The Mesinger Blog

There are several true indicators of the health of our market. I have always pointed to the First-Time Buyer as an important one. After all, why in the world would anyone buy into an unhealthy market space. If residual loss rates are tumbling, why buy? Stability is a key factor in attracting a first-time buyer. Another very important indicator of the health of our industry is the Fleet Transition.

We have been very fortunate over the years, as have many of my fellow sales professionals, to facilitate fleet aircraft transitions for our clients. What of course is more common is the relinquishment of one plane to be replaced by another. This is typically caused by a desire to have a newer plane or a mission change. What I am seeing a bit more of now, which is a terrific indicator, are true fleet transitions. These are not seat of the pants decisions. They are planned and programmed by the owner/operator often a couple of years in advance.

The manufacturers are giving our industry a real boost with the advent of the new models being introduced. These new models are giving state of the art technology not just in the cockpit but throughout the cabin. A clean sheet of paper design that really gives the buyer a reason to consider this type of grand transition. In some cases, it is even prompting a change to what might have been long-standing client/vendor relationships. Literally giving up what in many cases had been decades of operational relationships for another.

Major shifts like that are typically started by a new design that the owner feels will meet a mission better. Or it could be a shift in operational destinations and one’s perception of the ability of one manufacturer over another to provide support in that region of the world.

One of these multiple aircraft transitions requires a myriad of balls in the air. First, there is the delivery schedule available from the manufacturer. Next, understanding that the flight department must work skillfully to coordinate completion details and timelines, working backwards from the proposed delivery date to the order date. Colors, finishes, exterior paint design as well as avionic choices and options must all be considered. So many details to manage for what is usually a very busy flight department just working to deliver to the client the safe day-to-day operation that is the crux of the desire to have planes in the first place.

Of course, pilot training is the next area to coordinate. This is especially tricky if the transition is to a new model aircraft or a different manufacturer’s product. Remember, the client is excited about the transition but cannot afford to miss critical use of an aircraft. Training is not just for the flight crew. Maintenance techs as well as flight attendant training complicates the transition.

When do you put what will be the relinquished aircraft on the market? How much time do you give the sales process to leave the flight department with as much capacity as possible? No one wants too many planes and no one wants too few. It is complicated. This question is always answered one specific detail at a time. If the relinquished plane would enter a more robust market the days on the market may be able to be predicted as fewer. If it happens to be a less robust market, longer lead time with more days on the market will need to be calculated.

Hangar space is also an issue during a transition. If the relinquished planes have not been sold as the replacement planes begin to come to town an alternative hangar solution must be factored into the transition cost and complexity. 

The other side of the transition is also a boon for our industry. Often when a plane sells into the pre-owned pool, modifications as well as upgrades in the cockpit and cabin occur. Pilot training, insurance policies get written, hangars get rented and on and on. The ownership ball starts rolling from that piece of the transition. Excuse me for veering from the bottom line of the article, the excitement of the phenomenon of the fleet transition. I have not seen this occur in the numbers that I am starting to see and be a part of for many years. Economic confidence that the buyers are feeling. New exciting technology being introduced by the manufacturers is spurring a wonderful industry buzz. There is so much good that comes from the fleet transition. Time for a shout out to the manufacturers for making the huge investment in R&D and then taking that investment to the actual design and build phase. This is what keeps our industry young and vital!

Funny what a slight shift in supply and demand can do to a marketplace. In 2018 supply was so thin that finding a plane for a client was never a slam dunk and keeping our clients from getting frustrated by the process was an art in and of itself. There was even what could be called an outright “Frenzy” in the market. Thank goodness that frenzy did not culminate in premiums being paid. But it did make pricing more robust, and in many categories, there was quarter over quarter of flat residual loss rates according to the reporting guides. We as a market were even reverting to days of old and spending more and more time, money and energy importing planes from far off lands to meet the demand of what was mostly a North American buying pool. Even more specifically a United States pool.

As I have written, 2019 started off a bit different on a few fronts. January had our economy and the world economy cautiously watching and even reacting to a government shutdown, a turbulent stock market and additional volatility due to China trade talks. I even voiced in an article my hope that once all of this uncertainty shook out that the solid foundation from the couple of previous years would still be there. Good news, yes, it is! In fact, our company’s transactional activity is even ahead of 2018. OK, with all the hoopla what is different in 2019? Slightly higher supply and slightly less demand. This equates to a ripple effect that is causing the market to seem to have less or no frenzy.

The answer to the supply side seems pretty simple. As the OEM’s are beginning to deliver their new products to the market, we are getting some traded in aircraft or new listings in the market as a result that are speaking right to the sweet spot of most buyers. Young planes, great pedigree and many already US based. This is great for everyone, the sellers and the buyers. Frustrations are easing for the buyers and smart sellers are still enjoying relatively short days on the market.

