Pre-owned Update: Buyers Have Upper Hand in Today’s Active Market
For the first time since the used jet market began to unravel, inventory sits below the level of October 2008. Year-over-year for the past four years, more inventory has been departing the market than has been arriving onto the market and this year could prove a continuation of that trend, with inventory already below last year’s 12-month moving average as the market enters what is historically the most active quarter for aircraft sales.
Some of the inventory variances are notable, more so when you consider that the high-water marks came at a time when production numbers were far smaller than they are today. Consider the G550, which hit 31 for sale in early 2009, approximately 13.5 percent of the number in operation at the time. Today, with a far greater number in service, only nine are for sale, or a tad more than 2 percent.
In the super-midsize category the Challenger 300 also moves to the head of the class, offering less than 5 percent of its growing fleet of nearly 500. The lion’s share of the inventory resides in North America (11) and Europe (6). While the aircraft hasn’t been immune to the price destruction, it is now one of the few treading water, according to the most recent Vref price guide.
At the other end of the spectrum in the light-cabin segment, the Citation CJ3 reached 36 for sale in early 2009, or about 12 percent of that fleet. Today, there are 24 for sale, or 6 percent of the current fleet. While perhaps not as impressive as the numbers for the Challenger 300, consider that in 2009, 32 of the 36 were U.S.-based and today only eight of the 24 are, or roughly equal the number presented for sale in Europe.
Of course Europe has been another developing story over the past few years as we have seen the percentage for sale exceed that of North America. When you look at total inventory, Europe is offering for sale approximately 16 percent of all corporate jets in operation compared with 13 percent of the North American supply. That dichotomy is more pronounced when you look at the supply of aircraft manufactured in 2000 or later. In the U.S. slightly fewer than 500 in this group are currently for sale, or 7.5 percent. Slightly fewer than 300 are for sale in Europe, but given the jet population is less than one third that of North America, its percentage for sale jumps to 14.3 percent. That’s a slight decrease in both regions over the past 12 months.
Delayed Inventory Boom
Some other model types seem conflicted on what direction they’re heading. Many markets became saturated in 2009 when the effects of the failing economy were taking hold in the U.S., but others staved off the bad news. The venerable mid-cabin Hawker 800XP, for example, didn’t experience its inventory peak of 76 until late in the first quarter of 2011. By late last year it had reduced that number by more than 30 aircraft, arriving at a multi-year low, which is all the more impressive given the uncertainty about Hawker Beechcraft’s commitment to the jet business. It slipped this year, building to 55 at present, or 13 percent of its fleet.
The Challenger 604 was another model that held its ground for much longer than one might expect, but last year jumped from 46 for sale at the beginning of the year to nearly 70 in December. It then reached what must be described as the tipping point as buyers went to town and in the first eight months of this year brought the number back down to 49, which is still somewhat high, but at 13 percent availability not unduly so.
While many in the business use 10 percent to define an average supply, one of my industry counterparts took it a step further by saying his research taught him that more than 25 aircraft for sale of any specific model type indicates a saturated market. That’s hard to argue with, as inventory at or above that number can create market confusion. Too many choices can further stall a market as buyers really have to do some homework to make sense of it all. More aircraft for sale often begets more aircraft for sale and until the sellers collectively cry uncle and lower prices, choices can escalate.
Of course, sellers have become all too familiar with this pattern over the past several years, often resistant at first, but then relenting to intolerable market forces. After years of falling prices we are now starting to see book values among select years of a few models hold quarter-over-quarter, while others slow their rate of fall. Still others continue to seek their pricing floor. Early Citation Xs have held steady in the most recent quarter, according to Vref, in contrast to the seven-figure drop the GIV-SP experienced, so it’s fair to say the market remains in a state of flux with buyers in control of most market segments.