Blog - Mesinger Jet Sales

Mesinger Pulse: Step Climbing to New Heights

Originally published as a blog for AINsight for Aviation International News on 10/1/21

So many of us in our industry are looking up to view the new heights of aircraft pricing in our industry. Rather than looking straight to the sky it may be smarter to start at the horizon and look up in incremental stages, much like a step-climb in altitude for aircraft. A step-climb in aviation is a series of altitude gains that improve fuel economy by moving into thinner air as an aircraft becomes lighter and becomes capable of faster, more economical flight.

We must be very aware that like an aircraft taking to the sky, achieving stable higher prices must be done in steps. Can you really just set aircraft prices higher and higher, or must there be some real lift based on the air beneath our wings? Just because the one plane that was for sale and sold for a new record high is that reason enough to expect even higher on the next available aircraft? I remember the good old days of valuing aircraft. There was the utilization of the near past term sales comps, current for sale comps and then the evaluation of the equipment and year model from one plane to the next. Is it ok to just say that was how we did it one month ago but everything has changed now? Forget the last sale, forget the comp of others on the market, just expect to sell for more than the last one did. In fact, expect to sell for 10 to 20 % more.

As an example, as a buying broker we call to get info on a plane that has just come on the market today. We are advised by the broker who is listing the plane that we better act fast because he has people already circling and expects 5 offers by the end of the day. It does not matter if the plane is due for its biggest aircraft inspection in 3 months, the seller will not allow it to be done as a part of the pre-buy inspection. So not only are prices going up without a strong foundation in market metrics but sellers are often demanding that inspections be limited in scope.

Then comes the best part. Once the buyer has an LOI and everyone involved with the aircraft gets a better understanding of the offering the entire transaction often falls apart. Sometimes these first day offerings by the new broker have not come with verification of the specifications, review of the logs and records or even a viewing of the aircraft. This can lead to surprises once both buyer and selling broker arrive for a showing. I am not suggesting that anyone is misrepresenting the plane. I am just suggesting that we are losing the step climb. That due diligence that includes the listing broker visiting the plane in person, reading the records, building a new accurate specification sheet, and having current photos. All the tools that make for a reliable listing.

My fear is that if we as an industry do not adopt the theory of flight into our inventory segment, we will run out of lift by having too much angle in our climb thereby not solidly gaining altitude but stalling out. We all need to be very careful how we try to inject steep angle into our climb. If we do this correctly, we will see each other at the top of new solid heights.

Mesinger Pulse: Did We Get Caught Flat Footed?

Originally published as a blog for AINsight for Aviation International News on 9/3/21

Let me explain. We as a collective industry have been working to get our messaging right to understand the unprecedented activity currently in pre-owned aircraft markets. As I have talked about in many articles and webinars, it was really hard to quantify if prices of aircraft were going up or were they just flattening out. Was inventory really shrinking before our eyes to record lows or was it just right sizing based on a new demand ratio?

We are experiencing a supply versus demand ratio like we have possibly never seen. During the emerging market phenomenon that lasted from 2003 through 2008, supply of our inventory was also stressed, however the biggest difference between then and now was that in the emerging markets buyers only wanted new or like-new aircraft. The smaller, older planes did not fall into that stress.

The mantra we have been using at our company the past 6 months is when you come in as a buyer you must be patient. Of course, we might find a plane in 2 days, but it might take 90 days. Patience is a virtue. I am always assured by my clients that they can wait. Then on about week 2 of the hunt there seems to be a crack in the veneer of the patience.

What is different today is we will not see multiple planes on websites or in catalog magazines. They will trickle out one at a time and sell in days. In most cases for the asking price.  How should we feel about that? I guess it is time to be OK with this frenzied pace. What is critical is that you do not get swept up in the pace and be allowed to miss what we all know is critical due diligence. There is no way that anyone should buy a plane without a comprehensive pre-buy. There is no way to accept weak or missing records. There is no way one should not have a very proper purchase agreement. As my good friend Zig Ziglar would say, “price is a one-time thing, cost is a lifetime thing.”  

