Pre-buy becomes issue salad

opinion

by Alasdair Whyte

November 26, 2024

Image courtesy of StockCake.

Gaius Julius Caesar had a spectacular career. He united Rome, conquered France, invaded England and invented the world’s most popular salad. But he kept it real. When he was getting cocky he had a slave walk behind him and say: “Memento Homo” or “Remember, you are only a man”.

The same thing is happening to aircraft and engine manufacturers. They may have fantastic order books, great results and strong demand. But there are lots of people in the industry reminding them not to get carried away. This was clear during the broker panel on the first day of CJI Miami earlier this month.

“I am really glad what we offer as an industry is a product that our customers love because I think it’s really hard to be an owner right now,” said Chris Ellis, co-founder and managing partner, Avpro. “Some of the stuff I’ve seen owners have to go through we have never witnessed that before. It’s transactions where you are getting a four-month issue and half a million to a million dollars to fix it. It’s absurd. In the 37 years I’ve been in business, it has never been so bad.”

Everyone knows that the past few years have been good for many brokers. But they have been tough years. “It takes longer now to close a transaction than it ever has and we work harder than we ever have to get a transaction accomplished,” said Jay Mesinger, CEO and founder, Mesinger Jet Sales.

“Those people that are coming into our industry that think our industry looks sexy and that it’s easy and that we make a lot of money. I think we may all make good livings. But I don’t know if anybody could work harder than we all do to get a transaction done and I don’t think it’s that sexy.”

To understand the issues, Brian Proctor, president and CEO, Mente Group said you should take a felt bag like the ones that wrap Canadian Crown Royal whisky. “Take a Crown Royal bag and then take a hundred pieces of wood and write on the back of them a hundred different reasons why a transaction will go wrong. Put them in the bag and shake it up,” he said. “On every deal, pull out 10 pieces and that is what we are dealing with now. It starts with pre-buy facility x or the attorneys can’t get the y, or the bank is having a hard time with the z.”

Proctor added: “If I hear the words ‘landing gear corrosion’ again this year, it’s going to make me jump off the stage onto my head. The OEM produced 30 airplanes 10 years ago, so you would think that they’d have 10 to 30 sets of landing gear pieces that we needed. We searched and searched for three weeks to find a bolt so an airplane deal could close. Earlier this year I was at an MRO that had 60 engines waiting for parts to come from an MRO. That’s 60 aircraft not flying.”

Proctor gave the example of a four-year-old ultra long range airplane that went through a pre-buy earlier this year. “We thought it was going to sail through because it had just gone through a 48-month check,” he says. “Ultimately, it ended up with a couple of hundred thousand dollars of landing gear corrosion that delayed the transaction by two months. So, yeah, take a hundred scrabble pieces in a Crown Royal bag, shake it up, dump it out every transaction. That’s what we are dealing with right now.”

Par Avion founder and president Janine Iannarelli highlighted the importance of aircraft records. “That’s the first step in helping the owner of an aircraft or a buyer understand what the future holds,” she said. “ It can translate into savings because you may turn an aircraft down that you’re buying just by your cursory look at the records before you go to pre-buy, spend all that money and determine that you never should have entered into this transaction or it is going to be a very costly way out.”

Now is a good time to be a technical expert. “The market has been good and things are going well so we need more people to look at aircraft as deals take longer as the intricacy of the actual airplane and everything that might have happened to it is more complicated. That’s why as a company, we’re trying to grow that way,” said Matt Rosanvallon, sales and acquisition director, Freestream.

Avpro’s Ellis had a stark warning for OEMs. “It is a problem being an owner. This industry is way behind in servicing the owner.”

Proctor agreed: “If we keep kicking our owners in the shins, they are going to revolt on us.”

Julius Caesar was famously cut down in March 44BC (OEMs find the first quarter of the year hard as well). But it could have been worse. Just days before he was killed, he finally took the time to write down his unique recipe for lettuce, anchovies and bacon. The rest is history.