Listen closely to a quietening market
The private jet market was loud and buzzy for most of last year. But not all of it.
True, nearly 1,400 deals were closed last year, up 2% from the previous year, according to the International Aircraft Dealers Association (IADA). The total value of pre-owned jet sales totalled $9.3bn, averaging about $8m per transaction.
But there’s growing evidence of a distinct cooling taking place. Sentiment about the market and projections for the next six months are both down, says IADA. More deals fell through in the fourth quarter (Q4) of last year than any other quarter in the record-breaking year, with 48 deals failing compared with 39 in Q4 2021.
That’s because buyers are becoming much more cautious, Zipporah Marmor, chair, IADA tells Corporate Jet Investor (CJI). “Everybody is watching the news and starting to think about the big r word [recession] and is it coming and how fast and how hard,” she says. “I think those who didn’t have the real urgency to acquire were finding reasons perhaps to postpone.”
Similarly, Donath Aircraft Services reports flat Q4 sales compared with the previous quarter and less than half the record deal volume achieved in the same period of 2021. In turn, inventory jumped by nearly a third from Q3, creating a more balanced market for the year ahead, predicts the company’s Pre-Owned Aircraft Quarterly Market Report.
While nobody wants a recession, the impact of the slowing economy is that we are already seeing the pre-owned business jet market cooling, which can benefit both buyers and sellers, Jim Donath, president, Donath Aircraft Services, tells CJI.
“Additional inventory will likely flow into the market and there will not be the acquisition pressure that creates one-sided transactions like we’ve seen in the last two years, where the seller has all the power,” he says. “More balance will create better transactions. Every seller wants the highest price possible, but they are also often acting as buyers, looking to replace the airplane they’re selling.” Donath says more inventory and a more balanced market will create a more fluid market, which is “more productive for everyone.”
Mike Dwyer, managing partner at aircraft brokerage firm Guardian Jet agrees that a cooling market is welcome news. “Prices are falling, down 10% already from an all-time high. Inventories are rising, recession is looming and inventories expanded from 1% in early 2022, 3% as we got into Q4, to their current level of 5%” he says.
“Historically, 5% of a fleet for sale is wonderful news. Our brokerage business is typically steady in rising and falling markets, it’s when they turn where we pause, as buyers expect prices to fall, and sellers have not quite reconciled to that reality.”
Dwyer says this pause is what decreases sales volume and increases inventory, causing prices to fall. “2023 inventories will continue to grow. But remember, they can still double to get back to what we consider a normal market; 10% of a fleet for sale,” he says in his Pre-Owned Jet Pricing Outlook.
As well as making the market more balanced and fluid, this new market dynamic allows buyers to be more methodical, according to Donath, rather than rushing into a deal due to pressure, as seen with high-net worth individuals recently.
“Buyers in this market will be able to conduct more thorough due diligence, so there are no surprises,” he says. “A buyer who has more choices as they enter the market is likely to acquire an aircraft that better suits their needs, which leads to a better ownership experience.”
Dwyer agrees, offering this advice: “For a buyer, time is on your side, and keeping abreast of the market for quality inventory is the order of the day. For an owner upgrading from an existing aircraft, time also works for you, where you save $2 buying for every $1 you lose selling.”
The private jet market is set up for a soft landing in a recession, providing it’s a mild one, says Donath. And, if we listen hard enough, a quieter market in 2023 could be music to everyone’s ears.
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