Writer

Mark Phelps

EBACE represents a valuable opportunity for aircraft brokers to meet with clients in a venue where they can literally reach out and touch the merchandise. But it’s also a chance to get together face-to-face with industry executives whose areas of expertise represent tipping points for decision-makers. Are upcoming avionics requirements a concern for a client? How have lower fuel prices changed the landscape? Does a given program delay represent opportunity for a client who has a competing aircraft for sale? A broker can visit with avionics manufacturers, government rule-makers, installation shops, fuel suppliers and top-level executives from OEMs to grasp, first-hand, how they view the future course.

 


Jay Mesinger, founder, CEO and president of Boulder, Colorado-based Mesinger Aircraft Sales, is a firm believer in getting out to shows such as EBACE to meet with clients and business associates face to face. “Brokers have to be there. Email, texting, and even Skype and video conferencing are useful for working through details after the process is well along. But this is a relationship business, and the only way to launch relationships is to be there.

 


Specific to the European market, Mesinger talked about external influences on buyers. He described the difference between events he called “distractions” as opposed to true “game changers.”

 


“The last U.S. election was a distraction,” he said. “A game changer is something like the uncertainty over the European economy; whether the UK decides to withdraw from the European Union, or a major geopolitical event, such as the tragedies in Paris and Brussels.” He said distractions keep only fence sitters from making moves.

 


While brokers visiting EBACE are certainly focused on the European market, it’s impossible to address regional sales without taking the global economic picture into account. Mesinger said, “Things that are causing the aviation industry to suffer have no borders. For example, paralysis in emerging markets. Russia has been a big player, and the combination of the hit of low prices in oil-and-gas with political sanctions have had a profound impact.”

 


Mesinger has clearly seen the shift in buying move to the U.S. market. The slowdown in emerging markets such as Russia and around the Asia Pacific region has been mitigated by an upswing in North America’s fiscal health, with the added effect that the dollar is stronger and most aircraft are priced in dollars, suppressing the appetite of many international buyers as they’re own economies and currencies weaken.

 


“The U.S. economy is stronger. Confidence is up to a level it hasn’t been for years. Low auto fuel prices have had a subtle, ripple effect on the overall economy. Even Walmart shoppers are feeling they have more cash available for discretionary spending, which helps builds confidence, little by little, throughout the entire economy.”

 


Having said that, Mesinger recalled a time when U.S. business was praying for lower fuel prices and a strong dollar. “It’s a perfect example of ‘be careful what you wish for,’” he said. Wide swings in prices and currency lead to instability, and the slowdown in emerging markets, many of whom are dependent on oil and gas revenue, has had an effect on preowned inventories, which may be good for U.S. buyers – but can be a complication for sellers.

 


New York-born Steve Varsano, founder of the revolutionary London-based storefront broker The Jet Business, had some thoughts on why economic swings have been so precipitous in the recent past. “The world is more connected through social media and the 24-hour news cycle. And people are like penguins. When one jumps in they all jump in.” With social media providing more opportunity for the first “jumpers” to show their colors, it’s that much more likely the rest of the crowd will follow, he said.

 


One example he cited was the recent excitement over the market for pre-owned Gulfstream G650s. Like all the other brokers consulted for this article, Varsano said the increase in pre-owned inventory–and subsequent downgrading of Gulfstream parent General Dynamics by Deutsche Bank–was much ado about nothing. He said the market for G650s is still strong, and the bankers were “following the herd.” The increase in G650 inventory is more of a correction to what was very high demand.

 


“The G650 represents the latest in technology, raising the bar. So as deliveries began, the demand was artificially high. Then there was the heartburn over the [U.S.] stock market during the last six months and cheap oil, with oil producing countries on the sidelines. Is the premium pricing gone? Sure. But I can tell you there are deals in the works, and the inventory will not stay at these levels for long.”

