Blog - Mesinger Jet Sales

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.

Global 6000, Serial Number 9444, N688MC

There are over 370 Bombardier Global XRS and Global 6000s in service today and 33 currently publicly available for sale.  Like I just wrote in another post, it doesn’t take long to shrink a long list of 33 available airplanes to a VERY short list of good candidates to consider when you look at pedigree, equipment, maintenance details, cosmetics and price.

We are proud to exclusively represent for immediate sale a 2012 Bombardier Global 6000, Serial Number 9444, Registration Number N688MC.  This incredible aircraft checks all of the boxes that quickly elevate it to the top of any prospective buyer’s short list.

  • Pedigree
    • Two (2) very knowledgeable and experienced U.S. Owners Since New
  • Equipment
    • Rockwell Collins Pro Line Fusion Avionics
    • Triple FMS, SBAS WAAS/LPV, CPDLC FANS 1/A, TCAS 7.1, XM Graphical Weather & Datalink Graphical Weather, HUD, EVS, Dual Synthetic Vision, KU Band High Speed Internet & More
  • Maintenance History & Status
    • Bombardier Service Center Maintained
    • Excellent Records
    • Engines enrolled on Rolls-Royce Corporate Care & APU enrolled on Honeywell MSP
    • Remaining Warranty
  • Cosmetic Condition
    • The paint and interior are in great condition and the airplane is beautifully designed in neutral tones.
  • Price
    • When our client engaged us to sell this aircraft the mandate was to get it sold, not price it to sit on the market. We reviewed the market and prepared a detailed valuation comparing this aircraft to the competition.  Our client understands the competitive landscape and the challenging market environment and they are ready to be very competitive within it.

This aircraft checks all the boxes to elevate it to the top of any short list of Global XRS or 6000 options.  You can review detailed specifications and photographs on our website at http://jetsales.com/jets/2012-global-6000-sn-9444/.  Call or email us today to learn more, +1-303-444-6766 or sales@jetsales.com.  We look forward to speaking with you.

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At The Top of a Very Short List – Gulfstream G550, Serial Number 5173, N401HB

With over 530 Gulfstream G550s in service around the world and new ones still delivering, it is clear that Gulfstream hit a home run when they first designed this aircraft in the early 2000s.  Today, there are approximately 40 G550s publicly available for sale giving buyers a lot of options, but when you look at the details of those aircraft you end up with a very short list of great G550s to consider.  Gulfstream G550, Serial Number 5173, Registration Number N401HB quickly rises to the top of that very short list based on pedigree, maintenance status, installed equipment and price.

Over the last decade the majority of new aircraft were sold to buyers outside of North America.  Today, most buyers for aircraft of all sizes are in North America.  That means that many of the available G550s, must go through an export and import process at the time of a sale.  This doesn’t make them bad aircraft, but it means that the transaction could be more challenging, more frustrating, costlier and more time consuming.

Gulfstream G550, Serial Number 5173 has been owned by a large public company in the United States since it was delivered new.  This seller has been a longtime Gulfstream operator and they currently own multiple G550s.  They have a beautiful facility in Oakland, CA and they take a no-expense spared approach to the maintenance and care of their aircraft which they operate worldwide.  This G550 is kept in a turn-key condition with upgrades meeting new global NEXTGEN regulatory compliance requirements and additional safety enhancements like Synthetic Vision.  The logs and records are impeccable, the 96-month inspection was completed in March of this year by the Gulfstream service center in Long Beach, CA and it looks beautiful.    The company that owns this understands the competitive market and they are ready to be competitive in it.  This will represent a great value to a buyer and it will be an easy enjoyable transaction.  Call us today at +1-303-444-6766 or email us at sales@jetsales.com to learn more.  You can also review detailed specifications and a video about this incredible G550 on our website at http://jetsales.com/jets/2008-gulfstream-g550-5173/.  We look forward to speaking with you!

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ProLine 21 Hawker 800XP, Serial Number 258588, N799S

We are proud to exclusively represent for immediate sale a 2002-year model, Collins ProLine 21 avionic suite Hawker 800XP, Serial Number 258588, Registration Number N799S.  This aircraft has been owned by the same U.S. company since it was new.  They also own another Hawker 800XP and a Gulfstream as well as their own first-class management company and Part 135 Charter certificate all based just outside of Dayton, OH.  The owner maintains this aircraft to the highest standards and they keep the paint and interior in very good condition.  The engines and APU are enrolled on Honeywell MSP.  The G-Check and Gear Overhaul were complied with in August 2014 and the next G-Check inspection is not due until August 2018.

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 sales and they understand what is common and customary in aircraft transactions.  This is a great aircraft from excellent pedigree and buying this Hawker 800XP will be a smooth enjoyable experience.  Call us today to learn more (+1-303-444-6766) and review detailed specifications, lots of photographs and a video about this aircraft on our website at http://jetsales.com/jets/2002-hawker-800xp/.  You won’t be disappointed.

