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Mesinger Pulse – Live “Market Update and Getting the Deal Done for Buyers”

Enjoy the inaugural edition of the Mesinger Pulse – Live. This will be a regular 10 minute conference call hosted by Mesinger Jet Sales, providing market intelligence for buyers and sellers. The calls are meant to keep participants anonymous and questions are optional. We look forward to hosting many more of these events in the future. If you are interested in being invited please write to sales@jetsales.com and we will be sure to add you to the list.

Thanks to those who joined us today!

Mesinger Pulse – “Lower Inventory Is Not A Shell Game”

Ever walk down the street in New York City and see a man with a card table set up on the sidewalk? Three shells and fast hands, rolling the pea or small rubber ball around between the three shells. As you watch, your confidence grows, and you are sure under which shell he is hiding the ball. Then you bet and point at that shell only to be wrong!

I assure you reduced amounts of aircraft for sale is no shell game. Aircraft are not hiding from us, they just really are not there. How can you validate this erosion in available inventory? Start simple. Just pick up the last couple of months of aircraft catalog magazines. A quick flip through will reveal fewer paid pages of aircraft for sale. Those pages that do have aircraft listed in many cases say “Deal Pending” or “Just Sold” or “Coming Soon”. Then more and more pages of either editorial filler or literally just fewer pages in the book. We ran a report at the first of this month of the number of new jet aircraft listings in AMSTAT since the start of the year and there were 304 fewer than the same period last year. That is a significant number of aircraft that we as an industry do not have to represent.

What could be the cause of these diminished inventory levels? This is not a new question that we as an industry grapple with and there could be myriad of reasons that seemed to all come together at the same time. From the most positive position, the economy is better globally and owners are finding that their need and utilization opportunity is increasing and their current aircraft fulfills the mission just fine. This puts the brakes on what might have otherwise been a reason to sell the equipment or transition to something different. Use discussions ebb and flow with economic conditions and is nothing new. This is more of an adjustment of timing rather than a discussion about capital expenditures to transition.

Regardless of the reasons, the outcome is fewer aircraft to sell, and thus potentially fewer aircraft to buy, resulting in a potential flat period in transactions. I am smart enough to know that these kinds of phenomena do not last. In 2008-2009 it was a game-changing situation. No one knew what tomorrow would bring. Every day seemed to be a new economic tragedy. This does not feel like that at all. From a supply and demand perspective let’s talk about the effect of this in an otherwise healthy market period. After all, more balanced supply is not a bad thing. If you are a buyer, what should you expect today? You should expect that on day one you may not just be able to walk out of your door raise your hand and say “Taxi” and have a driver veer across the street and viola, your ride is here.

I always tell my buyers to be very proactive. If you are really ready don’t use words like “no problem, I am in no rush.” By the way, I would never let a client get in such a rush that smart decisions and an abundance of due diligence are avoided. I mean for them to go and shout it to the world that you are a buyer. Do not be reactive to sellers that you hear about through third and fourth parties that their plane is for sale. By then you will have missed the opportunity to have only one degree of separation between your client and the aircraft. True it may take a bit of extra time to find the plane, but you will not be disappointed.

The other obvious issue with finding a plane in an environment with less supply is that generally the best planes have sold leaving at that moment the less than best. They may have higher time, less stellar pedigree, over-priced or require importing from another country and regulatory body. I am always advising my buyers to not make silly compromises buying planes that are not perfect. Patience is a virtue. The right plane, checking all or most of the boxes will be found by us. The trick is to be able to be fully prepared to be the first one to say yes when you spot the plane. Remember, you are not the only buyer looking for that deal. I always take the time in advance to prepare. Work with your aviation attorney to have an LOI ready. If there is financing needed work with your lender in advance to clear some preliminary hurdles. Get your tax strategy prepared. Be proactive in not just the hunt but also the process.

Pricing in a balanced market can also be challenging. It may be a bit firmer. Be smart enough to not lose the best plane thinking you are overpaying. If you have employed an aviation professional listen to their advice. Trust them and allow them to guide you to the deal. You don’t want to overpay, yet you do not want to miss a great buy in a balanced market with all or most of the boxes checked.

So, don’t bet on the shell game, bet on a winning acquisition that is abounding with transparency and certainty. That is about the people and the plane.

Mesinger Pulse – “Declaring a Market Balanced”

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.

Mesinger Pulse – “It Is New. I Think It Is Real. It Is Fragile.”

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.

Bombardier Global XRS S/N 9278, N703DS Available For Immediate Sale

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 sales@jetsales.com and view detailed specifications and lots of photographs on our website at http://jetsales.com/jets/2009-global-xrs-sn-9278/.

   

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