The Mesinger Blog

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.

Originally published as a blog for AINsight for Aviation International News on 2/3/23

Wouldn’t it be great if we as an industry could boast about a reward for patience? For the last two years, we have witnessed the cost of fast, unbridled growth, that no one was prepared for. The FAA is struggling to keep up with basic functions like aircraft registration filings, pilot and mechanic shortages have raised salaries based on the supply/demand imbalance, and even hangar space is a short-supply commodity.

These out-of-whack supply equations have raised not only the price of aircraft but also allowed the sellers to dictate processes that are not favorable to the buyers, such as a limited right to inspect. This is compounded by critical supply chain issues delaying the length of the pre-buys and all other into service criteria. Engine overhaul timelines are affected negatively as well. The frenzy to buy from such a short supply created no reward for the buyer except what was the reward of overpaying and stripping the process of critical pieces to capture a tax benefit.

So, what is the reward that is going to come to those who are going to transact an aircraft purchase in 2023? Simple, there is no doubt among those of us that watch this market daily that the supply of aircraft is increasing. Up by several percentage points over the last few months. This rising supply, which I believe will continue to increase, will add some immediate balance to a once very unbalanced market.

We instructed our contracted buyers to wait at the end of 2022 because we believed the reward was coming. I am excited to announce it is here! The days of claiming the market favored the seller is all but gone. I do not believe it should be immediately labeled a buyers’ market. The pendulum has not, and may not swing that far, but it has absolutely swung closer to the middle. It is so much nicer operating again with balance. Sorry sellers, you missed the craziness, and the buyers will again have the opportunity to negotiate the outcome of the transaction to a more traditional end. Meaning, not just being forced to accept paying the full asking price or even worse getting into a bidding war. Being able to negotiate a more balanced favorable opportunity to inspect the aircraft. Being able to negotiate a more balanced and favorable timeline for the purchase.

Yes, some sellers will push back but my sense is they will have to go to the back of the line behind those sellers who understand the importance of a balanced market. Don’t get me wrong, as I said this will not become a buyers’ market, one that ignores the right value of the aircraft being sold or ignores the correct rights of a seller. It will be a better time for both sides. I believe a more traditional annual residual loss rate of 5-10% will prevail. We are already observing price corrections since the beginning of the year between 6 and 10% in markets with increased supply.

So good for you all who waited to purchase, this year is your reward year. See you on the playing field again.

Originally published as a blog for AINsight for Aviation International News on 1/6/23

Let me first begin by saying Happy New Year to all. I hope everyone enjoyed the holidays and is back at their desks ready to see what awaits us. More supply, more pricing headwinds, more days on the market. More, more, more, or less, less, less. It might take us the first couple of months of 2023 to have a clearer picture of the landscape ahead of us.

Except for the typical last-minute closings at the end of the year, there seemed to be less panic and frenzy this year over the last two years. As I have said, possibly due to less supply, possibly due to a bit less demand.

I can remember 2020 well. We were all trying to figure out what the pandemic meant. What was the real impact on everything including our industry going to be?  No real answers, and no real history with this type of global event. Would sales completely stop? Would prices drop? Not sure any of us could have predicted what happened. Unprecedented demand from first-time buyers depleted a healthy supply of aircraft and resulted in a supply/demand dynamic unseen in our industry. Prices were increasing 10% per month in some cases and fair and balanced transaction processes were eliminated.

In 2020, 100% Bonus depreciation was in play. By Q4 people were already very wary of commercial travel. No one wanted to get on flights with crowds and no one wanted to go to commercial airports to get exposed to the virus. So, they began to turn to charter, fractional ownership and whole ownership. For many of us, it would turn out to be our best sales year ever. As I mentioned above, we had great supply available to choose from and pricing was still languishing a bit from the preceding year or two of higher supply and a bit lower demand.

