Originally published as a blog for AINsight for Aviation International News on 1/6/23
Let me first begin by saying Happy New Year to all. I hope everyone enjoyed the holidays and is back at their desks ready to see what awaits us. More supply, more pricing headwinds, more days on the market. More, more, more, or less, less, less. It might take us the first couple of months of 2023 to have a clearer picture of the landscape ahead of us.
Except for the typical last-minute closings at the end of the year, there seemed to be less panic and frenzy this year over the last two years. As I have said, possibly due to less supply, possibly due to a bit less demand.
I can remember 2020 well. We were all trying to figure out what the pandemic meant. What was the real impact on everything including our industry going to be? No real answers, and no real history with this type of global event. Would sales completely stop? Would prices drop? Not sure any of us could have predicted what happened. Unprecedented demand from first-time buyers depleted a healthy supply of aircraft and resulted in a supply/demand dynamic unseen in our industry. Prices were increasing 10% per month in some cases and fair and balanced transaction processes were eliminated.
In 2020, 100% Bonus depreciation was in play. By Q4 people were already very wary of commercial travel. No one wanted to get on flights with crowds and no one wanted to go to commercial airports to get exposed to the virus. So, they began to turn to charter, fractional ownership and whole ownership. For many of us, it would turn out to be our best sales year ever. As I mentioned above, we had great supply available to choose from and pricing was still languishing a bit from the preceding year or two of higher supply and a bit lower demand.
For those who bought in Q4 of 2020 you likely enjoyed a balanced process with respect to the transaction. Pre-buys were the norm. Pandemic demand, low supply, and higher pricing had not yet hit. At the time we sold a couple of very nice, low-time, well-equipped Challenger 604s. They were both in the 5–6-million-dollar range. Then, within the following quarter, Challenger 604s of the same vintage, but more likely to have higher time, less equipment and weaker pedigree rose to the 8- 9-million-dollar range. Anyone who had a memory of that 5-million-dollar price had some real heartache with the new pricing. Especially when you coupled it with the fact that what you were paying for was no longer the same quality, and likely allowed much less due diligence from the seller.
It made it very difficult for people who knew our market pre-pandemic to accept pricing that began the following year. Paying 30% or more for less of a plane on many fronts was very difficult. The majority of our industry does not expect the pricing to go back to pre-pandemic levels. However, with what I expect will be more supply in 2023, there should be a return of a more balanced transaction, including more price negotiation with residual loss once again prevailing, and a fairer due diligence process allowed by the seller. As long as better choice and more normal transaction processes come to pass, 2023 will be a return of better attitudes about what will become the current, normal pricing and should be a great year for us all, the brokers, the buyers and the sellers.