Dave Higdon weighs the evidence of used aircraft dealers and brokers against the observations and forecasts from industry analysts. What’s the current picture for the used jet marketplace?
The brakes seem to have been applied to the business jet market. This year's transactions lag 2018 by as much as 19% according to the latest market data.
Observers blame various factors, including a flip side to the sales boost the market experienced after the enactment of the Tax Cuts and Jobs Act of 2017. Of equal weight are the market dynamics, which those same observers believe is a trend that will last at least into next year.
Let's first examine the latest data.
2019 Used Aircraft Sales Market: So Far, So Slow
According to the AMSTAT database, 718 transactions of used business aircraft occurred between January 1 and May 31. For the same period in 2018, 886 transactions occurred. Analyst Brian Foley, Brian Foley Associates, observed, “It’s possible there is some paperwork lag, but it would still appear to be a downward trend.
“For comparison, Year-over-Year for 2017 the used transactions were 873 – and 732 in 2016,” he adds. Foley echoes others when he says, “I’d explain that (decline) by saying that those buyers who could benefit by the 2017 tax law change allowing accelerated depreciation have largely done so already.”
Interestingly, AMSTAT’s data notes used ‘Heavy’, ‘Medium’, ‘Light’ Jets and Turboprops, all suffered declines in retail transactions – with minimal variation by age.
AMSTAT reports the business turbine fleet for sale remains below the historical, with jets at barely 9% and turboprops hovering around 7.5% of the in-operation fleet.
Tightening Supplies, Flat Pricing to Come
Some dealers and brokers see the trend for declining sales as a hallmark of the stronger sales of recent years – sales which cut deeply into the available pool of used jet and turboprop aircraft for sale; they see the old ‘supply and demand’ law coming into play.
They also see a slight increase in the average asking prices in the segments. Estimated values have indeed fluctuated… but not by much.
Other Sources Read the Scene Differently.
In a five-year forecast for new and used business-turbine aircraft, Jetcraft sees what many brokers and dealers have been expecting – further tightening of demand if a decline in new jet sales transpires as forecast.
“Fewer new planes entering the market typically results in fewer used business aircraft available because of the reduction in trade-ins, which ultimately depresses the pool of attractive used business jets,” a broker from southeast US noted.
Jetcraft's forecast anticipates an increase in new jet deliveries this year, flat deliveries in 2020, and slight declines thereafter until 2023. The same forecast predicts continued growth in used transactions through the same period, however. Those transactions should continue to grow at a rate proportionally faster than new aircraft sales.
Aircraft Sales: How Does 2019 Really Compare With 2018?
With a good flow of used aircraft joining the fleet for sale, the inventory shrinkage seems to have slowed. But what could be blocking price stability at this time?
“Demand,” is the one-word answer provided by a West Coast dealer. If demand suffers even slightly, price stability is likely to suffer too, they qualified.
Even if prices stabilize the ebb in demand can contribute to sales taking longer to transpire – so more days on the market contributes to the appearance of reduced demand, with a similar impact on pricing.
In the view of many, however, demand declined as a ripple effect from last year's bump in used aircraft sales. Indeed, some of the signs of reduced demand stem from the higher demand in 2018 resulting from the 2017 jobs and tax law, possibly prompting some buyers to move earlier and/or more quickly than they had previously planned.
“I would anticipate this year will be more normalized, akin perhaps to 2016 levels before the tax write-off fervor,” Foley projects.
He believes the ripe days for the used aircraft market passed last year. “They're behind us and tighter days are coming.”
Others see a similar departure between last year's supply and the available fleet this year. Ditto for pricing – the small boost in inventory seems to have caused an out-sized shift in pricing, downward, when the inventory change is barely enough to impact the quality of the inventory.
According to an East Coast broker, the pricing reactions amount to a “knee jerk response” from sellers that are upset at the lack of interest and long time it takes to sell an aircraft.
As a batch of new Large- and Mid-size Jets arrive on the market this year from the OEMs, the available pool of used aircraft should start to edge upward, ideally adding to the supply of quality aircraft in the market. But whether that supply increase prompts further price cutting will be a trend to watch.
If buyers take longer to deal, sellers may not stabilize their asking prices, prompting some market observers to hold, rather than play, as they bargain on further price reductions. “But if sellers hold their ground and don't indulge in unwarranted pricing cuts, buyers will quickly see that it's not the buyer's market they're hoping for, but a stable market balanced at both ends,” the East Coast broker adds.
Much of what the market does will hinge on whether buyers are confident in the overall economy, the state of which is currently in flux as the US continues to pursue a protectionist economic policy against friend and foe, alike.
Tariff Tales: So Far, Not so Bad…
One element of worry last year appears to have had little impact on the new jet sales that feed the used aircraft market with fresh inventory: Tariffs, on aluminum and steel.
So far, at least, new jet sales appear generally unaffected by these levies (which have changed, shifted and changed again), both on the target materials and the nations suffering under them. The original levies China announced covered only a narrow range of commercial aircraft used as the basis for Boeing BBJs and Airbus ACJs.
Had they been applicable, analysts put the potential cost of threatened retaliatory China tariffs on aluminum at barely 1% of the price of the nominal business-turbine aircraft. The number rises to about 2% for commercial aircraft. So far, China's threatened tariffs, applied, lifted or suspended, seemingly hardly impact US General Aviation sales at all.
But it pays to be watchful. The way in which the US creates, announces and applies tariffs intended to change the behavior of other nations has proven somewhat unpredictable lately...