With the values of some business aircraft finally settling after several years of uncertainty and depreciation, many sellers are still losing money by holding out for what they think their airplane is still worth.
“There are two values from our perspective,” said Andre Khury, president and CEO of Acass (Booth 667), a provider of support services for business aviation. “There’s the value perceived by the owner, and then there’s what the market is willing to pay for the aircraft. I think what happens is [the owners] get fixated on a specific price and they pursue that number really to their detriment.”
In a white paper on the topic, released on the eve of NBAA, Khury cautioned sellers against chasing down the market. “What’s happening now quite frankly is many owners have flown their aircraft and have paid top dollar during the good years, if you want to call them that,” he told AIN, “and it’s difficult for them to accept the fact that their aircraft is priced where it’s priced.”
This may be an especially bitter pill for those who bought their aircraft during the super-heated market a few years ago, when used aircraft were selling for more than new models. “The private jet market has gone through some significant changes as we all know, and everybody understands that those inflated numbers for those aircraft that were readily available, when deliveries were out three or four years, are long gone,” Khury said.
He cited recent transactions where sellers lost millions of dollars by turning down early purchase offers. Many owners believed that they could hold on to their aircraft until prices rebounded to a perceived level, but failed to take into account recurring costs, such as insurance, hangar fees and parking, which continue to accrue. “I would tell them to absolutely not ride out the storm because they will not get their money back,” he said. “You never get that number you want and you have paid out all those fixed costs, which you will never recoup.”
That stubbornness can also affect transactions from the buyer’s perspective, and with the firming up of aircraft prices many would-be purchasers may find themselves frustrated. “Although one might argue that private jets are the furthest thing from a commodity, they certainly trade like commodities, in our opinion, and are driven heavily by supply and demand,” noted Khury.
In his paper, he equated the mindset of buyers still seeking cut-rate bargains while demand is increasing to that of fictional Captain Ahab in the novel Moby Dick, whose obsession with the white whale ultimately caused his demise. He said this same fate, albeit financially, can befall aircraft buyers who decide to wait for a better opportunity, because the owner wouldn’t accept a low-ball offer.
To help both sides, Khury recommends the use of qualified industry professionals, who specialize in the valuation of aircraft, to help them reach middle ground. “I think information is readily available today, and it doesn’t take much for [buyers and sellers] to do their own homework to see where values lie in the market. But that could be problematic, if they rely on that without the expertise,” he said, equating this expertise to a doctor interpreting an x-ray. Aircraft buyers and sellers “need to double check with experts who know how to read and interpret that information.”
