Funny what a slight shift in supply and demand can do to a marketplace. In 2018 supply was so thin that finding a plane for a client was never a slam dunk and keeping our clients from getting frustrated by the process was an art in and of itself. There was even what could be called an outright “Frenzy” in the market. Thank goodness that frenzy did not culminate in premiums being paid. But it did make pricing more robust, and in many categories, there was quarter over quarter of flat residual loss rates according to the reporting guides. We as a market were even reverting to days of old and spending more and more time, money and energy importing planes from far off lands to meet the demand of what was mostly a North American buying pool. Even more specifically a United States pool.
As I have written, 2019 started off a bit different on a few fronts. January had our economy and the world economy cautiously watching and even reacting to a government shutdown, a turbulent stock market and additional volatility due to China trade talks. I even voiced in an article my hope that once all of this uncertainty shook out that the solid foundation from the couple of previous years would still be there. Good news, yes, it is! In fact, our company’s transactional activity is even ahead of 2018. OK, with all the hoopla what is different in 2019? Slightly higher supply and slightly less demand. This equates to a ripple effect that is causing the market to seem to have less or no frenzy.
The answer to the supply side seems pretty simple. As the OEM’s are beginning to deliver their new products to the market, we are getting some traded in aircraft or new listings in the market as a result that are speaking right to the sweet spot of most buyers. Young planes, great pedigree and many already US based. This is great for everyone, the sellers and the buyers. Frustrations are easing for the buyers and smart sellers are still enjoying relatively short days on the market.
All sounds positive. Here is what is changing just below the surface. Not only is there a bit more supply but for whatever reason the slightly less demand is causing pricing of these aircraft to mellow out. Meaning, as I mentioned, the loss of the frenzy, though most planes are still enjoying a shorter number of days on the market relatively speaking.
One thing that we almost never had to advertise in 2017 through 2018 was, “Price Lowered”. Typically, during that period, we would advertise “New to Market” then maybe a maintenance update. This year I am seeing daily eblast subject lines that say, “Major Price Reduction”, “Owner says They want to Be Next to Sell”, on and on. This narrative is reminiscent of days gone by. This can also be very confusing to a seller who says if transactions are equal to last year why is it taking me longer to sell, and why am I getting less and reducing my price before I sell?
These are fair frustrations and questions. I think I can answer them two ways. First, of course as we slipped out of this period of frenzy a market often takes a moment to adjust. Believe me, for those of us who experienced 2008, this current need for a pricing adjustment is slight and a correctable fix. So, the adjustment may look and feel like days gone by, but once done to the existing inventory the sale should occur. That is easy for those sellers and their selling partners that get that need to adjust. It is much more difficult and frustrating for those sellers and their selling partners who do not believe this adjustment needs to be made and are unwilling to make the adjustment. Then as always in a mellowing market end up taking even less later. We must remember these are aging pieces of equipment and a realistic expectation of 5-8% per year of residual loss is normal and should be expected. My advice is getting it right to start with. Yes, maybe there was a beginning of the year excuse, but now anyone that still thinks they smell frenzy is probably going to miss the opportunities that are still abounding in our market. Strangely enough there are a few categories that still are languishing and might need a few more transactions to clarify the pricing adjustment needed to spark a sale. This is a time to be smart, pay close attention to every transaction and keep the markets confidence up and sustainable by making small smart decisions soon.