Since there is lots of new aircraft news coming out of Oshkosh, I though I'd tackle used aircraft.
As part of our aircraft cost database updates, we do keep a close watch on market values of used aircraft. We use residual value data from The Aircraft Bluebook Price Digest, Vref Aircraft Value Reference, and HeliValue$. Many times those publications agree, but there is enough differences that we are not relying on a sole source for the numbers. I think the residual values have made a significant change since 2008. Of course 2008 to 2010 saw a significant recession and along with it, aircraft values plummeted. But since then we have entered a global recovery. We are seeing a different market for used aircraft prices than pre-2008, especially among business jets.
The new normal is quite an adjustment. While aircraft still hold their values better than most other capital assets, the previous norm of appreciating values in a good economy followed by a correction in a down economy does not appear to be the norm any more. While the US is still the single largest market for turbine business aircraft sales, the percentage of global sales within the US has been close to or below 50% even pre-recession. New aircraft are showing up in numbers all over the world, and the market for used aircraft is also seeing a bigger global market. Buyers are smarter than ever, and no longer is a buyer going to by the aircraft just because it is US N-registered. They are looking for and getting great prices. Here is what we are finding is the new normal:
- 2008 to 2010 saw an unprecedented drop in used aircraft values.
- From 2010 to today, we have seen values continue to decline, but at a much lesser rate.
- We are in an economic recovery, but aircraft values remain low.
- Today, more than ever, requires buyers to know the individual model’s residual value history.
Aircraft values are behaving more and more like stocks. While the stock market may be up, not all stocks are performing so good. What we are seeing is that different aircraft, again, especially among business jets, with vastly different market depreciation rates. Almost all are seeing declines, but there are differences between models. So while our cost database residual value curve represents an average, that average is based on a group of aircraft types. Within that group are significant variations. So we caution you to use our residual value data as a benchmark, but do additional due diligence when evaluating specific models. Much like the stock market, individual aircraft (stocks) will behave differently than the market as a whole.
Many thanks to Vref Aircraft Value Reference for the following charts.
This chart is one that Vref calls their Late Model/Mid-Size Jet Index. It is comprised of 2008 models of the Challenger 300, Challenger 605, Citation XLS+, Citation Sovereign and Gulfstream G150. These are all popular aircraft with good sales histories. From 2008Q1 to 2014Q1, that index dropped 50.5%. Look at the curve and while 2008-2010 saw the biggest drop, that past two years (in a recovery) are not seeing values of this group correcting back or leveling off significantly.
Looking at Vref's market indices for the business jets shows this group fared pretty well by comparison:
- Light Jets dropped 83% over six years.
- Midsize jets dropped 73.5% over six years.
- Large Jets dropped 74% over six years.
- The Late Model Midsize Jets dropped 50.5% over six years.
Looking at one model, the Challenger 300, shows much more of a bifurcated curve.
The 2008 Challenger 300 dropped 50% since late 2007, slightly better than its index. But its value curve has a hockey stick shape. The 2008 CL300 dropped over 36% in the first two years of the recession. It has plateaued off since then and several brokers have mentioned this aircraft as a good value with a good future ahead of it. This aircraft has done quite well.
Not to embarrass any models, but I've seen 75% to 85% drops in other 2008 business jets from 2008 to today. There are many excellent used aircraft selling for great prices. But among individual models there are significant variances. Two take-aways here:
- Don't plan on your used aircraft appreciating. A model here or there may be the rare exception, but don't plan on it.
- Looking at the general market is not the same as the market for your specific make/model/model-year.
You need to know the macroeconomics of course, but also need the guidance of someone who knows the microeconomic climate for your aircraft. Despite all the great information available on the Internet and in the aviation news, you still need good advice from knowledgable professionals.