The Mesinger Blog

I am continually asked about our industry and ethics. In fact, as I participated on a panel at a Corporate Jet Investor conference in Miami last month, Alasdair Whyte asked me directly if our industry has an ethics problem. My short answer was no. I went on to be more specific about what we do have, which is in certain instances a lack of transparency among some players.

It is not just the players in the transaction side of our business by the way. The MRO and repair side of our industry has a few bad apples as well. In fact, when the NBAA created a statement of ethics this year it was generated to address specifically the MRO side of the business. Reputable maintenance and overhaul facilities were tired of some less scrupulous shops offering fees for business. Money, gifts and trips offered to those who could bring big jobs to their shops.

As I began to get more specific about the problem, I segmented our industry across a timeline. In the early days when the concept of brokerage was less prevalent and the dealer side of the transaction segment was more the methodology, the lack of transparency fell along the fee paid to someone to buy one dealer’s plane over the other dealer. This left the value or lack of value of the aircraft less in the crosshairs than did the fee paid.

As time went on and the methodology of the transaction fell more to the brokerage side the advent of the back-to-back transaction came along to add what could be a lack of transparency. That being said, not all back-to-back transactions take place to hide the financial side of a transaction. Some are created to legitimately handle a trade-in.

As I continue to talk to industry players about this topic we keep coming back to the same place. No real barrier to entry for our industry, especially as a consultant or broker. That means anyone who claims they can perform the transactional side of the buy/sell can put up a shingle, or even less, and solicit business. For those who are the end user please beware of those that hold themselves out to be capable of helping. As business gets more difficult it seems more people try to enter our profession.

They offer the exact same services that those of us who have been doing this for years offer. Remember, no barriers to entry. As I used to say anyone with a stack of quarters and a business card can say they are consultants and brokers. Today with cell phones and the internet one does not even need the stack of quarters or the business card.

So, what may be an acceptable barrier to entry? Number of years in the business, number of transactions, and the very best references that can be checked and validated? If you are the prospect, I suggest that one does not bypass this critical due diligence. Remember, if you are about to buy or sell you only get one chance to get it right.

Fee is another area that should be considered. If something sounds too good to be true it probably is. If you think you can really get the service offered by those of us that come to work each day with a capable and knowledgeable team around them to deliver a service that can be relied on stop and think about your own business. Can someone really provide all those promised parts of a successful transaction at a low discounted fee? Doubtful. After all, every cost basis in a transaction has gone up. Airline travel, hotels, meals and salaries. How can anyone who really gets from behind their desk, travels, puts in actual time on a project, and can afford to employ the best do it for less.

This does not mean one should overpay because one of us does not know how to add efficiency and legitimate cost savings to a project. No one needs to reward poor business acumen. The take away of this article is be smart. As a shopper for these services that are vital to a transaction listen, ask questions, check references. Create your own barrier to entry for the person you hire. This is not a buyer or seller beware. This is a great industry. Back to the original question, we do not have an ethics problem. Yes, there may be a very small percentage of people, like in any industry, that do have problems with ethics. If you forget my advice on due diligence, you gets what you gets!

NBAA-BACE2018 is now just a memory. Of course, the words and actions used to describe our current state of affairs at the show like, half-full, enthusiastic and high-fives all around should not surprise anyone. But what was the undercurrent? What is just below the surface of our marketplace? I will be attending, speaking and listening at several upcoming highly attended events over the next few months and they will be very telling, regarding the activity at the end of the year, and what is predicted for the near future.

Each of my daily phone calls as well as the gatherings of industry professionals always gets back to the question of what is on the horizon. I have high hopes for and enthusiasm about our market conditions. I do not see all aircraft listings flying off of the shelf, but I do see and believe in the continued shortened selling cycle of aircraft that are properly priced and renewed buying interest from first-time buyers, which is always positive for all of us. Let’s not misunderstand what properly priced means. There are two things it does not mean. It does not mean that to sell more quickly one must price their plane at some bargain basement price. And it also does not mean someone can just throw a dart at the wall and regardless of smart market data just say when it hits the wall, “that is what I want to sell for.” It is also irritating when an aircraft comes on the market and the broker for the seller says, “my client is in no hurry to sell, so he is going to hold out for his or her impossible pricing.” That tells me that seller is not real and should not be engaged with what is surely a precious commodity, a real and ready buyer.

So now let’s define what properly priced really is. At Mesinger Jet Sales we believe in the numbers. The numbers that we derive from hard investigative work and smart analysis of that data. We believe that aircraft that have a great pedigree, great historical maintenance and fabulous records and logs, as well as very nice cosmetics and highly modernized avionics and connectivity will bring a higher dollar than other less equipped offerings. The great planes can be bullish, within reason, regarding an expected sale price, and should reflect that in a slightly higher asking price. Remember though, that is a fine line and a seller cannot arbitrarily ask a higher price and expect to sell for more because a great plane that checked the boxes was the last transaction in the market. All planes are different and must be priced thoughtfully based on the specific offering.