Remember this is not the wild west even though it may seem like it. This is just a pandemic reality of the largest number of first-time buyers coming into our marketspace ever. How does one best protect themselves when entering this market? Use common sense. If it seems too perfect it just may be. If you are feeling pushed you just may be being pushed. Transactions are expensive so make sure you don’t have to do them too often. Make sure you are well represented and that whomever you have chosen to represent you is capable of building all the purchase tools you need to make good choices including mission profile modeling, budgeting work, pre-buy inspection protocols. Each and every part of a complex 360-degree process must be well thought out. Do not be afraid to get in this ownership process but do be afraid to get in without smart help at every turn.

Mesinger Pulse: The Year is Flying By

Originally published as a blog for AINsight for Aviation International News on 8/6/21

Hard to believe it is August 2021. Maybe the title of the article should have been, “Can You Be Flying by December 31st?” The answer is maybe, maybe not. Last year about this time people started to get very serious about wanting to buy a plane. They also wanted it in service by December 31st to take advantage of Bonus Depreciation. The world was in the middle of wave one of the pandemic; World travel was virtually shut down; Domestic travel although also restricted was all the rage; People were buying second and third homes in the US, and the next hurdle was getting to them. First-time buyers who had been threatening to buy planes were storming in to act on the threats.

As a country, we were beginning to experience what continues today, which are major supply chain issues. Long delays were occurring in our industry on the maintenance side of things. Engines and APUs were having constant delays and setbacks in delivery due to parts not being manufactured and shipped on a pace we as a world had been used to. Other production and replacement parts were also seriously impacted. These delays alone were causing me to advise every single new client that hired us to purchase a plane, and have it in service by a guaranteed December 31, 2020 date, to not even start the process if that mandated a contingency to walk away at the end of December on a transaction that could not complete. I knew I would not have any luck writing that into a contract with a seller. In 100% of the cases, my buyers all said, no problem, we understand and it would just be nice, but not a necessity. That was smart buying! BTW these supply chain delays are still happening.

Last year at this time there was not the low supply of aircraft that developed by the end of the year. In fact, today we are at a very low point of inventory to choose from. If there is anything that might impact the final sales numbers of 2021 it will not be demand, it will be the ability to fulfill the demand. Let’s take a look at the factors that are creating this phenomenon.

First, our world is still basically shut down. Yes, it is opening up slowly but cross border work must be checked almost daily. This keeps us in the US from being able to readily import aircraft and therefore our inventory universe reliant on US aircraft. Next, the corporate side of our industry is just, and I mean just, starting to wake up. Soon I am confident this portion of our industry will start to transact and that will provide additional supply of inventory to choose from. Next, and one of the most impactful reasons that our inventory supply has gone down, is the fact that we had a record number of first-time buyers in the 4th quarter of 2020 and still today. This group of buyers only depleted our available inventory rather than contributing to the supply with a relinquished airplane. Let me explain. It is like going to a party and not taking any hors d’oeuvre or wine. You just eat the food and drink the party host’s wine. First-time buyers did not have anything to contribute back to our supply. All of these things have contributed to the short supply of aircraft.

These contributing factors will ebb and flow. They always do. Those of you who have been in our industry for years know it is not static, it is very dynamic. Demand and supply move like a pendulum. The real question is should you get into our industry now or wait? My sense is if an aircraft fits your needs now, don’t wait. That of course means you should not overpay; you should not lower your expectations for quality. It just may mean that the key word should be patience. It also means that although it could take 60 to 90 days to find the perfect plane, you should be ready on day 2! Have your legal, management and consultant team in place on day one.

Success is not an option. Just understand the factors that create success. If you want a chance at a December 31st in-service transaction, then get started as soon as you finish reading this article.

Mesinger Pulse: Are Preowned Biz Aircraft Prices Going Up?

Originally published as a blog for AINsight for Aviation International News on 7/2/21

In every “room” either wedged in the corner, hiding in an adjacent closet, or perhaps under the rug there is an elephant. In our collective industry, our elephant centers on the pricing of aircraft. As I spend more and more time on industry webinars and podcasts this elephant is always sharing the space. These opportunities to get together with hundreds of my fellow sales professionals, and other segment industry leaders, is perhaps one of the best-ever methods of sharing and learning how to address it.

