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Mesinger Pulse: The Sign Says We Are Open For Business, But Are We?

Every week I join two or three web events. I now know what everyone’s home office, kitchen and living rooms look like. I know what everyone’s favorite casual or Tommy Bahama shirts look like. I know what we each look like with beards, mustaches and longer hair. I think we are all itching to get back to work.

The topics of the events are all pretty much the same. What is happening in our respective businesses and how do we feel about our current and near-term future? We are all reporting on increased call activity. Some are looking for the best “Off-Market” planes, whatever that means! Some are struggling to find the plane that will capture the imagination of a prospect through pricing. Others are trying to create the best set of facts to motivate a prospect off of the fence.

So, are we open for business or is our imagination playing tricks on us? I think we are involved in an amazing scientific experiment and are possibly only a handful of weeks away from knowing the real meaning of opening back up. The experiment is about us as a world grappling with the reality of social distancing, masks and the right mix of hygiene in conjunction with the need and desire to open up economies. As we see states and cities and restaurants and bars and bowling alleys open and create the right mix of clientele, we will know far more answers and be able to really shout, “We are open for business!”

Until this experiment has a few more weeks of results we can only dream and imagine what we will look like for the Summer and the Fall into Winter. If we can adjust responsibly, more and more normalcy may return. The idea of travel may begin to embrace the confidence of the public. I know that confidence will come back and all the increased calls we are starting to have will translate into offers and sales.

As I am sure you are all experiencing, COVID-19 is adding new challenges as well as new creative actions. Visiting aircraft being considered for purchase and moving the aircraft to locations away from their home base for pre-buys, all require new solutions to what are necessary actions for a sale. We will get these new protocols in place and they will be easier every time we try them.

So, no gloom here just the reality for us to be open for business and encourage our clients to get back out into the skies will depend on a semblance of normality returning. The normalcy will return if we all use the facts and follow the leads. We all have a responsibility of turning the open for business sign around in our windows. We all can claim to be a part of the successful opening. Please join in this effort to turn the sign around and get our transactions back up, keep the values of our aircraft as intact as we can, and get back to enjoying the success we have all had a taste of.

Soon we can shave, grab that coat and tie and turn the baseball caps forward. It will be great to meet my peers in person rather than on Zoom.

Mesinger Pulse: Heightened Level of Sensitivity

There are so many articles that I am receiving about the impact of COVID-19 on every facet of our daily lives. I do not want to distract or add to those very important bits of input. I do want to create a dialog that takes all of these impacts and relates it to us and our industry. This set of events is monumental. There is a word for this type of event that catches us all off guard. It is called an exogenous change. In an economic model, an exogenous change is one that comes from outside the model and is unexplained by the model. None of us were prepared for COVID-19.

Hurricane Katrina, although huge and life changing, was always expected over time. In 2008 the economy we were living in, with cheap money and lower barriers to entry for borrowers, although maybe not foreseen at that moment, was what we should have all expected based on the real fundamentals at that time. The effect of what happened in 2015 when oil went from $150.00 per barrel to $25.00 per barrel was not foreseen but the impact of that should have never been a surprise.

One of my very best friends is an economist in Denver. His firm Harvey Economics published their spring newsletter. It was so impactful that I have plagiarized parts of it below. You will note his words because I have put them in quotes. As aircraft professionals we serve our industry in the capacity of consulting as well as brokering. That can put us on either side of a transaction.

Today I want to speak about being on the buying side. This is what will be an especially complicated side during this Pandemic and the future months to come. Buyers, like sellers, will need to adjust to a set of market conditions that are not yet set in stone. They will be evolving. Usual and customary practices are very likely to change. Like so many areas of our society, new norms will abound. Not just the price we pay or the price we accept for the aircraft. Viewings of the planes must contemplate social distancing practices, aircraft movements to inspections must consider possible quarantine periods for the crews, and the length of time for scheduling of inspections or modernizations post-closing may be extended. On and On. Changes may come up to processes we are not even considering yet.

We must all act with a heightened level of sensitivity. I wrote last week about “reactive” pricing versus “responsible” pricing. That was the beginning of this continued discussion. If we are to, as buyers, get a deal done we must act with sensitivity and responsibleness in every piece of the process beginning with responsible offers. If you are afraid of markets tumbling then do not go in and just throw a dart at the wall. Sit on the fence. If you have confidence in your aircraft professional who is guiding you then build your metrics, consider all factors of the aircraft including future investment, pedigree, and mechanical condition and set your price and go after the plane. I assure you there are not that many buyers so if you set yourself up correctly and you are willing to act accordingly in this environment then go for it. Go into the market with confidence and sensitivity towards the seller. If you come into this market as a bully prepare to lose the plane you want. Be sensitive to the fact that sellers will respond best to buyers who do not talk about making multiple offers, or who come to the table with just an LOI or “would you take”, In today’s environment consider including a full contract to contemplate with the offer and already have the deposit in place at a title company. Be real, be thorough with your process. Show compassion and sensitivity and you will be more successful than not.

Now to quote my good friend: “The foundation of our economies, local to worldwide, are composed of simple transactions of one party selling or trading something of value to another party. The number, speed, and nature of those transactions determine the size and health of an economy. When these transactions recently slowed to a crawl, it was as if blood had stopped flowing in our economic body. Having spent much of our adult lives on the topic of impacts, you may ask what will be the socioeconomic impact of all this? Again, we have no models or past experience to accurately estimate this unknown future.”

