Blog - Mesinger Jet Sales

Mesinger Pulse – “Right Pricing, Wrong Offering”

There used to be a sentiment among sellers that if there are no buyers, why lower your price? That used to be a fair question in 2009. Today there are buyers, albeit mostly in North America. So that old adage is not a sound reason to not truly identify Right Pricing. As you look at the number of days on the market, most planes are approaching 180 days or even longer. I have never received a blue ribbon from anyone for having a plane on the market for most days! I can also tell you that when a seller says to me, “I have patience”, they are really saying they will be OK with taking less sooner than later. In a declining market, the longer you are on the market the less someone will pay you. It is simple, aircraft are a declining value asset.

What is Right Pricing? It is the price that sells the plane, simple as that. But getting there is not simple. I once ran a series of New Yorker-like cartoon ads. One of my favorite, which I am going to re-run soon, was of two well-dressed business men walking out of a conference room and over their shoulder you can see into the conference room and those around the table were throwing money in the air in what looked like a celebration. The caption says, “Do you think we left any money on the table?” Please do not mistake right pricing for leaving money on the table. It is not a dart at the wall. It is created by employing good solid research, including not just the reporting books or the listing services, but actual constant calls to brokers and sellers and buyers coupled with very detailed comp comparisons. It is not a vague overarching comparison, like just comparing a category of plane against the other with simple components of comparisons such as one age against the other or one total time against the other. It is a deep dive into each of the comps, breaking the planes up into their constituent parts, then assessing value. This will begin to give one the real comparative analysis to see what is really selling at what price and why.

We in our firm are beginning to see that right priced planes sell in days, not weeks and certainly not months. It is all about price. So, the answer is not that there are no buyers so don’t lower your price. The answer is there are no buyers at the wrong price. By the way, rather than lower your price once on the market, come to the market right priced to begin with. Sometimes that is not an easy sell for you to make to your seller and I said before it is not simple. They might say things to you like, “Well if it is a real buyer they will ignore your asking price and make you an offer regardless of a high ask.” Not true. Today buyers call those planes that appear to be right priced first and they may never get to yours!

So now let’s explore the other side of this, Wrong Offering. This occurs when a buyer comes to a market and believes they can just throw a dart at the wall. They ignore all the great research their aircraft professional provides. They just say if they are asking this offer that. Very frustrating when such hard work and market research has been accomplished. Usually after a few failed attempts at wrong offerings real buyers come around and make great buys. Remember the cartoon? Buyers as well as sellers are and should be sensitive to either over paying or selling too cheap. Today neither has to occur if good solid guidance is adhered to.

While I was writing this article, I had a broker call and say, “Hey is that Hawker still available?” I told him it was in a pre-buy and under contract. He said he figured so since it was so well priced. He then went on to say his buyer has gone silent since he has been calling him to advise that the airplane was priced right.. This also sounds familiar when one is working with a prospect that says they are a buyer, then a real buy comes along, and they either disappear or throw up a distraction.

Now back to the title of this important article, Right pricing, Wrong Offering. I assure you that if a plane is right priced to begin with or ultimately right priced, it will sell, and sell quickly. If a buyer proposes a wrong offer they will not be the buyer. It is so simple yet requires the utmost trust among your team. I promise for a buyer and seller to come together for a purchase there is no reason that either side will leave any money on the table. There is no cookie cutter formula, it is complex and based on the facts of the market. The leap of faith comes when the sales professional works to take the hand of the buyer or seller and guides them into the real world. The two key words today are trust and price. Or said even more directly, Trust the Price!

Mesinger Pulse – “Where Does An Aircraft Broker Add Value? Or Not!”

I promise this article is not meant to be self-serving but having been an aircraft broker for 43 years and interacting daily with other terrific professionals I do think it is a topic that is important and that I am capable of speaking about.

Aircraft sales professionals are hired by owners and sellers to successfully market and sell their aircraft. I compete in this arena daily. I, like many of you reading this, often lose a listing opportunity to others who might quote a lower price to perform the services, and/or overstate the value of the aircraft to be sold, or the combination of both. It reminds me a little of the Wizard of Oz. Behind the curtain the Wizard can claim anything. Of course, in practice promises do not always come true.

