The Mesinger Blog

Originally published as a blog for AINsight for Aviation International News on 4/9/21

They fly through the air with the greatest of ease. That is the first way that airplanes defy gravity, and no one can argue with that. The other more arguable ways are in the valuation of airplanes. There is of course the demand/supply calculation. In most commodities, prices can go up when demand outpaces supply. That is such an interesting and factual measure of change in value for most market driven items. Not so with airplanes. Perhaps it is the fact that airplanes are pieces of equipment that get older every day and get closer to the next inspection interval with every hour, cycle, and calendar day that passes.

Unlike classic cars and fine wine, aircraft do not increase in value based on older age. So, what does make an aircraft increase in value? Honestly, the only time I have seen that occur was between 2003 and 2008 when the emerging markets were exploding and there was just not enough supply of new or like-new aircraft to fulfill the appetite of these new markets. In those days it was not out of the realm of possibility for the price of a new plane or airplane position to have a premium of as much as 15% over retail. That would also apply to planes that may have been one or two years old. I might add, that as soon as the economic downturn occurred in 2008 and 2009, the price of planes lost between 50-70% of their value. One of the drivers for such a steep decline was the fact that people had paid full retail as well as that premium.

It is true that when supply exceeds demand the price of the aircraft can be driven down much more readily than the opposite effect of higher demand over supply driving prices up. Often what occurs in periods of lower inventory levels and picked over supply is that the residual loss rate will narrow but the idea of prices going up does not occur. In fact, even in the 4^th quarter of 2020 when the market was in a frenzy driven by buyers wanting to capture the bonus depreciation and fulfilling the appetite of the first-time buyer, prices still went down sale over sale. Albeit at a slower rate.

Today, at the end of our first quarter of 2021, sales remain steady, but we are suffering a bit from picked over inventory from the 4^th quarter. Our job then as sales professionals is a bit more challenging finding a diamond aircraft to transact. There are sellers today who believe this reduced inventory level should be driving prices up, especially in a few popular categories. I am seeing unusually high asking prices set as well as final sale price expectations rising. But I am also seeing even with the lower inventory levels these attempts to sway the market falling short of the seller’s expectations, resulting in longer days on the market, and discounts below the expected market price. If you are a buyer today be patient. I know you will be successful at finding that choice aircraft. I know you will not have to feel like you have gotten swooped up in a pricing frenzy. I believe 2021 will be a very balanced market year. I am hopeful that the corporate buying will return, and I am also confident that the corporate selling will result in some added inventory for us all to choose from. I am convinced that some corporate operators will resume a more normal operation this year as countries open. I am also convinced there will be some right sizing of fleet size compared to the fleet sizes of pre-pandemic. This should be a good year for operations, transaction levels, and pricing.

Originally published as a blog for AINsight for Aviation International News on 3/5/21

Every few years market events change, sometimes only slightly, and sometimes with greater velocity. When these events occur our industry often gets new players. I am speaking of a new crop of industry sales professionals hanging up shingles. I have often discussed how our segment of the industry, aircraft sales, can look sexy, lucrative, and easy from the outside. Believe me it is the hardest work any of us have done. It is a nice wage but hardly lucrative, and anything but sexy.

I believe that the COVID-19 Pandemic is causing some new faces to pop up. As I have written about before, the barrier to entry is fairly low for those people that want to cross over to brokerage. There are no licenses to qualify for; There are no state of federal tests to pass, or number of hours one must put in as an apprentice to qualify. Please do not mistake my comments as suggesting that all new faces will be unqualified or bad actors. This is, after all, not really an aircraft business it is a people business first. Like in any industry there will be a few bad apples.

My concerns as new people cross a very low bar to enter our profession are that they come in trying to attract business by quoting very low commissions, giving poor valuation information, and unqualified cost expectations. This combination of low-cost and high-value can attract clients for all the wrong reasons. I was on a webinar the other day and was a bit shocked hearing from some of the panelists who said they were already getting calls from recent first-time buyer clients that were talking about selling the planes they had just recently purchased. This can only mean a few things. The cost to operate the planes they had just purchased was possibly underestimated, and/or the complexity of aircraft ownership was not properly explained.

The outcome for these people will be terrible when they realize that not only will the cost to operate be higher than expected, but the cost to get out will be significant. With such a short ownership life the value of the asset may have gone down 10 to 20% or more. Given the poor information regarding operational costs or complexity, the person helping these first-time buyers buy may have also been flawed in the, what to pay for the aircraft equation.

