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What’s the Outlook for 2017 BizAv Sales?

Watching the future used business jet and turboprop markets…

Dave Higdon   |   10th February 2017
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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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Although mainline analysts continued to crunch numbers for 2016, some of their observations about new airplane sales can be seen as harbingers of what's ahead for the used aircraft segment in 2017. Dave Higdon investigates…

So many of the analysts contacted for this story demurred when asked to speak to the future market for used business jets and turboprops for sale. “We don't really track that segment like we do new-aircraft production and sales...or like we do utilization.” In a nutshell, that sentiment is the consensus of several well-known, highly regarded industry analysts.

Rollie Vincent, Managing Director, JETNET iQ, estimates new jet sales for 2016 were down about 8% (to 661 units). Richard Aboulafia, Vice President, Teal Group, voiced his view that 2017 new aircraft sales will mirror 2016’s lower sales. No growth.

Vincent explained, “The key issue continues to be aircraft oversupply, reflected in low prices, residuals and low average utilization.”

The changing of the guard in the White House cuts two ways, according to feedback received by AvBuyer. “The new Administration is likely to be friendly as regards corporate taxation, encouraging higher profitability and hopefully more corporate investment,” Vincent explained.

“We see a market that is likely to be somewhat down Year-over-Year (YoY) in new jet deliveries (in terms of units) with an even higher percentage dip in value; rhetoric from Trump is likely to encourage US business jet demand from corporates but at the same time discourage sales in trade-oriented nations like Mexico, Canada, Brazil and China that have become important sources of demand in recent years.”

Mixed Signals Undercut International Sales...

Vincent's observations echo those of several Dealers and Brokers consulted for this story. And some of these elements have already been factored into new airplane production plans. Various OEMs have lowered their long-term estimates citing short-term growth challenges, and the folks on the front lines of used aircraft sales seemed to hedge when predicting 2017 transaction action.

“We're hoping for ‘flat’, period,” one West Coast broker volunteered. “We'd love to see things stabilize where we are and not edge downward again. It's difficult to fathom, though.”

The West Coast broker noted that all the usual elements that typically buoy both new and used aircraft sales manifested themselves in 2016. The stock market continued to rise; corporate profits remained strong; jobs creation continued unabated; the economy and wages both grew – modestly, but steadily.

“All these positives were enough to keep some smart people from believing the US economy was tanking when just the opposite was happening: A growing economy, unlike many of our export markets, where things weren't going so well.” These elements translated into a slower market overall – but the US could see some small gains that offset declines expected internationally.

Said Vincent, “Net/net... This suggests a share shift in favor of US sales, orders and deliveries and flight activity. But overall expect a generally flat-to-down outlook. Slower international GDP growth is underlying generally weak outlooks, at least for the next couple of years.”

The Dangers of Anticipation...

While in some corners hopes run high that promised business-tax cuts, infrastructure spending and other changes under the new administration will propel more sales, a larger number of economists and analysts caution that some elements of the new White House policies may actually hurt US sales and employment, especially where international transactions are in play.

“The large-cabin market took a dive when economies in China and parts of Asia started cooling-off a couple of years ago,” said a Northeast dealer who supported the new President. “The last thing we need – regardless of whether it's for a new or used aircraft – is new obstacles to trade in the international markets.

“The phones aren't ringing and the emails are not coming from some of the countries.

"Those markets went quiet right after November 8th, and it's still a little eerie – as if no one’s in the office.”

An early January order by the then President-elect ordering home many ambassadors and their families won't help US companies market in those nations, one international broker explained. “While we don’t need the ambassador there for closing, they are an ally when paperwork entangles with foreign bureaucracies...you want the personage of a United States ambassador behind your efforts to break things loose and bring home the sale.”

Already reports from Gulfstream show that large-cabin sales and backlogs have declined in recent months, prompting the OEM to re-examine its production plans as it continues to conduct certification flights on its newest aircraft.

“If there's to be growth in sales – in either new or used aircraft – it may have to come from home,” the international broker opined. “Here's where the economy is strongest, assets available and the need is the greatest.”

Gulfstream business jet

One Dealer's View...

Fred Ahles serves as president of Premier Aircraft Sales in Florida, and in his company's January newsletter he speaks of his reasons for “starting the year with an upbeat attitude”. First is the plethora of new GA models that arrived on the market in 2016, among them new single-engine turboprops from Piper and Daher, and a new single-engine business jet from Cirrus – the world's first.

“Second, availability: The used aircraft sales market remains strong for high quality inventory.”

Other dealers and brokers echo Ahles contention. “But,” he continues, “…the supply of high quality airplanes is getting scarcer as the fleet ages. The larger numbers have an inverse impact on prices, driving down what buyers are willing to spend – until the inventory declines to normal once more.

“As an example, there were recently 50 used Meridians on the market,” he elaborates. “As many as ten had damage history and had been ‘For Sale’ for some time; ten more had original, obsolete avionics.

"Of those that remain very few are maintained to factory-recommended standards."

“Savvy buyers go for well-maintained airplanes with great history. "The market for good used (Mooney) Ovations and Acclaims is brisk as the supply has dwindled. We had a great year with used Mooneys; with the new Ultra coming soon, we expect another great year. With the stock market reaching all-time highs, we expect lots of airplanes to trade hands in the first quarter of 2017.”

After that, say other Dealers and Brokers, all bets are off – up and down the fleet of aircraft popular with business operators, from pistons, to turboprops, to jets. “The increasing options for upgrading avionics and interiors, in particular, will work against the sale of many older airframes (especially ones older than 20 years),” said the Northeast broker.

Upgrading to meet upcoming mandates is getting easier. Options are increasing and cost differences compared to trading for a newer aircraft will make financial sense to many operators, the Northeast broker argued. “Even older King Airs are good candidates for engine and avionics upgrades that make them competitive with factory-new models – and for less money, even if you go all in and upgrade their paint and interior.”

The Depreciation Dilemma...

Tax law already makes buying new (or upgraded used) aircraft and other equipment an attractive option for companies and individuals able to use the write-downs available with accelerated depreciation. In fact, many companies reserve that depreciation potential for use spread across several years – simply because they benefit less from taking it all at once.

Nevertheless, the option still holds appeal. Closing attorneys involved in business aircraft transactions say that the last month of 2016 brought to the closing table many in-progress transactions.

“We had something close to the usual run on December closings,” said one attorney active in aviation sales practice. “It wasn't up at the level of a couple of years ago, however. It’s hard to determine why from our mix of clients, but the year wasn't a ‘barn-burner’ – so a slower year-end than usual isn't exactly a shock.”

“Don't expect sales to take off much for the first couple of quarters,” another transaction expert predicted. “At least not until the market gets some clearer, less-conflicted signs of what exactly we can expect from the new Congress and the new President.

Uncertainty, several brokers and dealers noted, doesn't favor a strong business climate in 2017; at least not for businesses trying to decide on buying or replacing a business aircraft.

Read more about: Buying Jets | Jet Sales | New Jets to Market | Aircraft Sales Forecast

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