Everyone will promise hands on, out from behind their desk participation. Delivering on this is often a very different story. Let’s start at the beginning. Once your broker has signed up your listing do they actually travel to the aircraft with technical representation and start from scratch to build a current specification sheet? Do they really take the time to read all the logs and build what we call a site visit report? To us these elements are critical value adds and without them accurate representation will be next to impossible. I am finding more and more of my fellow brokers investing in full-time in-house technical personnel. We have had this component on staff with us full-time for over 20 years. There is no extra charge for this piece of our service but either working alone, or even better, with the sellers DOM magic occurs. Smart answers can be given to prospects and buyers. We hear too often from brokers that they have not actually ever seen the aircraft or the logs and records for planes they are representing. Many times, we will go see a plane on behalf of a buying client and are the first to really lay eyes on it, and more times than we would like, are disappointed with the findings.

Accurate pricing of the aircraft brings huge value to the seller because good solid pricing both in what to ask and what an accurate sale price will be means fewer days on the market. That is value! Having sellers try to impact the pricing discussion based on an amount owed on the plane or some misguided percentage of what was paid typically has no real bearing to the market today based on comps and recently sold intel. No question about the value added here by the broker and its research staff.

Aircraft showings are another place that real value can be added. Honestly, we like most of our counterparts, do not attend every showing of the aircraft. Very often a prospects pilot may just coincidentally be at an airport where an aircraft that is for sale is based and we get a call asking if they could stop by for a quick look. Sometimes a broker may go on a roadshow to look at perspective aircraft to build a list of aircraft to present to their buyer. In those pop-up cases, even we would ask the flight department to open the plane and show it. For all key showings, the broker should be on-site to sell the plane.

The pre-buy and closing functions are other obvious areas the broker should be hands on and on-site. The technical side of the brokerage firm should be at the aircraft movement to the pre-buy and input as well as key times during the inspection and rectification of discrepancies. Movement to the closing location and the actual closing are also very important times for the broker to be present to guide this final phase.

Let’s now talk a minute about how value is not added. This occurs when a broker suggests they have an exclusive listing on an aircraft and in fact really do not. Believe it or not this happens more often than any of us would like. This person that tries to wiggle in the middle will usual be the cause that a deal does not happen. They bring confusion and distractions to real buyers and sellers trying to make a deal. Offering price guidance to a buyer that is not really vetted by the seller is another way deals do not happen. One of the most problematic areas of non-value is the broker who really does not have the credible relationship with the aircraft and tries to craft a back-to- back deal. This can bring so many negative distractions and problems that deals seldom get done under this structure.

Bottom line, take the time to find a credible reputable broker. Ask probing questions, check references and be willing to pay an industry acceptable fee to the broker. Problems typically occur when a buyer or seller believes they can pay cut rate fees for full fare services. It never works. Then when the deal starts having problems the broker is blamed and our standing in the community suffers. If something is too good to be true it usually is and you get what you pay for!

Mesinger Pulse – “If It Were Easy…”

I was talking the other day with the Director of Maintenance for a client of ours. We had just completed a successful sale of a large-body aircraft for their group and we were dissecting the event. As all who are reading this know there are many identifiable parts and pieces to a transaction, including legal, operational considerations, and the aircraft. Even with the aircraft related pieces it all comes down to the people. As I always say, if it were easy, everyone would be doing it!

Is there something in the air? Is there something in the water? It seems transactions are tougher than ever, fraught with more roadblocks than ever and ultimately plagued by the people more than ever. Don’t get me wrong, I truly do not believe that the people get out of bed to just stir the pot and create problems. Is it lack of team leadership? Is it over reaching or people swimming out of their lanes? I am not sure. What I am sure about is that the deals are hard fought to get over the finish line, more than ever.

When there is an opportunity to sell and get engaged in a transaction, more than ever, people seem to hold their collective breath and holding one’s breath cannot last forever. Sooner than later you start to turn blue and the lack of air to the brain makes for hasty decisions. Here is my advice for all of the people involved:

First and foremost, don’t hold your breath. In fact, try to find a place in every day you are involved in a prospective transaction to step back. Recognize this is just an airplane deal. I have always said that at some point or points of every deal let go and see who else is holding on. There is no way anyone of us is strong enough to hold the entire deal together all by ourselves. As I alluded to a few paragraphs up, identify your specific role and duty in the transaction and then stay in your lane. Early in the transaction process as a buying or selling team pick the leader. Often that leader is the broker or consultant, but sometimes it is the aviation counsel. That does not mean that person makes all the decisions it just means that leader has all the information gathering responsibility and disseminates the relevant information back out to the rest of the team members.

