Please read the latest blog post from Jay Mesinger for the AIN weekly blog series AINsights.
Whether you are describing a market as dynamic or static, a buyers-market or a sellers-market, supply rich or demand rich, the pendulum always swings and markets are always in flux. We have enjoyed balanced markets in the past. In fact, I know I could find and dust-off a past article that would speak to any of these market dynamics. What makes that the lazy way out is everything in the market affecting it at this moment. For instance, the last time I probably wrote about a balanced market was at least 5 years ago, if not longer, as we began to emerge from the 2008-2009 global downturn. However, in that period our entire fleet was 5 years younger, there was less concern about next gen upgrades and there was not a global recovery.
This is not going to be a dusted-up article! In order to claim that we are in a balanced market today I looked at several resources, including the two reporting books, Aircraft Bluebook and VREF, as well as questioning many aircraft brokers, lenders and attorneys. They all seemed to say the same thing. Balanced. It is too early in this balancing act to declare too much of an off-center market phenomenon. Meaning, it would not be fair to call it a sellers’ market and it is not too early to stop calling it a buyers’ market.
Let’s look at the difference between the balance 5 years ago and today. In just looking at a few categories of aircraft that are 10 years or newer now, the market experienced a calming of residual loss rates from about the 3rd quarter of 2013 to about the 1st quarter of 2015. That was when I wrote an article titled “Careful What You Wish For” which outlined the three big wishes everyone in North America had, a lower cost of oil, more energy independence, and a stronger dollar. I went on to say that we actually got all the wishes we asked for granted almost on the same day. The only problem was those wishes caused havoc in our markets again. Oil dropped over one hundred dollars a barrel, concurrently US oil reserves surged and our dollar strengthened overnight. The capital expenditure of companies and countries subsequently dried up overnight. So began another significant drop in aircraft values which is only beginning to level out as of the 3rd quarter of 2017. Back to balance.
As I mentioned 5 years ago as we looked at our fleet at large we had a 5-year younger fleet even for the oldest planes. The idea of eminent investment in even the oldest planes that wanted to fly only domestically was still out so far by most standards that it was not on the radar screens of most owners or buyers and sellers. Today, as we have an older fleet with the near-term investment being required for next gen, we began to not only face the reality of further investment in our fleet for compliancy, but also the contemplation of certain age aircraft just truly being on their last leg. Some people will not want to make that avionic investment in an aircraft that may only be worth $500,000. Therefore, we may be saying goodbye to a segment of our fleet that has been delivering safe flying to its owners for 25 to 30 years. That loss of fleet count will add to the equation of overall supply.
The biggest news today is global economic health. This is the first time in a long time that the world economy is growing. This will be the single most contributing factor to the balanced market. I am asked all the time about the effect the new tax cuts will have on aircraft transactions. My answer today, which of course may shift over time, is it is too early to tell. Will the 100% depreciation in the first year for pre-owned aircraft stimulate sales? Not sure yet if as a stand alone benefit that will bring a large increase to sales. After all, not everyone has the ability or capacity to use that new benefit. Many high net worth individuals who no longer have business interests can’t use the depreciation and the personal use factor has to also weigh in for those who could. I think the overall business confidence level is up in North America and in many other parts of the world, and that as much as anything, is good for business. As a counter balance to this, one must consider the risk of inflation and the toll a few hundred basis points could take on borrowing. So, in one hand we have benefits of tax incentives and in the other hand we have risks associated with growth. My advice is like it is with any market condition, approach the market with good counsel and common sense. Align with those professionals who have your best interest in mind. Ask good questions and expect solid answers. As always, demand a transparent transaction.
Please read the latest blog post from Jay Mesinger for the AIN weekly blog series AINsights.
I bet you think I am describing a newly laid goose egg! Not at all. I am describing a widespread feeling of optimism in our global aviation industry. I just returned from London having attended and spoken at the 2018 Corporate Jet Investor conference. 550 of the best and brightest industry leaders from the sales, finance and legal sides of the industry. It was virtually a who’s who. Across the board, and for the first time in years, the sentiment was enthusiasm and optimism with attendees speaking of glasses half-full and recovery throughout the two-day event.
There was no one there however who did not balance these sentiments with a dose of reality as to the fragile nature of this euphoric period. This caution was not meant to rob the discussion of what we were feeling, just add what are global risks to many industries, including North Korea, massive cyber-attacks, political winds and a few other sobering phenomena.