This exercise will cause many to declare that this industry may be plagued with bad actors. All of you reading this article know for sure that is not the case. Though there may be a few, the vast majority of players in our business are great people, working for the good of the clients they are serving and not just working for a sale and a quick commission. Are you one of the people who are questioning a recent purchase? Before making a knee jerk reaction, perhaps the smarter approach would be to find a seasoned, well versed industry player and be sure there are not better methods to manage the asset, as well as better cost opportunities. Aircraft can be everything you hoped they would be. They are safe, efficient and can bring real joy!

Originally published as a blog for AINsight for Aviation International News on 2/5/21

It’s hard to believe it has been a year already. Before last February, we had barely ever heard of coronavirus, much less Covid-19. Then the business aviation industry stood still from March through May, unsure of the effects.

There is nothing good about the pandemic, with lives lost and businesses disrupted or closed completely. Just think about the hospitality and restaurant industries—devastated.

But let’s take a look at business aircraft sales starting in June 2020. No less devastation from the pandemic, but our industry started to percolate. I have talked to many industry players, from lenders to attorneys to sales professionals like myself. We all began to feel, see, and do business at a pace that some had never seen or experienced, or for many an activity level that they had not felt in years. Bottom line, transaction-wise, 2020 was one of the best years in memory for aircraft sales.

When I hear that I remind them that the year, which seems unrivaled, was actually only a nine-month year. Imagine cramming all that business into nine months? Imagine if it were like that for a full 12 months? Could 2021 be that year? Could we find ourselves enjoying 12 months of that accelerated activity?

I think we could. As I look at the first month of 2021 at our company, we are being awarded new acquisition jobs, and getting more than usual opportunities to provide proposals to both buyers and sellers. We’re adding new inventory and fielding more calls than a typical January. As I know many of you know, January is often a reflective month for prospects and clients as they look inward at their own companies and build strategies for the new year.

Here are some things to watch for as we hope for a successful 2021. Phone activity is always a good barometer. If the phone is ringing, then opportunities can be created.

Corporate activity will also be interesting to watch. As I reported earlier, most corporate buying had retreated last year, in part due to optics, but in larger part due to domestic and international travel restrictions.

I’m happy to report that some of our 2021 new opportunities are coming from the corporate side of the world. They are back out in the market looking for preowned aircraft. This is a great thing.

In addition, continue to monitor the strength of the first-time buyer phenomenon. This segment really grew legs in the second half of 2020 and filled the void left from the corporate retreat.

Next, we should keep our eyes on inventory levels. We will need inventory to complete a successful year. I believe opportunities will arise as we witness what might be a slight culling of fleet sizes by corporate operators. I can already see some downsizing of fleets as those with four airplanes contemplate cutting down to three or some variation of that.

Some new lessons and habits that are being created by the travel restrictions of companies might stick. That may seem bad for our industry but remember, those downsizing do not throw the aircraft away—they just shift ownership. Since I believe that most new aircraft activity and sales will continue in North America, and more specifically in the U.S., the overall fleet size operating here will not go down. The pea may just be under a different shell.

So could the nine-month year now be increased to 12? My answer is yes! Hold on, keep your eyes and ears open for the tell-tale signs I mentioned above. Let’s get ready for a shot in the arm, getting back to a more normal world, and continued success in our industry.

Originally published as a blog for AINsight for Aviation International News on 1/8/21

I was thinking the other day about what it would be like to make a soundtrack for the pandemic of 2020. Every one of us probably has that day that it started for them etched in their mind. For me, it was March 14^th, 2020. My wife, and business partner, were flying home from Mexico. We actually cut our trip short to get home, not wanting to be stuck away from home. We did not know much that day but rumors, and the initial news was not good. Flying home we decided to let our employees know that at least for the rest of March, everyone should work from home. By the way, everyone is still working from home almost 10 months later. The first song that came to mind was American Pie, by Don McLean¹. March 14^th was the Day the Music Died for us.

Over the next several weeks the pandemic began to take shape. I remember calling my friends at the title companies as well as my friends that are aviation attorneys. They all reported that they were mostly working to unravel transactions and send back deposits. Our aviation market shut down. The question was for how long? All of us in the aircraft sales business as well as other segments were feeling close to each other and just collectively hoping for the best while reminding each other to hang on. The song that I put here is Frankie Valli, Let’s Hang on².

