Although business aircraft transaction activity is showing signs of life, aircraft valuation for resale purposes has, for many makes and models, become more of an art than a science. Prices seem to fluctuate frequently and without warning, and overall it seems that it is currently a buyer’s market.Back to Articles
Although business aircraft transaction activity is showing signs of life, aircraft valuation for resale purposes has, for many makes and models, become more of an art than a science. Prices seem to fluctuate frequently and without warning, and overall it seems that it is currently a buyerâs market.
A key question, then, is whether identifying an âaskâ price for your clientâs aircraft is essential, and/or whether inviting offers â without a target price specified â will negatively affect the outcome. Letâs start our consideration of this issue with a basic tenet: It goes without saying that the influences of basic supply-demand economics bear directly on the asking price of any given commodity (lots of product available will drive prices down, and scarcity of the product will drive prices up). The amount of transaction activity in the market segment of the aircraft youâre selling or buying, then, will give you an initial indication as to whether the price tag hung on any individual unit is likely to stand up.
Taking current King Air 200 âfor saleâ listings (in JETNET) as an example, we find that 97 aircraft â nearly 14% of the in-service fleet â are available, and the buyer who is willing to take the time needed to analyze the listings can easily determine the average price and what sets the high- and low-priced units apart. In this kind of market, the majority of the aircraft listed are identified with an âAsk Priceâ. It would be hard, after all, to âhideâ a price out of line with the competition by listing it as âMake Offerâ.
Conversely, the Challenger 605 market currently shows only six (6) units â about 5.5% of the in-service fleet â for sale, almost all inviting interested prospects to âMake Offerâ. In this market segment, available units are few relative to the size of the fleet, and buyers appear to be available and interested in finding the best aircraft for the price, so market pressure will play a much heavier influence on the price in the end.
A different independent analysis performed by Mike Chase of Chase & Associates reflects at least an indirect correlation between aircraft weight and whether a price is defined or the âMake Offerâ strategy is employed.
While I did not, myself, have the technical expertise or inclination to even think about this particular approach, and would likely not, therefore, consider developing an advertising or marketing strategy based on an aircraftâs weight, perhaps a more tangible connection that yields essentially the same answer is that of aircraft value: the larger or heavier the aircraft, the more expensive it is likely to be. Now maybe weâre getting somewhere!
Weâve got supply and demand as a potential, or even probable influence on the decision of whether to advertise an aircraft for sale at a specified price or invite interested prospects to âMake Offer,â and we see a fairly direct correlation, in general, to the price of the aircraft on that decision. Intuition and experience further correlates those two elements: the more expensive the aircraft, the smaller the likely prospect pool, the higher the demand, and the more likely it is that there will be one or more brokers/consultants assisting the seller and/or the buyer.
So, now letâs examine the brokersâ perspective.
THE BROKERSâ PERSPECTIVE
Diane Levine Wilson, Director of New Business and Product Development at JETNET, provided the following commentary: âI once chaired a âdiscussionâ at one of the NARA meetings. I asked all the members to get up and take different seats, [those] in favor of setting pricing on one side and those in favor of make offer on the other side.
âI asked for their reasons for advocating one position over the other and got this feedback: For pricing (a much smaller representation), the primary reason was [that] it shows that [brokers] have knowledge of the market and the value of the aircraftâ¦â, the secondary reason being that âin a market saturated with a large number of aircraft for sale, who has the time to call [on] each one to get a price?â
On the flip side, âthose in favor of using a âMake Offerâ strategy [stated that]â¦they didn't want to be locked into a price. When faced with the argument that the âaskâ price is just a starting point for negotiation, they didn't budge in their opinion. My only thought here is that they figured they could raise, rather than lower a price if needs be.
âI have been an advocate for prices for years; however, [brokers] still rely on their inner circles for price information that may or may not be reliable. I think brokers and dealers who report prices are viewed as more professional.â
Input from Savannah Poole, Aircraft Researcher at IntelliJet International, could not have been much more different, and her comments may help us understand why many brokers feel that they are in fact being more professional when they advise their clients not to list their aircraft at a specific, presumably market-based, price.
âWhen demand for a particular aircraft model is on the increase,â she offers, âlisting a price can prevent the seller from later adjusting the price (upward, in particular). Further, listing a price will frequently cause other brokers to note it but not call to get any other information â especially if there isnât anything unique about the aircraft. The âmake offerâ approach results in a lot more inquiries, and starts a dialogue that can take a deal to the next level.â
Further, she offered, âIf someone calls to inquire about the price, chances are at least a little greater that there is genuine interest. Exclusive listings are valuable commodities, and staying in control of as much information as possible helps us demonstrate our value to our clients.â
INFLUENCE OF MARKET CONDITIONS
The last variable weâll explore in this analysis is the influence of overall market conditions â irrespective of the make/model, value, weight, or supply/demand of the aircraft being marketed. Specifically, the pre-owned aircraft marketâs volatility in the past eighteen or so months has forced an increase in the number of transactions for which either the seller or the buyer (or both) engage brokers or consultants.
That volatility increases the complexity of buying or selling an aircraft, and demands the involvement of experienced professionals to help the parties navigate a myriad issues: pricing, legal, financing and tax matters, not to mention the possibility of trade, import/export issues, and non-citizen voting trusts.
Knowledgeable sellers and buyers have come to realize that the time, effort, experience and tools needed to effectively research, then penetrate, the marketâs idiosyncrasies is a valuable and essential aspect of the brokerage/consulting skill set. The nature of todayâs market has increased competition to the extent that every listing must be carefully strategized, then managed judiciously.
While this analysis has probably not conclusively determined whether a seller (or his representative) will be better off advertising their aircraft at a specific price or using a âmake offerâ strategy, we have identified several key factors that lend themselves to a considered decision.
Is one approach more âprofessionalâ than another? I do not believe so. Is stating a price more likely to be successful than inviting prospects to âmake [an] offer?â Yes, in certain instances involving certain market conditions and certain aircraft.
MORE THAN MEETS THE EYE
In summary, as was the case i
n our examination of the manufacturersâ and the buyersâ viewpoints regarding the use of ânon-assignabilityâ clauses in new aircraft contracts (see World Aircraft Sales Magazine, August Issue, p54, there is usually more to each perspective than meets the eye. Supply and demand of a particular aircraft make/model, the price of the aircraft, and the amount of complexity involved in completing the transaction and completing the aircraft delivery dictate a carefully developed marketing strategy.
If youâre a prospective aircraft seller or buyer, talk to at least two brokers and get their views and reasons for them. If they are consistent, and you ignore their feedback, the chances are that your strategy will not be successful.
If youâre a broker or consultant, think about how you would answer that question and be able to provide examples and/or explanations that support your position. The fact of the matter is that until the market improves a lot more and prices are able to stabilize, developing and implementing a successful marketing strategy will be a work of art (with a dab of science)!