So how does this enthusiasm translate for us in our industry? Some of the most obvious examples can be seen in a reduction in almost every category of available inventory. This is partly the result of owners finding renewed use of the assets in their own business and also increased sales activity. A great example of the uptick in use and transactions are the increased number of days it is taking to get into a maintenance facility for a pre-buy. Paint and interior shop backlogs are also growing. Even aviation attorneys report brisk activity levels with new clients and new transaction levels, compounding another phase of a sale. The longer everything takes the riskier sales outcomes become.
It was discussed at the conference that the better aircraft listed for sale are selling quicker, and the threat to waiting longer today to grasp the reality of a more active market with fewer good choices is the loss of the best planes. This is leaving less good choices for buyers who sit on the sidelines and wait.
What is not happening is the phenomenon that occurred in 2004 through 2008 where prices of in-service aircraft went up in value. Hopefully we will never get back to the false economics that planes go up in value every year, and instead come to terms with the idea that these pieces of equipment get older every day and as they age they depreciate. Thankfully the industry is currently seeing the residual quarterly or annual loss rate slowing to a sustainable and manageable rate of approximately 7-10% annually, or even less in some particular cases. For now, gone are the near past loss rates of as much as 25% per year.
Over the last three years, as emerging markets slowed down dramatically and the lion’s share of transaction occurred in North America, activity and sales affected inventory supplies in North America first. So many of the fears of buying planes from countries that did not regularly hangar their planes and/or did not have good and mature management and operational experience, tended to sit in their respective markets and just add supply to what was already an oversupplied segment. Today, as we begin to see signs of renewed global economic growth these planes will begin to sell in their respective regions effecting inventory levels positively. Balance in our markets will be a good thing and bring normalcy to valuation calculations. Good values will bring confidence back in areas sorely lacking over the past ten years.
Now back to the cautionary side of things. Though it is no longer just a buyer’s market, it is also not strictly a seller’s market. The great aircraft are selling first and quicker, so approach the market as a buyer as if you could lose the best buy and replacing it will not be as easy. You will not be alone as a buyer. As a seller I must also throw caution into the equation. You also cannot come into a market and dominate the discussion, but you do have more choice in who you sell to than you ever had in the recent past. It has been many years since balance has existed. Let’s enjoy this renewed health. There will still be great buys and there will now be quicker sales. Prices will not go up, they will just go down more predictably.
On the fragile side of the equation we must all be mindful that any number of calamities can occur globally that could put collective brakes on all of this excitement. We could get pulled back into slowdowns and actual stoppage of forward momentum. Let’s keep our eyes open and be aware. If as a seller on day one you get a good offer, take it. Don’t second guess the market and be greedy, thereby missing opportunities. As a buyer, don’t be afraid to pay the right price for the best plane. I used to say in a buyers’ market the idea of buying a cheap plane cheap was usually tabled with you get what you pay for, a cheap plane cheap. Always approach the market to buy a great plane right. What is right? It is the amount you pay having gotten good market counsel.
The next six months should be very telling as all types of industry markets, not just aviation, come to grips with growing global economies again.
We are proud to exclusively represent for immediate sale this one U.S. owner, beautiful, highly equipped 2009 model Bombardier Global XRS, Serial Number 9278. Our client’s flight department is comprised of some of the most knowledgeable and professional maintenance and flight personnel in the industry. No expense is spared to ensure the safety, reliability and integrity of this aircraft. The engines are enrolled on the Rolls-Royse Corporate Care engine maintenance program and the airframe is enrolled on SMART PARTS PLUS. With a retrofitted cockpit featuring the Primus Elite EFIS LCD Upgrade (DU-875 screens), Batch 3, FANS 1/A+, ADS-B Out, TCAS 7.1, SBAS with LPV Approach, HUD, EVS and Dual SwiftBroadband and GoGo Biz International and domestic internet/data systems with Wi-Fi and more this aircraft is ready to carry its next owner around the world and into the future.
Bombardier first developed the Global Express in the 1990s and started delivering the aircraft in 1999/2000. The product was evolved into the XRS and subsequently the Global 6000 which is currently in production. Based on the success of the product line, in the early-2000s Bombardier also started producing the slightly smaller Global 5000. Today there are over 800 Bombardier Global aircraft flying around the world and Bombardier is not done yet; they are pushing closer to certification of what will be their flagship business aircraft, the Global 7000. Bombardier’s global service network for parts and maintenance support worldwide keeps this large fleet flying supporting the operators of these aircraft wherever they go.
