The Mesinger Blog

Originally published as a blog for AINsight for Aviation International News on 9/1/23

Like most of you, I spend my day on the phone speaking with prospects, buyers, sellers, lenders, and aviation attorneys. Everyone I speak with has a pet peeve to mention or a troublesome event that happened recently. I will say though, that in these conversations, the overall attitude towards the industry and more specifically the market is far better in 2023 than in the proceeding couple of years. Everyone agrees that it is a far less frenzied space and more inviting for all to join in.

So, with all the joy, what is bothering people? Clearly, the idea of finding a timely pre-buy location to keep a transaction moving forward tops the list for many. It is so difficult to put a buyer and seller together, joined in a contract, and then wait up to a month or more to begin an inspection. The delay brings up another concern. During this protracted time, is it okay for the seller to continue to fly their plane? Typically, the idea of a seller not flying once under contract was not a burden to the seller as the time between finishing a contract and going to pre-buy may have only been a week.

Another problem we experience and hear about from others is the vulnerability of transactions getting completed in a timeline that the hard-fought contract was stipulating. Not only is the start time of the pre-buy a constant source of irritation to all sides, but once begun, the completion of the pre-buy always seems to take longer and bring about problematic issues for all sides. Supply chain issues, labor issues, and regulatory issues cause delays that keep all sides guessing. Uncertainty is always difficult.

Pilot training slots are another hot topic of conversation. Longer than usual delays in slot openings makes time into service stretch to the limits of patience. As we approach the fourth quarter of this year, it is incumbent upon all of us to gather up our list of what bothers us and work to mitigate the issues.

We have been successful with our clients in securing slots for pre-buys out into the future along the timeline of our listing and acquisition agreements. This not only gives us a positive message to distinguish our listings and acquisition projects from the pack, but also the ability to get about the project with fewer delays. From a regulatory and tax standpoint, it seems that every area of both has more due diligence and paperwork to accomplish the desired well-planned outcome.

So, as I listen to what bothers you in each conversation, it strikes me that in almost every problem, there is a solution if one acts proactively rather than reactively. This means that each of us, regardless of the segment that we cover, should take some time to dust off our process checklists and update them according to today’s environment. Our clients may feel overwhelmed by the added steps, but I assure you they will lose that feeling as soon as a successful sale or acquisition is completed.

Originally published as a blog for AINsight for Aviation International News on 8/4/23

Sometimes change can be overwhelming. Sky falling events. History can remind us of a few of those events, including the 2001 dot-com bubble burst, the 2008 Global Recession, and the 2015 unspoken recession due to the oil price collapse and other global economic factors. This one will go down as the 2023 industry balance shift. Of all the preceding events and others I did not list, this one could be the most desirable and sought after phenomenon. This 2023 balance shift should bring harmony, reality, normalization, and growth to us all.

Starting in March of 2020, we all got caught off guard by the pandemic. Ultimately, our business grew with the unprecedented surge of first-time buyers entering the fray. Huge numbers of entrants brought demand that stretched us as an industry in all segments. Hangar space was frenzied, pilot training slots had lead times never seen before, and maintenance pre-buy and modernization slots were all but gone. And let’s not forget the actual inventory of aircraft to select from and try to buy. Prices skyrocketed. Supply chain issues caused us all to wring our hands and shake our collective heads. What a mess. Charter demand went through the roof, and the idea of providers delivering a good service offering was next to impossible. So, with this rebalancing of 2023, there will be some bystanders who will not survive, consolidation of some providers, and adjustments from operators and customers. But we are a resilient, strong industry that was built to withstand many adversities even when they occur all at once.

However, there are such positive events taking place that our industry will not only survive but thrive. Let’s name a few. More owners are proactively looking at fleet shifts and transitions, which is allowing new inventory to come to market. More inventory allows for more choices for buyers. More choice will allow for easing in prices, and the easing will allow for more prospects to feel safer about entering the world of aircraft ownership. Do not get me wrong; I am not considering this price easing to disrupt the value calculation of aircraft, simply ease the frenzy. This easing will also allow sellers to be more cognizant of the expectation of the buyer, and therefore play a nicer sandbox game. Also, the natural phenomenon of greater inventory numbers is longer days on the market. This should not scare sellers, just create a more natural process. This more natural process levels the playing field and puts the balance back in our steps.

So welcome to a time of change that is finally created by all the right events. No catastrophic occurrences that stop dead in the tracks the industry and players that have for so many years come to welcome and enjoy the act of buying, selling, operating, and reselling the equipment that flies us safely and efficiently around the world. Enjoy!

Originally published as a blog for AINsight for Aviation International News on 7/7/23

Not a bad time to take stock of our year, as well as look ahead to what is in store. At our company we have enjoyed a good 2^nd quarter. The first quarter was a bit slow rolling, as was also reported by many of our fellow sales professionals, but the second quarter picked up steam nicely. Planes went under LOI’s and contracts, pre-buys started up, and the act of buying and selling felt great again.