Next, communicate the issues in real time. Don’t try to find ways to minimize or spin critical path data to the team, hoping to make bad news into good news or tainting an outcome. That only leads to items being overshadowed by fear rather than sorted out by facts. In fact, most areas of concern in a transaction can be sorted out without derailing the transaction. Conversely if everything becomes a fire drill both side’s principles soon get worn down and the enthusiasm that should accompany a transaction gets lost.

Another very important factor in a transaction is the usual and customary and practical side of the LOI and contracting phase. Often this gets lost in the emotion of the seller in feeling that someone is trying to steal their plane or buy it for wholesale. Even the buyer in today’s market can feel they are over paying in what they feel is a downward trending market. I always coach sellers to look at the certainty with equal eyes as you look at the price. What’s the difference if you think you are getting more than it is worth from a person who cannot really complete a deal and conversely if you are a buyer why not pay a little more if you find the perfect plane for you without having modifications on your dime?

Now remember ultimately no matter the actions of the people involved, if the aircraft sincerely has problems that make it not capable of meeting the delivery conditions contracted between the buyer and seller, then the deal will not work. This is typically the last reason a deal does not go through. It is less seldom about the airplane and more often about the individuals involved.

Be smart, be tolerant, be creative and be vigilant. Airplane deals are getting done. In fact, they are getting done more often than in many recent years especially in North America. So, as you approach the deals do it with eyes wide open. Don’t think a deal can get done if you try to hold it together all by yourself. Don’t think you can overcome a badly contracted deal once in the middle of it, and don’t think you can take on all of the verticals and horizontals by yourself which is often why people try to swim out of their individual lanes. Remember, if it were easy, everyone would be doing it.

Mesinger Pulse – “My Clients Are Rich”

Well that was probably an attention-grabbing headline to this month’s newsletter. They say money can’t buy you love, it surely can’t buy health, but it can buy you a richness of life. I was speaking to a very old client of mine last week. By the way he is not old, our relationship goes back a long time. We were talking about the sale of his current aircraft. He was lamenting about values and then made a very interesting pivot. He reminded me that in 2008 he had an offer for the current plane we are selling that was over three times as much as we are getting for the same plane today. Rather than moan about the difference he went on to say that during the last 9 years this aircraft has brought him a richness of life.

During the period he has owned this aircraft, which by the way he flies himself and has had the pride of being a well-trained and very skilled pilot, he has traveled the world with his wife. Family vacations have been invaluable. The joy of the day to day ownership and the memories it has afforded the entire family have been enriching. So, in this context, my discussion this month is not about being rich economically, it is about being rich with joy and satisfaction.

Now my turn to pivot, as I have your attention, to the value of owning an aircraft. We can certainly focus on the personal rewards of aircraft ownership as well as the business value in owning an aircraft and using this amazing tool to get out in front of customers or out ahead of your competition. There is no doubt about the success of those companies that use business aviation in the day to day course of business growth and sustainability.

I am flying today to Shanghai to attend and speak at the Asian Business Aviation Conference and Exhibition (ABACE). This event will be so interesting, especially at this economic and geo political juncture of our world order. Speaking of rich clients, this amazing emerging market in Asia has been hampered by a set of anti-corruption regulations that were imposed by the current leader of China. Being rich has become a target for citizens of the country and stunted the growth of business aviation for the last several years. I am hopeful to find what I only hear about in the States, which would be a loosening of the regulatory climate in China around the anti-corruption legislation. I think I will experience a greater enthusiasm and actual buying trend in the region compared to the last few years.

Back to the idea of the richness of business aviation ownership. With the fear of safety back in the minds of travelers and now not being able to even take your iPad or laptop on a flight coming from certain regions of the world just plays into the hands of all of us that buy and sell business aircraft. These fears of travel on the airlines that come up with some regularity just push those people with the ability to buy either off the fence all together or at the very least peak their curiosity to act sooner than later to buy.