Call us today to learn more about this incredible Bombardier Global XRS. There is no finer pedigree aircraft for sale in the world today. You can reach us at +1-303-444-6766 or email@example.com and view detailed specifications and lots of photographs on our website at http://jetsales.com/jets/2009-global-xrs-sn-9278/.
Please read the latest blog post from Jay Mesinger for the AIN weekly blog series AINsights.
Please read the new AIN weekly blog series that Jay Mesinger will contribute to the first Friday of every month. Other great contributors will participate on other Fridays.
I was talking to a great friend today who is from the publishing side of our industry. He had a question to ask me with respect to the hows and whys of certain practices in our standard operating procedures as aircraft brokers. He wanted to know if the participants in a deal really understand the nuances of a deal? Since he is not truly in the day to day operations side of the industry, he relies on what he reads and what he is responsible for publicizing. This leaves him with a slight void as to what the real implications of a process may be.
His question actually stopped me in my tracks. I thought about who I typically direct my articles to and realized that I usually write to my fellow aircraft brokers, as well as the industry touch points. I may not have been focused enough on those people who come into and out of the acquisition and sales arena no more often potentially than every five to ten years. Meaning, I may not be talking enough to the customers.
When I talk about market conditions and pricing trends, those are topics for a large audience. However, it is important that I write directly to the customer more often to bring to their attention some of the new phenomena in our industry such as off-market aircraft, back-to-back transactions or other potential deal pitfalls that they should be on the lookout for as a possible concern. These were not necessarily in play the last time they were engaged in a transaction. So, I am dedicating this article and more in the future to the customer to help them become a more informed consumer.
Gone are the days of the “Hand Shake Deal”. This does not mean that trust and good faith are eliminated from the deal, it just means given the complexity of aircraft and the transactions, the idea that a deal can be sealed over lunch and a handshake should not be standard operating procedure. I always say if it is not written in the four corners of the contract it does not matter. The “what ifs” are just too many and have too far reaching of implications if a deal begins to go awry. I have seen friendships destroyed over napkins and handshakes. After all, no aircraft should come between old friends or well-intentioned people.
No one today should be uninformed. I remember the days before computers and industry listing services like AMSTAT and JETNET the value of the dealer was what they knew that no one else knew. Today information abounds. In fact, there is so much of it that one needs to be sure what they are reading is real and interpreted correctly. I cannot tell you the amount of false reporting we hear and see in our office with respect to sales prices or records findings on aircraft that are for sale. Our industry is really very unsophisticated compared to most others in this regard and it leaves a buyer and/or a seller in the dark. Being in the dark is a not very transparent place to be.
A specification sheet for an aircraft that is no more than a cut and paste of the spec sheet that was used to buy a plane ten years ago with just the new times and cycles written in and the new paint and interior colors added may not be worth the paper it is written on. This is truly just a recipe for error and repurposing a deal. When you buy a plane today be sure you have an inspection item in your pre-buy that tasks the inspection facility with auditing the spec sheet you were provided. So many small but critical things could have been changed since the old sheet was developed from scratch that the plane you thought you were buying is not at all the plane you have under contract. When our firm is hired to sell a plane the first thing we do is send our technical director to the plane to build a new specification sheet from scratch with supporting documentation from the logs and records. We know they will be audited by a smart buyer.
Now here comes the plug for why you should hire an aircraft broker to assist with your sale or acquisition. Due to the complexities of today’s transactional world I promise you it will cost you less to engage than it will to go it alone. In every transaction, and not for malicious reasons, things can go wrong. Examples being accidental misrepresentations, changing regulatory requirements, equipment installed on an aircraft that may work the second you buy the plane but due to lack of future support by the manufacturer will leave you with a boat anchor if it does fail, can all be huge costs. This type of equipment includes cabin management systems, switch panels at each seat to control basic functions like reading lights, satellite TV systems and on and on. Having a professional at your side is cheap by comparison of even one antiquated system discovery. I intend to continue to write about more new phenomena in upcoming articles.
Approach this industry with open eyes and smart support. Remember as my old friend Zig Ziglar used to say, “price is a one-time thing and cost is a lifetime thing.”
I want to end this article with a big Happy New Year to everyone! I hope you all had safe holidays. I had a very good and successful client say to me yesterday he believes the global economy is strong. 2018 should be a great year for us and our clients. See you soon somewhere in the world!
