All posts tagged 'Aircraft sales' - Page 3

The scourge of the off-market aircraft; often referred to as 'fools gold'

Business and other segments of General Aviation are by nature fairly exclusive realms. What I mean by saying this, is that seeing that there are 6,880,000,000 people on this planet, while there are almost 32,000 business jet and turbo-prop aircraft that are in operation around the world. This equates to 215,000 people to every business aircraft, which in reality is not a true figure because there are really only approximately 200,000 actual business aircraft owners, therefore there is less than 0.003% of the world’s population that can actually be classified as a business aircraft owner. You really have to try hard to be more exclusive than that.

Unfortunately there are many who believe that when an aircraft is put up for sale, it should be marketed and sold in a stealthy and even more exclusive way than befits the actual marketplace. What do I mean by this? I shall explain:

The potential market for any given business aircraft is about a quarter of a million people. Of course it can be argued that this market is much larger than this, but the total market has historically only grown by about 900 aircraft per year since 1990. The numbers are as follows:

Heavy Jets Added to the Fleet Every Year (Average Since 1990)

160 Average

Medium Jets Added to the Fleet Every Year (Average Since 1990)

219 Average

Light Jets Added to the Fleet Every Year (Average Since 1990)

210 Average

Turbo-Props  Jets Added to the Fleet Every Year (Average Since 1990)

329 Average

Total Business Aircraft Added to the Fleet Every Year (Average Since 1990)

918 Average

 

In light of the numbers above, it is evident that the business aviation fleet (marketplace) is growing at a pace of just under 3% of the total fleet, per annum.

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There are currently 2,641 Dealers, Brokers and Trading FBO’s that are listed in the AMSTAT database. This total consists of every corporate entity that has been involved in at least one aircraft sales transaction. Out of this number, it is fair to suggest that half of these entities are merely a shell company that was formed for one-single aircraft transaction, thus this number changes to 1,321. Lastly it is realistic to say that the rest are either bankrupt, or they have not bought or sold an aircraft in over a year, and therefore in my opinion, is not therefore active. Our number of Dealers, Brokers and Trading FBO’s now drops to 925 in-total.

In 2007 between January 1st and December 31st, there were 2,681 Retail-to-Retail transactions worldwide. In 2009 between the same period, 1,604 Retail-to-Retail transactions took place, again worldwide. Since January of this year; to-date (September 28th) there have been 1,212 Transactions. What is very revealing about these numbers is the fact that only 20 Dealer, Broker and Trading FBO companies transacted 6 or more aircraft during the whole of 2009, while the rest were sporadic sales.

So after looking at the numbers I would like to return back to both the title and the premise of this article, which is my firm belief that selling a business aircraft ‘off-market’ is a very bad plan. Please allow me to explain:

The true market of potential buyers active within today’s Resale Business Aircraft Market is minute (<0.003% of the world’s population.)

The average number of business aircraft sold, per Dealer, Broker and Trading FBO companies is about 1.7 aircraft 2009 figures: 1,604 transactions between 925 companies), but in truth almost half of the resale transactions (>40%) are being conducted by slightly over 2% of all of these companies put together (JetBrokers, Inc. is one of the companies that is firmly placed within this 2% grouping.)

There are approximately 25 websites where business aircraft are advertised for sale. There are 2 subscriptions only, multiple listing services that specialize in the tracking of business aircraft sales. There are 4 print magazines (in English) that are dedicated entirely to advertising business aircraft for sale; with 25 plus that advertise (in English) both small/light/general aviation craft as well as business aircraft.

The average days on market (the number of days from listing agreement signing to transaction closing) is currently running at about 350 days. Most professionally brokered aircraft sell within between 60 to 180 days if they are correctly priced.

A professionally business represented aircraft will have its entire collection of records audited and the aircraft will be evaluated for condition, value and proper placement (the list of ‘like’ aircraft next to sell), with appropriate pricing. An ‘off market’ aircraft will not have these advantages.

A professionally business represented aircraft will have accurate and industry standardized written specifications along with descriptive and effective advertising copy. An ‘off market’ aircraft probably will not.

A professionally business represented aircraft will be advertised in places that have proven time and time again, to be seen and read by qualified buyers. An ‘off market’ aircraft probably will be offered either ‘under the table’, or worse in an unidentifiable condition, i.e. with no serial number and generalized and probably inaccurate specifications. This instantly makes the ‘off market’ aircraft of no tangible interest to real buyers.

