In Every Direction, a Surprising Year
Responses to questions about the outcome of 2017's Business Aviation experience loosely follow the same track: Someone asks the questions, the answers may reflect the reality come January 1, 2018…or maybe not. Dave Higdon reflects on a complex year…
Much can happen during the last weeks of a calendar year. Typically, the last five to six weeks of a year see the most closings and deliveries, at least according to aircraft sales professionals, marketing executives, aircraft title, loan services and attorneys who specialize in aircraft transactions.
Nevertheless, we still asked the questions about the trends of 2017, and the following answers are a summary of what we received.
The New Airplane Market
Reports indicate that 2017, absent a December surge in sales and deliveries beyond the norm, is headed toward a lackluster end. Reports from the Q3 GAMA shipment summary reveal a decline in jets and turboprops.
Rotorcraft shipments for the first two quarters, however, exceeded expectations with total deliveries up an enormous 23.9%. Piston rotorcraft deliveries grew 9.5% while deliveries of turbine-powered rotorcraft surged ahead by 19.9%.
The Used Airplane Segment
This segment provides another case of confused indicators, with the available inventory of used aircraft ‘For Sale’ posting a gradual-but-steady decline through the year to (as of the most-recent reports) the lowest level since before the Great Recession.
Inventories of used business jets, turboprops and helicopters are all trending lower, according to JETNET. Inventories fell by a running average of 0.5% Year-over-Year (YoY) in September, according to data released in late October.
The largest declines occurred in inventories of business jets and turboprops, with jet inventories falling by 1.1% from the same time in 2016, to 10.4% today. Turboprop inventories also dropped 0.7% to 7.4%.
“This is very good news, but we are just above the 10% line for business jets and still in a buyer's market,” JETNET said, adding that the inventory now sits at just above 2,200 aircraft.
Over the first nine months, JETNET reported sales of used business jets grew to 1,946, up 5.9% YoY. Time to sell held steady at 313 days, meanwhile. Sales of used turboprops plunged to 911, down a whopping 10.2%, while the average time to sell grew to 309 days, up 13 days.
Confounding the steady shrinkage of the available inventory was a stubborn hold on asking prices. Asking prices usually rise as inventories fall, and fall as inventories grow. Instead, they have held surprisingly flat, confounding bargain hunters and quick-sale ambitions of even those who reduced their asking prices.
Financing the Used Segment
The real surprise in this muddled image came from the financial markets. Interest rates spent the year holding relatively stable with terms less burdensome than the nearly impossible conditions extracted by lenders from the start of the Great Recession.
Once again lenders made it possible for an aircraft buyer to land attractive terms with reasonable down payments and near-record low interest rates for loans as long as 20 years, depending on the aircraft.
Overall, terms with mid-single-digit interest rates and loan durations of seven to 10 years remain dominant.
Overall, the used business aircraft market appears destined to close out 2017 on a stable but weak note – loosely parallel with new aircraft sales.
Multiple forecasts predict a small, single-digit-percentage-level decline in both new and used sales when the final tally comes for 2017.
What This Spells For 2018…
With all the general economic indicators in positive numbers (stock market, up; unemployment, down; employment, up; GDP, up; profits, up), analysts and experts seem baffled that aircraft sales haven't followed past trends and increased with the overall economy.
The analysts hint that global instability and a lack of major differences between today's newest business aircraft models and existing lift have led to the buyers' market conditions they proclaim are dominant.
“A point or two of improved fuel efficiency numbers and nicer amenities in the cabin aren't generating the excitement seen before the Great Recession,” one analyst offered. “Things like more modern avionics don't excite the folks in the back as much as they might excite the flight crew – and may offer little that is new in the way of true utility.
“Indeed, during the recovery from the recession a lot of operators learned that upgrading an aircraft delivers pretty much all the same comforts and amenities as buying new – but with a much lower financial commitment and some renewal of available depreciation.”
The Teal Group issued a forecast predicting the new airplane market should return to pre-recession levels in another four years.
Other forecasts anticipate stronger sales of Light jets as Medium jets continue to hold and Large-Cabin jets are flat-to-down following the boom years that occurred during the recovery. Nevertheless, the larger jets will continue to hold an outsize share of sales revenues.
Other forecasts point toward slow, steady sales growth through the next decade, only returning to pre-recession levels of 2008 somewhere around 2022 to 2023. If that’s correct, it would continue the longest, slowest recovery in aviation history.
At the same time, long-term prognostications for used aircraft sales point toward continued slow sales, with YoY declines expected through the end of the decade, and inventories continuing to slightly decline as more operators decide to hold on to and upgrade their existing aircraft.
“Heading into 2018, finance lenders have certainly been getting smarter in their lending. Many have specific product ranges they’ll lend on,” Paul Sykes, Director & Founder, FlyFunder summarized for AvBuyer.
“There are plenty of ‘niche’ finance providers focused on lending for good assets within a specific price band or aircraft-type/category. Ultimately, those with strong credit will have few problems obtaining financing.
“We have also noticed a shift in the type of lending heading into the New Year. There’s been a pronounced move from lease financing to debt financing – particularly with lenders such as CIT and GE exiting the market. The gap between the two types has definitely been closing.”
Some of the market pressures relate to the uncertainties of global politics, such as the strains between the US, North Korea and some Middle East players. Some stem from the backtracking of previously resolved issues by the Trump Administration in its first 10 months in power and the instability those moves introduced to previously strong alliances the US had with long-term friends.
In the meantime, the global Business Aviation community will begin to face staffing challenges, from flight decks to maintenance shops, as aviation continues to increase its demand for Flight Department managers to fill needed positions.
The other jobs unlikely to suffer from a lack of need: Aircraft sales and marketing jobs, as private aviation continues to grow in utility and opportunity.