It is worth taking a few minutes to reflect and remember the year. For many of us the year has been more and more challenging. It seems deals take longer to get over the finish line. Even just getting into a maintenance facility to start a pre-buy takes weeks rather than days. We all know time kills deals. As I have written before transparency in our industry seems to be turning opaque. Making strategic plans that can be counted on are more and more elusive. I have to say for us the year end is bringing good numbers we can be proud of. It also means we have work to do going forward and we never put up the “Gone Fishin’” sign.
We are hopeful that 2018 will bring the same if not better outcomes. At Mesinger Jet Sales we will continue to do all the right things with respect to honoring our fellow professionals as well as our clients. This dedication has served us for over 43 years. I am watching, as I mentioned in my last month’s newsletter, that the industry as a whole is beginning to look closely at itself and its practices. People want to identify the weaknesses and strengthen the defenses against those who are not interested in best practices. We must circle our wagons and protect our industry from those who are not as desirous as the vast majority of us are about sustainability and doing things right!
If any of you are wondering about lower inventory numbers here is an interesting statistic. Feeling like fewer people may be entering the market as sellers we went to our multiple listing provider, AMSTAT, to get some validation for this feeling. They say that over the last 6 months year-over-year there are approximately between 150 and 200 fewer new listings. As we all sit back to figure out the root cause, several reasons come to mind. On a very positive note I think some people who had considered selling have now decided that in fact the value of owning and operating a business aircraft makes sense for them again. Their individual businesses and needs are getting stronger.
On a less positive, but perhaps a more realistic reasoning, there are a group of sellers who were just plain opportunistic. They were either on the market or had hoped to come to market but are now realizing the value of their plane is not rebounding or where they had hoped it would be. Lastly, sellers may just not think that there are enough real buyers to absorb another entry for sale. The combination leaves us where we find ourselves.
The reality of fewer aircraft for sale just makes for an even more frantic frenzy among those who portray themselves as aircraft professionals. We have never needed to support the cause of working together and doing it right more than ever. The good news is we do have a real and important industry segment that will not go away. I might also say that the acquisition side of our business has not been as strong as it is now in many years. Even going to the manufacturers to buy new is picking up.
I wish each of you a bright holiday of wonderful health and family togetherness. I hope I get to do business with many of you next year for the first time and again with all of you that we have known for years. Please call or write. I enjoy the communication.
NOW ABOUT DOGS
As many of you know by now our family is passionate about our dogs. You have seen Louie and Miles in our ads and hopefully have seen the charitable work we do for the breeds. I am so excited to share a new milestone. I was just asked to join the board of Morris Animal Foundation. I have added a link to their website and the story about my joining. Of course, you can always just go to the bottom of all the pages on our website and push the Golden Button. I look forward to your shared stories about your furry friends.
We are proud to represent on an exclusive basis for immediate sale a 2001 model Gulfstream V, Serial Number 614, Registration Number N614CM. This aircraft has been owned by one U.S. company with the same flight department since it was new. The owner also owns their own first-class management company and Part 135 Charter certificate and they are based just outside of Dayton, OH. This GV is operated on their Part 135 certificate and it is maintained to the highest standards. The 192-month inspection tasks were performed in February 2017 by Gulfstream Savannah and the engines and APU have been enrolled on JSSI since new. The engines are on the JSSI Platinum program with 100% coverage for mid-life inspections and overhauls.
In addition to the outstanding pedigree, this GV is ready for the future. No expense has been spared and no item left untouched. The cockpit has been upgraded with the Gulfstream/Honeywell PlaneDeck (Primus Elite DU-885) LCD Flight Deck retrofit. The original cabin management system has been replaced with the Collins Venue HD Cabin Management System. And, NEXTGEN upgrades have been complied with. This GV meets FANS 1/A+ CPDLC, ADS-B Out (DO-260B) and TCAS 7.1 compliance standards.
The company that owns this aircraft understands the current competitive market and is ready to be competitive within it. We have represented them in other transactions and they understand what is common and customary. Buying this incredible GV will be an enjoyable experience. Call or email us today to learn more (+1-303-444-6766 or firstname.lastname@example.org). You won’t be disappointed.
Gulfstream V, Serial Number 614 Specifications & Photographs: http://jetsales.com/jets/2001-gulfstream-gv/
Gulfstream V, Serial Number 614 Video: https://vimeo.com/245948110
Gulfstream Vs entered service in 1997 and with their introduction the business jet industry was transformed forever. This long-range large body business jet was derived from the GIV and can fly up to Mach 0.885, up to 51,000 feet and over 6,000 nautical miles. In 2003 Gulfstream started producing the next generation of the GV, the Gulfstream G550 of which is still in production today 20 years after the GV started delivering to customers around the world.