Couple the safety concerns or ease of travel concerns with an all-time low price point for these tools and we are seeing an ever-increasing number of first-time buyers coming into the market. They are asking questions, building budgets, and actually buying planes. Still, the greatest area of sales strength is North America and that will probably stay slanted like this until several stars align. The global price of oil will need to rise to the middle $70s and be sustainable at that level to crack open capital expenditures by the emerging markets. Right now, without that global participation, there is still such an overabundance of aircraft supply that prices should remain low. I still hear prospects and clients articulate that, as sellers, they are going to wait until prices rebound before they sell. My answer is always the same to these believers. Rebound from where since prices are still going down? And more importantly, I remind them that these are depreciating assets, so while you wait, the natural evolution of a piece of equipment is to go down in value with age. What we can all hope for with a more balanced supply and demand would be a reduction to a stable residual loss rate rather than what sometimes seems like a freefall.

So back to my friend who is selling but enjoying the memories and richness of the experience. I promise there are no shortages of memories that can be made. Jump in and start making memories and increased business wealth anytime. You will find much supply and a very welcoming industry to guide you to the right choice and best values. If, by the way, you are a seller, that supportive industry awaits you as well.

Mesinger Pulse – “Now You See It, Now You Don’t”

I promise this is not going to be an article about magic tricks or sleight of hand. This is going to be an article about tangible pricing that you could have seen just a few months ago, that now has disappeared. It did not disappear only to reappear in a later part of the show. Unfortunately, in most cases because our markets are still unstable, the next price you see will almost always be less than the last price. I have seen many reports lately that speak to increased asking prices and less inventory to choose from, which in some markets is the case with respect to high quality options available. But increased asking prices are almost always as a result of a seller entering a market and thinking they aren’t in a rush and want to see if someone just may pay more for the plane than a truly educated buyer would offer. What I also see every single day though are the eblasts that come across my computer or phone that say “Must Sell”, “Drastic Price Reduction”, or “Call for Important Pricing Information”. In fact, since I have been writing this article for the last 15 minutes, I have had three of these notices.

I thought it might be interesting to break this down to see where these pricing pressures are coming from. First, I think it may be time to discuss what has been a segment of the market that seemed vibrant and defying logic but is starting to show its limits, and that is aging aircraft. Those airplanes that are 20 to 25 years-old and include the Hawker 800’s, Lear series and older Citations, even the Astras. I am watching these inventory levels rising and prices dropping at even greater clips than in past quarters. Factors at play include increased maintenance costs, obsolescence of parts and product support. It appears as if this attractive entry level segment is truly starting to diminish in appeal and the 2000s-vintage aircraft are the desired entry point for many buyers. Of course, as the lower end of our aging market goes down in value there is some pulling down of those planes just above them but not at the same exaggerated pace. As we get closer to the 2020 US avionic mandates the idea of investing sooner rather than later is hampering the stability of these values.

Just above these planes by segment are those that are in the 12-15 years-old category. These planes no longer have warranty and in many cases have been used by fractional companies and are starting to be released back into the resale market. These higher time planes are actually pulling down those same planes that have not been used by fractional providers. Buyers are looking at the prices of the higher time planes and using that pricing to buy the lower time planes. Our traditional logic would have said that the higher the time the lower the price. To some extent that holds true however with buyers holding that pricing line sellers are finding the delta between the higher and lower time planes decreasing. Again, just too much supply and diminished demand.

Long range planes of all ages are still feeling the pressure of a very decreased demand compared to the supply that for the last many years was being produced by the manufacturers to keep up with the growing markets in the Middle East, Asia, China and South America. No shortage of planes to go around.

We keep talking about a “Trump Bump” in the reports. As I mentioned we are feeling somewhat of an exuberance, but we must be very careful not to make a mountain out of a mole hill! The stock market and other financial indicators are no more than a delicate balancing act. If you are a seller, take every offer very seriously. If you are a buyer add some thoughtful and accurate Intel to your logic so when you present it to the seller they cannot just think you are trying to steal their plane from them but you are a sincere and educated buyer. It has never been as important to strike a comfortable balance as it is now.

We had an owner call us and say that 3 months-ago they received an offer for $1,300,000 for their 20+ year old light jet. They were calling us because their current broker is now telling them that their plane is worth $1,100,000. They were considering changing brokers. Our message to them: “Sounds like you already have a good broker, take their advice and don’t miss the next offer that could be for $900,000.00 or less”. Now you see and Now you don’t. It is not a magic trick by a magician trying to make your value disappear. It is our current market. Planes will not go up in value. They are depreciating assets, they are older pieces of equipment. If selling is the intent, do not have the attitude that you will just sit back and be patient. That will translate into taking less sooner than later.