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Hawker 800XPs started being delivered to customers in 1995.  Today there are approximately 850 Hawker 800s, 800XPs and 850s flying around the world.

Hawkers have been one of the most popular mid-size work horse aircraft in the world.  They enjoy strong product and engineering support and parts availability through a worldwide network of service centers.  Many people have questioned the future of Hawker aircraft over the last few years, but it is obvious today that their future is strong.  With a large fleet of in-service Hawkers worldwide, and with Textron now supporting the product and a global network of good capable service centers, it is clear that Hawker aircraft owners will continue to enjoy good product support for a long time to come.

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2001 Bombardier Challenger 604 S/N 5465, N604FS

Part of the Bombardier Challenger 600 series of aircraft, the Challenger 604 stands out as one of the greatest aircraft success stories in our industry.  The Challenger 604 is part of a long line of great aircraft starting with the Challenger 600 in 1980/1981, evolving through the 601-1A, 601-3A, 601-3R 604 and 605 and Bombardier is currently producing the Challenger 650.  Today there are almost 1,000 Bombardier Challenger 600 series aircraft in active service around the world.

The Challenger 604 was built between 1996 and 2007 and there are 363 Challenger 604s in active service.  The aircraft offers the largest most spacious cabin and longest nautical mile range in its category.  And, Bombardier is committed to standing behind this project with world-class service and support available for Challenger 604s around the world.

We are proud to represent for immediate sale, Bombardier Challenger 604 S/N 5465.  This is a 2001 model aircraft with 4,927 hours total time and 2,712 total landings.  The engines are enrolled on the GE OnPoint engine maintenance program and the APU is enrolled on the Honeywell MSP program. The aircraft is equipped with such features as Autothrottles, Triple Collins FMC-6000 Flight Management Systems, a Collins SRT-2000 Inmarsat and ICG ICS-200 Iridium SATCOM, Enhanced Mode-S Transponders and more.  The interior is also outfitted with the desirable 12-place interior configuration including a 4-place conference group.  Originally owned by Bombardier for Bombardier executive corporate travel and now owned by two private U.S. individuals, registered in the United States and based in Allentown, Pennsylvania this is a good pedigree, well-maintained aircraft and the process of buying it will be simple and straight-forward.  We have represented these owners through multiple transactions.  They understand the current competitive market, they recognize that the 192-month inspection package and gear overhaul are coming due and will need to be addressed, they know what is common and customary in an aircraft transaction and they are focused on getting this sold.  Call us today to learn more at +1-303-444-6766 and review detailed specifications, lots of photographs and a video on our website at http://jetsales.com/jets/2001-challenger-604/.  We look forward to speaking with you soon.

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Mesinger Pulse – “Witticisms”

 

My days are spent going from one client/prospect call to the other and you can only imagine the depth of great wisdom about business, global politics and personal philosophy I am fortunate enough to absorb. However, some of my favorite takeaways from the calls are the witticisms I hear. They are often times priceless. I want to share a few of them with you in this month’s newsletter as well as the context with which they were expressed. They of course have all been stated recently in our discussions about today’s market environment.

The first one I want to address is Set and Forget”. This was articulated to me by a client who is one of the finest business minds I know. He was lamenting about the continuing declining market. After gathering all of the data points from those he trusted and weighing the pros and cons of buying in what looks like a less than stable market, he was just going to set and forget. I asked him what that meant and he went on to say he was in a position to just buy based on his needs and desires and not focus moment to moment on the future value swings. He of course wants to make a stellar buy and try to mitigate as best he can for future losses.  However, he was not going to dwell. In fact, his willingness to still buy in today’s environment and not get distracted should be a model for more prospects as they weigh the value of the tool against all other input. It is this balance that he embraces that will keep the demand side of our industry vibrant.

The second one to address was from a client who is “On a War Path to Simplicity”. I don’t think I have ever heard a better way to describe a point in one’s life where simpler is better, less is more! Often in someone’s life it is just time to scale back and enjoy the spoils. The clients/prospects who we have are all extremely busy and successful individuals. I can totally understand how moving to less clutter in their world starts to be center stage as time moves on. Our job in response to the comment about simplicity as aircraft sales professionals is to be sure we are giving timely and accurate input as to valuations of their aircraft with a view to the current status of value and one for future market times. As we give this input we must be reminded that our industry is not static and therefore constantly changing with surprises around every corner. Global economic shifts that can come out of nowhere as well as global political changes can affect markets and pop up where least expected. This means no matter how sure we may feel about the future, the best gauge we can give is the market today as impacted by the very near term past.

Third, “Even a broken clock is right twice a day!”  Not that anyone really ever wants to be compared to a broken clock, but how true. I know like us in our office you work very hard to be right and well founded in client/prospect advice. We want to nail it when asked a question about the type of plane to buy to meet a specific mission or costs of operation or more importantly future values. We all come to our office daily and do the research that will shape the answers. As aircraft professionals none of us want to be right by default. The key to our individual successes is to be right and guide thoughtfully. It is this guidance that if trusted by our clients/prospects will help shape decisions that will provide for fewer days on the market if selling, best buys on aircraft acquired and lower more efficient costs of operations. Trust is the key word. The bond built on trust between our clients and ourselves is priceless.