 


Asked what he sees as some of the issues for European buyers, Varsano said, “The biggest issue is just resolving to get used to issues. [Compared to business jet operations in the U.S.] there are more national borders, each with its own customs and immigration policies. Some will go out to the aircraft, but in other cases the passengers have to clear customs at a specified location, or even go to the airline terminal.

 


“Salaries and fees are much more expensive in Europe, as is the paperwork – more expensive and harassing.” At the same time, Varsano doesn’t view upcoming ADS-B and other equipment requirements as major deterrents for European operators. “It’s an inconvenience, but won’t affect the market. The owner might get mad for five minutes, and then tell his flight department manager, ‘OK.’”

 


Currency fluctuation is a disrupting influence, according to Varsano. “Look at Brazil,” he said. “Their currency dropped by 35 percent. It disrupts the market when they sell.” Currency fluctuation of 15 percent or more is “drastic” said Varsano, though he pointed out that, for example, the drop in the Russian ruble has not had as strong an effect on the market as might have been expected. “Russians deal in dollars and euros, not rubles,” he said.

 


Asked what he thought were some thorny issues looking forward, Varsano pointed to the European economy, uncertainty over the UK remaining in the EU, issues related to refugees and fear over terrorism. But, he said, “Even in Europe, economies are inching forward. They’re not moving fast, but they are not going backward.”

 


Chad Anderson, president of Jetcraft, has positive words for the well established market for business jets on this side of the Atlantic. Jetcraft, which does a lot of business in the European market, sold 36 aircraft in all of 2009, but had already brokered 23 deals in the first quarter of this year, alone. “Based on the pipeline,” said Anderson, “I’m hoping Q2 will turn out even better.

 


“Europe needs a pat on the back,” he said, “for seeing the glass as half full. People are still buying [despite challenging economic conditions]. After all, it is the world’s second largest market for business jets, with good support infrastructure in place. But, for those looking to sell, I’m saying don’t hesitate to look west. And U.S. buyers shouldn’t hesitate to look east.”

 


For all the encouraging words, Anderson acknowledged, “The ebb and flow of supply and demand sends a mixed message. Prices have been fickle, both in and outside Europe. There are still plenty of deals in the works, mostly for large-cabin aircraft, in Austria and Germany, for example. And there are lots of sellers. The strong U.S. dollar is a good factor for them.” Citing a case of self-fulfilling prophecy, Anderson said that, during February, Europe was a depressed market because people were assuming that deals were not happening but, he said, “We were producing results.”

 


Anderson’s take on the G650 flap takes a reasoned view, similar to Varsano’s. He said, “The market is softer, but not abnormally more than it should be. Values were inflated as of 12 months ago. The increase in supply has softened prices, but G650s are still worth 95- to 100 percent of when they were ordered new. With about 160 units in service now, the market has normalized; it’s hardly freefalling.”

 


Asked what is driving the market for business aviation, Anderson downplayed the role of emerging economies, not because they have no effect, but because their impact has been overstated. He acknowledged that austerity and anti-corruption movement in China has stemmed enthusiasm for business aviation, but pointed out that, even with its great potential, the Chines market is still only a fraction the size of Europe’s.

 


“The airlines are our best salespeople,” he said. “[The airline travel experience] is not getting better. Add that to that today’s active charter, jet card and fractional providers. There are so many good ones, and they get people started.”

 


Anderson pressed the point that brokers have a defined role to play, and they cannot overestimate their own importance. “We are participants in the market; not controllers of the market.” And as with most brokers, he sees a lot of that market now as shifting to the U.S. as its economy continues to lead the global recovery. “It’s more work to buy an airplane outside [the seller’s] country, but for U.S. buyers, the quality of European aircraft can be worth the trip. There are some opportunistic buyers looking to China, but there are liabilities in those deals. Still, the prices provide leverage.

 


“We need to educate sellers to what’s necessary to sell outside their country. We can’t do that over the phone. You’ve got to do it in front of them. It takes longer, but it doesn’t cost more.” Which is one more reason why the most active, energetic and successful brokers are here at EBACE this week.

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