How much longer can this pricing dilemma of our market last? Even the manufacturers are struggling with this. It seems they are all extending the timeline for a recovery. Each day with each new report I see the timeline for the new aircraft recovery lengthened. I see the horizon getting farther and farther out into the future. There is no doubt that our industry is a keeper. Business aviation is here to stay. We are all in this together, so we must all be realistic about the many realities of what makes the market work.

Gulfstream G650, Serial Number 6071

We are proud to exclusively represent Gulfstream G650, Serial Number 6071 for immediate sale.  This aircraft was delivered on May 1, 2014 and it is based in Houston, TX.  It is owned by a U.S. company who has operated business aircraft for more than 85 years.  Block Point 2 and a large number of cabin enhancement mods have been completed and this G650 is well equipped with options.  The interior also features the most highly desired configuration with a forward galley, forward crew compartment, forward and aft lavatories and a divided aft cabin.  The colors are warm and rich and the paint and interior are in excellent condition.  There is no better pre-owned G650 available for sale in the world.  The great condition of this aircraft, the strong pedigree and the ease with which you will be able to complete your purchase of this U.S. based and registered G650 make it the best value on the market today.

Gulfstream says it best, “Innovation and excellence have taken flight in the Gulfstream G650.”  There is no more innovative, graceful, sophisticated or capable large-body long range business aircraft in service in the world than Gulfstream’s G650.  With a maximum speed of Mach 0.925 and a range of up to roughly 7,000 nautical miles, passengers can reach all corners of the globe faster and more comfortably than in any other business jet in service.  The G650 was a clean sheet design for Gulfstream and the first time they changed from their traditional circular fuselage in favor of a larger oval shaped tube.  Gulfstream also considerably increased the size of the cabin windows and lowered the cabin pressure altitude providing a more comfortable flying experience.  The aircraft controls are “fly-by-wire” technology and aircraft surfaces are moved by dual hydraulic systems.  The level of redundancy and sophistication in the systems in this aircraft make it extremely safe and pilot friendly.

Immediately available for sale, highly equipped and featuring the most desirable interior configuration, this beautiful one U.S. owner aircraft is the best option for any buyer in the world considering purchasing a Gulfstream G650.  Call us today at +1-303-444-6766 or visit our website at http://jetsales.com/jets/2014-gulfstream-g650-sn-6071/ to learn more and watch a video about this incredible aircraft.  We look forward to speaking with you.

Mesinger Pulse – “The Financial Impact of a Non-Standard Configuration”

This is a tricky one. Depending on the total available inventory and active buyers at the time of selling a plane with a non-standard interior configuration the financial impact can be more or less significant. I thought I would take this article to point out some of the areas of valuation we as aircraft professionals as well as appraisers of our industry deal with.

A non-standard configuration could be better described as a less popular configuration in relation to the entire fleet’s predominate configuration. Each manufacturer offers many variations of interior layout at production, including Forward or Aft Galley’s; Forward and aft lavatories or both; Forward crew rest areas; Four-place conference groups or not. When we look at aircraft on the resale market it becomes pretty clear what are the most popular or more often selected combinations.

Most manufacturers would say that regardless of the type of plane or category, seventy to seventy-five percent of the planes completed new follow a pattern of completion that provides what then becomes the most popular or standard configuration layouts. That leaves some twenty-five to thirty percent of the layout completions from new deliveries with a combination of layouts that could be labeled non-standard or less popular.

It is important to note that at completion when new the standard or more popular configurations are not more expensive than the new delivery non-standard or less popular combination of layouts. They just represent what the buyer of the new plane liked and wanted. It is only when these planes go to the resale market some number of years later that they begin to be differentiated by resale price for the standard verses non-standard configuration.

Regarding resale value, just because an aircraft has a non-standard, by percent of the fleet, configuration does not mean it is worth less IF you find a buyer of like mind . I have gone to the market many times over the years with a plane that by fleet numbers has a less popular configuration and Bingo! I find the person that has actually been specifically looking for this configuration for months. Remember, often due to the small amount by percentage of planes that may have been configured this way, a buyer may find that their perfect plane is not always readily available. In fact the wait for this perfect plane may be longer if that buyer is not willing to bend on configuration preference. So, believe it or not if the perfect fit is found it can sell quickly with no financial impact.

