Data and Forecasts Bear Good Tidings for the New Year

Buyers, sellers, and those just thinking about getting into private aviation—there’s something for all to celebrate this holiday season as data, forecasts, and anecdotal evidence bear good tidings for the preowned market in the coming year, the third of the COVID era. If you’re a buyer, expect prices to stabilize or start easing and selection to increase. If you’re shopping your aircraft, you needn’t worry that the bottom’s about to drop out of what remains a seller’s market. And if you’re new to business aviation, you can take your time making the right access decisions, sans FOMO. 

These key drivers and trends are fueling the market’s optimism:

Values

Unprecedented and rapid price increases initially flummoxed valuation professionals trying to make sense of COVID-era aircraft values. Small wonder: if prices had followed historical trends from the first quarter of 2021 through the third quarter of this year, we would have witnessed an average 9 percent decline. Instead, we saw the average 2010 super-midsize jet climb from $8 million to $13.1 million and a similar-vintage turboprop go from $2.6 million to $4.1 million, according to Jet Advisors president and CEO Kevin O’Leary—increases of 63 and 57 percent. Long-range jets appreciated some 50 percent during the period. 

But the increases are in line with historical trends when corrected for the equally unprecedented decade-long slide in preowned values that preceded the COVID era, some analysts say. Signs suggest that preowned values are peaking: inventory levels are recovering, the number of bids per aircraft is declining, and time on the market is rising.

If you’re not paying cash, as many have since the arrival of COVID, financiers unsure about values have lowered amortization periods and/or increased down-payment requirements to adjust.

The industry consensus is that next year, residual loss rates will normalize, returning to between 5 and 10 percent annually. Nonetheless, in November asking prices for business jets and turboprops hit record highs, according to aircraft classified listings publisher Sandhills Global. 

Demand

Last year’s buying frenzy has abated even as demand remains strong, bringing more normalcy to the market. “Buyers no longer feel the aircraft that comes to market this morning would necessarily be gone by sunset,” says Jay Mesinger, president and CEO of Mesinger Jet Sales. In 2020, the market recorded 1,795 transactions through the first 11 months of the year. The figure jumped in 2021 to 2,580 through November, a 44 percent increase—and last December saw twice the transaction activity of any other month, capping the record-setting year. 

This year, transactions through November totaled a healthy 2,132 jets, and while December sales aren’t expected to equal last year’s, a sense of industry relief at having survived the sales tsunami seems to prevail. Now corporate demand, notably absent for the past two years, might be returning. A recent Airbus survey of senior executives at major U.S. companies reported that 89 percent expect their organizations to up their use of business aviation in 2023—with a quarter of them believing it will climb more than 50 percent.

Inventory

The number of aircraft for sale across all categories has rebounded off historic lows seen earlier this year, further normalizing the market. Today, “the market is starting to return to a more traditional cadence for acquisitions and that aircraft,” says Simon Davies, sales director at Global Jet Capital. “Sellers are starting to be more accommodating of the time needed to conclude the financing for the purchase.”

Inventory has grown every month this year since January, according to Sandhills Global. The International Aircraft Dealers Association, whose ranks include many of the largest aircraft brokerages, recently noted that amidst last year’s buying frenzy and blowout transaction numbers, its members signed more customers to acquisition contracts than sales contracts, a historical anomaly that has righted itself this year, helping inventory replenish. Meanwhile, new jets from manufacturers’ burgeoning backlogs will bring the aircraft they replace to the preowned market. Industry professionals expect inventory will rise to somewhere from 5 to nearly 10 percent of the fleet by the end of 2023.

Stickiness 

Some 40 to 50 percent of COVID-era preowned buyers have been first-time owners, by various estimates, and discussions about sustainable long-term demand growth have included questions about how “sticky” private aviation access would prove to be among the newbies: Would the reality of ownership costs, high fuel prices, concerns about the economy, or other forms of buyer’s remorse send new entrants to the exits? Not according to industry observers such as Ford von Weise, global head of Aircraft Finance at Citi Private Bank. 

“We have not seen clients who jumped in 18 or 12 months ago say, ‘Hey, I don't like this; it’s too much money. I don't like the industry and I want to get out’,” said von Weise, during a November Corporate Jet Investor online forum.

Moreover, while many in bizav credit the airlines, with its degraded levels of service, as private aviation’s best sales tool today, drill deeper and you may hear, as von Weise and others do, “a chorus of comments from clients very upset” with service among charter, jet card, and even fractional providers...[They say,] ‘I'm sick and tired of the lack of consistent product delivery, and I want to buy my own [jet].’”

With no new aircraft available for two years or more, this puts preowned sales in a sticky situation. Additionally, given that the COVID-era market has been driven by personal rather than corporate buyers, it’s less likely that a recession would impact demand, as non-corporate flight needs aren’t as tied to business cycles.

Bonus depreciation

 January 1 marks the end of 100 percent bonus depreciation, adopted under the Tax Cuts and Jobs Act of 2017, which has allowed qualifying buyers of new or preowned aircraft to deduct the full cost the year it’s bought and put into service. Yes, the sunsetting will affect some buyers, but little market impact is expected: first, the bonus will be phased out, dropping 20 percent annually through 2027, providing considerable incentive over the next couple of years for those who can take full advantage; and second, relatively few buyers need a tax write-off of that amount, or are eligible for full depreciation benefits anyway, as it applies solely to qualified business use. (Full bonus depreciation will still be available in 2023 in some highly prescribed purchase situations.)

One indicator of the phase-out’s relative market insignificance: It wasn’t discussed or mentioned in more than half a dozen recent forward-looking year-end preowned market reports, press conferences, blog entries, or online forums. In this context, no news is good news.

Manufacturers’ preowned sales. Though not a hot topic this New Year, manufacturers’ growing preowned transaction activity could create new purchase options in tomorrow’s markets. Airframers have long handled such deals to facilitate customers’ upgrades, but growing preowned values create higher stakes. “Make the most of your investment,” urges Gulfstream Aerospace in touting its aftermarket expertise. “We know a Falcon better than anyone else,” states Dassault Aviation’s pitch. Textron Aviation avers, “We sell more preowned than anyone,” in its offerings of Cessnas, Citation Jets, Beechcraft, and Hawker aircraft.

Canada’s Bombardier Aerospace joined the club in July 2021 with a program that allows buyers to select upgrades for factory retrofits on their purchases; this fall, the airframer reported “very good traction” among preowned buyers. Brazil’s Embraer has a preowned sales branch for its commercial aircraft, but none currently for its corporate jets, whose cabins are designed to be “future-proofed” via easily replaced elements. With production sold out for two years or more, perhaps soon all aircraft manufacturers will augment their new aircraft with factory-upgraded models.