Please read the latest blog post from Jay Mesinger for the AIN weekly blog series AINsight.
We are proud to represent on an exclusive basis, a great Gulfstream G200, Serial Number 110. Only owned and operated by US based companies and never part of a fractional ownership program. It has approximately 4,400 hours total time, which represents average time for its vintage and is unique as many G200s have higher than average time. The engines are enrolled on Pratt & Whitney ESP Gold, the APU is enrolled on Honeywell MSP and the avionics are enrolled on Rockwell Collins CASP. It is currently operated on a FAR Part 135 certificate, the 144 month and 4,000-hour maintenance tasks were accomplished in April 2017, it was painted in 2016 and new silver leading edge de-ice boots were installed and much of the interior was refurbished in 2014 which is in very good condition today. This G200 is also equipped with several options and upgrades including a jumpseat, pocket doors dividing the galley and the cabin and GoGo Biz Internet with Wi-Fi and Text and Talk among other avionics upgrades.
There are almost 250 Gulfstream G200s flying around the world. The G200 has been a great aircraft for Gulfstream for the last 18 years and Gulfstream is dedicated to its continued service and support. Today Gulfstream manufacturers the successor to the G200, the G280. For discerning buyers focused on reliability, potentially lower maintenance costs and better future residual value there is a distinct difference between buying a high time old fractional program aircraft and a well maintained lower time corporate aircraft. This G200 Serial Number 110 checks the boxes for that discerning buyer.
Call us today to learn more at +1-303-444-6766 or email us at firstname.lastname@example.org. You can also review detailed specifications and lots of photographs on our website: http://jetsales.com/jets/2005-gulfstream-g-200-sn-110/. We look forward to speaking with you soon.
I have been writing lately about what feels like an overnight surreal change in the overall market condition, from high inventory levels with long sale cycles and multiple price reductions to low inventory, short sale cycles and more aggressive pricing. With global markets all beginning to breathe life at the same time it may not just be North America going forward that will dominate the transaction activity. With the awakening of markets around the world all that supply in many categories that is currently out of North America may stay out of the country and sell to foreign buyers, resulting in even less inventory in North America and even less to import for a local client. For the first time in about 10 years we are seeing firmer pricing and much more difficulty finding the plane that really checks all of the boxes for our buyers including great pedigree, great records, great maintenance, great cosmetics and compliancy with respect to modifications and NextGen mandates.
It is now time to acknowledge that the “Buyer’s Market” has faded away and I am excited to declare a healthy balanced market. This is so important since the markets of recent past did not allow for stability. Yes, perhaps you will pay a bit more for your perfect plane today, but the good news is you should be able to count on a significantly lower and more predictable residual loss rate. In fact, in several categories you may even see a flat line for several quarters.
I have spoken for the last several years about the importance of the buyer being able to be credible and bring confidence and certainty to the seller and the overall transaction. It is time now to remind the selling side they have an equally critical role in this process. I have come across two sellers in just the last week that have promoted themselves as real sellers, ready to sell and promising a traditional and customary transaction. I of course had real buyers who in the offer process were already demonstrating real ability and willingness for a great show of certainty. After protracted discussions between sides, and by the way a willingness to meet the stated price of both sellers, the sellers said “oh, we decided not to sell!”
If in today’s market one comes just testing the water by dipping their toe in or crying wolf, they will be hurting their ultimate position as a seller. The broker community as well as the buying community will begin to know their patter and not be willing to risk approaching the aircraft with their real buyers.
This is not to say that when a real buyer meets a real seller that there will not be a competitive tension. That always occurs when a great plane pops up and you have several prospects all at once. If the plane is priced correctly for the new supply/demand equation there can be a frenzy created. So, if you are a buyer and you find that needle in the haystack, jump and don’t sit back. I am not suggesting you forgo all of the prudent due diligence, it just means get your offer in and start acting like a real buyer and not a tire kicker.
What is there today may not be there tomorrow. Therein lies the competitive tension. Remember a little tension is not a bad thing as long as you don’t get paralyzed by it. Stay focused on the end game and trust your aviation professional. I think it is also important to get your buying ducks in a row. Have your aviation attorney hired. In fact, I would suggest you allow the attorney to build an LOI template in advance so all you need to do is add the price and the specific aircraft info. If financing will be a factor, start early to chose that partner and have them teed up. If management is needed, start that process early as well. In other words, be ready to jump and jump with a team. This team will help guide you on markets, legal, tax, financing and operational needs.