It is human nature that every human has at least one person in their lives that they tell all of their secrets to. If a business aircraft owner is motivated to sell ‘off market’ because they do not want to attract attention to either themselves or their company, within a day or two the top 2% of all of the Dealer, Broker and Trading FBO companies will know about it, and within a month, everyone will know about it, all 925+ companies. By this time the aircraft will have become damaged goods if it has not been snapped up by a bargain hunter. Why? There will be so many companies and individuals that have an attempt at vending the aircraft to potential buyers, so much so that facts, prices and layers of middlemen will become so confused and mismanaged that the ultimate selling price shall reflect a loss to the owner that closely mimics how a damage history affects aircraft value. This is where the term ‘fool’s gold’ is appropriate.

The seller ultimately shall unknowingly leave so much money on the table, instead of it being yielded to him/her through a formal brokerage agreement, just to satisfy the now in-built strata of middlemen.

‘Bedroom brokers’, meaning individuals that have no formal place of business, or corporate structure to transact an aircraft transaction, and yet they are actively trolling the marketplace for unsuspecting buyers and sellers alike. Well the ‘off market’ aircraft is their meat and potatoes so to speak. This is because they are either unwilling or unable to secure formal exclusive listings of aircraft inventory to represent, market and sell, and therefore the ‘off market’ aircraft is a gift horse that they cannot resist getting involved with. Well now both a seller and a buyer have set themselves up as prey for these individuals who care only for their commission, and not about the arrangement, handling and successful conclusion of an equitable sales transaction. Professional brokerage companies will only work for one commission. I have known of bedroom brokers that have accepted as many as three commissions, all resulting from the same transaction.

With all of these factors weighed in, hopefully now you can see how an ‘off market’ aircraft is really a scourge, rather than the jewel that it could be, if you chose the formal path of representation instead of the nefarious approach.

What do you do with a few hundred parked regional jets?

Based on reports in USA Today, The Wall Street Journal and Bloomberg, Delta plans to park a big majority of the 50 seat regional jet fleet, operated by its subsidiary Comair, for economic reasons.

Other regional airlines have already parked, or they are soon to park many of their 50 seat or less aircraft. Michael Boyd of Boyd Group International is quoted in an Arkansas Online article saying that by 2015 US airlines will only be operating 200 regional jets with 50 or fewer seats, down from about 1200 at an all time high.  The 50 seat regional jet does not work in a cost driven airline world, especially when fuel is high.

There are two outcomes from these decisions that are interesting to me. [more]

1)      As the airlines park these aircraft, service to many smaller markets will be cut. In many cases, they are not parking the aircraft to put larger aircraft on the routes. In an unregulated airline system the airlines are not going to fly where they can’t make money and that is bad news for smaller markets.

2)      There will be a big group of Canadair CRJ 100/200 and Embraer ERJ 135/145 regional jets sitting in the Arizona desert, possibly numbering in the hundreds.

As I hear from people in the leasing industry, the market for regional airline turboprop market is strong worldwide because the used fleet can be leased or purchased very cheaply compared to new prices. The operating costs of turboprops are much lower than the regional jet, especially on short haul routes that are common in developing economies.

So what do you do with a few hundred regional jets that are parked? At what price point do they become economically viable? Where are the new missions for these aircraft that would bring value and a new life for these aircraft?

Back in the early part of the last decade this same problem existed with the regional airline turboprop fleet as they were parked in favor of the new regional jets. Airlines going to an all jet fleet parked their Saab 340’s, Jetstream32’s and 41’s, Embraer 120’s and Beech 1900’s and the desert was full of stored aircraft. Ten years later you don’t see many sitting around. Most are deployed outside the US meeting the mission requirements of small airlines and government special use operations.  

Eventually the market will figure out how to redeploy these regional jets that have a lot of life left in them. It is all about economics. The combination of capital costs (lease or financing) and operating costs have to meet a point where it makes sense in a new use. Lower capital costs allow for lower utilization operations such as air cargo and charter.

It seems that a big opportunity exists for charter operators to use these aircraft for contract flying, corporate shuttles and on demand point to point charter. There is a service gap that continues to grow as airlines focus on high-density domestic markets. Could these regional jets help fill the gap?  