Usually when we value an aircraft with layouts that may not be considered standard or as popular by count we do not just give a random dollar deduction, but rather footnote the layout section to draw attention to the percent of completions like the one we are dealing with. Then we let the market appetite for that configuration help to quantify the impact later in the selling process. It would be unfair on day one to burden the aircraft with an arbitrary deduction until the market speaks to us based on demand for that configuration at the time of sale.

Ultimately two things show up fairly quickly. Either we get strong evidence based on few calls or many calls with prospects saying that configuration will not work and will not be considered. Both are signs that this offering will most likely stay on the market longer due to a lack of interest in this layout and time on the market will absolutely lead to a lower sale price based on a continuing declining market.

After some period of time on the market, with no solid activity, the potential of expanding the universe of buyers can be created by price. This is the part that can be very tricky. Now we must actually assign a number to this anomaly. Let’s look at the math. There is no way to create a price that embraces 100% of buyers. The goal here is to just expand the market by some 2-3%. Remember we are only really looking for one buyer. The seller of course wants to be very measured in this price discussion so as not to leave anything on the table in a sale. Also, from the perspective of the seller, one must remember that they were the ones that bought this plane new and had it configured the way it is, so they are not as inclined to accept that it may not be as popular now. There are two sides to this. First, convincing the seller to affect the price based on the less popular layout to expand the universe of buyers and then, finding the buyer who agrees with the reduction in price. We are always successful in this balancing endeavor.

We are most successful when the match of buyer and seller is made by not just finding the buyer based on price but also finding the buyer based on logically defining the layout to match within reason a buyer’s needs. The best example of that would be in selling a long-range aircraft without a forward crew rest area to a person that really does not fly regular long-range trips. In that case the lack of that designated space has less real mission fulfillment importance.

Mesinger Pulse – “Animal Spirits – Trust and Confidence in the Economy”

In 1936 the economist and author John Maynard Keynes, wrote a book entitled The General Theory of Employment, in which he coined the term, “Animal Spirits”, which was used to describe human emotions that drive consumer confidence. It also generates human trust in economic conditions. One could say that before there can be a better economy there must be a trust and then a confidence that will drive that.

I have seen several articles written and surveys taken since the presidential election that tend to show there has been a bump in activity in our industry as a result. I have also had several calls from clients and prospects echoing this belief. If one were looking for a data point to bolster this belief they could look no further than the stock market results since the election. The question though is, will this activity really equate to more closed transactions or will the related demand reduce supply enough to affect prices from the years old downward trend?

A very good friend of mine who is in the publishing business was the first person to ask me about the confidence he is seeing in the economy and then relate the Animal Spirits term to this phenomenon. This was so interesting that I began to read more and more about the theory and of course the most logical conclusion is to wait and see if that is what we are experiencing. There is no way to completely think we can sit back and ride this wave forever. We all must cautiously take one step at a time. Drawing long-range conclusions on short-term gains hardly creates a trend that is sustainable. But, don’t get me wrong, it is great to have this bump in activity.

I was struck by one bank survey in particular. It is a regular, well read survey that is mostly contributed to by the dealer/broker community as well as a few ancillary industry participants. One of the questions specifically asked was if we as a community were seeing this post-election bump? When the collective answers came back a large percent of respondents answered, yes. The results were then published by several industry publications. As I mentioned above, this is real and great to be experiencing, however, my question was will this bump be sustainable and can it really affect the downward pricing trend by meaningfully reducing supply?

If you turn to page two of this survey’s results you will see a corresponding number that says it all, which is that 59% of responders said “Pricing” was worse than the previous survey. This tells me what I already know just by coming to work every day and opening my email blasts from listing dealers and brokers shouting, “Price Lowered”, “Motivated Seller”, “Must Sell”, etc. etc, etc! So, there are a combination of things happening. People are drawn to our industry to either move up or even better yet, get in for the first time, by two phenomena, confidence in the economic conditions and Price.

