Mesinger Pulse – We Are Not Happy Until You Are Not Happy
Have you ever felt like that is the slogan for some service providers in the world? Do you feel like some work and work at making you unhappy rather than happy? As if they come to their job every day just to make their customers mad! Believe it or not I wonder if some owners and sellers of business aircraft think those of us who price aircraft for sale subscribe to this belief.
In today’s world of high supply and shrinking demand, in great part due to the emerging markets languishing, the price instability might seem like a conspiracy theory to push prices down. I have always said if I could really control prices I would make them go up not down. I promise the market is not in a free fall, but rather in a very predictable decline of what appears to be 8-10% per year residual loss. By the way this begins from year one as you fly the new one off of the lot.
If you watch the daily on-line updates or print publications that come out weekly or monthly one could quickly begin to feel we are in a doom and gloom scenario. In the last month all of the manufacturers published their first quarter reports, with most reporting sales down year over year with go forward predictions of continued declines. It is true sales of new aircraft are down. Remember, the OEM’s had planned to produce and sell aircraft to what appeared an insatiable appetite around the world. Many of these countries had relatively small numbers of turbine aircraft operating for personal use and the need to satisfy this demand sent all the OEM’s scrambling a few years ago to keep up. It takes years to build up that infrastructure and supply and it will take years to scale back. This scaling in both directions sent shock waves through our industry.
In 2003 when the markets began a never seen before growth spurt, the idea of the then limited supply of new or like new planes created significant premiums on their backs. This lasted until the global collapse of this growth in these emerging markets starting in 2014. It was the end of 2014 that the price of oil began to drop. In 2015 the drop rate was increased and most oil producing countries as well as oil producing companies and many companies that provided goods and services to these countries and companies pulled back capital dollars. That meant the almost immediate halt to purchasing new aircraft.
This reduction or elimination of capital expenditures continues today. If you compound the price of oil and the collateral damage done with the austerity and anti-corruption legislation in China and the economic sanctions placed on Russia, you quickly see that North America is the bright spot for aircraft transactions. The problem is North America is not a large enough market on its own to support the entire world supply of aircraft.
That information hopefully helps to shape the reason for the high supply of aircraft available and the diminished demand. The good news is that even though the OEM’s sales are down with a predicted continued decline in sales for the next few years, the selling of pre-owned business aircraft is still a viable market, albeit mostly in North America. This is much more positive an outcome than the 2009 standstill globally for sales.
It does however keep the residual loss rate increasing by 8 to 10% annually. In fact, I do not see that trend ever stopping. Today, given the aging fleet, increased inventory due to an emerging market paralysis and other global uncertainties, as bad as it might seem, at least it is predictable.
So back to the title, “We are not happy unless you are not happy.” Nonsense. We are never pleased with a service offering that cuts against our clients. Our industry is filled with wonderful professionals who care greatly about their clients being happy. Listen carefully to your trusted sales professional and trust the numbers.