One, Two, Three - Lift!
By Jay Mesinger
Having returned from NBAA 2010 in Atlanta, I
was struck by how similar the conversations were from group
to group. One in particular was, “What can we do to help the
pre-owned inventory prices recover?”
This familiar mantra was spoken by the
aircraft manufacturers as they lamented about the disparity
between the pre-owned and the new aircraft prices. For them
there was such a large gulf that buyers have found it
difficult to justify paying the higher prices for new
aircraft, thus creating a slower recovery for this segment
of the market.
The next very vocal group was the paint and
interior contingency. Until prices stabilize people are not
as willing to invest in expensive cosmetic modification
projects. This, too, produces a large segment of our
industry with a slower-than-hoped-for recovery path. Avionic
modification companies have the same concerns, as lower
prices are keeping additional investments from occurring at
a pace they had hoped for.
So what is the answer? I wish it were as easy
as waving a magic wand. This is a multifaceted problem that
will take a multi-faceted solution.
For many, the perception was that the problem
stemmed from the brokerage community. People actually felt
we held the key to the decline in aircraft pricing and that
we single- handedly held the key to the recovery as well. I
only wish we were that influential in the market. Often, all
we can do, as aircraft sales professionals, is hold on for
the ride. After all, if given the choice, who in the world
would ever work to have a market go down? We have far bigger
incentive - as commissioned partners - to sell a more
expensive plane over a cheaper one.
Have you ever seen a circus act where people
are standing around a tarp and collectively they raise the
tarp off of the ground throwing the clown in the air? If
everyone is not in sync and only one or two lift while the
others do not, the clown would not be thrown into the air.
It takes the coordination of everyone lifting
at the same time to bring enough energy in order to have the
desired effect! I believe the same is true with regard to
the current aircraft market. There is no way that brokers or
dealers can declare prices need to rise and they will.
However, if the collective market starts to lift all at
once, on cue, the market could begin to gain its footing,
and prices could start to firm rather than decline.
I must say that I do not foresee any more
double digit declines in the market, though I do see some
segment-specific areas where prices still have some single
digit declines ahead of them. Now let’s talk about who
should be grabbing the tarp and lifting:
First and foremost, the current aircraft
owners have a huge responsibility in the lifting
process. After all if the condition of the aircraft is not
good, or if maintenance has not been kept up, then this
alone will be reason for specific aircraft not to meet the
high standards necessary to create a firming of prices.
Lenders
too must take hold of the tarp. They must
help by defining value to the 20+ year old aircraft through
their willingness to lend on this segment of the fleet.
However, if the specific aircraft is not maintained to the
highest standards, lenders have every right to discriminate.
I have always said that not every plane is worthy of
financing, and not every buyer is worthy of borrowing.
Nonetheless, broad brush discrimination based on age alone
has been a huge contributing factor to the weakness felt in
many aircraft categories.
The next group needed to join the circle and
help lift our industry back up are the program providers;
SmartParts, JSSI, MSP and CSP Programs and ProParts
among them. These providers help instill confidence in
buyers that the aircraft they are purchasing has been
maintained to high standards, and that value will continue
to be preserved through enrollment in the program.
Avionic manufacturers and modification
providers
need to take hold and lift as well.
Their continued interest and investment in the fleets
will instill confidence in owners and buyers. I spoke
with many of these manufacturers at the show, and
they have every reason and desire to be a positive
influence on value-added items going forward.
As you can see, it is not the dealers or
brokers alone that can add value, we can only tell the
positive story that all the other industry players are
willing to write. We have a very exciting future and we must
all be a part of a strategy going forward that will
contribute to the fleet pricing recovery.
Historically, pricing recoveries are never
fast. In our last downturn of 2000/2001 it took almost five
years for prices to come back. Going forward, this current
recovery must be grounded on confidence in the fleet of
pre-owned aircraft being valuable and viable to provide safe
efficient air travel for years to come.
Just because a market finds a new bottom does
not mean it has lost its value or ability to redefine itself
from a new pricing perspective. As I walked the halls of
NBAA2010 this year I heard conversation after conversation
that spoke of optimism and hope for a bright future. It is
up to all of us to grab hold of our market, and on cue lift
it up off the ground: Ready? On three; one, two, three -
lift!
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