Mesinger Pulse: Finding the Value in the Numbers
Originally published as a blog for AINsight for Aviation International News on 5/5/23
There are some changing realities afoot in our aviation world these days including higher supply of inventory, prices coming down from frenzied levels, increased days on the market, and higher costs to operate. In fact, it could be inferred that the higher supply and price reductions are driven in some part by the higher costs to operate.
As a seller, the smartest play is to be well advised of market conditions, market drivers and try to capture an opportunity to sell without the last two years’ bravado.
As a buyer, although in no way should this market be considered a buyer’s market, it is no longer a seller’s market. It is a very healthy balanced market without the seller’s mandated transaction process of little to no due diligence on the part of buyers.
Over the last 2 years, many first-time buyers have entered our world without what might have been a full understanding of the cost of operations. Many were very low-time users who might have been better served buying fractional rather than whole aircraft. They were possibly lured into the ownership play by operators dangling high charter use for their planes, suggesting a greatly reduced cost of ownership with this added revenue. I always instructed my clients that until they had use of the aircraft of between 200 and 225 hrs. annually or unusual circumstances for the ownership, the lines do not cross for whole aircraft ownership. Many of these new buyers had less than 100 hrs. annually of use. They will be most impacted by the considerably higher costs of operation due to inflation.
For instance, program costs for engines and APUs have gone up double digits this year. Pilot salaries have gone up considerably including the benefits needed for retention. Less availability of hangar space has led to higher costs. Fuel is always a moving target and thankfully off its peak high price for now. Those of you who derive value from ownership that cannot be debated will of course see and feel these increases. They are real. However, you will not question continued ownership like those who are on the fringe for justification of ownership. In fact, this fringe group will contribute to the added inventory that is being put up for sale. These added costs that cannot be passed along must be borne by the owners. Charter rates cannot be increased to match the rising costs dollar for dollar. With charter hours inching down from their all-time highs of the past two years, the opportunity that was painted to prospective buyers may also be diminishing. This will apply even more pressure on the fringe owners. Our industry is due for a reset. I still believe the landing is a soft one. Balance is a great thing and should be welcomed by us all.
I included the word value in the title of this article because I want to stress the high value of business aviation. Getting out ahead of your competition and in front of your client and/or sharing the world with your family are all high values of aviation. We, as an industry, must continue to drive the value proposition, keeping the mantra at the forefront. Using aviation for all the right reasons is still a wonderful tool. It still drives commerce and makes long-lasting memories. We have one of the greatest safety records and can boast about the efficient and sustainable future we are creating as an industry. Enjoy.