Mesinger Pulse – Too Much, Too Little, Too Late, Just In Time

A lack of stability in markets always brings out the most interesting approaches and opportunistic challenges in the valuation process. In the last few weeks I have had several instances that have reminded me of these challenges from my experiences in previous unstable markets. Let’s take the title in the order it was written.

Too Much

This is when a seller decides to put their aircraft on the market and is not willing to embrace a market reasonable asking price or a market reasonable final sale price and simply expect too much. Often a misconception occurs when a seller believes the value of their plane has some connection to what was paid, what was invested or what their friend sold theirs for. Or even worse the seller believes they will find the one buyer who will be willing to overpay regardless of market metrics. What is actually most important is what was the very last one that sold in that category and how much did it sell for, adjusted to match the criteria of your aircraft by equalizing the year model, difference in airframe time and equipment. In our current supply side environment if you are looking at comps from 90 days ago you probably are not using the best intel. Markets are changing quickly as sellers become more and more anxious about not missing the next sale. So if you price too high and ask too much real buyers may mistake you as something other than a real seller. They may feel you are not advised well or do not understand the current market. This could cost you a sale and by the time you wait for the next buyer to come along it will cost you even more due to what will assuredly be a lower price at a later date. I have written often about what is a new normal for residual loss rates which are between 7-10% annually barring any unforeseen global political or economic shifts. In today’s world those shifts seem to come daily! So don’t be one of the sellers that have to realize they asked too much, missed sales and found out you were too late to recapture yesterday’s market value.

Too Little

This is the exact opposite but is also an occurrence in a supply rich volatile market environment. You prepare to make an offer on a plane and take the approach that whatever the seller is asking or the market is representing itself to be you are going to just offer significantly less because it is continuing to go down. Typically, you or your trusted aircraft sales professional has done the market research and have focused in on a very short list. This short list is comprised of the aircraft that stand above the complete list of available inventory and would be options you would be happy to end up with. Then you look at the research, shake your head and say offer this. This is a number that has no association to anything other than an opportunistic attempt to pay significantly less than the real market will bear. I always say when helping buyers we don’t want to buy a cheap plane cheap, we want to buy the best plane at the best price. There is a difference. So if you have taken the time to work through the available aircraft and really identified the best plane for you, why act like you don’t care if you buy it or not and later have to settle for far less plane? Sure you might pay less later since you know they are going down but why pay less for less of a plane. That is another big difference. I always find the slicing and dicing of the available inventory in every segment a very interesting exercise. With the amount of available inventory on the market here in North America it is possible to eliminate the planes based and operated in far off parts of the world or those that have a history of major damage. Next eliminate those planes that are not configured like you want, with a final elimination for those that are obviously overpriced, and you end up with a pretty short list of aircraft. With the amount of aircraft available today you can often get many features and upgrades installed, for much less than one hundred cent dollars, paid for by the seller with their hundred cent dollars during the course of their ownership.

Too Late

Don’t miss the value of the first plane on your list. If you offer too little you are very apt to be perceived as not being a real buyer which is just as bad as being perceived as not a real seller on the flip side. And it will be too late. You will almost find yourself feeling as if you are bidding against yourself if a seller just rejects your offer out of hand and you want to come back with a new offer without the benefit of a counter to help shape the discussion going forward. Don’t lose track of why you entered the market to buy. You wanted this important business or personal tool for a reason!

Just in Time

Bottom line, trust your partners who you engage to consult and execute on the transactions, trust the numbers. Don’t expect too much when you try to sell based on all the input. Don’t try to pay too little and miss the best plane and most importantly as a buyer or a seller don’t be too late, the moment is now. The parade is moving and it will pass you by. Be just in time!