As 2019 came to a close, what were the dealers and brokers saying of the pre-owned business aircraft marketplace? Dave Higdon spoke to a selection to gain their insights on the latest trends…
In the Business Aviation markets, a slow but solid start to 2019 looked like ending with a sense that someone had put their foot on the brake. Although new jet sales appeared to enjoy good times (per GAMA’s Q3 2019 Shipment Report), all the tensions seemed to be manifesting themselves in a slowing of pre-owned business aircraft sales.
The slowdown is expected to continue into the next year or longer, judging by input from various used aircraft dealers, brokers and new airplane sales executives, as the catalysts behind the declines are expected to be ongoing. Among those catalysts is a sense that the global economy is slowing – a trend expected to gain traction.
As Honeywell's long-term new aircraft sales forecast outlined, however, operators have a growing interest in buying (and/or refurbishing) pre-owned aircraft.
Honeywell’s survey of flight operators showed they anticipate pre-owned jet acquisitions will account for 32% of their fleet purchase plans, a gain of 8% from the previous year's outlook.
That outlook aligns with the lower outlook for new jet sales Honeywell projected in its annual survey released in October 2019. Expectations for higher total value in new and used business jet sales reflects higher dollar value, rather than stronger overall sales.
Today, used aircraft transactions outnumber new aircraft sales by about four to one. And new airplane sales still trail the record levels achieved just ahead of the Great Recession of 2008, by a wide margin.
With the percentage of used business aircraft for sale hovering close to 10%, the trend need only continue at its relaxed pace to transition from being a sellers’ market to becoming a buyers' market in 2020.
Nevertheless, “there's little sign that the larger pool of aircraft for sale is having a meaningful effect on preowned jet prices,” one broker located on the US East Coast told AvBuyer.
Market Slowdown Affects All
On a global stage, there’s been a notable decline in aircraft operating within the Asia-Pacific region where business optimism has plunged over the past year, causing some to sell their jets.
And, according to one West Coast dealer who works in the Asia-Pacific market, “It's difficult to separate what's driving attitude change. But the stresses within China, the Hong Kong prodemocracy protests, and China's increasingly militant responses can't be helping.
“The same can be said of the impact on market confidence from the continuing tit-for-tat tariff combat being exercised in Europe, Asia, North and South America. Meanwhile, many economic indicators remain strong and positive.”
Transactions have declined by more than 15%, and the inventory is up at almost 10% as business jet sales slowed quarter-to-quarter through 2019. Market observers see no help coming from further tax-law changes. “We had a big, big tax cut come our way in 2017,” a Southeast dealer noted.
“The accelerated depreciation helped stave off a down year, but the impact wasn't as strong for 2018 – and it’s been all-but-gone in 2019," he added.
“If you don't believe there are still optimists out there, look back at advertising in the closing months of 2019,” the dealer continued. “Pre-owned dealers and brokers actively pushed the year-end tax-savings potential of buying an aircraft with depreciation still available.”
But, the dealer cautioned, “With so many buyers trying their best to use up those depreciation benefits their availability this year isn't what it was a year earlier. And some won't have any depreciation benefits left, after those deductions were used to the maximum in the first and second tax years.”
The Impact of Equipment Changes
For nearly a decade the aviation community watched the approaching equipment mandates, including ADS-B Out, CPDLC and PBN. These were designed to improve traffic flow, communications flow and airspace capacity. The clock ran out for ADS-B, as of January 1, 2020, and the FAA is in the process of implementing expanded use of PBN and CPDLC.
The FAA plans to resume decommissioning scores of VOR navigation transmitters to reduce costs as precision GPS navigation continues to percolate through the fleet.
These mandates helped spur new aircraft sales in the past few years as avionics companies worked to create solutions for the huge variety of aircraft in need of those systems (literally every aircraft in the case of ADS-B). Now, according to a sampling of brokers and dealers, the lack of solutions has contributed to the decline in used aircraft sales.
“Most of the aircraft still viable for corporate use are ADS-B compliant, or have a solution waiting to be installed when the owner can get the airplane into an avionics shop,” a Southwest broker told us.
“A substantial number of those still without an ADS-B solution could be headed to the boneyard. Some still await a late-arriving, economical ADS-B solution that may save their airplane.”
Many older jets with early generation integrated avionics packages can find solutions for as little as $50,000 and the change is as simple as a transponder upgrade. “These eleventh-hour arrivals will save quite a few operators from needing to buy a different aircraft,” the broker explained.
For others, however, the need for an ADS-B solution will inevitably mean changing aircraft. “The solutions available cost similar to the scrap value of the aircraft, or the waiting list may be so lengthy that replacing the aircraft is the better option for continued operations.”
And various dealers and brokers cited those ‘eleventh-hour’ options for keeping the decline in preowned sales from being worse.
“It won't take long for the fleet to shrink because avionics obsolescence has forced owners to ground their airplanes,” predicted the East Coast broker. “When that corner is turned the pre-owned market should start seeing some recovery.”