Breaking the law of supply and demand

Bixjet inventory keeps declining. So do prices.

Perhaps it’s fitting that an industry based on defying the law of gravity now has a preowned market apparently immune to statutes governing supply and demand.
Preowned business jet sales data from Jetnet for the first half of 2014 reflects increasing sales as well as declines in both supply and time on market, yet prices continue to evidence a downward trend. In fact, the average business jet asking price deflated almost 2 percent from last year’s first half.
Of course, anomalies might be involved; a surge in sales of preowned light jets, say, could skew trends in average transaction values. But nothing suggests such a spike occurred, and the data is consistent with anecdotal evidence heard from industry insiders.
Jetnet counts 19,620 jets in the global business aircraft fleet, and in the first half of this year, an average of 2,379 were on the market. That’s 12.1 percent of the fleet, almost a full percentage point (0.9 percent) below 2013’s figure, which indicates a tightening of supply. Meanwhile, the 886 transactions logged in the half—2.8 percent more than in the same half last year—and a decline in average time on market (down 66 days, to 315) reflect growing demand. Yet the average asking price dropped 1.9 percent.
Why is the law of supply and demand being flouted? AircraftPost.com, which tracks about 8,000 current-generation business jets, shows no corresponding reduction in time on market in the first half of 2014 (283.5 days) vs. the average for 2013 (280 days). Founder Dennis Rousseau suggests that outliers who buy and sell aircraft based on emotion rather than logic may be skewing the data on the larger fleet. Yet activity tracked by AircraftPost also shows a disconnect: transactions in the first quarter of 2014 increased 15 percent, but the average business jet price dropped 8.8 percent. Rousseau attributes the continuing price decline to the “global economic downfall and the impact it has on [business] aviation, which has driven our market down about 25 percent from where we used to be.”
The percentage of the fleet available for purchase also tilts the marketplace, and until that figure falls below 10 percent, normalcy is unlikely to return. For those waiting for a price rebound, Rousseau adds, “This is our new normal—we have to embrace it.” He attributes the uptick in sales to lowered prices, not increased demand. On the upside, he sees tremendous values for buyers in aircraft like late-model Gulfstream G200s (post-200 serial numbers), which sold for some $20 million when production ended, and can be purchased now for about $7.5 million.
As for sellers, “They need to mark their assets to market,” Rousseau believes. “Owners can no longer just take off 3 percent per year and say, ‘That’s the value of the airplane.’”

James Wynbrandt ([email protected]), a longtime BJT contributor, is a private pilot.

Preowned Charts - August_September 2014 (293K)