A Pivotal Period for Preowned Aircraft Sales

Coming amid an unprecedented shortage of jets for sale, the fourth quarter of 2021 promises to be an inflection point for the preowned market—and for charter, fractional ownership, and new business jet sales, all of which are impacting preowned inventory as never before.

An early September online town hall staged by Corporate Jet Investor brought together a panel of market experts to discuss why the supply suddenly dried up, what they see coming in this pivotal quarter, and what the current shortages mean for inventory going forward.

“A year ago, we were paying attention to how much prices of airplanes might go down [in early lockdown days],” said Jay Mesinger, the forum’s host and president and CEO of Mesinger Jet Sales. “We should have been thinking about how many first-time buyers were going to come into the marketplace—that’s what has driven the current market and created inventory shortages.”

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The fourth quarter is always the busiest for transactions, as buyers rush to complete purchases by year’s end for tax purposes, but some telling statistics presented at the forum reveal coming challenges: from 2017 to 2019, the number of preowned sales in December ranged from the high 400s to low 500s. In December 2020, 861 sales were recorded, underscoring the buying frenzy and dissipating supplies. Meanwhile, from February through August 2020, 1,369 preowned jets came to market in North America, and some 1,800 globally. In the same period this year, only about 930 and 1,200 came to market in North America and worldwide, respectively. 

But even if you can find a jet this year and have it under contract, taking possession is now complicated by ancillary demand-related issues—predominantly finding a qualified crew— whose impact will also be closely watched.

Demand for charter, memberships, jet cards, and fractional ownership, which also peaks in the fourth quarter, has additionally been fueled by new-to-bizav customers and is on track to reach record levels in the coming months.

A Record-breaking October

“Our forecast is that October will be the busiest October we've seen since we began collecting flight activity data back in 2007,” said Joe Moeggenberg, president and CEO of business aviation data firm Argus International.

That demand is affecting preowned inventory, Mesinger believes. “People who own airplanes and have them on charter certificates are getting more charter than they ever have and are reluctant to sell because of the revenue.”

Meanwhile, “business aircraft manufacturers are experiencing a market they haven't seen in over a decade in terms of demand,” said Rolland Vincent, founder of an eponymous consultancy. “Prices have firmed, and they have book-to-bill ratios and orders they haven't seen in many years.” But today’s low production rates mean customers will wait years for delivery, and the volume won’t add appreciably to the in-service fleet. Increasing production rates is “a supply-chain issue as much as anything,” Vincent continued. “Any [manufacturer] that has a sole source or strategic supplier, that’s the constraint in the system.”

Moeggenberg, however, sees some potential easing in the charter demand by the time the quarter ends. Already, “some Part 135 operators are starting to struggle to find quality lift,” he said. The unprecedented demand led NetJets, for example, to preemptively suspend sales of fractional shares of its light jets, and of all its jet cards. 

Additionally, many card and membership programs guarantee aircraft of a certain vintage, which they may be unable to provide, Moeggenberg said; some programs may have presold more lift than they can deliver, even as “older and older airplanes are going to be showing up on the ramp.” He predicts the experiences will create “some disappointed charter customers” who will give up on business aviation, while the supply-and-demand equation is pushing up the price of charter. “That's going to knock off customers that just can no longer afford it,” Moeggenberg said.

Easing the Supply Shortage

Though charter costs aren’t expected to recede, Mesinger anticipates that once the fourth quarter ends, lower demand and concomitant reduced offsetting revenue will induce some owners to sell their aircraft. Concurrently, the easing of international travel restrictions will give brokers access to jets based overseas that they “simply can't get to, or inspect, or find a crew to fly it back” now, also easing the supply shortage, Mesinger said.

Indeed, also being watched carefully in the fourth quarter: the resurgence of COVID-19 and its impact on the return to normalized business. Remarkably, the jump in demand across the industry has occurred largely without the participation of business and corporate customers, the bedrock of business aviation, who remain grounded by the pandemic. Once they can get airborne, Vincent anticipates, corporate users will embark on long-overdue re-fleeting, buying new aircraft in twos and threes, and putting their current fleets on the preowned market, further bolstering inventory. And current owners who won’t put their aircraft on the market while looking for a replacement, due to concern about being left liftless in the interim, will begin to list their jets as they gain confidence in the available selection, Mesinger believes. 

As for the impact of a possible stock market correction, Vincent noted that the fortunes of stocks and business jets are now widely considered to be historically unrelated. “GDP, the growth of our economy, corporate profits, consumer and business confidence, the cost of money, differential interest for exchange rates—these are the things we look at,” he said. He added, “We’ve been conducting surveys measuring confidence every 90 days for 11 years. We've never seen a more optimistic owner-operator community than…right now.”

Meanwhile, for preowned shoppers, “Prices are firming, and actually going up,” Mesinger said. “We can't be afraid to get in the market. I don't use the word ‘bubble’ anymore because this demand runs so deep that it could be years before the supply catches up, depending on how sustainable this new group [of customers] is.”

“Do the right mission-profile work first,” Mesinger advised, “and the increase in pricing that’s occurring right now won’t be very damaging when you go to remarket these airplanes five, six, or seven years from now.”