I firmly believe that if sellers took this Animal Spirits term incorrectly and chose now to say they alone can stop the downward trend in pricing by just collectively raising their prices, even the Animal Spirit in us all would fade. Supply is just too great now due in great part to what I regularly discuss in my articles as a paralysis in the growth of the emerging markets. Will this growth in the economy in North America be able to spill over into the emerging markets? Not quickly enough. Can the growth in our North American economy be enough to reduce global supply? Probably not. Could the growth in our economy at least slow down the downward pricing trend? It possibly could if this growth is sustained and continues for a few years while the emerging markets regain their strength. Lots of “maybes” and as I mentioned the best tact is to cautiously wait and see if all the post-election clamor can continue and progress from clamor to real policy and from real policy in theory to real growth that is meaningful. Lots of “ifs” as well.

One thing is for sure, this bump for the moment is real. In fact, I have had more prospects and clients than ever call and discuss transitions mostly into bigger, newer planes, simply because they want them rather than need them. They are all actually articulating that sentiment when they call. Admittedly, getting this “want” rather than “need” based buying to be an actual transaction is difficult and in great part it depends on the strength of the want compared to the reality of the cost. I have to point out that the driver for this discussion is more about the price of the planes today compared to any other time in the past. In summation, the Spirit is fueled by the price.

Mesinger Pulse – “Still More Questions Than Answers – 2016 Globetrotting”

During this past year, our Pulse Newsletter has touched on many topics mostly related to aircraft residual loss rates and accurate valuation conclusions. I have circled the globe speaking to audiences and reporting on our industry’s current challenges and realities, including at the 2015 Abu Dhabi Air Expo in December, the 2016 ABACE in Shanghai, 2016 EBACE in Geneva, the NBAA Regional Forum in White plains and of course NBAA 2016 BACE in Orlando. We are also privileged to be a part of a very select group of Dealers and Brokers that are invited by the major OEM’s to participate in what they consider their Key Players and Industry Influencer groups. No grass growing under my feet! This globetrotting gave me a broad and deep view of the industry not just seen through the eyes of North America but truly the eyes of the World.

My travels help me report on the global supply of aircraft, the regional reasoning for the oversupply and the deep trials and tribulations of the industry. I am able to speak through this newsletter from first hand experiences and conversations with industry leaders around the World and I want to take this month’s edition to tidy up the perspectives and distill the data points with some questions and answers. Often, I would leave the key meetings and conversations with more questions than answers.

When will the oversupply of global inventory catch up with demand? Will demand come back to the once demand rich emerging markets? Is there a magic number for a barrel of oil that will start the capital spigots flowing again? Will a continuing strengthening of our economy in the U.S. create a collateral uptick in the rest of the world? What follows are the answers gleaned from my interactions with industry leaders in 2016.

Rather than answer the oversupply question as a standalone, let’s look at what is to be considered the cause of the oversupply. If we all think back to 2003 running all the way into 2008 as a professional community, we would ask ourselves how long could this growth run last? This run was the dramatic increase in demand brought about by the explosion of business for us all based on the emerging markets coming to life. Russia, the Middle East, China, Asia and South America were all awakening seemingly at once. People that came into the aircraft market during those years actually thought, for good reason, that aircraft went up in value each year rather than going down like any other depreciating asset or piece of equipment. People were actually paying premiums for new deliveries and like new aircraft. All of a sudden in 2008, seemingly in one day, it was as if the brakes were applied globally and it stopped. Between 2008 and 2009 aircraft lost 50-70% of their value. It was catastrophic. This halting effect with very few transactions lasted throughout 2009. Starting in 2010 markets began, albeit with a complete value reset, to awaken again. Slow but steady activity picked up. Valuations remained low and trends for pricing stayed in a downward direction. By 2013 Industry analysts and the dealer broker community began to adjust for what would be likely an annual residual loss rate of between 7-10% which was an adjustment from what had been traditionally believed to be 3-4% annually.

Next came 2015. And again, in what seemed like a one day catastrophic event, the price of oil went from record highs down to around $25.00 a barrel. Almost overnight energy producing countries, energy producing companies and all the ancillary suppliers of goods and services to those segments stopped all capital expenditures. Hence the emerging markets ceased to be a factor in our now Global industry. So that, along with a few other International issues, like sanctions against Russia due to incursions into Ukraine and the anti-corruption crackdown in China put renewed braking on growth. This is where we still find ourselves today. North America seems to be the only area of transactional certainty in the world.

