Mesinger Pulse: Is There a “Glass Ceiling” Up There?
Originally published as a blog for AINsight for Aviation International News on 3/4/22
I would like to discuss the “glass ceiling” regarding the price of aircraft and other areas of the business aviation industry. Let’s start with the ever-escalating price of preowned aircraft and the biggest question: will we start to see these bump into a glass ceiling and begin to be held at a plateau or even pushed back down? And when this occurs, will we have a gentle landing or an abrupt change?
Remember 2008, when preowned inventory went from about 7 percent of the available fleet for sale to 18 percent practically overnight. The difference in the gentle landing or not will largely be because of such a drastic change in inventory very quickly.
Currently, my sense is that demand will not subside. In fact, I am already watching demand outlive the pandemic.
My sincere hope is that we solve the escalating pricing with more supply gradually. This will result in stabilization of pricing without steep drop-offs in values and keep pricing levels from driving up one sale to the next. Then we can begin the traditional annual depreciation of 7 to 10 percent that we are all accustomed to for equipment in a more balanced market.
One can always say that other traditional causes for abrupt changes in values result from major geopolitical events or global meltdowns. I hate to remind you that we could be in that geopolitical period as I write this.
The next big pricing conversation should be around the phenomenon of personnel shortages and added costs to recruit and retain. This is for not just pilots but also all other flight department personnel such as maintenance technicians, schedulers, and dispatchers.
In fact, I hosted a webinar last week and had the CEO of one of the leading recruitment companies on, and the discussion circled around a central theme: when is enough, enough? When will salaries and benefits settle down?
The answer to that is of course driven by both the airlines’ constant recruiting and a large swath of the aging personnel retiring, leaving the available pool ever smaller. As an industry, we cannot just flip a switch and have replenished personnel standing by. It takes years to build this bench.
Jet fuel is another segment experiencing cost escalations. This one really rides on the back of many global supply and geopolitical concerns.
The industry seems not to be noticing this increase as closely as the price of aircraft or crew, but there will be a price that will come about, and then the same question may be asked: when is enough, enough?
What price per gallon will finally get the attention of the operators, leading flying to trend downwards? Fuel is often the most expensive variable cost for an operator and many of the first-time buyers entering the market may be in for sticker shock on this line item.
Another impacted area is the modernization and maintenance side of our industry. This area is most impacted by supply chain interruptions. This adds inflationary pressure, causing costs to rise and I assure you will lead to operators demanding that enough is indeed enough. Enough in delays, as well as costs associated with the events.
Are we as an industry trapped in this situation? To some degree yes, and yet hopefully the resiliency of our industry will allow us to manage the challenges and associated costs. Attempting to control what we can might help us steer this ship to a more sustainable reality.