What do you think?

'One Hit Wonders' and the state of the marketplace today

“One Hit Wonders” and “Nervous Nelly’s” best describe the potential client base active within the used business jet and turbo-prop market today. A “One Hit Wonder” is someone who makes a very low offer for an advertised aircraft, and if the offer is countered as a part of what would normally be termed ‘normal negotiation’, immediately vaporize and are not available for any further discussion. “Nervous Nelly’s” are buyers whom constantly sit on the fence without stepping off either side of it. They sporadically hang around for days asking all sorts of questions and scenarios, but when you believe that they are ready to make a move, they back away and go quiet for a month or so. “One Hit Wonders” rarely make a deal, but the “Nervous Nelly’s” must be attended to, otherwise six months into the future you learn much to your consternation that they finally reached gestation while talking to another broker, and in turn have bought an aircraft that you would never have shown them, because ultimately it was wrong for them.

Unfortunately this current environment of “Price-Only Buyers” shall most likely prevail as the ‘norm’ for several years to come. Now when I use the term, “Price Only Buyers”, I am describing how, in most cases, the skills and interests normally associated with ‘educated’ and ‘intelligent’ buyers are all but lost today. To illustrate this, an excellent example is found within the Dassault Falcon 20-5 retrofit market. [more]

Even though it is probable that there are two or three kits still in existence, to allow the conversion of several more Falcon 20s, the likelihood of this happening is highly improbable. Since the Honeywell TFE-731 engine retrofit program started in the late 1980s, there have been 117 aircraft that have gone under the knife, so-to-speak, and now sport Honeywell instead of their old General Electric CF700 engines. Today 30% of the fleet are available for purchase in a used condition.

Conversions at the peak of this program normally cost around $4,500,000 to have accomplished. This was on top of the initial acquisition price of the candidate aircraft itself. Many F Models trickled onto the used market in the $7,000,000 to $9,000,000 range. Most sold quickly, because there was high demand for these large-mid cabin aircraft that gained almost a doubling of its range due to the improved fuel efficiency of the retrofitted engines.

23 Falcon 20 Basic Model (which is 13% of the 173 model fleet), 6 Falcon 20D Model (which is 10% of the 61 model fleet), 13 Falcon 20E Model (which is 21% of the 63 model fleet), and 75 Falcon 20F Models (which is 54% of the 138 model fleet) have all since been converted. The greatest distinctions between these four different models are that the D, E and F Models have bigger ‘fuel feeder tanks’ (they carry an extra 80 gallons of fuel); the E and F Models have a higher Zero Fuel Weight; and lastly the F Models eliminated many of the corrosion prone spot welds by going to rivets as a replacement, plus they carry 40 more gallons of fuel than the other Models, they are equipped with Single-Point Refuel Ports as standard, and most significantly they have Full-Span Droop Leading Edge-High lift Devices which provide for shorter take-offs and landings.

Notwithstanding avionics differences between each model, in the 1990s, a Falcon 20C-5BR (Basic Model) would on-average, trade $2,000,000 less than a Falcon 20F-5BR. Now in today’s market virtually none of the Models will break $2,000,000 during a sale, while many, including F Models, sell at or below $1,000,000. With this price-evening of the field, the distinctions of Model differences are pretty much lost on most buyers. The price/value basically takes the educated and intelligent decision making out of the equation. Buyers focus on price alone and pretty much don’t care about the Model differences, which once mattered a great deal. Hence my assertion that Educated and Intelligent Buyers have left the field of business negotiation-conflict.

Why has the Falcon 20-5 Market been levelled so quickly, you might ask? Well I am afraid that it all boils down to age. Business Aviation is relatively young. It can be argued that here in the United States, the Beechcraft Model 18 was the first real-purpose-built Business Aircraft. This and the ex-wartime Douglas DC3 formed the backbone of the post-war Business Fleet of Corporate America. Things rapidly altered in 1959 when the turbo-propeller powered Gulfstream GI was first introduced. Then came the Lockheed JetStar, the North American Rockwell Sabreliner, the Beechcraft King Air, the Learjet 23, the DeHavilland Hawker 125, the North American Rockwell Jet Commander (Westwind), the Dassault Falcon 20, the Gulfstream II, the Cessna Citation 500, and-on-and-on until the present day.

