The idea of market conditions changing for the new and pre-owned valuation proposition of aircraft is not a new discussion. We operate in a very dynamic environment. For the more than 45 years I have been buying and selling aircraft for clients we have seen Sellers markets shift to Buyers markets, then back again. We have seen balanced markets and some dramatic shifts precipitated by geopolitical and global economic calamities.
These shifts all deal with the value of the aircraft. I thought it might be interesting to discuss how the brokerage business itself has evolved and morphed over the years, through recent ups and downs. Often these changes have occurred around transactions being up or down rather than the value of the actual aircraft. If we think of it in terms of the challenges that have occurred to those of us who daily endeavor to make our living brokering and consulting to buyers and sellers, we might draw some interesting parallels.
One thing I have spoken about when describing our community is that joining the ranks of broker or consultant has no barriers to entry. Putting up a shingle seems easy as an entry point. Whenever the economic market weakens and people look around to see what industry could they earn a living in, selling yachts and aircraft seem to stand out. As I have said, from the outside it looks easy, sexy and pays big commissions. It is actually none of those things. Of course, if you do not have years of experience or strong transactional activity, and a Rolodex filled with strong industry relationships boasting about why you could be the person for the job, may only mean your only way to get a buyer or seller’s attention is through the commission rate you will charge. Simply put, very low commission rates are often quoted by newcomers with no real experience. Believe it or not this works for some buyers and sellers who think the price is all that matters when choosing a sales partner.
I assure you that there are literally dozens of ways a transaction can go awry. Any of these deviations can cost thousands of dollars, or even worse, the entire deal. At that point it is too late to shift the players. During times of transitions it seems the industry gets flooded with new entrants claiming to be qualified to transact a deal on a buyers’ or sellers’ behalf. Be sure to apply the same smarts you each use in the rest of your successful lives. If it seems too good to be true it probably is.
Other evolutions that are much more positive have come into play as well. The idea of high ethical behavior and 100% transparency have taken a more center stage position. More of us who come to work in this arena over the last few years have advocated for this change. We seem to have lagged as an industry in acting in a proper way. We are gaining traction now and making huge strides. Other industries have behaved better as a matter of practice for years before we did. Of course, this manner of doing business did not need to have evolution. Many of us have been practicing this since day one in our respective businesses and lives.
The RFP has come back into vogue. It seems that procurement has taken back much of the decision and weighting process that was once more often guided by the flight department itself. I believe this change has been brought about by the size of the transaction and the idea that all or most of other significant dollar transactions have been funneled through and narrowed by procurement. This does not alleviate the relationship side of our business but adds a process that works in conjunction with the relationship. Typically, the flight department still provides those long-forged relationships names to be included in the RFP dialog. So, it is really this and that with respect to business opportunities for those of us in the brokerage and consulting business and gaining the marketing or acquisition opportunity with flight department transitions.
As an industry we are seeing consolidation take place. For years we have seen this in the FBO area as well as maintenance and fueling. Now we are starting to see this discussion take place in the brokerage business side of the industry. At the end of the day it will still just be a people business. It is not a brick and mortar play, so just aggregating more people may or may not add value to the segment. That picture is yet to be painted. I have always felt big is not really better with respect to large firms. It still seems to boil down to whichever salesman has the listing typically is the most versed to discuss it with a prospect. Another factor that could be a downside of bigger is the number of competitive planes the firm has for sale at any one time. For instance, at our firm, we do not take on aircraft for sale that are in direct competition to another listing we might have for sale at the time.
The bottom line is that not just markets change but also player strategy and practices over time.