Originally published as a blog for AINsight for Aviation International News on 2/4/22
In my title, exchange the word winner with buyer and loser with the prospective aircraft buyer who didn’t have their offer accepted. Frankly, I believe that is how the participants in today’s short supply feeding frenzy feel about themselves. Other new terms are popping up in our vernacular, such as Blind Auction and Sealed Bid Auction. The process of choosing the winner in this process is changing rapidly, and not in a very positive way. I had a client say to me recently that he has never worked so hard to try to give 4 different sellers $15 million unsuccessfully as this process of trying to buy a plane has been for him. So, the question then becomes how long can we keep losers motivated to stay in the game?
When one plane comes on the market in the morning and by lunch, there are 10 full-price offers, the idea of how I can be the winner in this process becomes murky. I see some of us now saying we are going to open this up on Monday and not respond to any offer until Friday and then sell to the highest bidder. This open bid period is not bad and we as a company work very hard to keep the idea of due diligence a healthy part of the transaction. Considering offers based on when they come in and dealing with them in that order has all but vanished from our process. The idea of a plane staying on the market 200 days or longer is gone. In fact, we used to brag about our company’s average days on the market for planes we represented. We felt it was amazing to have an average of 57 days from listing to an accepted LOI. Boy, weren’t those the days? Today it is about 5 days.
It was only a few months ago that brokers and sellers were still listing planes with asking prices. During that period, it was prudent as a buyer’s representative to suggest to our buyers to offer the asking price. Now that is over and the new listing strategy is to list the plane at “Make Offer”. This leaves room for the sellers to give the buyers some vague guidance on pricing then stand back. The net result is often an even higher sale price than what would have been contemplated with comparisons to the last sale in the market.
I am not suggesting any of this process is wrong. It is what would be expected with the current supply/demand dynamics. Why not try to capture for your selling client the greatest amount of money possible? I am also watching dealers pay retail for aircraft and then remarketing them to again reset retail. This is of course the traditional definition of buying for resale, but creates further competition for becoming a winner in this market.
What will end this current cycle in our market? One of several things: Like in 2007/8 when the global economy shuttered, the price of aircraft, off the 10-20% premium being paid at that time, was 50-70% drop in values overnight. A repeat of those conditions would be the most catastrophic reason for an immediate drop in value and an immediate shift in supply. A less radical and more hopeful reason for a shift, though not as dramatic, is that the corporate operator segment of our industry that has been dormant for the last 2 years comes back into play. Due to Covid and the lack of travel among this segment, there has been no real trading to speak of. When this important segment comes back, they will not deplete the inventory but instead, keep it more balanced by bringing a plane to the market for every aircraft purchased. This will potentially increase supply rather than kill demand and would be a healthy nudge of the pendulum.
Regardless of the reasoning for a market swing, it is incumbent on us as an industry to keep our buyers whose offers were not accepted interested and motivated to stay in the game and not retreat to the fence. That would bring a complete stop to our forward progress.