Mesinger Pulse – As a Buyer How Should You Try to Influence the Price?

Everyone likes to have a hand in influencing the purchase price of an aircraft. The Sellers always want to point to a rebounding market. They are focused on their particular aircraft’s pedigree and mechanical integrity and always see the glass as half full. The Buyers are always focused on the high supply and lower demand, and are quick to point out that given the high supply, pedigree and mechanical integrity are abundant and might not add as much value as a seller would hope.  I believe both can be correct and that is why typically a meeting of the minds on middle pricing ground is what usually occurs.

I am writing today about the myths and truths regarding pricing, first from the buyer’s perspective. After all, as it is said with the Golden Rule: The one with the “Gold” rules. That may be one of the myths. Just because you can afford to buy a plane, you do not get to set unrealistic pricing models. And, if you can afford to buy you should be sure that you don’t just buy a cheap plane cheap. You are not rewarded for buying the least expensive plane but from buying the best plane at the smartest price.

The buyer cannot just put on a blind fold and throw a dart at the wall and declare that where it sticks is the right price for the plane. They must endeavor to determine the right price using a combination of research, interpretation and common sense. We work daily in our office to look closely at market segments. We do not do this work in a vacuum but rather envelop market intel on the collateral markets to the target plane as well. This gives us the overall market view. We then need to adjust this view by weighting the financial benefit of a specific aircraft within the chosen segment. Pedigree, hours, programs, mechanical history.

Next comes the interpreting. Since there is no real recordation body to capture actual sales prices, it is the constant calling into the market, talking to brokers and sellers that fills in the gaps for sales prices on recent sales. By the way, any prices gathered that are over ninety days old are probably not relevant today. Things are moving quickly in some markets. The interpreting comes when you find that buyers say they paid less and sellers say they got more. Seeking out the reality is where the relationships and skill as a researcher come in. Common sense is being able to sniff out the complete pricing picture such as maintenance handled as part of a pre-purchase inspection and who was responsible, buyer or seller, or possible premiums paid by a buyer for a unique financing structure. Put all this intel together and one begins to see how the buyer should work to correctly influence the market with good solid offers. These offers will no doubt be less than a seller would hope for, yet in a range that between a willing seller and a willing buyer gets a deal done.

A quick visit back to the Sellers logic. The thought of a rebounding market where prices will start to go up rather than down reminds me of an article I wrote a couple of years ago about flat being the new up. In that article I said that if we could just have several quarters of flat pricing rather than downward trends we could claim that as a recovery. Let me amend that discussion to say that if we could just have several quarters of predictable residual loss, we could call that a recovery. The sellers need to remember that before there would ever be a rebound in prices the market would have to stop going down. My question back to sellers and owners when asked to speculate on when the market will go up is, go up form where? The predictable part of the residual loss rate would mean that the only downward trend in pricing would be the agreed upon seven to ten percent annually that the industry embraces

Our market today is active yet limited to basically North America. The paralysis of the emerging markets has put this recovery once again on the backs of a smaller than global buying market. Over the last many years the OEM’s have produced planes to fulfill the appetite of a much larger market. The is no reason to believe that this globalization in our industry will not come back, just not in the next few years. So when buying today it has never been more important to understand all of the offerings available in a saturated market and how the pricing is affected by pedigree, mechanical history, cosmetic condition, avionic upgrades, not to mention aircraft to the left and right of your target. Go in with eyes open to the true annual residual loss and buy when the time is right for your needs.