Originally published as a blog for AINsight for Aviation International News on 10/1/21
So many of us in our industry are looking up to view the new heights of aircraft pricing in our industry. Rather than looking straight to the sky it may be smarter to start at the horizon and look up in incremental stages, much like a step-climb in altitude for aircraft. A step-climb in aviation is a series of altitude gains that improve fuel economy by moving into thinner air as an aircraft becomes lighter and becomes capable of faster, more economical flight.
We must be very aware that like an aircraft taking to the sky, achieving stable higher prices must be done in steps. Can you really just set aircraft prices higher and higher, or must there be some real lift based on the air beneath our wings? Just because the one plane that was for sale and sold for a new record high is that reason enough to expect even higher on the next available aircraft? I remember the good old days of valuing aircraft. There was the utilization of the near past term sales comps, current for sale comps and then the evaluation of the equipment and year model from one plane to the next. Is it ok to just say that was how we did it one month ago but everything has changed now? Forget the last sale, forget the comp of others on the market, just expect to sell for more than the last one did. In fact, expect to sell for 10 to 20 % more.
As an example, as a buying broker we call to get info on a plane that has just come on the market today. We are advised by the broker who is listing the plane that we better act fast because he has people already circling and expects 5 offers by the end of the day. It does not matter if the plane is due for its biggest aircraft inspection in 3 months, the seller will not allow it to be done as a part of the pre-buy inspection. So not only are prices going up without a strong foundation in market metrics but sellers are often demanding that inspections be limited in scope.
Then comes the best part. Once the buyer has an LOI and everyone involved with the aircraft gets a better understanding of the offering the entire transaction often falls apart. Sometimes these first day offerings by the new broker have not come with verification of the specifications, review of the logs and records or even a viewing of the aircraft. This can lead to surprises once both buyer and selling broker arrive for a showing. I am not suggesting that anyone is misrepresenting the plane. I am just suggesting that we are losing the step climb. That due diligence that includes the listing broker visiting the plane in person, reading the records, building a new accurate specification sheet, and having current photos. All the tools that make for a reliable listing.
My fear is that if we as an industry do not adopt the theory of flight into our inventory segment, we will run out of lift by having too much angle in our climb thereby not solidly gaining altitude but stalling out. We all need to be very careful how we try to inject steep angle into our climb. If we do this correctly, we will see each other at the top of new solid heights.