Production deliveries of the Dassault Falcon 20 started in 1965, the year I was born. Production pretty much ended in 1985. The oldest Dash-Five Falcon has celebrated its 44th birthday this year. There is both a force of natural attrition, and also an-industry attrition that which determines the useful life of a product like a business aircraft. Natural attrition is determined by the cost of replacement parts availability and cost. Industry attrition is determined by the banks that lend money to purchasers of these products. Both systems normally run fairly close together, however in the last 50% or so of a product’s life, industry begins to lead the natural state by 15 to 20 years.

In the early 1990s, most banks were quite vocal in letting buyers know that they were reluctant to finance aircraft that were manufactured before 1980. By 2000 that had year-model comfort threshold had risen to 1985. By 2005 we were looking at 1990. Now today, in late 2010, while we are all recovering from the worst recession in living history, that threshold has leapt-up to the smallest gap ever to 2005. Banks just don’t like old aircraft. Of course you can borrow money to snatch up an incredibly deflated value Dassault Falcon 20F-5BR (80%+ discount from ten-years ago), but there is a strong likelihood that you will have to put 80% of the money down as your collateral down-payment, while you are allowed to borrow only 20% of its purchase price. This would have been in reverse 18 months ago, i.e. 20% down and 80% financed. Yes, the world has been completely turned onto its head.

Unfortunately this cause and effect is rife between almost 75% of the entire active fleet of business aircraft. Back in February 2009, I wrote at this Globalair.com site how the business fleet had experienced a 40% to 60% drop in value since the previous year (2008); then in August of 2009 again at Globalair.com we discussed the issue of “when is old, too old?” Now today, I am reporting to you that some models have dropped to 80% or more from their previous values of pre-recessionary times, while a large segment of the fleet just does not currently have any resell value, even at any price.

The secret to success in buying and reselling used business aircraft has not changed on-jot. Instead it has tightened up. In all cases now, the path to enlightened success lays in buying the Youngest, Lowest Time, Best Equipped Aircraft that you can stretch your money to purchase. It’s as simple as that. Meanwhile if you are looking at the new “paradigm of values”, when the economy does improve significantly in five to ten years from now, there is a great chance that your position taken today might see you realizing 300% or 400% on top of what you pay today, when you decide to sell later.

We see now real signs of improvement in the business jet and turbo-prop market, except for the cherry-picking that is still going on in the GIV/GIVSP markets; however, the Gross Domestic Product of the U.S. economy has grown by about 3% so far this year, with good signs that it will maintain this recovery pace without interruption. The only year that historically the U.S. economy saw a ‘double-dip’ recession was in 1981, and that was in response to the Federal Reserve raising the interest rate to combat inflation. Well there is no one, in my own opinion, that would suggest that we are to fear inflation at the moment, or anytime soon, therefore I would love to see the term “Double-Dip Recession” to be struck from the English language, so we can all get on with seeking out a faster path to recovery. My ‘two cents.’ Ciou.

Aircraft Technical Analysis Tips

When evaluating aircraft, we tend to focus in on the things we know best. Once we get a feel for those, we then hope the other information we turn up is OK as well. When I’m working with a financial type, she’s interested not in how fast the aircraft flies, but in the costs, how we account for major maintenance, what we show for the acquisition price, etc. With the pilots, we focus in on the specs and performance, the technical analysis.
 
With the pilot, we focus in on size, features, range, and performance. The mission drives these requirements. Many of the aircraft acquisition plans we do focus on requirements such as passenger seating, cabin size and range. The general way we approach this is to:
 
* Determine the most (likely) demanding payload, range, cabin size and/or passenger seating requirement as defined by your key mission.
 
* Compare those mandatory requirements against the capabilities of a range of aircraft from the sources of information you have gathered.
 
* Eliminate all those that do not meet the requirements.
 
* Eliminate those aircraft that are vastly more capable than required. The cost of acquisition and ownership does up dramatically as size, range and speed increase.
 
Here is where it can get tough. Just how are the numbers derived? I’ve had pilots distrust our data initially until we’ve discussed the ground rules used.
 
