Preowned Market Annual Report: Reasons to be wary, but also hopeful

If you’ve been waiting for market clarity before making a move on the buy or sell side, 2014 hasn’t been your year. More than half a decade since the meltdown of 2008 doused preowned aircraft values and demand, the business continues to search for footing.

“I don’t think anyone in our industry can forecast where we’re going to be six months from now, let alone in a year or two,” says Dennis Rousseau, founder and president of New York-based online listing service ­AircraftPost. Rousseau cites “dynamics we’ve not previously faced,” ranging from accelerated obsolescence to an oversupply of competing makes and models in every aircraft category.

“It’s hard to predict what will happen and what [aircraft] are going to be worth,” agrees George Marburger, founding partner of aircraft brokerage Jeteffect, which has five U.S. offices. “I don’t want to be lulled  into thinking that we’re even at the bottom [of the market]—I haven’t seen prices stabilize.”

Indeed, while professionals can point to indications of a turning preowned market, many have had their hopes dashed too many times in recent years to see the glass as half full.

Transaction activity in North America rebounded in the past year, even as it fell in Europe and much of the rest of the world, according to brokers and market data, though pricing softened. Meanwhile, a two-tier caste system dividing aircraft younger and older than about 15 years may have permanently marginalized many perfectly serviceable jets with paths to NextGen/FANS and other compliance mandates. We’ll get to what that means if you’re a buyer or seller after noting the role that financing—or more accurately the lack of it—plays in this market bifurcation.

Institutional financing has been largely unavailable for these older airplanes. Meanwhile, many banks that historically had robust aircraft loan portfolios have trimmed business aviation lending activity. Jay Mesinger of Mesinger Jet Sales in Boulder, Colorado calls this “the first recovery in my 40-year history that wasn’t pumped up and spurred on by an aggressive and active lending community.” For older aircraft, the lack of financing options “really accelerates the value decline exponentially,” says Andrew Bradley, president of California-based brokerage Avjet. “You basically have to deal with cash buyers, and somebody buying with cash expects to get a good deal.” 

Case in point: Gulfstream GIVs, which are Stage 3 noise compliant and have a path through Honeywell to NextGen and FANS mandates, are selling for $3 million to $4 million. A new model cost $36 million in 1998. “Many haven’t reached 10,000 hours, but you can barely give them away,” Bradley says.

If you’re a potential buyer and have ignored this end of the market because you can’t write a $4 million check, assistance may finally be within reach. Several financial institutions are getting back into financing, and “some capital is getting infused into older aircraft,” notes Brad Harris, president of brokerage Dallas Jet International and chairman of the National Aircraft Resellers Association.

This is good news if you’re an owner, too, not only because it will make the aircraft more saleable to a larger group, and hence increase its value. Bank financing has historically helped the market determine the value of an asset, and that has been missed in today’s preowned market. But don’t hold on for an assumed boost in price if you’re considering selling your old airplane. “Our market is changing relatively quickly these days, and if you wait six months [to sell], you’re exposing yourself to other planes coming on the market, and your airplane is now six months older,” says Steve Varsano of the Jet Business brokerage in London.

Scorched values aren’t confined to last century’s jets, and if you’ve been thinking about buying a new aircraft, the disparity has surely caught your attention. Four- and five-year-old Learjet 60XRs, which sold for more than $13 million new, are going for $5 million to $6 million. Why spend more than $13 million for a new Learjet 75 when deals on near-new models are available—or if you suspect the value of your factory-fresh airplane may crater like a new car’s the moment you drive it off the lot? You have to really love the Bombardier Challenger 605 at more than $31 million new to ignore 10-year-old Challenger 604s priced in the $5.5-million to $7-million range. (The market has taken notice; average prices for 604s have risen about $1 million in the last six months.) Average Hawker 850 and 900 prices have also appreciated between $500,000 and $1 million over the past year, says Harris, as uncertainty over support for the now-discontinued Hawker line has dissipated. 

Indeed, the roster of preowned favorites has rotated as buyers look for value. Today more than 30 Gulfstream G550s, the darling of the preowned market 18 months ago, are available for purchase, while inventory of the formerly overlooked Gulfstream GV is scarce. But just when market watchers think a surge in sales for a particular model heralds a general turnaround, demand sometimes cools and values retreat.

Meanwhile, if you’re an owner, with values so depressed and no indication whether they’ll ever recover, you have to recognize that what was before an expensive repair may now mark the end of your aircraft’s service life. “When the cost of a maintenance event eclipses 40 percent of the total value of the airplane, it’s a candidate to be parted out,” says Bradley, “and we’re seeing airplanes with four, five, or six years of life left being parted out.”

Another weight on values: at the height of the business jet bull market, some 30 to 40 percent of large-cabin jets were leased when new, typically for five- and seven-year terms, and those leases have been expiring, loading the market with jets such as the Global XRS and Falcon 900EX EASy. 

Nonetheless, Jetcraft president Chad Anderson sees positive signs in a widening circle of buyers. “For the longest time, only high-net-worth individuals could make the [buying] decisions, and now we have a very nice variety of clientele,” including public companies, says Anderson, whose company is headquartered in Raleigh, North Carolina. “I am more confident in 2015 than 2014.”

Mesinger notes that buyers are willing to spend more for a better airplane, which he calls “a new phenomenon” in the post-’08 market. Additionally, “first-time buyers are back—people recognizing the sheer absolute importance of business aircraft and how they can make a measurable difference in their world,” he says, “and when you don’t understand that value, you stay on the sidelines.”

Even the less optimistic note that pent-up demand and the hordes of cash that businesses have been sitting on could flood the preowned market once a real turnaround is perceived. “If someone is considering acquiring a preowned aircraft, you couldn’t ask for a better time,” says Rousseau. “Based on my 38 years in the business, you have some very capable aircraft that can easily take you into the next five years of operation.” And if you’re stuck with an aircraft that has lost millions of dollars in value on paper, you can make some of that up on the buy side given the bargains available in today’s preowned market.

James Wynbrandt is a private pilot and regular contributor.

2014 Preowned Market Annual Report_Tables.pdf (335K)