Mesinger Pulse – “Empirical Data is the New Spaghetti at the Wall”
As our industry has evolved over the years, so much has changed and yet so much has remained the same, until now. I believe that this great industry that we all work in has struggled for years over the best way to accurately capture residual loss and valuation of our fleet. We have so many moving parts to this equation that are only growing more complex. What started out as an industry based on handshakes, guess work and the idea of prices sometimes up and sometimes down has matured to an industry of complex International transactions, out of balance supply and demand ratios, pricing instability and a need to finally provide clarity and insight like never before for both buyers and sellers.
With so many points of data to consider including supply levels, uniqueness of each aircraft with respect to configuration, cosmetics and varying levels of avionic upgrades, an aging fleet still actively in service, quarterly residual loss rates, recent transaction intel, it is no longer acceptable to guess about the correct asking price or price to offer for an acquisition. Empirical data is the new spaghetti at the wall. There has never been a very reliable place to find the aggregation of all of this information. Certain gathering bodies join some numbers together and others join others. In fact, it often seems random and out of sync with what each of us feel about the markets we are actually living and operating within. I have always believed the system of gathering and reporting to the guides was flawed. So many of us have confidentiality agreements that prohibit us from reporting actual sales numbers to the books. In fact, in any given quarter with such few transactions in each category segment, compounded by year models within those categories, made even more complicated by a sales number possibly not even representing the actual condition against the norm, the outcome of a valuation cannot possibly be reflective of the market segment.
Our office has been gathering comprehensive details about aircraft in a myriad of markets for years, including transaction details from peer to peer relationships in the industry. We have always had a focused and dedicated division of our business effectively connecting all the relevant dots and presenting that analysis to our customers in easily digestible formats. It is not good enough to just say, “well the two reporting books say….” Empirical data gathered from hard work and active involvement in aircraft markets on a daily basis has given us an edge that is creating analysis for our clients resulting in fewer days on the market and maximized returns for our sellers and much better buys for our acquisition clients.
It is time, with such huge dollars being at play and so many factors shifting daily, that our industry strives for accuracy in valuation analysis. Having just attended the NBAA BACE in Orlando, I have never before heard so much conversation and new products introduced around valuation and the smart calculation needed to provide stability. I admit I also hear polarizing discussions with some groups trying to force a market view that shows pricing going up. While the opposing side continues to call it what it is, a high supply market with inventory levels out of balance due to the slowdown in the emerging markets, an inability for manufacturers to change their production levels on a dime, and an aging fleet that still proves to be safe and reliable with upgrade paths which allow for much lower capital investment than trading up in year model and iteration of product.
There is no substitute for the hundreds of calls per week our office makes into the market and the crunching of numbers and merging of Intel. Our industry is on a Warpath to solving these questions. We are going to all be stronger and better with the use of empirical data to interpret more intelligently with more logical outcomes. Stand by, Magic is happening.