In this second half of our two-part series on jet sales, we’re offering up some valuable insights on this complex process.
In fact, there are a whole host of things you should consider and plan for before you list your business jet for sale.
Current Market Conditions
It’s likely a given that the most changeable and unpredictable aspect of jet sales involves the “context”—the environment—in which you plan to sell it.
So just what are the market conditions surrounding your efforts? Is demand for jets surging with just a few aircraft available on the market? Or do current circumstances find a glut of jets lingering for sale in a marketplace with, seemingly, just a few interested buyers?
It’s essential that you consider what is realistic for the market.
Keep in mind that people who buy airplanes are a lot like people who buy houses. Meaning that when they look at what’s out there, they don’t have the time or attention to go really deep into the nitty-gritty; they don’t weigh the subtleties of every product over those of all the others.
They’re not going to examine every last detail of every house on the market. Instead, they’re going to look at what’s available, narrow their choices that appear to fit their needs and interests (and pocketbook), and go deep on those.
Remember: if what you’re selling misses the cut on the original two or three your buyer has “gone deep” on, it’s likely due to pricing. Pricing is the biggest aspect of your sale that you can dictate and control.
Here at Guardian Jet, to help with this critically important factor of your sale, we do pricing memos based on our proprietary market surveys. These surveys, based on each make and model, give us a clear picture of current competition, where it’s based and what’s most desirable. For instance, G450 has had a lot of recent activity.
Using our survey, an aircraft owner can review the number of recent sales, most of which are in the sub-$15 million range. When we list a higher-priced jet—say in the $16-$18 million range—we still have to be aggressive, and come up with a marketing plan that addresses the market volatility. If you’re priced incorrectly, you’ll sit there forever. Your jet will turn stale on the market and become stigmatized.
Beyond this fundamental consideration, though, there are many other market-oriented issues that you need to review: realistic pricing expectations, market trending, recent sales, etc.
Aircraft Replacement Strategy
Optimizing the market conditions becomes tricky when you’re involved in a replacement strategy: that is, selling your jet aircraft to upgrade to another.
Going back to my example of a home buyer, the situation might be such that they have to sell their current house before they can purchase and move into another one. As we all know, it can make for some very nerve-wracking timing/pricing issues.
So, the question is, how do you work to your benefit the timing of your sale and replacement?
At Guardian Jet, we have clients who clearly cannot operate their business with one less airplane. Still, however, we recommend putting your aircraft on the market a little early so we can take the necessary time—perhaps a few months—to find a buyer.
Of course, that’s where pricing enters into the equation.
How to Price Your Aircraft
In our practice, we like to price jets such that they tend to sell between 60 and 120 days.
In that calculation, you have to assume that it’s going to take 45 days to execute the Letter of Intent (LOI) to closing. So that means we’re looking find a buyer within the first 45 days.
The pricing strategy to sell in 60 to 90 days—in a highly active and robust market— involves positioning your jet as one of the top five best values in the market. Note: If your aircraft is for sale in a market with slow turnover, it had better be priced so attractively that it’s the first one to sell.
So, you need to calculate what is your 60-, 90-, 180-day sell price. Just like a home seller who needs to get out of his or her house today, in order to make that happen, what’s it worth? In airplane markets, where your residual value is falling every quarter, the 60-day price is the best price you’re going to get.
Let me give you an example: let’s assume we have a situation in which markets are falling a million dollars per quarter. And let’s say your jet is priced at $12 million. That means that even if you sell $100K under retail in the 60-day time period (at $11,900,000), you will still be better off because you know that, in 90 days, the market conditions will dictate that the best price you’re going to get is $11 million.
As I said, at Guardian Jet, our strategy is to sell between 60 and 120 days. Of course, you have much more control if you’re willing and able to sell first and buy later. While there’s a lot of activity right now in the pre-owned market, there’s a lot to look at. You have more control over buying the best airplane for your needs.
How About “Buy First, Sell Later”?
We just ran through a scenario in which we needed to sell first and buy later, but how about the reverse?
Let’s say your business cannot tolerate the jet you’re replacing to leave your hangar before its replacement arrives because you need a certain number of airplanes at any given time.
One thing that can really help is if you happen to have a broker who’s working for both sides of the transaction.
Using one broker gives you the advantage of working both sides of the equation: if the time is advantageous for you to think about buying under the current market conditions, then a broker can help you sell, too.
Using the same team can help you streamline the process and identify opportunities that save you money.
The team members (and that includes you) should be willing to listen to one another. As brokers, we’re pretty darned accurate most of the time. So, you might in fact be the smartest guy in the room, but it’s important to stay open-minded. Look at the information and data that hopefully have been provided to you, and use it.
Prepare for some flexibility in how or when you’re going to sell, and when your replacement jet is going to come. Unless you’re willing to trade (not get retail for your sale), you can count on the fact that your old plane is not going to leave when your new plane arrives. (We’d all love it if, as a new one is rolling into the hangar, an older one is taxiing out to go to pre-buy and close!)
But, generally speaking, you probably need to prepare yourself—and make sure you’re willing to accept the fact—that, for a while at least, you’re going to own one fewer or one more airplane. Of course, it will affect your budget, but will it cause hangar issue? Are you willing to charter?
Here are some things to consider:
- Pre-buy Process – Once you accept an offer, your aircraft will leave your hangar and go through a “pre-buy” process, which can take three to four weeks. Similar to a home inspection, your aircraft will be offsite at an aircraft maintenance facility for inspection and the new owner will be able to review your logbooks. And, if all goes well, the aircraft will never return.
- 1031 exchange – If you conduct a “1031 exchange,” you can buy a replacement airplane first with the intent to sell your current jet within 180 days. But you’ll suffer tax consequences if you sell after the 180-day time-frame.
Keep in mind that the data on what’s selling are really important (not just the hours flown, but the condition of the aircraft interior).
For example, if you’re selling an atypical interior or configuration, it might not appeal to the masses, so you might have to take a hit on price. Once you get past this thinking, it’s probably a deduction in value. Is it easier to fix before you sell?
An aircraft’s layout is very costly to alter. Everyone has their own idea of what the perfect layout is, but there are some standard, generally acceptable ones. We don’t recommend changing your aircraft’s layout before you sell it (you might not make it perfect), but you’ll have to take the interior layout into consideration when pricing the aircraft.
What is the market telling you? There are plenty of buyers willing to kill on price, and come out with the perfect airplane. There are certain buyers that want to do their own thing.
If you don’t plan to update a seven- or eight-year-old interior, you have to consider it in your pricing. New paint and a new interior make a plane sell faster. How important is selling quickly to you? What’s the market doing? At Guardian Jet, we believe there isn‘t one right answer. Each situation is unique so we help you make your decision using the data available at that time.
In this and the last blog, I hope I’ve given you several things to ponder if you’re planning the sale of your aircraft. Fundamentally, selling your jet (or buying one) can never be a snap decision, and the factors influencing whether you come out on top of the transaction (or not) are as numerous as they are critical.
What’s been your experience with jet sales? What considerations might have arisen that surprised you, or what did you learn throughout the process? We’d love to hear from you in this regard, so please get in touch and share your experiences.