As Theodore Roosevelt wisely stated, “comparison is the thief of joy.” That is good news for our industry as 2020 presented such unique circumstances, we should be mindful in using it as a reference point. Now we find ourselves midway through another year that, certainly as far as the pre-owned business aircraft market is concerned, is without compare.
Pricing is firm and back to pre-pandemic levels while inventory is the lowest we have seen in 25 years when measured as a percentage of fleet available for sale. First-time buyers are entering the marketplace at a magnitude I’ve not seen in my 30-year career, and existing owners are increasing utilization as we continue to open back up globally. The cost of borrowing is low, the economy is high; and the perception of private aviation as it pertains to health, safety, flexibility, and its correlation to business profitability is soaring.
As lovely as that all sounds, it is presenting real challenges for both buyers and sellers. Scarce inventory as a result of increased demand, coupled with OEM production reductions over the last decade have certainly impacted the number of pre-owned aircraft in market circulation. To say it plainly…we have more buyers than airplanes, and reluctant sellers who are unwilling to find themselves without a replacement. But, there is always a silver lining and a smart way to approach this current market dynamic.
There are quality aircraft for sale, and deals are getting done. In fact, according to JETNET data through May of this year, over 1,100 pre-owned jets and nearly 600 turboprops have transacted. However, in taking a closer look you’ll find that most quality aircraft are sold before they ever hit the market. In our experience at jetAVIVA so far this year we’ve seen substantial increases in the amount of off-market aircraft transactions, and our buyers are more willing than before to look internationally to find the right aircraft.
Additionally, lower inventory does not necessarily mean inflated prices. The pre-owned market is conservative by nature. Ordinarily, the best we can expect is pricing stability in lieu of the normal decreases. Yet, this market is seeing increased pricing compared to last year – but here we go making comparisons again…The reality is that the pricing reductions we saw in 2020 provide a false floor from which to measure. The recovery in aircraft values is positive for long-term residual values. So, it’s ok to buy today and don’t count on significantly lower prices tomorrow by waiting.
- Despite the complexities of buying in this market, many try to go it alone. I’m certainly biased on this point, but working with a professional who can protect your interests has many benefits.
- Be patient. Once you’ve decided to move forward with purchasing, be prepared to wait to find the right aircraft and at the right price.
- Be prepared to move quickly. Have money in escrow, and be willing to work with sellers to successfully complete all aspects of the transaction.
Market dynamics such as this certainly put sellers in the driver’s seat. However, that doesn’t make selling as easy as it seems. Buyers are still discerning. Understanding the value of your aircraft and determining pricing strategy remain as important as ever, and navigating complex deal dynamics, multiple-offer scenarios, and figuring out a replacement strategy can be quite challenging.
The proper presentation of your aircraft either on- or off-market can have a big impact on pricing. As mentioned, first time buyers are driving a lot of the demand, and they are understandably more risk averse. Aircraft that need upgrades, work, major maintenance or with questionable pedigree are still being overlooked in this market.
- Time it right. If you are selling your aircraft and intend to upgrade to another, start the acquisition process first as this will take the most time.
- Know your worth. “Ready to Go” aircraft are still the most in demand. Working with a professional to understand how your aircraft will be received by the market, and pricing it accordingly is an essential step.
- Cash isn’t necessarily king. Remember the goal is still a successful transaction so you can move on with the next piece of business. Properly vetting buyers who can perform all the way to the end of the process and evaluating offers will set you up for success.
As we enter the second half, and the fourth quarter looms, our outlook remains positive. Now is clearly a good time to sell, but also a good time to buy. OEMs are building a backlog again and increasing production. This will continue to firm-up residual values and will lead to more pre-owned aircraft in market circulation. Pricing is expected to remain steady but not stratospheric. We will take each day as it comes without comparing today with 2020, and thus will keep our joy intact. (Thanks, Teddy)