The Mesinger Jet Sales team is charging forward on all cylinders. We are here for you now and throughout this pandemic, as we all adjust to this new world. We wish all of you a smooth transition and good health.

Mesinger Pulse: Taking Pedigree to the Next Level

(This article is a reprint of my February 2020 blog post for Aviation International News’ AINsight series)

In the business aircraft broker community, we bandy about the word pedigree as a badge of honor. We certainly feel as an industry that value is added when the right pedigree is associated with an aircraft offering, including as fewer number of owners since new, location of operation, records kept with keen detail and completeness, who has been maintaining the aircraft, and any history of repairs. These all stack up to create the story around pedigree.

I started to think recently that pedigree needs to be broadened when considering the overall value of a transaction. Just think for a moment of the other direct and indirect players involved. After all, I have always said our business is more about the people than the equipment.

So how should one begin to rate the pedigree of the rest of the participants in a transaction? What weight would you give those participants in a deal structure? With what willingness would you want to bring a great client into a group of people making up the structure of the transaction that might not be good actors? Let’s talk for a minute about the elephant in the room: representation pedigree.

There is a phenomenon that occurs whenever transactions get reduced due to market slowdowns. Many actors who act as brokers and acquisition specialists begin to operate in what can look very unprofessional and create terrible experiences for those involved, given the seriousness of the investments. They should be handled with a seriousness that leaves everyone in the transaction feeling it was a professional, ethical, and transparent process.

Today we are internally beginning to actually rate the representation pedigree along with the aircraft and ownership pedigree. As we stack up aircraft to consider for a client in an acquisition project, we give a score to who is representing the aircraft for sale.

If we know that the character and reputation of the broker is suspect, we might very well take an otherwise capable aircraft for consideration and footnote for our client discussion that reluctance to approach this offering based on what we know could complicate and even destroy a successful acquisition. We also use the same rating system when we are approached by a broker on the buy side that comes to us with an offer on an airplane we have to sell. Never in all my 46 years in this business have we taken this added step to identify what could be a problem transaction, in advance of the problem, just based on the reputation of the person or company representing the other side.

Some of the pitfalls to recognize can be a lack of depth in knowledge of the equipment that is being represented for sale. This occurs when the hired representative does not ever travel to the aircraft they have for sale. They have not read the records or do not even know what records exist.

Another giveaway of a problem transaction could be if the other side asks our side to pay them. Making matters worse, they will not let the requested payment amount be disclosed in a contract. One thing for sure we know from experience is when the other side needs to be paid by our side, they have no real relationship with their side.

And when things get tough in a deal and usually in every deal at some point they do, that person who is not getting paid by their side will have no benefit to the transaction to sort out the rough spots should they occur. Is it just me or is it getting crazier out there?

Mesinger Pulse: A Rose By Any Other Name

Like many of my aircraft sales professional friends I had a good number of calls from people who, with days to go in 2019, called to ask, “do we have time to buy a plane yet this year?” They were motivated by either year-end tax benefits, but even more so because they were bombarded by eblasts with subject lines that touted amazing year-end deals. I assured my callers that if these opportunities were not sold by year-end they would not go up in price the next day as we go into the next year. In fact, they could be even better deals.

The callers even suggested that one way to be able to buy so quickly would be to delay a pre-buy inspection to post-closing with the seller putting some money into escrow to cover discrepancies. In a few calls the buyer even suggested no pre-buy at all if the deal were “sweet” enough. To me both of these suggestions were non-starters. In the case of a post-closing pre-buy where a seller may leave money in escrow here are the problems. First, what if during the pre-buy you discover a problem that would make the plane have a huge value loss and by then you own it. For instance, the inspection reveals corrosion in an area with a fix that created a major repair and to compound that created a non-standard reoccurring inspection protocol. Even in a hard deal that set of circumstances would provide an out for the buyer. The next problem would be defining well enough in a contract exactly what will qualify to be paid for out of escrow. The buyer would have lost all their leverage to persuade the seller to cover that rectification once the plane has been purchased. A real recipe for disaster.

The idea of no pre-buy at all, even at some reduced purchase price, can also lead to huge surprises and leave the buyer with a plane that was never contemplated or would have been completely out of the usual and customary method of due diligence and good buying habits. Make no mistake, having a buyer call and suggest an acquisition completed in days is music to my ears, however it is a song that one will quickly tire of.

This process of quick completion can absolutely work with a new aircraft purchase. In that case success can be more certain.

Now back to the title of the article. A rose by any other name. As I mentioned in the opening paragraph one of the motivations for a buyer was the attraction of the pricing based on the subject line saying call now for an amazing year-end deal. One of the companies that were running that subject line at year-end, and there were many companies doing that, started the year with the same plane being advertised only now the subject line read, “call now for New Year amazing deal”.  

So the idea that the year-end deal would be better than the same plane that did not sell at year-end being available one day later is just not a solid reason to cast out smart buying habits and jump into a bad deal by missing the right steps to buy such an expensive asset. Take your time, don’t get lured into short circuiting process and I assure you the net result will be better pricing, eyes wide open process and clear skies.

Want to talk more about a right way, call me. Let’s discuss this. My phone number is 303-444-6766!

Happy New Year and I hope to bump into many of you in person or at least talk soon.

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