Originally published as a blog for AINsight for Aviation International News on 8/5/22
Remember when you woke up in the morning and before getting dressed you watched your local weather person forecasting the days’ weather? Watching for the temperature and any rain, or snow. Then discounting the forecast slightly to choose your day’s attire. There can always be that slight variance between what is predicted and what really are the day’s conditions.
I must say that even with that slight variance, the weather person was more accurate than any of our prognostications about our aircraft industry. I watch every indicator that should be guiding the economics of our industry, such as recession fears, higher interest rates, higher gas prices and geopolitical unrest. If we were betting people, any one of those would cause a market correction. Any one of those alone should bring an arresting halt to the demand we are seeing. Imagine all together they are not stopping the demand. Don’t forget we are getting ready to get back into what could be a year-end buying frenzy to take advantage of the last published year of 100% bonus depreciation.
I, like all of you that are reading this, have the privilege to work with very smart and very successful people. Very few of those I work with, albeit knowing the wealth that is out there, believe that this demand can continue. None of them really think that the value of aircraft will just drop and fall precipitously. They mostly believe that the demand may peel away, days on the market may be longer, the bidding wars will end, and we will begin to look like the normal days of pre-pandemic. No crashes but no rises.
This balancing effect will be a welcome change for what has been a gangbuster for two years in unprecedented demand and rising aircraft prices. Some peel away of demand will automatically bring back a welcomed better process. With a bit more supply and a bit less demand, sellers may be forced to be more normal in their acceptance of the transaction terms that have kept our industry safe, free of mechanical surprises, as well as maintaining a solid foundation of value to the assets that are being purchased. Bottom line, back to the days of the correct pre-purchase protocol that is right for a purchase of a complex piece of equipment that does not have the purchaser taking on pre-existing conditions of the aircraft they are buying.
I had a good friend of mine, Steve Varsano of the Jet Business in London, say on a recent webinar that if you believe that this unruly demand and slight supply number can last, you must have drunk the Kool-Aid. He, like most, believes this cannot last in its current state. The question for all of us is how will the landing be? Betting minds are pulling for the soft, balanced landing. This will leave us all taking deep breaths of relief as opposed to gasping for air. After all, no one really wins when one side or the other claims a victory because the pendulum lands squarely pegged on their side.