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Money Talks

by David Wyndham 1. October 2009 00:00
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Over the past two months, the number of turbine airplanes for sale as shown by AMSTAT has decreased from 15% of the available fleet to 14%. This is not a huge decline, but it indicates that the used aircraft market is starting to move. It also indicates that manufacturer's adjustments in new aircraft production rates have taken effect. Aviation is at the economic bottom and starting to turn the corner.

If you have been waiting to buy, now is the time. From all indications, this aviation recovery is starting with the business jets - slowly but surely. Vref indicated values are steady in much of that market, while turboprops are still bottoming out and pistons twins are falling in value. The selection of aircraft is excellent. There are still a few obstacles out there.

A tight credit market is going to make this a slow recovery. Lenders and lessors are not anxious to extend credit, even as they have their own inventories to dispose of. If you are seeking financing, you need to have all your paperwork in order, show excellent credit, and have some assets beyond just the aircraft you are interested in acquiring. Deals that were approved a year ago won't even get a second look today after being disapproved. You need to show the financial institution that you are very low risk.

As a result of the tight credit, the cash buyer thus leads the way. If you can pay cash, you can negotiate the better deal and close the sale sooner. You'll do better leaving your money in the aircraft versus the stock market.

Some buyers listing their aircraft as "for sale" really mean "for sale when prices rise." There is no easy way to estimate this number other than anecdotal evidence suggests that for many, they need to sell, but have the ability to wait out this market a while longer. So "buyer beware" if the seller wants to play hard ball: have a backup aircraft in mind.

Again, the cash buyer can make the reluctant seller move. What the seller declined in February is a reasonable deal in September. Cash deals can close far quicker than any other and this can be a leveraging point for the buyer.

For the seller, prices will be slow to recover. If you want prices to increase before you sell, withdraw your aircraft from the market! If this were to happen in large enough numbers, then selling prices will increase as demand and the "real" supply become apparent.

For the buyer, don't over-buy! What got you a nice light jet in 2008 gets you a mid-size or bigger jet today. This holds for most airplane categories - bigger is cheaper now than smaller was in early 2008. You still have to operate, insure and hangar the aircraft. You still need to get the right aircraft for your mission. Increased size, speed and capability all comes with increased operating costs.

Things are looking up and now is a good time to buy, especially if you can pay cash. If you are selling, the market is what it is and it will take a while for the seller to see much improvement. Hope things work out for everyone involved.

Do you have additional experience with this topic? Tips, Tricks, or Advice? Please discuss it with us!



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