Market activity in the first quarter saw inventory hold steady at multi-year lows, with an equal number of aircraft coming onto and leaving the market. Buying activity generally accelerates in the spring quarter, and this year’s set-up seems to be no exception, with brokers reporting brisk sales action. Despite the tightening there’s quite a bit of head scratching about why prices haven’t reacted more positively.
The two main value guides, Vref and Bluebook, have come under scrutiny recently regarding how they value or, as the case may be, devalue an aircraft from quarter to quarter. While sellers take the brunt of dropping values, brokers aren’t any happier when they have to report to their respective clients how much the book dinged their aircraft this quarter. Some values have dropped so much, one client said that if he has to lower his price any further he’ll donate his aircraft to Good Will like an old pair of shoes. While it’s easy to use the value guides as scapegoats, in truth they seem more to be a lagging indicator, both in an up and down market, and should be taken with a grain of salt or at least a pain reliever.
Inventory Depletion
With all things being equal, if an operator is upgrading, the nick he takes on the sale of his current aircraft should provide an opposite and positive benefit on the upgrade piece, which presumably is one reason we have seen continued depletion of decent inventory. For many aircraft there are fewer choices today than 18 months ago. Consider the Challenger 604, which cut its choices in half, to 34 from 68, during the 12 months of last year. That low figure is right about where it sits today, but fewer than half of those are based in North America. Despite a head-turning 50-percent depletion, both books cite downward price revisions of more than a quarter million dollars.
Not long ago most GVs were priced above $20 million; now all but one is priced below that level. Despite regular seven-figure price drops in this segment, AircraftPost shows just one GV sale this year, and that came in early January. With advertised pricing as low as $14.5 million, many believe this aircraft is undervalued, especially given the performance similarities to its successor model, the G550, which is among the most actively traded models in the large-cabin segment. The G550 moves at slightly more than one a month; the GV sells at one a quarter. The average sold price for G550s over the last six months is $34 million, which is likely to lead some to consider a GV at half the price. The Global Express has seen sales equally as dismal, recording just two this year. Sales for the last six months ranged from $15.6 million to $18.5 million. Both models offer up about 17 choices to the market.
Improvement defines the mid-cabin segment. In the past two quarters, the Learjet 60 has dropped from 52 for sale to 40, near its 12-month low, and is showing price stabilization. A recent Learjet 60 reconnaissance mission for a buyer revealed how few aircraft met some basic parameters, which is to say that despite what looks like an ample supply, once a buyer peels back the layers and asserts his preferences the number of targets to choose from dwindles further. Another Learjet on a tear is the 45. As early as late fall there were 36 for sale; that number has since withered to 25, only 11 of which are based in North America. (There are six in Europe, four in South America and the remainder scattered around the globe.)
Among super-mids, the Sovereign, G200 and Citation X look to be arresting their rate of descent, with one book showing neither appreciation nor depreciation this quarter, while the other shows further downward movement on each. Both agree that Challenger 300 prices are stable and both guide lower on the Falcon 2000.
I would imagine the price guides find a challenge in trying to establish value when so few copies of a particular aircraft sell. For example, even though the Challenger 300 is one of the most popular aircraft, AircraftPost shows that only four sold during the first quarter (,2005, 20606, 2007 and 2010 models) and that has to be one of the main considerations when addressing quarterly price direction. With only four sales from a fleet of nearly 450, analysts must interpolate and separately define 11 different model year values. Less popular aircraft can provide even fewer data points.
