Exclusive: A new way to lock in your jet’s future value
Any owner who has bought their first aircraft in the past few years is about to learn an important lesson: the value of your jet is meant to go down every year. With a US recession looking likely and more aircraft coming on the market, depreciation is on its way back.
Which means that now is a brave time for a new entrant offering guaranteed future aircraft prices.
Jetquity, which calls itself a “private aviation fintech” (or financial technology company) is launching a residual value guarantee (RVG) product called The Protect Program. It’s getting the money for this from a mixture of family offices and private investment firms.
Residual value guarantees are relatively common in aviation. Financiers sometimes use them to get deals past credit committees. Manufacturers in the past have used them to sell aircraft (although this is rare now). Jetquity wants to offer them to all owners.
“Owners want to be able to reduce risk and have the flexibility to upgrade easily in a few years,” Asad Rahman, CEO, Jetquity tells Corporate Jet Investor. “Our programme makes sense if you are buying an aircraft and want to be protected from the downside, but still be able to benefit from the upside.”
Jetquity says it has developed an advanced proprietary algorithm to determine the residual value of private jets, considering market trends, aircraft age, and usage. Owners (or potential owners) tell them the tail number for their aircraft and how they plan to fly it. It works out the rest. Rahman says they have been working on this for more three years.
“We needed a lot of very granular data which you could not get in the past,” he says. “At heart, we are a financial technology company. Our system uses serious artificial intelligence to go through years of data and looks at things like utilisation and elasticity of demand for different aircraft to forecast values. Demand drives value.”
The owner pays a fee – a small percentage of the aircraft’s value – each year that they own the aircraft. Jetquity guarantees to buy the aircraft at a set price five years later (it will do up to seven years in special cases). If after five years, the aircraft is worth more, the owner can sell it on the market. If it is worth less, the aircraft becomes Jetquity’s problem. Its investors are taking this risk.
They are prepared to offer guarantees for both new and used aircraft. But Rahman says they will be selective.
Rahman says they are seeing strong demand and that they are keen to work with brokers to establish the product. While owners could use an operating lease (where they make lease payments and then return the aircraft at the end), he believes many owners are keen to manage their aircraft like an investment.
“We want people to stay with us on the programme as they own different aircraft,” he says, “and we want to work with the leading broker dealers to manage this.”
Jetequity knows that the value of your aircraft can go down. They are just betting that their forecast is right in five years.