From AIN: Aircraft Brokers Weigh in on BizAv Market

Aircraft brokers weighed in on the issues facing the business aviation market at the recent NBAA Regional Forum in Morristown, New Jersey.

AIN asked Joe Carfagna, Jr. of Leading Edge Aviation Solutions and Michael Dwyer of Guardian Jet for their views on the state of the market.

 

 

Joe Carfagna, Jr.: The markets in general feels like they’re starting to tighten up a little bit. And, in some cases, they’ve already tightened where the supply of certain makes and models is becoming a little bit more scarce.

This is refreshing because it’s really the first time in about 8 or 9 years that we’ve seen this happen.

It feels right now that residual value versus what new pricing is, in most cases, is at a very attractive point in the pre-owned market and that’s why this supply tightening is starting to occur.

It doesn’t seem normal that, in some cases, the airplanes can get to a residual value that we used to see at 10-years-old they’re getting it at 5 and 6.

 

Mike Dwyer:  The pre-owned market has been extremely strong for the last three quarters, and I’m not even counting third quarter, but 4Q—election-year. Activities are up. Volume is up.

We’re seeing the most activity in the longer-range equipment, the international equipment (e.g., Gulfstream, Bombardier and Dassault), and also the super midsize—what I call the flat floor—the 3,000-mile airplane that’s a great U.S.  domestic workhorse.

We’re seeing inventory dry up in a number of acquisitions in all those markets, which hasn’t happened for years. We’re getting airplanes bought out from under us. So that’s a very different thing.

The other thing is pricing.

We’re not predicting pricing going up, but we’re predicting it’s stabilizing.

We’re starting to hit the mark on what we project the sale price or the purchase to be when we get to a closing. Where we’d been kind of behind the 8-ball, catching a falling knife since 2008. So that’s a big improvement.

I’m not a great economist. I don’t see a GDP-fueled recovery. I think the political landscape has inspired a lot of confidence. And that middle-class buyer, the $100M to $500M company, all the way after the high net-worth individuals, are just confident now and saying, “this is time to get in.”

 

AIN: While demand is going up and inventory is becoming more scarce, so far, this has been primarily in the US market.

 

Mike Dwyer: I think there’s more U.S. confidence. I don’t think we’re seeing a swell yet from international. There’s some signs of international reawakening, but it’s not robust yet.

 

Joe Carfagna, Jr.: Well, primarily right now the buyers are in the United States. There are some overseas buyers, but as a rule of thumb most of the buyers are here. So the buyers that are here would like to buy airplanes that are here.

The U.S. airplanes are getting sold first. That will leave the foreign airplanes to be sold next, and it remains to be seen how that really all plays out.

 

AIN: Possibly contributing to the improving market are customers who have been moving up from flying with services like fractional shares and jet cards.

 

Mike Dwyer: I love fractional programs. FlexJet. NetJets. I love jet cards. I love Wheels Up.

Because what they’re doing is they’re bringing the new airplane person into the market. But at a much better level of equipment and service and reliability than they had that option decades ago.

If a new airplane traveler is breaking away from the airlines, and starting to think about charter, he has so many more options. And that does nothing but feed the brokerage business because their demand increases.

It does this in two ways. Number one is just the natural accumulation of: “Hey this is great, I want to do more of it.”

But also now they’re spoiled. Now they’ve been on new equipment and near-new equipment with very high level of professionalism in the cockpit, and in the cabin, if they’re at that class of airplane.

 

AIN: And finally, if you’re an owner looking to take advantage of the improving market, Dwyer has a bit of advice keep your asset liquid.

 

Mike Dwyer: From a buyer or owners point of view, owning an aircraft is just like an asset in your portfolio.

I want you to buy smart, but I want you to have your end game in mind. I want to drive how you operate the airplane in the middle, within that whole life-cycle thought process.

I don’t want you to think about buying when you’re buying, and selling just when you’re selling. I don’t think that’s when you should meet your broker—when you want to sell a plane.

I want to convince you to do things that will maximize the value of your airplane, but also make it more liquid.

I like cash better than I like stocks, better than I like real estate—because of liquidity.

I like to make an airplane as liquid as possible, which means it’s not just current on its maintenance, but its interior has been regularly refreshed. The airplane is ready to go. All the regulatory requirements that are coming in the next year or two are done in advance.

Not, “oh sell it for less.”

The old strategy of “oh, I’ll just stockpile all the things I need to do to my airplane and sell it for less” doesn’t work in today’s market.

I love liquid assets.

That’s why I like engine programs we could talk for hours about engine programs and the cost effectiveness. It makes it a liquid asset. So that’s what I like about regular refurbishment engine programs and liquidity.

 

For more information, visit the AIN article: Pre-owned Bizjet Market to Stabilize, Experts Say

 

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