Are prices of pre-owned aircraft going up? Is the scarcity of available inventory causing price hikes? Does the pre-owned market follow suit with other inflationary products that in many cases have been spurred on by supply chain issues?

Here are a couple of quick facts that often lead the reasoning behind the discussion. The overall number of aircraft for sale in the pre-owned global market space is 6.6% of the available fleet. That is reported to be the lowest availability in 25 years. Next, in the first 4 months of 2021 there have been 864 pre-owned transactions, up 36% over 2020.

I see many of you nodding your head and saying I told you so. The facts don’t lie. Prices must be going up based on just those two facts. A couple of counters to those statistics, 6.6% is still not a bad percentage of choices, even though a bit lower than you might like. And having an increase of 36% over the same period last year is a bit misleading since the first 4 months of 2020 had us all grappling with the early pandemic when most deals were unwinding rather than going together.

Some markets do have fewer good choices, so when a buyer finds that unique plane that just perfectly fits their needs, they may be compelled to pay the asking price or very close to that. I would be very careful as a seller to say, “oh that was too easy, let’s get a bidding war going and get even more.” May I remind you that sometimes the first offer is the best offer, and yes, sometimes that happens even on day one of a listing. The rules of smart engagement have not changed even in today’s market. If you can find a buyer who can really perform and you can identify their qualifications, engage! I promise not all buyers are built alike and not all can really finish as promised. Look for the buyers to have qualified representation, good legal counsel, and acts on each step as directed by the LOI, including a timely placement of the deposit into the title company. Do not lose precious time with a non-performing buyer.

So, the takeaway from this article is as follows. Do not go with the idea that prices are rising and maybe this is not the best time to buy. We as an industry do not want to create a fence sitting clientele. We also do not want to lead our clients into a seller’s market where they will be forced to overpay. That will only happen to those buyers who are being led into this market by people who are more concerned with making the sale than having the shared patience to find the right plane and the right price for their clients. Understand that patience is a virtue and you must be prepared to wait while your trusted sales professional works their market magic to find the best plane. On the other hand, be prepared to act immediately when the right plane comes along. It may be day 90 or it just might be day 2. Get all your tax planning and partner arrangements in place before you start the hunt. One thing that has changed during this pandemic is that the image of our industry has continued to be strong and in fact might even be better. That is huge for us all as we work every day to build our businesses.

Mesinger Pulse: It Is Too Complex To Go It Alone

Originally published as a blog for AINsight for Aviation International News on 6/4/21

Nothing replaces good representation in an aircraft transaction, including trying to go it alone. It seems that I hear from buyers and sellers in waves contemplating or recovering from just such a decision. We are going through that wave again right now. It is that wave that says, “I got involved with a transaction that I should have trusted my gut about.” This is a familiar mantra from both buyers and sellers who did not do the proper vetting of a sales professional before they signed on the dotted line to hire them to help with either an acquisition or sale.

What also seems to run in waves are the group of buyers and sellers who try and avoid a commission by relying on themselves to complete a transaction. There are so many nuances that ride just below the surface of a sale or acquisition that are unknown to the novice, including a deep historical and mechanical understanding of the aircraft being considered for purchase. A good broker will do proper due diligence before ever spending your money on a purchase agreement or a pre-purchase inspection; also making sure your specifications are accurate on the sale side to avoid renegotiations and costly mistakes regarding equipment advertised to be on the plane that may actually not be installed.

Today, after the 4th quarter of 2020, and the continued strong activity in many aircraft markets and segments, and inventory levels diminished, sellers can be lulled into thinking all they have to do is answer the phone, get a bidding war going and sell their plane, easy peezy.

I always say if it were that easy everyone would be doing it. Believe me, it is very complicated to enter into and complete a transaction on an aircraft. We have an internal check list at our company with over 100 separate and critical steps to complete either a purchase or sale. As much as I keep looking for that magic wand, it does not exist.

Why on earth would anyone think making magic is easy? Forget the actual aircraft and the complexities that follow that path, how about the complexity of the myriad of personalities involved in a transaction. Brokers, lawyers, maintenance personnel, company management of the buyer and the seller. The list goes on and on and if everyone is not working in concert, not only do you not make magic, you don’t make music.

