Mesinger Pulse – “Now You See It, Now You Don’t”
I promise this is not going to be an article about magic tricks or sleight of hand. This is going to be an article about tangible pricing that you could have seen just a few months ago, that now has disappeared. It did not disappear only to reappear in a later part of the show. Unfortunately, in most cases because our markets are still unstable, the next price you see will almost always be less than the last price. I have seen many reports lately that speak to increased asking prices and less inventory to choose from, which in some markets is the case with respect to high quality options available. But increased asking prices are almost always as a result of a seller entering a market and thinking they aren’t in a rush and want to see if someone just may pay more for the plane than a truly educated buyer would offer. What I also see every single day though are the eblasts that come across my computer or phone that say “Must Sell”, “Drastic Price Reduction”, or “Call for Important Pricing Information”. In fact, since I have been writing this article for the last 15 minutes, I have had three of these notices.
I thought it might be interesting to break this down to see where these pricing pressures are coming from. First, I think it may be time to discuss what has been a segment of the market that seemed vibrant and defying logic but is starting to show its limits, and that is aging aircraft. Those airplanes that are 20 to 25 years-old and include the Hawker 800’s, Lear series and older Citations, even the Astras. I am watching these inventory levels rising and prices dropping at even greater clips than in past quarters. Factors at play include increased maintenance costs, obsolescence of parts and product support. It appears as if this attractive entry level segment is truly starting to diminish in appeal and the 2000s-vintage aircraft are the desired entry point for many buyers. Of course, as the lower end of our aging market goes down in value there is some pulling down of those planes just above them but not at the same exaggerated pace. As we get closer to the 2020 US avionic mandates the idea of investing sooner rather than later is hampering the stability of these values.
Just above these planes by segment are those that are in the 12-15 years-old category. These planes no longer have warranty and in many cases have been used by fractional companies and are starting to be released back into the resale market. These higher time planes are actually pulling down those same planes that have not been used by fractional providers. Buyers are looking at the prices of the higher time planes and using that pricing to buy the lower time planes. Our traditional logic would have said that the higher the time the lower the price. To some extent that holds true however with buyers holding that pricing line sellers are finding the delta between the higher and lower time planes decreasing. Again, just too much supply and diminished demand.
Long range planes of all ages are still feeling the pressure of a very decreased demand compared to the supply that for the last many years was being produced by the manufacturers to keep up with the growing markets in the Middle East, Asia, China and South America. No shortage of planes to go around.
We keep talking about a “Trump Bump” in the reports. As I mentioned we are feeling somewhat of an exuberance, but we must be very careful not to make a mountain out of a mole hill! The stock market and other financial indicators are no more than a delicate balancing act. If you are a seller, take every offer very seriously. If you are a buyer add some thoughtful and accurate Intel to your logic so when you present it to the seller they cannot just think you are trying to steal their plane from them but you are a sincere and educated buyer. It has never been as important to strike a comfortable balance as it is now.
We had an owner call us and say that 3 months-ago they received an offer for $1,300,000 for their 20+ year old light jet. They were calling us because their current broker is now telling them that their plane is worth $1,100,000. They were considering changing brokers. Our message to them: “Sounds like you already have a good broker, take their advice and don’t miss the next offer that could be for $900,000.00 or less”. Now you see and Now you don’t. It is not a magic trick by a magician trying to make your value disappear. It is our current market. Planes will not go up in value. They are depreciating assets, they are older pieces of equipment. If selling is the intent, do not have the attitude that you will just sit back and be patient. That will translate into taking less sooner than later.
How much longer can this pricing dilemma of our market last? Even the manufacturers are struggling with this. It seems they are all extending the timeline for a recovery. Each day with each new report I see the timeline for the new aircraft recovery lengthened. I see the horizon getting farther and farther out into the future. There is no doubt that our industry is a keeper. Business aviation is here to stay. We are all in this together, so we must all be realistic about the many realities of what makes the market work.