While business aircraft pricing continues to soften, long-time industry market expert Jay Mesigner is encouraged that residual value losses are slowing to a more sustainable rate and that the market overall is headed for improvement. A key to that improvement, he said, will be the return of emerging markets.
Mesinger, who founded aircraft brokerage Mesigner Jet Sales 43 years ago and leads the firm as president and CEO, noted that beginning in 2015, the price of oil plummeted so rapidly that it had an immediate effect on emerging markets.
Pointing to the economies of Brazil, Russia and the Middle East, he said, “so much of their revenue came from oil.” When prices dropped, capital expenditures basically came to a halt from oil-producing countries and companies, along with companies providing ancillary services involving oil. In addition, other factors, such as the sanctions on Russia and the anti-corruption policies instituted in China, further slowed capital expenditures and specifically new aircraft purchases in emerging markets.
“It took what was a slow recovery from 2009 that was gaining some momentum and stopped it in 2015,” he said. “And since then, the supply of aircraft in those areas of the world has plagued the supply-demand ratio in our industry.” As a result, prices have continued to trend down. And in the 2015-2016 time frame, residual losses of certain aircraft segments, such as long-range aircraft, sped up, hitting 4-to-5 percent a quarter.
However, Mesigner said, more recently, he sees those loss rates slowing down, returning to what industry believes is a more sustainable 2 to 3 percent per quarter. “That’s a good thing,” he said.
Sustainable Growth
The bright spot for the industry has been sales in North America, and Mesinger expects the majority of sales to continue there for at least the next couple of years. “It puts a lot of burden for recovery in on the back of North America, and there is a lot of inventory,” he said.
While North America is improving, the market remains uncertain. If the emerging markets strengthen, it could improve the residual loss rates. At the same time, a major event could shake up the North American market. “North Korea could change our market overnight,” he said.
“What we’re enjoying is tenuous,” he said. “I think we should be cautiously optimistic.”
Attitudes on residual values have slowly shifted as the market has shaken out over the last decade. Between 2001 and 2008, which he said was a period of the largest growth in the industry, the market began to believe that aircraft values would go up, rather than down. “There was such a grand demand for supply and a huge number of people got into our industry,” he said. “But the reality is, an airplane is just a piece of equipment.”
By 2011-2012, industry leaders realized that an 8 to 10 percent annual loss rate would be manageable and sustainable. “I think we are getting back to that.”
As for inventories, and availability of buyers and sellers, the market has remained dynamic, Mesinger noted. Sometimes, they have had more people seeking to sell; at other times, more people are looking for aircraft, and there is a limited inventory. He noted a few months ago, he had a sudden demand for the Dassault Falcon 2000EX EASy and 2000LX. Demand picked up for Cessna Citation CJ2s, 3s and 4s. “And then, the market tightens up and it ends. It is dynamic.”
He also cautioned that inventories can be misleading, because there may be 35 of a certain model on the market, but only three might be in the buyer’s country and in the sought-after configuration. “Getting good inventory is harder,” he said. People used to enter the market for opportunistic reasons. But with the slide in residual values, “now they are operating the aircraft.”
This constant evolution means that brokers are constantly evolving in their business, he said. “I’ve never worked harder. It seems like deals take longer to get done.” In addition to a cautious market, a number of other factors play into that, including sellers and buyers having more questions. In addition, other factors, such as availability of a maintenance slot for a pre-purchase inspection when the shops are busy, also have made a sale more difficult to finalize. “It’s more complicated,” he said. “Every day I come into a new world.”
But he takes pride in having navigated through the evolving market over more than four decades. “We are constantly evolving. I can’t rest on what I did 43 years ago. You have to constantly hone skills, developing your relationships and relying on those relationships,” he said.
Mesinger—who has remained active in the industry, including chairing NBAA’s Associate Member Advisory Council and serving on a number of company advisory boards—expressed a strong belief in the underpinnings of the business aviation market.