I have always said we are not in the airplane business we are in the people business, people selling and buying aircraft to and from people. So, as we work to come out of this pandemic and get ourselves and our industry back out and about, let’s all remember we are in the buying and selling game together. If we fail at this juncture, we will fail to make the most of our industry right now. Buyers and sellers will get frustrated and begin to think the problem is the industry itself. I assure you the value proposition that is so valuable to us all by being able to fly to our clients, get out ahead of our competition, safely and efficiently will bear the brunt of the frustration. We must help those buyers and sellers who want a transparent and honest transaction to achieve it.

Just the awareness of the need for professional assistance is not enough. It is the actual putting into practice the principles laid out in this article. This is such an exciting time for us all on many fronts. See you on the playing field.

Mesinger Pulse: New vs. Pre-Owned Gap Narrows for BizJet Buyers

Originally published as a blog for AINsight for Aviation International News on 5/7/21

At our company we are starting to see a very positive gap narrowing between the contemplation of buying pre-owned aircraft or buying new.  It has been over a decade now since the great recession, and many buyers have developed a very clear picture of the value of buying pre-owned over new in this period. This by the way is not to say that the OEM’s have not been having great sales years. They have. This is to say that now the delineation between new and pre-owned is shrinking and I think it can be traced back to several factors. One being that the opportunity to buy really good, late model, pre-owned aircraft is harder to accomplish, and the price between the two choices is narrowing. Take the Gulfstream 550 which is a very popular aircraft with high demand and low supply. In the last few years there has been a smaller number of 550’s produced, and those have been reduced even more by the special purpose designation builds, which have been a sizable percentage of new ones. This leaves very little choice at the top. This alone can drive a buyer to consider new as well as pre-owned.

This is very exciting for the manufacturers. Of course, it can be intoxicating for the manufacturers to consider ramping up production. Good news though, the manufacturers are both very smart and have great memories. They understand what can happen by getting out ahead of your skis with production and then having hiccups in the market that result in an oversupply of inventory.

Now let’s talk about the industry sales professionals like us, serving our buyer clients correctly so as to be able to properly support them when buying new. We are often in the background with our clients as they consider the new product. No different than the choice of buying pre-owned, there is the proper choice of which manufacturer to choose, as well as which model to focus on. Mission fulfillment is typically the deciding factor. But once the new aircraft is chosen the integral pieces of the puzzle must come into play.

We must be a total advocate for the client. There is the negotiation of the purchase agreement which has its own set of nuances from a pre-owned contract. Then there is the process of spec’ing the aircraft. Some buyers will want a very specific interior configuration and options package, and will not be swayed, however sound advice on the future residual value of these decisions should be given as some decisions can have significant economic impact in the future pre-owned market. Having skilled support is critical in this process as well as the completion process to ensure that all the components play well together, including the seats, paint and avionics all being installed with the highest degree of fit, finish, and functionality. Our firm has helped many clients in this process, and I can assure you it is a value add to their bottom line.

One must choose their advocate carefully so as to be confident they have a clear responsibility in this project shoulder to shoulder with you. After all, this same advocate who helped you buy should be there with you when it comes time to resell in the pre-owned market. This advocate should be able to answer back to you throughout the purchase experience, ownership cycle, and finally at the closing table when you sell it sometime in the future. As I often say choose your partners wisely. Choose one with the skillsets needed for these complex decisions. And then let’s put on our sunscreen and bask in the sun with our OEM friends!

NBAA – Updated Forecast for Used Aircraft Sales in 2021

Below is a link to the NBAA podcast – An Updated Forecast for Used Aircraft Sales in 2021 from April 26, 2021

Host Rob Finfrock speaks with: Jay Mesinger, president and CEO of Mesinger Jet Sales; Dave Coleman, aircraft sales and acquisitions executive for Duncan Aviation; and Janine Iannarelli, founder and president of Par Avion Limited

Podcast: An Updated Forecast for Used Aircraft Sales in 2021

Mesinger Pulse: Airplanes Defy Gravity

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 4th 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 4th 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.

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