For those who bought in Q4 of 2020 you likely enjoyed a balanced process with respect to the transaction. Pre-buys were the norm. Pandemic demand, low supply, and higher pricing had not yet hit. At the time we sold a couple of very nice, low-time, well-equipped Challenger 604s.  They were both in the 5–6-million-dollar range. Then, within the following quarter, Challenger 604s of the same vintage, but more likely to have higher time, less equipment and weaker pedigree rose to the 8- 9-million-dollar range. Anyone who had a memory of that 5-million-dollar price had some real heartache with the new pricing. Especially when you coupled it with the fact that what you were paying for was no longer the same quality, and likely allowed much less due diligence from the seller.

It made it very difficult for people who knew our market pre-pandemic to accept pricing that began the following year. Paying 30% or more for less of a plane on many fronts was very difficult. The majority of our industry does not expect the pricing to go back to pre-pandemic levels. However, with what I expect will be more supply in 2023, there should be a return of a more balanced transaction, including more price negotiation with residual loss once again prevailing, and a fairer due diligence process allowed by the seller. As long as better choice and more normal transaction processes come to pass, 2023 will be a return of better attitudes about what will become the current, normal pricing and should be a great year for us all, the brokers, the buyers and the sellers.

Originally published as a blog for AINsight for Aviation International News on 12/2/22

It is not a change in the season I am contemplating, though it may seem a bit cooler. Rather, a change in the market environment of late. I am not here to declare a large swing in our market, but I am going to lay out the areas of change that I see and feel. I am always careful about shouting that change is here until it is.

The obvious and often discussed headwinds of recession, interest rate hikes and geopolitical challenges are all reasons that many of the prognosticators are guessing about our future. I want to talk about the effects of these indicators.

I looked at AMSTAT for 11 months of retail-to-retail jet sales for the period between January 2020 and November 2020. There were 1,795 units sold. In fact, that was up from the same period one year earlier. As we all remember this was the beginning of the Covid pandemic and none of us as industry professionals or our clients knew what the effect of this would be on our industry. But 2020 turned out to be one of the very best transaction years in our history. There was no issue yet with supply and since there was no supply issue prices had not started to increase yet. Those that bought in 2020 had great choice and good pricing. Next came the same January through November of 2021. That 11-month period netted 2,580 retail-to-retail jet transactions. What a jump! Most buyers in 2021 were first-time buyers. The result of their appetite for private aircraft was a dramatic depletion of available inventory. They started to pay more, have far less choice, and lose control in the process as sellers dictated the terms.

Now let’s look at the same period for 2022, January through November. This year we are down by 17% with total retail-to-retail jet sales of 2,132 units. Some would absolutely argue this was a result of far less supply; some might argue it is a result of some less demand; most could agree it is probably a sampling of both phenomena that created this number of unit sales to last year.

I was just speaking this month at CJI Miami. One of the questions posed to our panel was, “are we at the peak?” I asked the questioner what peak he was asking about, the peak in pricing or demand? I answered the question from both perspectives. I felt we had crossed the pricing peak in August or September of this year. I am not suggesting prices are falling, only that they have stopped rising. I went on to suggest that I believed in 2023 we would start to see what we as an industry have always experienced which is an annual residual loss rate of between 5-10% annually. That difference between rates is typically brought about by the age and type of aircraft. I have seen several price adjustments since August or September usually representing what may have been too aggressive and opportunistic pricing to start with. Many sellers this year have been drawn to this market to capture an upside to their aviation investment that has never been seen before, and now realizing that they may have stepped too far, are pulling back a bit.

One thing that I mentioned when discussing the idea that we may have also reached the peak in demand was a look at days on the market. This is increasing and allowing for a less frenzied approach on the part of buyers who no longer feel the aircraft that comes to market this morning would necessarily be gone by sunset the same day. I see in most categories of aircraft that more inventory is coming on for sale by the day. This is due in part to new aircraft deliveries, the rethinking of the size of a flight department, and owners feeling that capturing the profit that has been made on the value of the aircraft is opportune. I think many owners who have been lured to ownership feeling like charter revenue could really backfill the investment are now feeling that selling is where the real upside could be.

So, what is in the air? I think we will start to enjoy the continued increase in inventory. More choice is always a good thing. Slightly more favorable pricing and best of all less frenzy. This combination of outcomes will keep everyone’s investments sound. Bottom line, this change in the air is a mild shift. Probably just really good kite weather. Enjoy!