We are not acting in a frenzied way and patience is becoming the virtue we almost collectively forgot about. 2023 has brought much needed inventory to the table, which gives us all more choice and more opportunity to find the right plane to buy, and not just the only plane to buy. Along with more inventory, also comes another almost forgotten virtue, sellers having to play in a well-groomed sandbox. For the last two years the market clearly felt and acted like a sellers’ market. This gave no room to act responsibly as a buyer without the risk of losing the plane that was often the only one available. We were dealing with unsustainable prices being paid, lack of due diligence being allowed, and frankly even balanced contracts being more difficult to attain.

Welcome back to the normalization of our transactional business.

This all sounds too good to be true. So, is there any downside to our world today, and for the rest of the two quarters to go? Of course there are. As I always say, if this business were easy, everyone would be doing it, or at least doing it more successfully. Let’s talk about the headwinds. To jog your memory, 2020 was one of the best years for our company transactionally, as it was for most. In fact, all that success came in just two and a half quarters. Remember the first many months of 2020 when the pandemic was first sweeping the world, ours, like most industries, just stood still. This did not last thankfully, and by June of 2020 it seemed like we were all rolling at top speed. Prices had not yet begun to rocket up, and buyers, mostly first-timers, were standing in line to pick the best and still pay reasonable prices. Could 2023 be a repeat of that success for all involved? It could be, except for one huge difference. Available slots for pre-buys. Finally, by the end of 2022, we once again were getting back the right to do the due diligence that everyone knew we needed. Only one problem. The maintenance facilities, both OEM owned as well as independents, are so backlogged that they may be the deterring factor to repeating the success of 2020. No matter how many sales we can make, if we cannot find shop space and available labor on a timely basis to perform a pre-buy, the world we know slides to an abrupt halt. We are now waiting up to 2 months or longer to find a slot anywhere, much less the shop or top 3 shops you would like to go to.

This is a supply chain, labor, shop space, and high demand problem. Multi-faceted in the reasoning as well as the solution. I have been talking as often as I can to the shops, and hoping collaboratively, we could work on solutions. If we cannot find them, we may be destined to a mediocre year rather than a record-breaking year.

In either case it will be a year of more balance and less frenzy. It will be a year that should make us all glad to be a part of this thriving industry.

Originally published as a blog for AINsight for Aviation International News on 6/2/23

As we came out of 2022 many of us took a deep breath and said hopefully the frenzy will be over and a dose of normalcy and balance will return. As we wrapped up the 1^st quarter of 2023, and settled solidly into the 2^nd, most of us would admit a slower start to the year, and our collective eyes are peering optimistically toward the rest of the year. If you remember, 2020 for many, was reported to be one of our best transactional years albeit one that was accomplished in just 6-9 months since the pandemic accounted for 3-6 months of recalibrating our sights to what this pandemic was going to mean for us.

We just participated in the Spring IADA meeting and heard the same optimism from all attendees. This could be a 2020 kind of year. Everyone expects a surge of good, balanced activity that will see us operating in an environment of higher supply for our clients to choose from. Prices have tempered down a bit and transactional processes are back to a place where due diligence is the key word in transactions. All that sounds great, doesn’t it? As the title suggests, are we a Bastian of Hope?

Hold on! We must all be very careful not to create a panacea yet. We have a very serious problem facing us all. Finally, we have sellers who are allowing us to get back to the right way to accomplish transactions by allowing pre-buys. So, what is the problem? After finally winning back these rights for due diligence, now pick up the phone and call to get a slot for the prebuy. Sure, you can find one, but maybe 2-3 months from now, or possibly even longer. This roadblock will totally impede our ability to get a plane transacted. There is no way we will allow a client to buy a plane without this critical step. We are even calling facilities in Europe to try to find nearer-term slots.

I am not one to just find problems and dump them on your doorstep. I am proud of how I always look for a solution for every problem, but this problem is out of my control. However, it may not be out of our collective control. We must work in tandem with the facilities and their upper management who can accomplish these critical inspections to see how we might be able to thread the critically needed needle. Is the problem labor or shop space? If it is true that transactions are incrementally down year-over-year then why now is this issue raising its head? We need support to overcome this damaging issue. The word Sorry is not enough.

We on the transactional side can only see the problem, we need to help be a part of the solution. Should the shops allow holding a slot starting earlier that would allow for a more liberal cancelation policy. Sure, this may mean more work for the shops to manage a move-up strategy for canceled slots, but we need help.

Here we are finally finding some sunlight and the dark clouds of pre-buys are gathering above us. I might suggest the shops create a method for us to have an internal round table or town hall. Sure, I understand that might be too difficult for us to put competing entities together so possibly it can be one OEM or independent facility at a time. I assure you we are not looking to put anyone on the defensive, but we are in trouble and need like never before to discuss this phenomenon and solve it somehow.