The thinking that every plane is worth more than the next is what will begin to drag a market into a slower reaction mode even with an environment of low supply and high demand. Buyers must still be treated and thought of respectfully. If sellers just think more, more, more, they will start to potentially see less, less, less. We cannot also be lulled into believing that short supply in our markets will last forever. Remember, Gulfstream’s 500 and 600 and Bombardier’s Global 7500, 6500, and 5500 deliveries are right around the corner, and aircraft are beginning to be traded in against those new aircraft causing inventory levels to creep up.

Pricing is critical and analysis of the marketplace is again on the move. External factors are always at play as we assess our marketplace economics. Yes, the U.S. economy is very strong, as is much of the global economy, however strong economies, at least in our country, can lead to higher interest rates and that can lead to a reassessment of overall acquisition costs. Geopolitical events can always impact upward momentum. As I mentioned, there are real risk factors out there right now however, I am not suggesting that our market will slow down, I am suggesting we as an industry can sometimes be our own worst enemy. We must be good stewards of our marketplace. We must guide and offer support to our sellers and buyers to be sensible when establishing pricing parameters for both buying and especially selling. We could price ourselves out of our own market. We could be creating internal risk factors to the market economics.

So, as each of us approaches the final two months of our year, let’s be positive, smart and vocal about our prospects. Let’s find the buyer or find the seller quickly by articulating clearly and with full transparency our needs. Let’s not let each other spend time on projects that cannot work based on miss matches. We have had a great year and we intend to keep our heads down and plow through the end of it and into the next with the same vigor and enthusiasm. Let’s all join forces and be at the finish line together getting these last few deals done. Then we must shake it off and dash together to the starting line for 2019. No rest for the weary!

Boulder, Colorado is an interesting city with respect to growth. We have a planned open space program that basically circles the entire city with land that cannot be developed. This totally limits growth for homes and businesses outside of these limits. It props up home and land prices within the city and county and only allows for growth within our borders, so we are becoming denser but not larger. Home owners are therefore left with very few choices if they want to move to Boulder or find a bigger house within Boulder. Enlarge or improve the house they have or buy into a neighborhood that will support that type of investment. Enlarging means expanding your footprint if allowed or popping the top and going up. Right about now you must be wondering where could Jay be headed with this article! Indulge me please.

Before you buy a house, you inspect it. The main inspecting point of a house would be the foundation. It must be solid, it cannot be cracked. It is the most important piece of the value proposition of the investment. You can start to see how this relates to aircraft. Today in our short supply, high demand aircraft environment, we are seeing buyers look back to find the value kernels in our remaining aircraft inventory pools, mostly by looking at the classic planes. The Gulfstream Vs, Falcon 900s, the Global Expresses. You can also see this reflective look at the mid-size planes including the Challenger 300s and Falcon 2000s to name a couple. People are scouring the markets, finding the solid foundations and investing fewer extra dollars to end up with a plane that meets 2020 mandates and also has the latest cockpit LED screen enhancements and cabin entertainment features. In other words make it look, feel and connect as if it where the latest technology, yet have as much or more than fifty percent lower capital cost tied up in the plane, compared to a newer model.

This template for life extension can actually fit the lighter jets as well with the Garmin solutions being introduced to the market that allow for 2020 compliance and other enhancements at a fraction of the cost. These types of solutions do make even the smaller planes step up to the ability of today’s new planes. This is the future of the classic aircraft. No longer thinking it may go away, now one can go down a proud path of modernization and compliance for less than the current production model.

If you think this phenomenon is not catching on just look at the classic markets in most categories and watch the solid foundation aircraft inventories shrink. Next, pick up the phone and call the more popular shops and see how long it takes to just get some ROM numbers for these improvements. Even more crazy will be the dates available to get a slot to finally perform these upgrades. In some cases, depending on the scope, it could take three to four months to get in. Astonishing how different today is compared to just a handful of months ago. We as a buying segment are forced to get more resourceful than ever. This resourcefulness can have big rewards though. Big bangs for fewer bucks. In most cases the flight characteristics are minimally different from the newer iterations of the plane. The Classic Global to the XRS or the Gulfstream V to the G550 and on and on.

In many models, even the winglet additions can make ramp presence on par with old versus newer models. These are all very smart ways that our industry can take a finite pool of inventory and expand the numbers for longevity. Now back to the solid foundation and popping the top. When your neighbors start to improve their houses the entire neighborhood wins. Property values are affected positively. This is also happening in these classic models being upgraded. The value of the models firm up. Breathing new value life into this classic segment is wonderful and adds to the balance of our industry.

A solid foundation is the key to this formula for success. Great pedigree, great records and great maintenance still are the drivers for the attention and ultimate sale price your aircraft will receive as a seller and the basic drivers for the attraction of the buyers who want to build their perfect next plane.