(When) Will Business Jet Values Recover?

The 2010 NBAA Annual Meeting finished up less than two weeks ago. For the most part it was a success. At our booth on the convention floor, we saw a lot of good, quality traffic. People were generally upbeat. From talking with folks all year long, and especially at NBAA, here are a few comments on where aircraft values may be headed.

Big Iron. Global business jets are recovering, if they are newer. At the top, the GV/G550/ Global Express families currently show about 4% of the active fleet as “for sale” according to AMSTAT. Vref shows that values flattened out over the summer and have started to drop a bit in recent months, but with a low number for sale, I’d say the market for this category has hit recovery mode.

Long range business jets, they are not doing quite as well as their big brothers and sisters. The Falcon 900EX shows 7% of the active fleet for sale and for the G450, it has 4% of the active fleet for sale. The Challenger 604 shows 11% for sale while the newer Challenger 605 shows 4% of the fleet for sale. So while numbers for sale are getting tight, values in this big cabin/long range market have not recovered (yet). As you look at older models in this category, the numbers (as a percent of the active fleet) increase, and values tend to show less of a recovery. In general, older big cabin and long range business jet values have not showed signs of a recovery.

Super mid-size values remain soft, but again the numbers for sale show a tightening up in the market. For the Challenger 300, 8% of the active fleet is currently listed for sale.  Challenger 300/ G200 values are flat as are Citation X and Falcon 50EX values.

Midsize jet values like the Hawker 800XP family, Lear 60, Citation 650s are flat. Percentages of their active fleet for sale are in the 12 – 22% range. Again, I am not seeing any recovery here yet.

[more]Small jets: percentages of the fleet for sale vary by model. In general, newer models have a smaller percentage of the active fleet for sale. Overall, this market is still soft and values have not shown much of a broad recovery. Values are bouncing around at the bottom. Again, popular, newer models are doing better than older models.

For business jet values, the newer, bigger aircraft are leading the way with a soft recovery. Anecdotally, I’d say this is likely to continue. With a relative tightening up in the number for sale, values will strengthen for these jets in the coming year.

As you move down in size, things are not as healthy for residual values. While a general recovery is under way, it will take longer for values to recover, but only for the newer models.

For business jets older than 10-15 years of age, I just don’t see a lot of evidence of a recovery in terms of sales and residual values. I do not have confidence that the situation will see much improvement for these older jets. I think that what you see in residual values for the older business jets is the new normal. Why?

·     Banks are not into lending for older business jets. They do not want the residual value risk for a 20 year old aircraft, nor do they wish to sell it if it comes back to them after lease end or a default. Yes, you can get financing, but with impeccable credit and a significant down payment. 

·     The market recovery seems to be led by sales outside the US. In recent years, more and more new business jets were being sold outside of the US. These markets are no longer “dumping grounds” for the aging business jet. The can afford and want the newer models.

·     The last several business boom cycles saw a large increase in aircraft production rates. Thus, the used aircraft buyer tends to have a large number of relatively new aircraft to choose from.

By most economic prognostications, it will take 12-24 months for the recovery. Some global regions are well into a recovery while others lag behind. The supply of used aircraft will take time to draw down. Meanwhile new deliveries will continue to occur. I don’t see enough growth forecast to generate the market demand to clear out the older business jets’ inventories. Theese older jets will continue to age. I do not think their values will recover with many of the oldest business jets only maintaining their salvage value.

I've seen Richard Aboulafia of the Teal Group present his firm's aviation sales forecast on several occasions. As he said one time, "If you don't like my forecast, feel free to make one up on your own." So don't worry so much about the future, but just take care of today. If you need a jet, go get one. If you need to sell your current jet, go get a good broker to represent you.