““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
Preowned Aircraft Annual Report 2007
Like sharks hunting for fresh blood, business jet buyers in 2007 used brokers as sonar to zero in on their hard-to-find prey. Then, early in the acquisition process, some customers tended to over-negotiate, not fully grasping how rapidly the market was changing. Consequently, they let their quarry slip away and once again found themselves swimming against the current. Principals and brokers alike were stunned at the prices being paid and made the mistake of trying to correlate a current buy opportunity to one that may have been transacted a few months earlier. Once buyers adjusted their expectations, new highs were often set.
Certainly, the much-talked-about international activity, as well as uncharacteristically long backlogs for new-aircraft deliveries, have fueled the buying. Though prices were historically high, there was never a sense in 2007 that they were too high and would come crashing down.
One of the toughest questions now is: Where is the market headed in 2008? It's hard to imagine that prices will rise above current levels, at least in the large-cabin segment, but I wouldn't bet against it. Because inventory of some of the most sought-after aircraft can't get much lower, it may be easier to imagine an orderly increase in inventory and, if that happens, prices will likely soften.
Some expect a moderate buildup in choices in the Dassault Falcon 900EX market as the new 7X rolls into service and, in fact, we may be starting to see this already. Early in the year, just two 900EXs were for sale and now there are nine. While the average price still exceeds $30 million, that level might be tested if more begin to fill the market. Though 7X buyers are obviously well heeled, it's doubtful many will want a $30 million asset sitting on their books for a long time after they take delivery of the $50 million jet that replaces it. And there should be several 900EX buyers lurking in the depths with their sonars already searching.
A similar situation may hold true for Gulfstream's GIV-SP. At least a couple of sales have been for more than $30 million, and some model-year types have experienced a bluebook increase of $1.3 million for each of the last five years. Consequently, some sellers have accepted offers at levels at or near what they paid for their airplanes when they purchased them new several years ago-that's after flying them for a couple of thousand hours or more. Much of the tightening in this segment is attributable to new G450 order backlogs.
Delivery dates for that model are reportedly heading ever closer to 2011. Imagine telling someone who has the means to purchase a nearly $40 million jet that he can't have one today, tomorrow, next week or even next year-and perhaps not until 2011! Understandably, some can't tolerate that information, so perhaps begrudgingly, buyers have been known to order a G450 and then pay a premium for a GIV-SP as interim lift. Recent G450 transactions have been commanding figures in the low $40 million range, presumably several million dollars above what they sold for new. Used G550s are touted in the $55 million range and have been averaging less than three months on the market.
Bombardier's Global Express and Challenger 300 are two other examples of super-heated markets. While the Challenger 300 fits into the super-mid-size category, it is one of the top stories of the year, fetching seven-figure premiums and selling for $23.5 million to $24.5 million. The half-dozen Globals are priced from the low to high $40 million range and remain on the market less than three months, on par with their GV counterpart.
While the sheer grandeur of the large-cabin category can easily overshadow smaller aircraft, this segment is not without its own standouts. In what is often referred to as the owner-flown group are Cessna's CJ2 and CJ3, which have increased in price as inventory has declined. A CJ2 buying surge came after inventory reached an all-time high late last spring. The turnabout saw choices fall to 11 from nearly 30 less than a year ago. Prices currently run from $4.8 million to $5.8 million. The CJ3 is another one of the few light jets that haven't taken a back seat to the action in the large-cabin sector. Shortly after it arrived on the market, buyers exhibited an insatiable appetite for the aircraft. Only two of the six for sale currently are not delivery positions and one of those two has reportedly commanded a price of more than $8 million.
Overall, it's nothing short of amazing to see how few pre-owned business jets are for sale now, considering the number of each of these models produced. It's also incredible to see how the market transitioned from being on veritable life support in 2002 to where it is today. Consider that after reaching an all-time inventory high in excess of 2,000 aircraft for sale five years ago, the number has receded in four of the last five years (the exception being 2006), this amid a growing fleet. Looking forward, it's hard to imagine that 2008 could be any more active than this year, but at the moment, I see no hint of a slowdown. If you're looking to buy in the near future, you'd better start your broker searching now.