By Molly McMillin, The Weekly of Business Aviation, April 18, 2022 (Original Article)
This article has been republished with permission from the author and Aviation Week Network.
The fast rise in preowned business aircraft pricing, prevalent in the second half of 2021, appears to be leveling off, some brokers say, although they aren’t seeing market softening.
Demand continues to exceed the number of aircraft on the market, despite a recent increase in inventory, dealers said during a webinar April 12 sponsored by the International Aircraft Dealers Association.
When it comes to pricing, “I think we’re plateauing, and I think we’re going to be good for a while,” Brian Proctor, Mente Group president and CEO, said during the webinar. “I think that there is a little bit more semblance of rationality in the marketplace.” Today, the primary market is the U.S., but that could quickly change, Proctor says. “It will be interesting to see as the rest of the world begins to open up like the U.S. has, what sense of demand comes forward,” Proctor says. “If that happens, then I think we may see another price bump, actually.”
Interest from first-time buyers continues, although deals can take longer to close. At the same time, seasoned buyers are returning, says Suzanne Meiners-Levy with Shareholder Consulting Legal Group in Tampa, Florida. Paul Kirby, QS Partners executive vice president, agrees that pricing seems to have plateaued, although at rates 50%, and in some cases 70-80%, higher than in the past.
In late 2021 and early 2022, “anybody who tried to tell a customer what an airplane was worth was guessing, because we had never seen rates of appreciation like we were seeing over that three-to four-month period,” Kirby says. “Thanks to a little bit of a bump in supply … we’re finally starting to see some of those values plateau. I think for the first time in six-to-nine months, we can now finally at least tell customers what their airplanes are not worth. We’re starting to see some of those markets finally have a real ceiling.”
Higher pricing may be a new normal, however. Today, “we’ve gotten away from using terms like ‘bubble’ and ‘inflated’ and ‘market hysteria’ and all the words that I think all of us were using in the last two quarters of last year,” he says. “This is simply the new reality. If you want to participate, this is the market, right? There’s ample number of buyers willing to pay the number if you’re not.”
In late March, about 40-to-50 aircraft came onto the market. For sellers, “it sure feels like there’s a lot of … ‘I’ll sell my airplane if I can get a time and a half what it may be worth,’ ” Kirby says. In the meantime, buyers want to focus on aircraft pedigree to protect themselves from any future corrections or downturns.
Many U.S. buyers, however, are now willing to consider an aircraft from parts of the world that once they were not willing to consider, says Zipporah Marmor, ACASS vice president of aircraft transactions in Montreal.
“If an aircraft had been based in China at any point in its life for any length of time, it was an automatic no go,” Marmor says. “Those aircraft are now back on the table, and there’s a lot of aircraft coming out of certain regions, and we’ve been able to capitalize on that.” Buyers also are considering aircraft that are older than they once would have contemplated, she says.
The Russian-Ukraine war has not decreased demand, Marmor says. But it does mean that buyers must be cautious. “We have seen, obviously, somewhat of an uptick of supply especially from aircraft coming in from those reasons or from potentially sanctioned areas,” she says. “That’s going to have to be very, very carefully maneuvered. Some clients are interested in exploring those options; some are not very interested in exploring it.” It’s a question of due diligence, homework and protecting clients to ensure a transaction is free from liabilities or negative outcomes, Marmor says. The war has increased the availability of service centers, however, especially in Europe, able to perform maintenance or pre-purchase inspections, she says. Manufacturers and service centers have taken a cautious view and stopped work on aircraft with potential ties to Russia, she says.
The additional availability has been a benefit for getting deals closed, Marmor says. In the meantime, the pandemic has shifted views of aircraft ownership. Before COVID-19, owners, facing pressure from shareholders and customers, were looking to sell because of the negative connotation to aircraft ownership, she says. That has changed. Now, “it’s about safety,” Marmor says. “It’s about getting their people where they need to go safely and effectively. The concern about that negative perception has somewhat gone to the side. Those clients are looking to increase their fleets or upgrade their fleets. We also have the high-net-worth individual who’s doing his first airplane and before he would charter on occasion or fly commercially for certain trips. And right now, they don’t want to do that, especially internationally with the restrictions and changing restrictions. It’s just too cumbersome.”
Kirby says first-time buyers are entering the market and buying larger aircraft. But they don’t always know what aircraft ownership entails. “Buyers say, you know, ‘I’ll buy a Global 6500’, and they have very little airplane experience,” Kirby says. “They have no idea what it takes to operate that 6500, but that’s what they want to do. I think you can’t overstate the amount of wealth that’s been created in the United States over the last 24-to-36 months… The number of new high- new-worth buyers, that’s absolutely the majority of our buyers, and they’re all buying big, new modern expensive airplanes.”
With all the new owners entering the market, there will likely be some who realize that aircraft ownership is not for them, Marmor says.
“It’s one thing to buy an airplane; it’s another thing to own and operate an airplane,” she says.
“I think there’s going to be a kind of reckoning … It might not be for everybody to stay in ownership.”