And one of the most well-known witticisms and an obvious personal pun; “Don’t Shoot the Messenger” not to be misconstrued with “Don’t shoot the Mesinger!!” I do not think this one needs any further explanation.

Our office is focused every day on distilling the raw data in this ever changing market. We collect it from constant contact with other sellers, data points from recent transactions and trends in market segments. Our intelligence is leading to a new level of trust with our clients/prospects that we believe will lead to fewer days on the market and maximized returns. It is more critical than ever to provide your clients/prospects with empirical data to make the point and we are finding that to be a huge asset to the discussions we are having on a daily basis. My last Pulse newsletter discussed how to create selling prices that mean business. In the previous one I cautioned buyers and sellers about the danger of offering too little, asking too much and being too late to affect a sale before the prices fall once again. We want to help our clients be successful in their witticisms and not have to duck when the message is delivered!

I hope I will see many of you next month in Orlando. The NBAA BACE will be taking place November 1st  through the 3rd.  There are going to be 27,000+ Industry Professionals, 1,100+ Exhibitors, 2 Static Display areas and 50+ Educational sessions. What a great time to come together as an industry. See you there.

Mesinger Pulse – Setting a Selling Price That Means Business

I know you all have seen the same banner headlines that I have: “Next to Sell!”, “Owner wants this plane gone!”, “Drastic Price Reduction!”. They go on and on with catchy one liners. Is there a rule that first a plane must be put on the market, then some number of days later the seller lowers their price if not once then many times, then the plane gets attention and then and only after all of that it sells? No, there is no rule written or spoken. The only rule seems to be that when the price is right the plane sells. Granted there are now consistently higher inventory levels due to weaker markets in much of the world, however, North America is still active and vibrant. In fact, with many categories of aircraft, the monthly units sold equals those of years ago.

So rather than find oneself seemingly chasing a market with price, why not lead the market? Why not come out first with a smart, thoughtful price rather than following that up with catchy one liners? Sounds so easy. There are many layers of complexity to setting that thoughtful price and have the outcome be a success with a maximized sale price. The first and foremost is confidence established between the selling broker and the seller. Without this confidence a seller may feel as if the selling broker is just trying to make a quick sale based on price. Believe me if it were that easy to sell a plane the seller would not need their trusted professional selling partner. In order to gain that confidence, the sales professional must create a market update that allows the seller to place themselves in the position of the buyer. Laser focus cannot just be on the direct market of the selling aircraft. It must also include attention to the left and right of competitive markets that may have an impact. Another factor to consider is that today’s buyers do not have the same product loyalty as before. It is now price, price, price. But on top of that, the offering must also represent the best plane at the best price. Setting the comparative analysis is vital in this pricing process.

Many buyers right now are pulling out all the usual distractions like having to wait until after the election, or needing to make sure the stock market highs are not just a bubble. As I have said for years, there are buying distractions and there are real game changers. I have also mentioned in past speeches and articles that sometimes I wish I were in the fence building business so that when prospects say they are just going to sit on the fence, I could at least be making a sale! Remember that real buyers look for smart reasons to buy rather than crazy reasons to delay.

So what must a seller do when developing a pricing strategy? First believe the numbers. The market is trending down. Not falling, but in fact really shedding between 7-10 % annually, or unfortunately even more in some markets, which has now been universally recognized by lenders, owners and valuation guides. If you, as a seller, will embrace that as a fact then you will realize that using the famous one liners such as, “I am not willing to give it away” or “I am in no hurry” will translate to, waiting now will cost you more money later.

Buyers are watching this normal residual loss rate with keen eyes. The real buyer just wants to be sure they are not leaving anything on the table. Funny enough, that is the same thing sellers are trying to avoid. Both sides are watching the same market space and trying to protect their positions.  Ultimately both sides can and must come away with a good feeling about the sale/purchase price.

The seller must work to set a price that encourages the buyer to act now, not later. Speaking of later, I hear all the time from sellers that they are afraid to put an ask price out publicly and instead want to go with “Make Offer”. In my opinion this is a huge mistake often founded on the belief that the aircraft market is positioning itself for a rebound and it is harder to raise a price to capture that when it occurs. My response to potential sellers when confronted with that statement is to remind them of two things: First, the market is still going down so rebound from where? Second, those that do not put an asking price and only have “Make Offer” are really demonstrating they are probably not a real seller today and/or do not correctly understand where their airplane fits in the market. If we can agree as I said before that waiting to sell will only mean selling for less later, then coming out of the gate not looking like a real seller is a wrong strategy.

I wish that we had more sophistication in our industry. I wish I could say that there was a traditional spread between an asking price and a selling price. There is not. My only guidance here is to not set a number much higher than what you will ultimately take. Sure, this does not give much sport to the negotiation, however it does declare to a buyer, look here now!

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