By: Bryan A. Comstock
|Finding a pricing floor for many models has been as elusive as the search for Atlantis, but recent market action is giving hope to underwater sellers. The typical summer plumping of inventory never occurred this year, setting the stage for what could be an active wave of buying in the final quarter.
Retail transactions in the pre-owned segment are up over the same year-ago period among light and medium jets and about even with where they were last year in the large category. While a one-year look back might not provide enough incentive to do cartwheels, consider that you would have to look back at the peak years of 2006 and 2007 to find numbers close to the current level of sales.
A possible explanation for the noticeable uptick is the extremely attractive pricing that has swept through the market year after excruciating year and which may only now be close to a tipping point. Though buyers surfacing now are certainly not late to the party, it may take longer to sift through markets already plucked of their low-hanging fruit.
Seriously, Challenger 604s and GIVs for less than $5 million? Yes! While you might be looking at 10,000 or more hours in the logs, there are non-project aircraft that can be bought for a song. Of course, such low pricing on large-cabin aircraft compresses pricing not only on predecessor models but also on smaller segment markets, such as the super-mids and mid-cabins. G200s, Hawkers, Citations, Learjets are just deals waiting for a buyer. Any upside pop in consumer confidence (be it from QE3 or the upcoming election) could see fourth-quarter numbers eclipse quarter-over-quarter figures for the peak years. The resetting of these asset prices, coupled with the larger number of choices today, is the only way this could be possible. Despite inventory trending down over about 500 aircraft since 2009 (even as the fleet has increased), collectively just over 13 percent of the worldwide fleet is for sale.
Pressure on Newer Inventory
Once a buyer begins to apply his own parameters, however, the field of wings may diminish. For example, for a buyer wanting a 2000 or newer model, the percentage figure drops below 9 percent. If that buyer doesn’t want to look beyond North America, choices drop another 2 percent. A European buyer wanting to buy on home soil has even fewer options in terms of the sheer number to choose from, but twice as many in percentage terms when compared with the U.S. In Europe, 298 aircraft fall into the 2000 or newer grouping compared with 437 in North America. A buyer in today’s market should not overlook any offerings in Europe, as the glutted market appears to offer fertile shopping grounds.
Take the Citation Excel, for example, a popular midsize that saw its fleet size grow to more than 370 before a new and improved version came along. Still a well sought after aircraft, it shows up with only 8 percent of its fleet for sale, but half of the 30 are in Europe and only 11 in North America. The successor model exemplifies the point further. Equally popular, the XLS offers 21 for sale. Only six of them are based in North America and more than half are in Europe. Perhaps not as surprising is the Falcon 2000, where European and North American supply is even at eight, with only two others located outside these two areas. The Challenger 605 is just one more example. Of the 17 for sale at present, nine are based in Europe, four in Asia, three in North America, plus one delivery position.
The take-away here is that with more than 2,500 aircraft for sale worldwide it shouldn’t matter where you shop as there are plenty of deals to go around, and in the past several years we haven’t seen anyone raise the price of an aircraft that has been on the market. In addition, with such fertile hunting grounds, buyers seem less emotionally engaged than at other times. If a seller isn’t market priced, the buyer will explore the many other options that are available. While indicators imply that some model types have reached the bottom of the market, that doesn’t mean prices are going to shoot up anytime soon and buyers still have the decided edge at the negotiation table. Even the most popular of aircraft have absorption rates extending beyond a year.
(Image Credit: www.ainonline.com)