Article written by and with permission:
Michael D Chase
Chase & Associates
1628 Snowmass Place
Lewisville, TX 75077
Cell: 214-226-9882 • Office: +1.972-966-1440
Questions about the Business Aviation recovery still linger as there has not been much market movement to date. With most of 2017 behind us, however, we may be on the ‘cusp of change’. ‘For Sale’ inventories are down and aircraft transactions are up, while business jet prices remain weak.
Real gross domestic product (GDP) increased at an annual rate of 3% percent in Q3 2017, according to the ‘advance’ estimate released by the Bureau of Economic Analysis. In Q2, real GDP increased 3.1%. This is welcome news because, as we have historically seen, when GDP is at the 3% growth mark (or higher) Business Aviation traditionally does well.
These quarterly GDP changes between 2009 and 2017 can be viewed in Table A. Highlighted in yellow are the quarters that GDP was 3% or higher. Historically, we have not seen two back-to-back quarterly GDP increases of 3% or more since Q2 and Q3 2014.
The ‘For Sale’ Inventory
Chart A illustrates that the ‘For Sale’ inventory of Business Jets has decreased steadily from a high-point in July 2009 (2,938) to 2,225 jets in September 2017. That’s a reduction in the percentage of the in-service fleet from 17.7% in July 2009 to 10.4% now. This is a positive sign as the inventory ‘For Sale’ is dropping, albeit slowly.
Today’s market remains good for buyers because the aircraft ‘For Sale’ inventory remains over 10%. If jet owners are retaining their business jets longer since the downturn began in 2008, perhaps that would help explain why the used business jets ‘For Sale’ inventory has remained at such high levels since the Great Recession.
The percentage ‘For Sale’ has dropped from 11.0% in January 2017 to 10.4% at the end of September 2017. Indeed, most aircraft business jet dealers and brokers today would tell you that the pristine used jets that were on the market a few years ago have become more challenging to locate.
Used Full Sale Transactions (Including Whole Sales & Leases)
Further analysis of January-September 2017 shows mixed results for the six segments reported by JETNET in the September 2017 YTD Market Information release that included full sale transactions increase for business jets (5.9%), turbine helicopters (5.7%) and Commercial Airliners (8.8%) in YTD numbers (YTD September 2017 versus YTD September 2016).
The remaining three segments reported double-digit decreases in transactions with piston helicopters (-14.1%) showing the largest drop in YTD 2017 vs 2016.
Charts B & C depict the 12-Month used business jet and turbine helicopter moving average, displayed for the full retail transactions from January 2012 to September 2017.
From January 2012, used business jet transactions steadily increased until 2014—from 2,300 to over 2,800. A leveling-off followed in 2015, and 2016 produced mixed activity (while remaining well above the 2,800 line of transactions).
Since dropping to 2,652 transactions in January 2017 the used business jet market segment has shown a sharp recovery through September 2017 (2,833). This could be a result of built-up demand in the US after the newly-elected government administration finds its footing and the stock market continues to climb to record highs.
Since reaching a low point in January 2017, the used turbine helicopter market segment has shown a very rapid recovery leading into September 2017 (see Chart C). This is great news, and could indicate better days ahead for the turbine helicopter market.
US Jet-A Fuel Price
As of November 6, 2017, US Jet-A average price was $4.76/gallon and appeared to be on the rise. This fuel cost increase could have a negative impact on some of the progress we have been making in business aircraft flight activity. Nevertheless, today’s price is still around $2.00 less than the 2012 record fuel price of $6.84/gallon, as shown in Chart D.
The past 12 months of flight operations from September 2017 have been running 2.3% ahead of last year. Flight operations have not reached the peak of 2007 yet, but the trend is a positive sign nonetheless.
Historically, the fourth quarter of the year reflects the most sales growth over the other quarters. We expect to see further growth in Q4 2017 to round out a very good year for used business jets and turbine helicopters. ‘For Sale’ inventories are slowly coming down and sales transactions continue to trend in a positive direction. We keep our fingers crossed and will continue to monitor business aircraft activity through future articles.