't access the airspace above FL290.
And then on January 1, 2020, the FAA mandate for Automatic Dependent Surveillance-Broadcast (ADS-B) compliance comes into effect for access to the same airspace where the agency already requires Mode C. (That's pretty much all the airspace used by jets and turboprops.)
Meanwhile, the fleet of business jets is aging with a growing proportion older than 20 years. “There will be quite a number of aircraft ‘parked’ because of this triple-threat combination of shortcomings," noted one aircraft finance executive.
“The impact on the value of those aircraft makes investing in meeting both mandates a hurdle that’s too tall to clear. The costs for some of these aircraft will exceed their value and that [will also] put the squeeze on some airplanes already RVSM compliant but not yet ready to fly with ADS-B.”
The pilot of one older Mid-Size jet lacking both RVSM and ADS-B compliance told AvBuyer the airplane's owners had assessed the cost and decided to eschew both. The jet is likely to be scrapped for parts come January. “Management decided the investment would not pay off in the long term,” the pilot explained.
Supply & Demand
The available pool of pre-owned business-turbine aircraft for sale held steady during the early months of 2019, and then began to increase. Prices unsurprisingly held steady.
For the past couple of months, however, that status bucked the expectations for a market with more used aircraft available for sale. The percentage now stands at just over 10% of the fleet. Nonetheless, prices continue to hold (except in areas with a disproportionately high fleet percentage on the market). In those niche areas small price concessions helped move airplanes.
Our finance executive expects total pre-owned sales to barely make 2,000 in 2019. “The financing is available. The terms are more realistic than a decade ago,” the finance officer observed (referring to the terms sought during the opening of the Great Recession).
“This slowdown, as it comes, won't approach the chaos and price depression of 2008 and 2009,” he forecast.
Virtually no aspect of today's market compares to the panic-driven sell-off that pushed aircraft values below the level of their owners' loan obligations.
“One element worth noting in how sales have started to slow down is the uncertainty over the global economy and the trade conflicts between the US and China,” noted an east coast broker. “The full impact has yet to be felt here – but when it is, expect to see some current owners exit Business Aviation.”
Believers, Albeit not Aviation Apostles
The changes in options to access Business Aviation over the past decade give more ways to enjoy the benefits of business aircraft. For example, the expansion in the size, number and variety of fractional ownership programs; the club approach (as represented by Wheels Up); jet cards; and leases provide more avenues for Business Aviation users to pay for only the access they need, as opposed to full ownership.
“If there's one thing we've improved over the past decade, it's been involving more people in Business Aviation,” the aircraft finance executive noted. “A whole lot of users will explore every avenue available to keep them off the airlines – except for when it's absolutely the most cost-effective choice. And we know that won't be a lot of the time.”
Meanwhile, with the backlogs grown in recent years, the certification and service entry of many new Large Cabin business jets will keep the fleet and users growing – even as it adds more sales stock to the pool of pre-owned business aircraft for sale.