Next came the pronouncements in April and May that I am sure you all received as well. “I am never going to fly on a commercial plane again!” This seemed like just idle conversation at the time. People talking about buying planes and in most cases, they were first-time buyers. I think we all sort of half listened to the callers. What was clear was they were all talking about change. The song I picked for this phenomenon was a Bob Dylan song, The Times They Are A-Changin’³.

Well, you will never guess what happened next. As the depth and fear of the pandemic continued and people began to understand that this was not going away so soon, and that the CDC safeguards were our best hope for a pre vaccine solution, the calls that seemed like idle conversation in April and May began to take hold with callers turning into real buyers. The escrow agents began to tell a different story, as did the aviation attorneys. No more time was spent unraveling transactions. Starting in June the conversation turned to people never having been as busy. As I have said many times, when first time buyers come into the world, so much business gets done. Pilots get hired, management companies get new clients, hangars get leased, maintenance and completion companies get filled up beyond capacity. Our industry gets back to work!

Many people asked if this increase in activity would make prices go up? The answer to that question is, no. Two factors are at play here. First and foremost, this frenzy caused by the new buyers, and accelerated by bonus depreciation, was in large part due to the reduced pricing being offered. Some planes that had been on the market for over a year began to sell, in large part because sellers saw this as an opportunity and finally priced their planes correctly. Secondly, the corporate clients have all but retreated from the market for now, thereby balancing demand.

My final song to wrap the year up is, Bobby Hebb’s, Sunny⁴. It seems there is light at the end of this very dark tunnel. We are all hoping for a healthy 2021. Happy New Year and onward and upward!

I have provided YouTube links to each of the songs so you all have the soundtrack to my year.

Links:

1. American Pie, by Don McLean

2. Frankie Valli & The Four Seasons, Let’s Hang on

3. Bob Dylan, The Times They Are A-Changin’

4. Bobby Hebb, Sunny

Originally published as a blog for AINsight for Aviation International News on 12/4/20

Everyone reading this article today has some touchpoint to aviation. And we all know the sophistication and complexity of this field, as well as the expensive factors involved. The cost to buy, the cost to operate, the cost to charter, the overall cost to utilize these amazing pieces of equipment. There is one more cost that could be the biggest. The cost of missing critical steps in the buying, inspecting or operating processes. The details.

I have had a few brokers on the other side of a transaction from us lately say, “Wow, I wish we had found a buyer that was not as focused on the details as you all have been.” I can only scratch my head at that comment and wonder what that must look like for everyone involved. Yes, it is true, we always have the most expansive pre-buy we can choose. Yes, we drive down into smart delivery conditions. None of these factors create transactions that are awkward or overly one-sided. They just create a demand for certainty. After all, that is what our clients pay us for.

I might add this demand for certainty should be a part of both sides of the transaction. The only difference is when the details become important. As sellers, we create accurate specifications that are signed off by the seller, before the marketing begins. As buyers, we have the specifications verified during the pre-buy. As a seller, we pay close attention to the requests made by the buyer when outlining the pre-buy workscope. For us as buyers, it is never just taking a facilities standard pre-buy as sufficient. We are always looking at proximity to near-term future maintenance and being sure we are checking the optional boxes for inspecting those areas that could be near-term expensive findings. Getting this done during the pre-buy continues to give us and our clients certainty they are buying the right plane. There is nothing worse than a buyer missing the details as to what to inspect then having to come back to the table post completed contract and asking the seller to allow for an expansion of the inspection. Again, details and when it is critical for each side to focus on them.

Paying very close attention to the operational protocol of the proposed aircraft will give the buying side more to consider when looking at the best plane to buy. Not realizing that for a 135 operation there needs to be an FDR at all or a modified one capturing the correct number of parameters is one key factor a buyer must consider the details of to avoid costly surprises. Knowing if the plane will be flown Internationally or over water will also drive certain equipment criteria for those specialized operations. Not understanding those details could create post-closing expenses that should be considered in the original criteria for selection of the target aircraft.

All of this is so logical for many to consider, but believe it or not, completely ignored by some. These omissions could drive a terrible and costly outcome. After all, the Devil is in the details, so are the Diamonds!