Originally published as a blog for AINsight for Aviation International News on 2/3/23
Wouldn’t it be great if we as an industry could boast about a reward for patience? For the last two years, we have witnessed the cost of fast, unbridled growth, that no one was prepared for. The FAA is struggling to keep up with basic functions like aircraft registration filings, pilot and mechanic shortages have raised salaries based on the supply/demand imbalance, and even hangar space is a short-supply commodity.
These out-of-whack supply equations have raised not only the price of aircraft but also allowed the sellers to dictate processes that are not favorable to the buyers, such as a limited right to inspect. This is compounded by critical supply chain issues delaying the length of the pre-buys and all other into service criteria. Engine overhaul timelines are affected negatively as well. The frenzy to buy from such a short supply created no reward for the buyer except what was the reward of overpaying and stripping the process of critical pieces to capture a tax benefit.
So, what is the reward that is going to come to those who are going to transact an aircraft purchase in 2023? Simple, there is no doubt among those of us that watch this market daily that the supply of aircraft is increasing. Up by several percentage points over the last few months. This rising supply, which I believe will continue to increase, will add some immediate balance to a once very unbalanced market.
We instructed our contracted buyers to wait at the end of 2022 because we believed the reward was coming. I am excited to announce it is here! The days of claiming the market favored the seller is all but gone. I do not believe it should be immediately labeled a buyers’ market. The pendulum has not, and may not swing that far, but it has absolutely swung closer to the middle. It is so much nicer operating again with balance. Sorry sellers, you missed the craziness, and the buyers will again have the opportunity to negotiate the outcome of the transaction to a more traditional end. Meaning, not just being forced to accept paying the full asking price or even worse getting into a bidding war. Being able to negotiate a more balanced favorable opportunity to inspect the aircraft. Being able to negotiate a more balanced and favorable timeline for the purchase.
Yes, some sellers will push back but my sense is they will have to go to the back of the line behind those sellers who understand the importance of a balanced market. Don’t get me wrong, as I said this will not become a buyers’ market, one that ignores the right value of the aircraft being sold or ignores the correct rights of a seller. It will be a better time for both sides. I believe a more traditional annual residual loss rate of 5-10% will prevail. We are already observing price corrections since the beginning of the year between 6 and 10% in markets with increased supply.
So good for you all who waited to purchase, this year is your reward year. See you on the playing field again.