Pre-Owned Update: Great buys abound in all market segments
After a grueling quarter of massive price destruction, a wave of opportunistic buyers has begun to surface and infiltrate the pre-owned jet market. The current economic environment coupled with the public flogging of private jets and their owners has created a sea of discounted jets in all shapes and sizes. There is a growing perception by many that now is the time to buy.
As prices eroded over the last six months, those who are fortunate enough to have the same budget to buy now find themselves eyeballing much more aircraft for their dollar than last year. For example, last year’s GIV-SP buyer could be this year’s GV buyer. As the GV has encroached upon the territory of the GIV-SP, the earlier model has shifted to a lower price point.
When inventory jumps, as it did over the last 12 months, prices are going to give, and that’s an understatement this year. Take, for example, the market for the Falcon 900EX. At this time last year, only a handful were for sale; now there are a couple dozen. The same is true for the G550; last year there were five, while this year there are 29 (nine of those are delivery positions). The supply of Challenger 604s is double that of six months ago. There are very few exceptions to this growth spurt.
Buyers Slowly Return
The build has been exacerbated by a lack of buyer participation, either in response
to the desire to maintain a low profile, the inability to finance the buy, withering corporate profits or some other reason. The only razor-thin, silver lining in this dark cloud for sellers is that buyers are now doing more than sniffing out the best values; they are acting on them.
Often times publicly traded companies move at a measured pace. It’s not uncommon to see this type of buyer come out of hibernation only after reporting a couple of consecutive profitable quarters, which is why the private individual and closely held companies are more active in the market today. Often the best buys will go to dealers, but many of them may be a bit gun-shy, given the current environment. This means that savvy buyers have much less competition today and can fly away with a screaming deal.
The industry seems to be stunned at just how low some of these aircraft are priced. For example, a Hawker 800XP is for sale for less than $4 million, a Citation Excel in the same range and a GV for $21 million. While these are just three examples, every market has its story. These numbers reflect the market lows, but they are eye-catching for buyers and gut-wrenching for sellers.
In fact, when sellers, or would-be sellers realize where some of these aircraft are selling, they are reevaluating their plans to sell. In some cases aircraft have been removed from the market or not brought to market as previously planned.
If pricing stabilization is to occur–and there’s a sense that we do seem to be zeroing in on this–the last thing the market needs is another offering. The most amazing thing about this correction is the violence with which it hit the market. The last downturn gave up about 30 percent over the course of two to three years, whereas this correction experienced that loss in roughly six months. While it may not be over yet, most can’t fathom much more of a downtick.
So for buyers, the deals are omnipresent. One manufacturer is enticing buyers of used equipment with guaranteed buybacks, while another recently dropped pricing drastically on the aircraft it now owns as the result of trade-ins. Banks have taken back some aircraft and are offering them at attractive levels and are also making them available under short- and long-term leases. We have also seen private owners who have 100-percent equity, or nearly so, roll out of the aircraft as matter of fact, as they would a losing stock. These are formidable opponents to the end-users who in this market may owe more on their aircraft than the market will currently support. Rather than mark-to-market, it might be more palatable to pay down the monthly than to show up at closing having to write a check to make the lender whole on the note.
While pricing can be attractive, the sheer glut of aircraft for sale can present its own set of challenges. It can be downright confusing for a buyer to weed through the myriad choices, which can result in a protracted purchase process. Right now among just three model types you have about 240 choices, roughly 80 choices each, spread among the Learjet 60/60XR, Excel/XLS and Hawker 800XP/850XP. At this time last year the combined total of all these models was about 80. Here again, this scenario plays out among all segments, whether it be light jets, midsize, super-midsize or large-cabin, long-range aircraft.
The values on the pre-owned market are compelling and while prices could be effected further, the buyers you typically see after a pricing carnage intrudes on the market are visible. If nothing else, that brings to the market some level of comfort. Deals are starting to occur with more regularity, but by no means anywhere near the levels of the past. Although it is still young, this year might well be remembered for the large number of great buys. The question yet to be answered: will they be bought? Early indications suggest that they will.