Jay Mesinger characterizes aircraft brokerage as “…one of the most unsophisticated sophisticated industries in the world”. So what does that mean to you?
Buying and selling jets and turboprops involves complex financial transactions, usually with considerable sums of money changing hands. We use procedures unique to our industry, such as “Back-to-Back” transactions, at times with limited transparency. We engage highly successful entrepreneurs and major corporations in sales that are documented by seemingly incomplete contracts.
Sophisticated business people are participating in a sophisticated form of transportation—Business Aviation—using some of the world’s most sophisticated and technically advanced jets and planes, yet we have no recordation body that accurately captures or documents what has transpired. To repeat, we are participants in the most unsophisticated sophisticated industry found anywhere.
Buyers say they paid less for their jets and Sellers say they received more when the same jet changes hands in the marketplace.
Knowing what actually happened is difficult to ascertain for participants on either side of the jet sale. Without accurate and good data, however, it is very difficult to make good decisions about pricing.
In other transactional markets such as buying and selling real estate, accurate pricing is captured by the government’s sales tax division and the industry’s recordation bodies. When your realtor provides you with comparable sales prices for homes in your neighborhood, you know what to ask for your property. In other words, you have good data with which to work.
Why Not in Business Aviation?
Our industry offers nothing in regard to third-party objectivity. Bills of Sale for aircraft, which are available to the public and should provide good data, typically state the change of ownership was for “$1.00 + OVC” (other valuable considerations). Brokers are often bound by non-disclosure language, thus participants cannot give other brokers or reporting books accurate sales prices.
Consider companies whose role it is to keep our industry abreast of sales prices. There are two, Aircraft Bluebook Digest and Vref. Both are good and reputable publications. Both have been around for years, and both are owned and operated by seasoned industry professionals. But they can be no better than the input they receive from contributing participants.
The old saying, “garbage in, garbage out” applies.
I cannot state the situation with greater simplicity. If people who provide information to the reporting books are not accurate (worse, if they are not truthful), we all lose. Perhaps those reporting are well intentioned, thinking that if they report higher prices the market will not look bad, or conversely reporting lower numbers will make the market look inviting. But they are misguided—they are doing no one any favors.
Every quarter, I call both Bluebook and Vref to discuss my current inventory on the market. I give them the history of pricing that may have taken place for each aircraft between the present and when they published their last book. Also, within reason, I talk about sales prices since their last book was distributed. Like my peers, our company is often bound by confidentiality agreements, but within a range of possible transaction prices I feel ok that the information I convey will lead to more accurate pricing data.
The better the resources we all have, the better our industry will be and the better a potential broker can represent his or her client. All participants win with better data. The smarter our industry the more sophisticated we can become.
Many Moving Parts
Other challenges regarding accuracy and transparency exist, but solving a few big issues such as pricing accuracy will be a significant step forward and there will be fewer problems to solve. Often between the date pricing books are published and the present there will have been very few - or in some cases no - transactions. Such inactivity carries its own set of difficulties. (Do the books ever look at inactivity between quarters and wonder if perhaps there were few or no transactions because the prices are too high? I hope not.)
Pricing books are in the business of reporting transactions, not predicting or shaping a languishing market. They are expected simply to report on market activity since the previous quarter (although I do often see large pricing swings when there are very few transactions to report from the prior quarter). I have mentioned to the management of both pricing books that in those quarters with no transactions perhaps the data should be denoted in another color or just left out of that quarter’s books (possibly with a note that signifies the lack of activity).
The market is complicated. Reporting meaningful data is complicated. I wish there was a better answer for establishing appropriate asking prices, sales prices and residual value calculations.
The answer, however, has been the same for years—interpolate!
Have researchers in the market daily, build relationships with other dealers and brokers, and urge industry touch-points to respond accurately and honestly.
Imagine an industry where you could come to work every day, turn on your computer and see a report with accurate asking prices and corresponding purchases. Some realists might label that scenario a miracle, but others might say our unsophisticated industry was one step closer to sophistication!
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