Originally published as a blog for AINsight for Aviation International News on 5/5/23

There are some changing realities afoot in our aviation world these days including higher supply of inventory, prices coming down from frenzied levels, increased days on the market, and higher costs to operate. In fact, it could be inferred that the higher supply and price reductions are driven in some part by the higher costs to operate.

As a seller, the smartest play is to be well advised of market conditions, market drivers and try to capture an opportunity to sell without the last two years’ bravado.

As a buyer, although in no way should this market be considered a buyer’s market, it is no longer a seller’s market. It is a very healthy balanced market without the seller’s mandated transaction process of little to no due diligence on the part of buyers.

Over the last 2 years, many first-time buyers have entered our world without what might have been a full understanding of the cost of operations. Many were very low-time users who might have been better served buying fractional rather than whole aircraft. They were possibly lured into the ownership play by operators dangling high charter use for their planes, suggesting a greatly reduced cost of ownership with this added revenue. I always instructed my clients that until they had use of the aircraft of between 200 and 225 hrs. annually or unusual circumstances for the ownership, the lines do not cross for whole aircraft ownership. Many of these new buyers had less than 100 hrs. annually of use. They will be most impacted by the considerably higher costs of operation due to inflation.

For instance, program costs for engines and APUs have gone up double digits this year. Pilot salaries have gone up considerably including the benefits needed for retention. Less availability of hangar space has led to higher costs. Fuel is always a moving target and thankfully off its peak high price for now. Those of you who derive value from ownership that cannot be debated will of course see and feel these increases. They are real. However, you will not question continued ownership like those who are on the fringe for justification of ownership. In fact, this fringe group will contribute to the added inventory that is being put up for sale. These added costs that cannot be passed along must be borne by the owners. Charter rates cannot be increased to match the rising costs dollar for dollar. With charter hours inching down from their all-time highs of the past two years, the opportunity that was painted to prospective buyers may also be diminishing. This will apply even more pressure on the fringe owners. Our industry is due for a reset. I still believe the landing is a soft one. Balance is a great thing and should be welcomed by us all.  

I included the word value in the title of this article because I want to stress the high value of business aviation. Getting out ahead of your competition and in front of your client and/or sharing the world with your family are all high values of aviation. We, as an industry, must continue to drive the value proposition, keeping the mantra at the forefront. Using aviation for all the right reasons is still a wonderful tool. It still drives commerce and makes long-lasting memories. We have one of the greatest safety records and can boast about the efficient and sustainable future we are creating as an industry. Enjoy.

Originally published as a blog for AINsight for Aviation International News on 4/10/23

What is the 1 in 60 rule you ask? If a pilot takes off headed to their destination and they are just 1 degree off course, every 60 miles you fly with that error moves you 1 full mile off course. So, you can see that even a slight variance from accuracy can create a real miss for you.

Buying and selling aircraft is a complex and complicated business. The dollars are high, the risks of mistakes are great, and the reputations of us all depend on doing things correctly. I want to stress how critically important to a transaction the accuracy of the specifications of what you are selling or buying are, and what a difference mistakes make. Aircraft values are in great part established by the installed equipment. I know you are familiar with the disclaimer of “subject to verification” that is written at the bottom of each page of the marketing specifications but that should be a last resort safety net for honest mistakes. Checking, rechecking, and several sets of eyes should go into building and approving the specifications prior to marketing an aircraft for sale. People depend on the accuracy of the specs. In fact, when we are buying a plane, one of the tasks we contract for with the inspecting facility is to audit the sale specifications. We must know any variances that are potentially found between the specifications given to us and the actual aircraft.

We often do find variances. Sometimes not material, and sometimes the findings are in our favor. An upgrade or revision is accomplished that enhances the equipment that is not evidenced on the specs. In our current environment of “hard” deals where the purchaser has limited rights to reject, the accuracy of the specifications are only subject to verification for the purpose of meeting the delivery conditions and may not be used by the seller to say too bad what is installed is what you get. These are the things that make transactions fall apart if the variance is large enough. They are also the things that create more time on the market. In a changing market where prices are weakening, the more days on the market for whatever, can cost real dollars in lost value. Time is money. Take the time as a seller to verify, re-verify and be prepared to stand behind the accuracy of the specifications and representations of the aircraft. If you have an expensive item on your specifications that the aircraft does not actually have, and the price for the aircraft was determined because of that equipment, then just saying subject to verification is not a leg to stand on. This mistake leads to either a canceled transaction or a price renegotiation. But it is not realistic to expect the same price for the aircraft if it is missing a critical element previously contemplated for the sale.

As a buyer who will inherit the faults of an aircraft, if not found in either the accuracy of the specifications, the records, or the mechanical integrity of the aircraft, look very closely at what you are buying. Have a contract that allows for an inspection and opportunities to be sure you are buying what you expect to exist between parties. One of the most problematic elements of a transaction over the last couple of years that troubled us as brokers, was the reluctance of the seller to allow the correct protocol of inspection. Do not be willing to give up this opportunity to understand the asset you are buying.