European broker predicts pre-owned sales uptick in ’11
Business aircraft trading has started to move more freely, but the fallout from the financial crisis continues to cast a shadow over the market, according to JetBrokers Europe. The UK-based group says brokers are having to work harder and be more inventive to get deals closed. And buyers are facing much closer scrutiny from lenders.
At a press briefing to mark the opening of its new head office at the London-area Farnborough Airport, managing director Tim Barber acknowledged that overall the market is still “very depressed.” But it doesn’t have to be bad for everyone, he claimed, pointing out that for JetBrokers Inc.–the U.S. group of which JetBrokers Europe is a new affiliate–2009 was its best year in the past 17 years, although this year is proving to be “average.”
Part of making the difference, Barber maintains, is having a broker who can see beyond obstacles to a sale and find ways around them. For example, Cessna Citation IIs have not been selling easily, partly because of the high cost of required engine overhauls relative to the value of the aircraft. This prompted JetBrokers Europe business development manager Brendan Lodge to invest hours in researching all the various options for zero-timing the powerplant to put buyers’ minds at rest.
Financial Transparency Required
But another key factor remains the attitude of banks and other lenders to funding aircraft transactions. According to JetBrokers, and confirmed at the briefing by SG Equipment Finance aviation manager Paul Walsingham, there are fewer lending institutions in the market now and those that remain are far more discerning about who they lend to and on what terms.
This trend has proved unsettling for wealthy individuals, who are unaccustomed to being directly challenged on the exact scale and origins of their wealth, having previously had banks falling over themselves to dole out cash. “Borrowers are having to become more open,” said Walsingham. “There needs to be a better understanding between banks and clients about realistic expectations, and this means a lot of due diligence. It’s not that the purse strings are tight but that banks are lending more sparingly and more sensibly.”
Lending Terms More Stringent
Lodge was loath to predict when the market might return to what he characterized as the “years of froth” in which banks were lending on assets that never depreciated and borrowers held all the cards and had to submit to only partial financial disclosure. He added that over the past year, the JetBrokers Europe team has been finding significant differences in the lending terms being offered by banks bidding to support any given deal.
Private banks, for example, are looking for lenders to make deposits of as much as 40 percent of lending value into their investment funds before a loan will be assured. Lodge said that most lenders find this unacceptable because most wealthy individuals have more faith in their own ability to make money from their own investments than they do in the banks concerned.
JetBrokers is predicting that sales activity will pick up over the next 12 months; it expects Europe to see more of this action than the U.S. Lately, however, the relative weakness of the euro against the U.S. dollar has resulted in a 15- to 20-percent price increase for European buyers.
With some 32 aircraft now on its books, JetBrokers Europe is looking to forge an alliance with an as yet undisclosed charter/management company to represent it in aircraft sales activity. It is also looking to establish a permanent presence in Germany and in Moscow.