Mesinger Pulse: Are There 5 Buyers Instead of 10 Buyers?
Originally published as a blog for AINsight for Aviation International News on 7/1/22
If inventory remains in short supply, the market will feel the same regardless of if there are 5 buyers rather than 10. Said differently, we as an industry could be being fooled about demand. It could be shrinking, and we may not notice until it is too late, because the supply side of the equation may mask the reality. Only if supply increases will the real demand come to light, of course. In real estate, demand is reported to be shrinking, due to higher interest rates. Inventory is rising in some markets and home prices are being reduced to compete. It seems that aircraft prices are not yet affected by the factors that may be affecting home prices.
Our industry may be a little more insulated from rising interest rates and the talk of a recession because of the economic level of our clientele. Aircraft transactions have always been a lagging rather than leading indicator of economic health, which may be a curse rather than a blessing. We have found ourselves having harder landings than many due to the feeling of good health until it is upon us all at once. I can remember in the years leading up to 2008 brokers saying to each other, “this cannot last!” Yet we went on day to day acting as if it could. Smart minds should dust off our memories and think back to those days of old.
I am not suggesting that we predict doom and gloom. I am just saying that paying good attention to the number of calls we are each getting daily on the inventory we have for sale would be smart. Are there a few less calls each day? Does it seem like real buyers may be a bit fewer and farther between? Might it be a bit harder to get those full price offers, much less exceed the full asking price?
None of these contemplations are doom and gloom. They might just be indicators that there could only be 5 buyers rather than 10. By the way, we can all live with a few less buyers. In fact, our industry on way too many levels has had to live with what may have been too many buyers. We have endured pilot shortages, hangar shortages, maintenance slot shortages and other supply chain impacts. We have felt the frustration caused by bidding wars and ruffled feathers. We have experienced unpleasantness that leaves us all feeling exhausted by the process.
We actually have another period coming up that will be very interesting and give us all some additional vision of our future market. Year-end bonus depreciation. Starting in August, we should start hearing from prospects that they want a year-end deal so they can qualify for 100% bonus depreciation. We will likely still be suffering from short supply, so if the demand kicks up like the last two years, we may be in for another round of frenzied activity. On the other hand, if we experience a lighter amount of prospect calls and fewer people calling to capture a year-end deal, we will have another bit of demand input and perhaps see more signs that there are 5 buyers out there rather than 10 for each plane. I am so hopeful that we as an industry can come in for a soft and gentle landing. We shall watch and see!