Still a buyer’s market particularly for small-cabin business jets

At the start of 2011 business jet brokers were confident that things were improving. Corporate Jet Investor interviews leading brokers for their views on the pre-owned market. At the start of the year business jet brokers were confident that things were improving. Aircraft transactions would increase and prices would rise.

Data from Jetnet reflects this. It says jet sales were up 11.2 per cent in the first seven months of 2011 and average aircraft asking prices were up $2.7 million in July 2011 from a year before. But three leading brokers say it is less clear. Demand for large aircraft is definitely up but it some small cabin aircraft values could still fall.

Corporate Jet Investor interviewed:

Oliver Stone, managing director at Colibri Aircraft, which specialises in the marketing, resale and purchase of pre-owned private aircraft worldwide.

Brad Harris, founder and CEO of Dallas Jet International, a firm specialising in representing buyers and sellers, as well as aircraft marketing, aircraft trades and factory-new purchases.

Josh Mesinger, vice president at J. Mesinger Corporate Jet Sales, which acts as broker to buyers and sellers, as well as working with its clients in aviation asset management.

Corporate Jet Investor: What aircraft types are selling?

Stone: The big stuff is currently doing very well. G550s and Global XRSs are hard to find, the G5 is still selling well. The reason the big stuff has recovered much quicker is individuals buying this sort of aircraft are wealthy enough that even if they lost half their wealth to the financial crash they can still afford it. The level of transactions is now much better compared to, say, 2009, which was a miserable year for everybody.

Harris: Our first quarter this year was the best we’ve had in a long time. In the second there was a bit of a slowdown, but there was an uptick in the third and the fourth is looking very strong. There are lots of deals being done and the trend
in sales looks much more promising.

The market is strongly differentiated by size. Large cabin aircraft younger than 10 years are appreciating in value, and the G5 market is doing very well. The market has changed from high-supply-low-demand to a situation where some larger models are hard to find.

The big unknown today is 20 to 30 year-old aircraft like Lear 60s. They are still finding themselves; the Hawker 700 for example is now a throwaway aircraft.

We’ve witnessed a compression from the top in the pre-owned market over the last couple of years. Globals and G550s dropped in price, and the delta between the classes had to stay intact, so that forced the prices of all the smaller aircraft down as well.

Mesinger: The market is segmented by size and model, the long range models are in great demand with very little supply.

CJI: Where are the buyers based?

Stone: Half Gulfstream’s sales now go to Asia, but we’re still not seeing many pre-owned deals there. Asia likes to buy new. The big drivers at the moment are the emerging economies, with South America definitely the hottest market at the moment. Brazil in particular is showing plenty of interest, they have a good understanding and a passion for the product.

Harris: Asia is certainly the biggest market opportunity, but the infrastructure just isn’t there, it will take at least four or five years to reach anything like the sufficient level. Regulation is also a big obstacle. So Asia is certainly not a pre-owned market at the moment, and neither is India, they also like to buy new.

South America is the most active, places like Brazil, Peru and Argentina are bringing lots of business. Russia is starting to become aggressive once more and the Middle East is starting to spend, the US and Europe both dipped and are about even now. On average 72 per cent of all new aircraft delivery is now outside the US.

Mesinger: Europe has been slow for a while now. South America is certainly showing decent demand, but the hottest market right now is  probably Mexico, we’re seeing a lot of deals done there.

CJI: Who is buying?

Harris: I’ve discussed this with GE Finance and Bank of America, and they agreed that in the fourth quarter 2010 and the first quarter 2011, it was mainly large corporates and super wealthy individuals buying. In the second and third quarters this year we saw smaller corporations starting to buy small and mid-size aircraft and less wealthy individuals looking to buy also.

Stone: Every broker will tell you something different about who’s buying, I set up my own company recently and I’ve been dealing mostly with individuals.

CJI: How are they paying?

Stone: Most deals are still being done in cash, though there is more financing around today than there was in 2009.

Harris: Around 80 per cent of deals are in cash. GE Capital is also saying financing is out there, but the financiers have changed the rules. Now the age of the aircraft plus the term of the financing can’t be more than 20 years.

Mesinger: There is a little more financing around, though it is still very limited. Older aircraft are struggling for finance as most lenders won’t finance models that are older than 15 years.

CJI: Is it a good time to buy?

Stone: It’s a great time to buy pre-owned jets. There are some unbelievably low prices around at the moment. Legacy 600s, for example, are trading at half the price they were three-and-a-half years ago. There isn’t enough confidence in the market for an end to distressed sales. Aircraft tend to trade based on the last deal done, so when sellers accept a lower price for their plane the value of the next owner’s falls.

Harris: I wouldn’t say it’s a great time to buy everything. The G4 market, for example, is still falling so you could get a better deal further down the line. Having said that, there are some good deals to be had. We’ve seen a Falcon 50 recently down from $3.3 million to $2.5million, and even a G550 down from $38.9 million to $36.9 million.

Mesinger: Most markets are definitely buyers’ markets. There are some great opportunities at the moment in mid-size and super mid-size aircraft. Buyers should be stepping up with more confidence as they should get a really good deal.

CJI: Has the bottom been reached?

Stone: I don’t think all markets have reached the bottom in terms of prices. Again it depends on the size of aircraft, the larger cabins have started the turnaround, I think we’ll see some of the smaller cabins dropping further.

Harris: I would say newer small cabin aircraft have hit the bottom and are turning around. Mid-size aircraft like the Challenger 300 are stable. The larger cabins, of course, are doing very well. The big question for me is whether the G4 market will make a recovery. Buyers are becoming savvier and they are all looking for a deal, the G4 does a lot for comparatively little money but it is very expensive to run. I would say 60-70 per cent of markets are stable, but once they turn it will be too late as prices will rise very quickly.