Prognosticators might say this over supply will last 2-5 more years. My personal sense it will not be cleared up during 2017 at the very least. OEM’s are working feverishly to curtail and manage production. The aging aircraft which we as an industry would have mentally begun to write off still provide safe and reliable transportation to many. Therefore, supply remains rich and demand remains low at least against the old days of globalization in our industry.

Those in the oil know would say that a sustainable price per barrel of oil for growth in the emerging markets to kick up would be in the high $70’s. Will a continued strengthening of our U.S. economy spill over to the rest of the world’s economies? I think we have to wait and see. It would seem if we begin to build our U.S. Infrastructure and do so without foreign products like steel from China or labor from other countries the effects of our growth will probably not spill over across borders. Of course, our demand in North America could continue to increase with this strengthening of our economy but not to a place where supply will be reined in and the downward trend of pricing curtailed.

A looming question regarding emerging market demand returning is, to what level was the thirst for growth in aviation for each of these countries satisfied before the 2015 downturn. In other words had there not been the event of oil going down in price so rapidly might demand have naturally slowed down. We won’t know that answer for sure until oil goes back up to a sustainable number.

As we close down 2016, we at Mesinger Jet Sales wish everyone a wonderful and safe holiday season. I have my schedule set for 2017 travel. I will be visiting the same international markets and will continue to report to you all. Thank you so much for reading and commenting on my articles. I appreciate the readership so much!

Mesinger Pulse – “Empirical Data is the New Spaghetti at the Wall”

As our industry has evolved over the years, so much has changed and yet so much has remained the same, until now. I believe that this great industry that we all work in has struggled for years over the best way to accurately capture residual loss and valuation of our fleet. We have so many moving parts to this equation that are only growing more complex. What started out as an industry based on handshakes, guess work and the idea of prices sometimes up and sometimes down has matured to an industry of complex International transactions, out of balance supply and demand ratios, pricing instability and a need to finally provide clarity and insight like never before for both buyers and sellers.

With so many points of data to consider including supply levels, uniqueness of each aircraft with respect to configuration, cosmetics and varying levels of avionic upgrades, an aging fleet still actively in service, quarterly residual loss rates, recent transaction intel, it is no longer acceptable to guess about the correct asking price or price to offer for an acquisition. Empirical data is the new spaghetti at the wall. There has never been a very reliable place to find the aggregation of all of this information. Certain gathering bodies join some numbers together and others join others. In fact, it often seems random and out of sync with what each of us feel about the markets we are actually living and operating within.  I have always believed the system of gathering and reporting to the guides was flawed. So many of us have confidentiality agreements that prohibit us from reporting actual sales numbers to the books. In fact, in any given quarter with such few transactions in each category segment, compounded by year models within those categories, made even more complicated by a sales number possibly not even representing the actual condition against the norm, the outcome of a valuation cannot possibly be reflective of the market segment.

Our office has been gathering comprehensive details about aircraft in a myriad of markets for years, including transaction details from peer to peer relationships in the industry. We have always had a focused and dedicated division of our business effectively connecting all the relevant dots and presenting that analysis to our customers in easily digestible formats. It is not good enough to just say, “well the two reporting books say….” Empirical data gathered from hard work and active involvement in aircraft markets on a daily basis has given us an edge that is creating analysis for our clients resulting in fewer days on the market and maximized returns for our sellers and much better buys for our acquisition clients.

It is time, with such huge dollars being at play and so many factors shifting daily, that our industry strives for accuracy in valuation analysis. Having just attended the NBAA BACE in Orlando, I have never before heard so much conversation and new products introduced around valuation and the smart calculation needed to provide stability. I admit I also hear polarizing discussions with some groups trying to force a market view that shows pricing going up. While the opposing side continues to call it what it is, a high supply market with inventory levels out of balance due to the slowdown in the emerging markets, an inability for manufacturers to change their production levels on a dime, and an aging fleet that still proves to be safe and reliable with upgrade paths which allow for much lower capital investment than trading up in year model and iteration of product.

There is no substitute for the hundreds of calls per week our office makes into the market and the crunching of numbers and merging of Intel. Our industry is on a Warpath to solving these questions. We are going to all be stronger and better with the use of empirical data to interpret more intelligently with more logical outcomes. Stand by, Magic is happening.

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