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.