In summation, here would be the takeaways from this article. The market has changed and changed quickly. Aggressive prices are being asked and received by sellers. This is OK as long as within reason. That decision can be made with the collaborative effort between yourself and your aircraft professional. As a seller, be credible. Do not toy with the market. Markets and its players have long memories. Be ready. Build your team early. Enjoy the balance because I think it is sustainable.
Please read the latest blog post from Jay Mesinger for the AIN weekly blog series AINsight.
I have reported over the last ten years that first-time buyers were trickling back into the market and how critically important that was to the implied confidence in our industry. After all, if you are not an owner why in the world would you get in to ownership in periods of value free falls? This also applied to transitions in fleet makeup by people or companies that already owned aircraft but were reluctant to sell due to low prices being paid, as well as being reluctant to re-invest due to a continued downward spiral in values. Why the new market anomaly? Now there is a new-found confidence in the market.
I reported last month that inventory levels of aircraft in most segments were way down. This drastic reduction in global inventory is changing quickly the dynamic of buying. No matter how low levels go, there will of course still be aircraft that do not have great pedigree, do not have good mechanical history or for one reason or another would not check the boxes for most buyers even at reduced prices. The low inventory levels are reshaping transactional processes for us all.
We are starting to see a dramatic shift in where our business is taking us this year compared to last year in terms of increased acquisition projects. At Mesinger Jet Sales we have the most powerful valuation and marketing tools in the industry that are continually adapted to an ever-changing market. For the last ten years, with inventory at record high levels, there were multiple options when working on an acquisition. Today, with aircraft all over the world, fewer for sale and more buyers, it takes a level of sophistication and advanced modeling to make a great buy for your client and find the needle in the haystack.
So, it’s time to take out the old play book and dust it off. In many ways we were spoiled and did not have to import planes for our North American buyers, we could find plenty right here at home. We are now in a position of having to find ways to locate planes that can be imported from at least countries that more closely align with our FAA registry requirements and that have a similar culture with respect to hangaring planes, managing planes and maintaining planes. If you have gotten into this business in the last 10 years you may be finding that without that old play book to refer back to you are not going to be able to get up to speed on this skill set as quickly as your competition.
You must have the knowledge and experience today to ask the correct lines of questions to be able to qualify a foreign aircraft before investing to go look at it. After all, traveling across the country is nowhere near as expensive as traveling half way around the world to see one.
The next fact to have to assimilate is that you are not the only one in all likelihood that is after that needle in the haystack. How do you create a space for your client first to know about and then quickly jump into the buying mode for that plane when you find it? Certainty for the seller is key. This may seem easy as everyone says they have a real cash buyer and they can move quickly. These are nice words but think about them all for a moment. To say your buyer will pay cash could mean they do not need financing, but since financing is not an allowable contingency in an LOI or contract, that is a sort of hollow statement. My client wants to move fast! Again, what buyer that is real doesn’t want to get in their new plane and start enjoying the life that business aviation brings to you? That the buyer is real is nice to hear too, but based on what criteria? Certainty, and then the ability to capture the seller’s attention comes from years of doing this and creating a credibility in the market. A seller will know that when you call with a buyer, you have checked all of the qualifying boxes and the seller’s broker knows as they present two offers to the seller which one, based on reputation of the buyer’s broker, will close.
So, it is a new world based now more on identifying a great plane, understanding how much to pay so that you do not miss the value yet you don’t overpay, and providing certainty to the seller so you can have their full attention. This very rapid shift in market dynamics also means that we must help our respective buyers feel a new confidence in market pricing for the perfect plane. With limited availability of the great plane and more than one person vying for that opportunity, being willing to pay a more aggressive purchase price is new and understandably might be hard to grasp for the buyer. There is always a time gap in shifting markets for buyers and sellers depending on the direction of the shift. We just keep helping our clients focus on the idea that missing the right plane now could mean paying more for the next great one, with uncertain time between the next great opportunity. See you all out there.
Please read the latest blog post from Jay Mesinger for the AIN weekly blog series AINsights.
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 email@example.com and we will be sure to add you to the list.
Thanks to those who joined us today!
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.
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.