If you need a range of 1,450 nautical miles (NM) with four passengers, what exactly do you mean? For the range, do you mean VFR range? IFR range? IFR range with what sort of alternate airport? 100 NM alternate, 200 NM alternate, something else? In general, literature on turboprops and very light and light jets refer to ranges with a 100 NM alternate that follows the NBAA IFR Fuel Reserve format. Somewhere in the light jet category, the 200 NM alternate becomes “standard.”  Our numbers for an aircraft such as the PC 12 are with a 200 NM NBAA IFR Fuel Reserves. Very different than IFR 45-minutes that an owner-pilot may be thinking about.
 
Passengers are passengers, right? No. Most published data assumes each passenger (with bags) weights 200 lbs. But some data may refer to 170 lb passengers, while the FAA and airline data suggest the average American airline passenger with bags runs well over 200 lbs. So when we discuss how far with how many passengers, I like to make sure that we are talking about 800 lbs instead of four passengers.
 
The same passenger weight comment applies to the Basic Operating Weight (BOW) of the aircraft as well. BOW includes crew. Is your aircraft to be flown single pilot or with two pilots? That 200 lb difference in weight can, when carrying near full loads, mean 200 lbs plus or minus on the fuel load, or almost 30 gallons. If your aircraft burns 120 gallons/hour at 240 knots, 30 gallons is 20 minutes or 80 NM. That may be enough to move the aircraft from acceptable to not acceptable due to its range.
 
The last area where things can be confusing is that much of the published data on aircraft are “maximums” and may not be achievable under most conditions. As an example, the Certified Ceiling is the maximum ceiling the aircraft is certified to be able to operate safety. That does not mean that the aircraft can climb that high on an everyday basis. Just because the aircraft has a Service Ceiling of 51,000 feet does not mean that the aircraft routinely flies there.
 
We look at Service Ceiling at max take-off weight. How high can the aircraft initially climb? The 51,000 certified jet may initially climb to 43,000 feet, where it sits until it can step climb the FL450, then FL470. That initial figure is a good basis for comparison, one I favor over an absolute maximum.
 
When evaluating aircraft performance and technical specifications, you need to understand the assumptions that went into the number. Especially as they relate to your aircraft requirements. When comparing data for different aircraft, you need to have the data based on the same assumptions – the old “apples-to-apples” comparison.

A new feature for buying and selling aircraft

Here is a copy of a press release we issued earlier today about our new aircraft comparison feature. Check it out by using this example here of a Gulfstream G550.

GlobalAir.com revamped its Aircraft Exchange site in early 2010 to include a treasure trove of new features. Yet the company refused to stop there.

This month it added another new tool that will make life much easier for those in the market to purchase an aircraft.

Programmers at GlobalAir.com, with the help of several aircraft brokers, developed an in-depth aircraft comparison tool launched this week. Prospective buyers can use it to contrast an unlimited number of a type of aircraft to seek certain features such as interior layout, an avionics suite or maintenance updates.

Other comparison aspects include when and what particular paint job looks like, engine specifications, propeller / APU times, and a section for options and features.

“This is a technology-driven achievement,” said Jeff Carrithers, president of GlobalAir.com. “Now it will be so much easier for aircraft brokers and end users to have a research tool to compare an unlimited number of aircraft at the click of a button.”

GlobalAir.com representatives will show off the new feature, along with other site upgrades, later this month at EAA Airventure in Oshkosh, Wisc., July 26 - Aug. 1. They encourage you to visit them at Hangar D, Booth 4028.

“It is informative, easy to navigate and pleasing to the eye,” Carrithers said. “The aircraft broker/dealer community is going to thank us. We’re helping buyers perform research that normally is burdensome to the sales process because of the lack of information. The more details you can give a buyer, especially on a large-ticket item like an aircraft, the more readily they can make a decision. After visiting our site, all they have to do is call, email or text a seller. Then the deal process is one step closer to being done.”

Earlier this year, GlobalAir.com performed a major overhaul to its Aircraft Exchange.

Among the many updates added, the new features allow an advertiser to post an unlimited number of aircraft images into a click-and-drag photo-flow tool, options for a seller to receive ad inquiries via text message, a feature invented by GlobalAir.com developers. A buyer also can post an aircraft to a Facebook page and has the ability to download complete specs of an aircraft, along with images and any other details a seller wants to make available.

“We’ve went all out on this new page,” Carrithers said. “Seeing an ad on our site is the next best thing to looking at an actual aircraft in person. Now that we have included this comparison feature, the sky truly is the limit for dealers displaying an aircraft on our site.”

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