Light Jet Market Update

Light Jet Market Update


September 9, 2009

There is no doubt that the light jet business is seeing a response to the generally positive economic news. Q4 2009 has already proven to be our firm’s busiest quarter and we still have one more month to go. The pipeline of buyers is continuing to fill up faster than the rate we can support them with high pedigree aircraft at the pricing levels we are all starting to get accustomed to.

We are getting more and more calls of… “I’m ready to buy a (you name the plane). What’s the best deal?”

We’re also getting a lot of… “Sell my (you name the plane). I’m ready to take my hit and then go hitting on the way to an upgrade”.

The November UBS business jet survey released on the 16th of the month shows continued improvement (more specifically, reduction in deterioration) along most metrics used to measure the strength of the pre-owned business jet market.

This month’s rating was a 45, up from 43 and 37 from the previous two monthly reports.

Newer machines continue to be the first to go.

Though most indicators show that we are quite a ways away from real GDP growth, owing to continued job losses, investors (future and present jet owners) are benefiting from continued cost cuts and resultant corporate profit gains across most sectors. This impetus directly results in buyers making the call to get back in.

Each month that goes by, the same lesson is pounded home. Good pedigree, appropriately priced Mustangs will sell in a matter of weeks; not months. jetAVIVA participated in all three of the pre-owned Mustang sales that were completed in the month of October, with three more under way in November. Serious sellers are taking recent trade data, pricing accordingly, and getting aggressive about working with buyers to get a deal done. A number of Mustang owners are seeing an opportunity to step up to larger Citations (CJ1 through CJ4) now due to substantial dollar for dollar discounts moving up hill.

Though prices are still down 20-30% from the market trading high, we’re encouraged by the rate of entry (and exit for upgrades) of the market.

Phenom 300Phenom 100/300
Embraer continues to pump Phenom 100s out at an aggressive build rate. Over 100 machines will be flying by the end of the year. We continue to see strong interest for the Phenom 100, particularly overseas. In the past week we received five offers on Phenom delivery positions that we have for sale. With only a handful of delivered airplanes available for sale, the pre-owned market is relatively uncharted territory.

As we move to 2010, we expect the Embraer ramp rate to flatten out to allow for demand to keep up. CAE SimuFite has achieved certification on their simulators in Dallas, Texas, and Burgess Hill, United Kingdom, which relieves much of the training challenges Embraer was having with owner-pilots. With many Phenom 100 owners having Phenom 300s on order and certification for the Phenom 300 expected by the end of 2009, we anticipate an increase in supply on the used Phenom 100 market moving into Q1 2010. With respect to the Phenom 300 market, there is still little to no trading occurring in that market for the simple reason that there are no delivered units flying around yet. We expect that the end of Q1 2010 will reveal a different story.

CJ4CE-525/A/B/C markets
In the middle of writing this report, we were advised by our research staff that two of the best buys in the straight CE-525 market (pre-1999) went under contract, with both aircraft going in the $1.5M range. This is exciting news.

The CJ1+ market remains relatively quiet with one trade reported in the last two months. We expect the CJ1+ market to loosen when sellers on the 2006 range machines begin to release at the low $3M price point.

CJ3 continues to be relatively strong on the down cycle. Most of the great deals on the market are gone. However, with CJ4 certification and delivery around the corner, and many CJ4 position holders being CJ3 owners, we expect to see an increase in CJ3 available inventory as owners look to unload before stepping up to a CJ4.

Segueing into the CJ4 market, there have been few trades with a healthy supply of delivery positions available for sale trading below retail.

From our internal data and through speaking with partner brokerage firms, December looks to be a busy month as well. Buyers hoping to get their purchases in to meet end-of-the-year tax deadlines are getting more plentiful, which is driving markets up.  However, moving into 2010, brokers will have their work cut out for them moving the 600 or so pre-owned light jets currently available on the market.