Mesinger Pulse: Lower Inventory Is Not A Shell Game

Ever walk down the street in New York City and see a man with a card table set up on the sidewalk? Three shells and fast hands, rolling the pea or small rubber ball around between the three shells. As you watch, your confidence grows, and you are sure under which shell he is hiding the ball. Then you bet and point at that shell only to be wrong!

I assure you reduced amounts of aircraft for sale is no shell game. Aircraft are not hiding from us, they just really are not there. How can you validate this erosion in available inventory? Start simple. Just pick up the last couple of months of aircraft catalog magazines. A quick flip through will reveal fewer paid pages of aircraft for sale. Those pages that do have aircraft listed in many cases say “Deal Pending” or “Just Sold” or “Coming Soon”. Then more and more pages of either editorial filler or literally just fewer pages in the book. We ran a report at the first of this month of the number of new jet aircraft listings in AMSTAT since the start of the year and there were 304 fewer than the same period last year. That is a significant number of aircraft that we as an industry do not have to represent.

What could be the cause of these diminished inventory levels? This is not a new question that we as an industry grapple with and there could be myriad of reasons that seemed to all come together at the same time. From the most positive position, the economy is better globally and owners are finding that their need and utilization opportunity is increasing and their current aircraft fulfills the mission just fine. This puts the brakes on what might have otherwise been a reason to sell the equipment or transition to something different. Use discussions ebb and flow with economic conditions and is nothing new. This is more of an adjustment of timing rather than a discussion about capital expenditures to transition.

Regardless of the reasons, the outcome is fewer aircraft to sell, and thus potentially fewer aircraft to buy, resulting in a potential flat period in transactions. I am smart enough to know that these kinds of phenomena do not last. In 2008-2009 it was a game-changing situation. No one knew what tomorrow would bring. Every day seemed to be a new economic tragedy. This does not feel like that at all. From a supply and demand perspective let’s talk about the effect of this in an otherwise healthy market period. After all, more balanced supply is not a bad thing. If you are a buyer, what should you expect today? You should expect that on day one you may not just be able to walk out of your door raise your hand and say “Taxi” and have a driver veer across the street and viola, your ride is here.

I always tell my buyers to be very proactive. If you are really ready don’t use words like “no problem, I am in no rush.” By the way, I would never let a client get in such a rush that smart decisions and an abundance of due diligence are avoided. I mean for them to go and shout it to the world that you are a buyer. Do not be reactive to sellers that you hear about through third and fourth parties that their plane is for sale. By then you will have missed the opportunity to have only one degree of separation between your client and the aircraft. True it may take a bit of extra time to find the plane, but you will not be disappointed.

The other obvious issue with finding a plane in an environment with less supply is that generally the best planes have sold leaving at that moment the less than best. They may have higher time, less stellar pedigree, over-priced or require importing from another country and regulatory body. I am always advising my buyers to not make silly compromises buying planes that are not perfect. Patience is a virtue. The right plane, checking all or most of the boxes will be found by us. The trick is to be able to be fully prepared to be the first one to say yes when you spot the plane. Remember, you are not the only buyer looking for that deal. I always take the time in advance to prepare. Work with your aviation attorney to have an LOI ready. If there is financing needed work with your lender in advance to clear some preliminary hurdles. Get your tax strategy prepared. Be proactive in not just the hunt but also the process.

Pricing in a balanced market can also be challenging. It may be a bit firmer. Be smart enough to not lose the best plane thinking you are overpaying. If you have employed an aviation professional listen to their advice. Trust them and allow them to guide you to the deal. You don’t want to overpay, yet you do not want to miss a great buy in a balanced market with all or most of the boxes checked.

So, don’t bet on the shell game, bet on a winning acquisition that is abounding with transparency and certainty. That is about the people and the plane.