Recent economic news indicates a bottoming-out of the recession- and possibly the start of a recovery. Recent prognostications by Jack Pelton at Cessna and Richard Aboulafia at Teal Group predict aviation to lag the general recovery. Best guesses are for a recovery in late-2010 with a return to sunny skies by 2012. So where does that leave future aircraft values?A current snapshot shows 15% of the active fixed wing ...Back to Articles
Recent economic news indicates a bottoming-out of the recession- and possibly the start of a recovery. Recent prognostications by Jack Pelton at Cessna and Richard Aboulafia at Teal Group predict aviation to lag the general recovery. Best guesses are for a recovery in late-2010 with a return to sunny skies by 2012. So where does that leave future aircraft values?
A current snapshot shows 15% of the active fixed wing turbine fleet is for sale. This figure has been stable for much of 2009. However- within certain aircraft groups- there are different stories to be told.
THE OLDER BIZJET FLEETâ¦
Greater than 25% of the active fleet of older business jets is currently for sale. This includes popular aircraft such as the Lear 20 series- first generation Citations- Challengers- Hawkers- Gulfstreams- and Falcons. Almost every older business jet aircraft type has significant inventories for sale. Conversely- but unsurprisingly- the newer model years have much lower percentages of the active fleet for sale.
As an example- here are the August stats for two model lines built in significant numbers according to AMSTAT:
â¢ Hawker 800s built 1984-1995 = 24% of fleet for sale;
â¢ Hawker 800XPs built 1995-2005 = 13% for sale;
â¢ Hawker 900XPs built starting in 2005 = 7% for sale;
â¢ Challenger 600s built 1981-1983 = 37% for sale;
â¢ Challenger 601-3As built 1983-1993 = 24% for sale;
â¢ Challenger 604s built 1996-2006 = 11% for sale;
â¢ Challenger 605s built starting in 2006 = 9% for sale.
Looking at other models with long production runs reveals a similar pattern. A much greater percentage of older business jets are for sale versus the newer models. As we head into a likely recovery- how might business jet values fare?
PRE MID-90s MODELS
Values for business jets built before the mid-1990s are in dire straits - and they won't likely recover. Even looking back at 2007 and early 2008 (pre-downturn)- those aircraft weren't strong sellers.
Many of the early- first generation business jets are probably at- or near- their salvage value - the value of their individual airworthy components.
Given their relatively high operating costs- many of the oldest models- although airworthy- are near the end of their economic useful life. There remain far fewer buyers than sellers for these aircraft at nearly any price.
MID 90s THROUGH MID-00s
Business jet values for those built in the mid- 1990s to early 2000s should see a mild price recovery. If aircraft demand recovers back to 2007 levels- it likely won't happen until after 2012. By that point- the aircraft in this year group will be aged 10 and older.
While these aircraft will have many good years of service remaining- there will be newer- more up to date alternatives.
FIVE YEARS AND UNDER
Values for business jets less than about five years old will recover first and strongest. These aircraft will be the leaders in any aircraft sales recovery and thus- their values will recover first. Given the number of aircraft built and delivered from 2002-2008- these aircraft will meet much of the pre-owned demand as we recover.
There are many excellent deals out there- and for those who are buying now- they are getting good value for their money.
AIRCRAFT REPLACEMENT PLANNING
But where does all of this leave you in your Aircraft Replacement Planning? If the current aircraft you operate is in the oldest group- we would recommend upgrading to get reduced operating costs- updated avionics- and greater availability.
Don't worry much about trying to time the market for a recovery in its value - it won't mean much. You are better off replacing the aircraft sooner as today's values for newer models are about as good as it gets!
If you are operating aircraft newer than those manufactured around the mid-1990s- and if you plan to upgrade to a more capable aircraft- try to do it sooner- rather than later. Yes- if you wait- your aircraft value will likely recover- but not as much as the potential price increase for the newer models will.
If your current aircraft is less than five years old- its value will recover. Unless you need the cash- or the tax depreciation- why get rid of it now? If you are upgrading to new- balance the savings of buying today with the potential increased trade-in value of buying in a year or twoâs time.
IF YOU CHOOSE TO RETAIN...
If you choose to retain your current aircraft- keep a close track of your operating costs as you are heading into those high-cost years for major airframe and engine maintenance. The increasing likelihood of substantial unscheduled repairs and the decreased availability that comes with an aging aircraft may force its replacement.
As always- if your current aircraft is not capable of performing the mission- then it is already time for a replacement. Aircraft costs- reliability- support and mission requirements all play a part in when to replace your aircraft.
David Wyndham is an owner of Conklin & de Decker. The mission of Conklin & de Decker is to furnish the general aviation industry with objective and impartial information in the form of professionally developed and supported products and services- enabling its clients to make more informed decisions when dealing with the purchase and operation of aircraft. With over 1-800 clients in 90 countries around the world- Conklin & de Decker combines aviation experience with proven business practices.
More information from www.conklindd.com; Tel: +1 508 255 5975