How the War in Ukraine Is—and Isn’t—Affecting the Used Jet Market

Russia’s invasion of Ukraine is the latest black swan that has failed to down the Teflon-like preowned aircraft market. That said, the sanctions imposed in the invasion’s wake will have a large impact on preowned trade, effectively removing from the world’s supply a significant number of large-cabin business jets—the category that on the eve of the conflict already showed the biggest recent jump in values and demand. Sanctions are also increasing the need for know-your-customer efforts that will likely slow and in some cases even derail legitimate transactions. 

Nebraska-based data service Sandhills Global reported in March that according to its Equipment Value Index, large-cabin models led all business jet categories in year-over-year value gains: up 16.7 percent to an average of $20.3 million. Meanwhile, the inventory of already scarce large jets fell 63.4 percent from February 2021 through this February, “driving prices upward with the lack of supply,” while overall business jet inventory declined 70 percent during the period, the report finds.

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This month, Asset Insight said that preowned inventory had fallen “to an all-time low of 3.1 percent of the in-service fleet,” with demand growing across all categories by an average of 6.2 percent from the last quarter of 2021 to the first quarter of this year. Demand for large jets is the highest, according to the aircraft evaluation specialist’s five-point scale (4.87 compared with the 4.68 average; the average was 2.27 a year ago). With transactions typically “meeting or exceeding the asking price,” the ask price for large jets is up 54 percent year-over-year, Asset Insight says, versus the market-wide 14 percent bump.

Business Jets Affected by Sanctions

The number of business jets affected by sanctions against Russia could be as high as 500, according to WingX, but the exact figure is unknown, as these aircraft are typically held under foreign registry and their ownership, like that of many business aircraft, is often purposefully opaque. The estimate partly reflects the Hamburg, Germany–based bizav data company’s analysis of individual aircraft flight activity.

Chicago-headquartered JSSI, which provides maintenance plans covering about 10 percent of the roughly 22,000 business jets in the global fleet, suspended service on more than 20 aircraft—predominantly Gulfstreams, Bombardier Globals, and other large-cabin jets—due to “a direct link or a suspected link to Russian nationals,” said president and CEO Neil Book.

Some sanctioned aircraft are grounded at airports around Europe. Luxaviation in the UK has four of them, for which the management company has fiduciary duties—for example, ensuring that the aircraft are maintained according to manufacturers’ recommendations. But the sanctions prohibit management companies and service providers from performing their contracted responsibilities. Luxaviation and other operators have been asking authorities to permit, at minimum, proper storage of the affected aircraft. 

“We think the preservation of the value of the asset makes sense from everyone's perspective,” Luxaviation UK CEO George Galanoupolos says. “Otherwise, they will become junk.”

Whatever the near-term solution, the impact on the preowned market will be significant, predicts JSSI’s Book. “We're going to see aircraft that haven't been preserved or maintained [offered for sale],” he says, “and I think there’s going to be litigation and a multiyear mess on our hands relative to these aircraft.”

Complying with the Sanctions

At the annual British Business and General Aviation Association conference in March, Freestream Aviation CEO Alireza Ittihadieh offered guidance for current shoppers: “If a business jet is financed and repossessed by a Western bank, you can buy it,” he said. “If it isn’t, it’s a criminal offense.” Ittihadieh noted that one bank had repossessed a dozen sanctioned aircraft on the day of the conference. 

Meanwhile, whatever the category of aircraft or its apparent origin, ensuring compliance with sanctions may add time and complexity to many transactions. Buyers and sellers “need to focus on obtaining ultimate beneficial owner information that may not be apparent from cursory searches of public databases,” says NBAA senior director for public policy and advocacy Scott O’Brien, who adds that the efforts may require conducting “additional research and engaging with your aircraft transaction team.”

Aviation attorney David Mayer notes that “any of the thousands” of buyers and sellers who use a complex ownership structure for tax, trade, security, and other valid reasons, or who prefer a back-to-back sale, may also “become snarled up in a Russian-type deal scrutiny.”

Aviation attorney Jonathan Epstein at Holland & Knight recommends that buyers include “a condition precedent” mandating that the seller provide beneficial owner information early in the transaction process.

Mayer points out that despite sanctions, buyers may still legally purchase, lease, and finance aircraft in transactions with unsanctioned persons—Russians and others—who can lawfully sell assets. The downside, he notes, is that other sanctions may still apply, and they could, for example, affect insurance coverage or the ability to acquire aircraft parts.

Inventory Shortages Continue

Meanwhile, inventory shortages continue to reverberate throughout all business aircraft categories and beyond the preowned market. Veteran charter operator Jim Segrave, who has been aggressively buying preowned Citations and other aircraft for his expanding FlyExclusive brand (and has commented in recent quarters on the astonishing rise in preowned prices) recently announced a purchase agreement for 30 factory-new Citation CJ3+ jets. The aircraft are for a fractional program the company is launching, but the deal was also seen as a capitulation to the limitations created by current and anticipated preowned inventories. Meanwhile, FlyExclusive has no plans to unload any of the 85 jets it already owns, aircraft that in typical buy-and-sell fleet replenishments would go into the preowned market.

This is the new norm. About one in five new jets are going to fleet operators, Corporate Jet Investor says, but these providers are retaining current fleets. “Until the charter market slows down, it is hard to see the number of preowned aircraft for sale increasing,” the London-based business aviation intelligence company says.

Demand is even drying up the supply of aircraft that would otherwise have reached the end of their service lives and been sold for scrap. JSSI, for example, typically buys 15 to 25 jets annually for spare parts. Last year, the company put in offers on more than 100 such aircraft but, reports Book, “We acquired just two Citation Bravos,” as JSSI was outbid for the other aircraft by buyers who intended to operate them. 

Book notes that his company doesn’t require a prepurchase inspection for the jets, as they’re used only for parts. “But now,” he says, “the people who intend to fly them are not even making their offer contingent on a prepurchase inspection.

“It speaks volumes that aircraft that were typically taken out of service are continuing to fly,” Book adds. “I think we're seeing people do things that don't make any economic sense