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Jay Mesinger
Questions & Answers
April
24, 2006:
Q: Is there a relationship between the backlog of new
aircraft from the manufacturers and the high price of
like-new, pre-owned aircraft?
A: There is an absolute relationship between the two. I
polled all of the major turbine airframe manufacturers
recently and they're all reporting the longest sustained 24
plus month backlog in their respective histories. In some
cases the backlog is as long as three full years.
Recently, I took one of my clients to demonstrate a Global
5000. At the end of the demonstration my client said: "Sign
me up!" "Great," the salesman said, "we can deliver that to
you in three years." My 67-year-old client looked at him and
told him he needed the aircraft for his business today, not
when he's 70.
So goes the dilemma of the backlog and the relationship to
current high pricing of like-new, pre-owned aircraft. As a
result, my client instructed me to go into an equally as
tight pre-owned market and buy a airplane today. Our
purchase price was high, based on a premium we had to pay
just to get an aircraft today, albeit pre-owned.
Those aircraft are either not being taken delivery of by the
ordering client but are released by that original client
into the open market, or just prior to original delivery,
are carrying a significant premium. Aircraft with low time
and recent year model are also being elevated in price just
due to availability. Is it bad? Are you paying too much?
That is a question only you or your client can answer based
on the need and desire for immediate lift. Will the market
respect and allow you to hold this value as a residual value
component? That will greatly depend on the future market and
the manufacturers sustaining this long backlog.
Q: I have read a lot about the newly enacted Cape Town
Treaty. Most of what I hear is negative and onerous. Is that
the whole story?
A: This is basically an international registry for aircraft.
The implications of this do cause an additional cost for
international title searches because it causes an increased
cost for the registration process and a slight delay in
process.
In the past, you could just fill out a three-part
registration form, put the pink copy in the plane, send the
rest to the FAA, and away you went. I don't think, however,
that this treaty and the corresponding protocol are as
problematic as often described.
For the best answers with the most accurate implications for
your personal situations, you should either consult an
aviation attorney or an aviation title company. Mostly, do
not wait until the last minute and think the process is as
quick as we are all used to.
As soon as you get an offer to sell your plane or as soon as
you identify a plane to purchase, make the calls I just
suggested and get familiar with the process.
Here is a link to useful information regarding the treaty:
http://www.house.gov/transportation/aviation/04-29-04/04-29-04memo.html.
It is law and it's been in place since March 1, 2006.
Playing like it does not exist or it will go away would not
be wise. Learning about it and incorporating it into your
buying and selling protocol would be wise.
- Jay Mesinger
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