All sounds positive. Here is what is changing just below the surface. Not only is there a bit more supply but for whatever reason the slightly less demand is causing pricing of these aircraft to mellow out. Meaning, as I mentioned, the loss of the frenzy, though most planes are still enjoying a shorter number of days on the market relatively speaking.

One thing that we almost never had to advertise in 2017 through 2018 was, “Price Lowered”. Typically, during that period, we would advertise “New to Market” then maybe a maintenance update. This year I am seeing daily eblast subject lines that say, “Major Price Reduction”, “Owner says They want to Be Next to Sell”, on and on. This narrative is reminiscent of days gone by. This can also be very confusing to a seller who says if transactions are equal to last year why is it taking me longer to sell, and why am I getting less and reducing my price before I sell?

These are fair frustrations and questions. I think I can answer them two ways. First, of course as we slipped out of this period of frenzy a market often takes a moment to adjust. Believe me, for those of us who experienced 2008, this current need for a pricing adjustment is slight and a correctable fix. So, the adjustment may look and feel like days gone by, but once done to the existing inventory the sale should occur. That is easy for those sellers and their selling partners that get that need to adjust. It is much more difficult and frustrating for those sellers and their selling partners who do not believe this adjustment needs to be made and are unwilling to make the adjustment. Then as always in a mellowing market end up taking even less later. We must remember these are aging pieces of equipment and a realistic expectation of 5-8% per year of residual loss is normal and should be expected. My advice is getting it right to start with. Yes, maybe there was a beginning of the year excuse, but now anyone that still thinks they smell frenzy is probably going to miss the opportunities that are still abounding in our market. Strangely enough there are a few categories that still are languishing and might need a few more transactions to clarify the pricing adjustment needed to spark a sale. This is a time to be smart, pay close attention to every transaction and keep the markets confidence up and sustainable by making small smart decisions soon.

I just returned from the Milken Institute Global Conference in Los Angeles, CA. I am not sure I have ever had that kind of experience before. It was a list of global who’s who, speaking on topics that were geopolitical, financial, services, and on and on, though no political slant or other biases were obvious. Having a list of speakers and panelists like this conference gathered then attracted the unbelievable list of attendees who were actually no less impressive than those on stage speaking. When you have the privilege and credentials to attend an event like this it is truly a playing field leveler. Everyone there enjoys equal footing. I want to thank Bombardier for the generous invitation and hosting that they bestowed on me. It was no small deal!

I went to many sessions and wanted to take this article to leave you all with some powerful takeaways I had. One of my favorite themes throughout the conference was, effort does not equal results. So many initiatives and actions fall short due to there being just that, a lot of effort or action without the benefit of good planning or clear goals. Do those people expending the effort wonder why there is no result at the end of all of this activity? It really made me think about how our organization of Mesinger Jet Sales does our best every day to work hard, but also strategically and thoughtfully, to create real results behind the effort.

Next is the belief people have that longevity is really all you need for success. I, like many of my fellow sales professionals, will say or advertise the long number of years we have been in business, as a badge honor. Don’t get me wrong, the 45 years we have been buying and selling planes is a real badge of honor, but longevity in life or business is not enough. Many of the speakers and topics dug down into what really creates sustainability. It is more than number of years in business. It is more about evolving and continuing to develop one’s deliverables to meet changing needs of the client. Just think about this in terms of sales evolution. So many companies start in business because they develop a product or service that a market needs and is not being delivered by either their current provider or by anyone else, often due to changing needs. Companies that used to fly domestically now needing to fly internationally for one examnple. This change brings about very different needs of the customer, such as trip handling, security, and service support in other parts of the world.

In fact, they say there are three phases to a sales and product business. The first phase is the offering of a new product or service that meets a new need of the customer. Phase two is the replication of the deliverable. This phase allows the product or service to become profitable and allows for the research and development costs to be recouped. It is the third phase where most small new companies fail and fall out of their success. This is the phase that looks to their customer base and recognizes that the business or segment they are in is evolving and the needs of the customer are changing. In short this means the current product or service is no longer meeting the needs of the customer base. Those companies that rest on their laurels miss the boat and do not emerge to phase three. Evolution therefor plays an equal or maybe even greater role than sheer incumbency.

Finally, data, data, data. The more the better in today’s world. Artificial Intelligence was a hot topic this year. Aggregating and disseminating data may be the future for many industries such as health care, maintenance and marketing to name a few. I do not think however, that in our industry segment, there are enough aircraft sales transactions to bring enough data together to be meaningful to the true definition of artificial intelligence. Transactions can be too unique with variables that cannot be linked from one to the next in a way that an algorithm can set. Data in our industry segment is critical, but it remains subjective in many cases and it still takes the hard legwork, thinking strategically, to make the results meaningful. A computer will not do this for us.

As the conference was titled, “Driving Shared Prosperity,” one must always move beyond the words into deeds and result oriented actions. Planning and then acting on the plans. Delivering products or thoughts into a diverse world are what really create change and awareness. I came home more aware.