Lately, I have been
reading differing reports about the used aircraft
market. In one magazine alone there is an article that
says asking prices are firming, and within a few pages
there is an article that says asking prices are going
down. Some reports show inventory levels rising while
others show inventory levels shrinking.
During December, both VREF and Bluebook will put out
their Winter Editions to report valuation changes,
thereby adding two more voices to the conversation.
There are so many market indicators, but which ones
should the buyers and sellers be watching? Within this
article, I would like to address some of those
indicators so buyers and sellers do not miss the right
ones - and as a consequence, the opportunity for buying
First, let’s talk
about ‘asking prices’: The source of the asking price
input is a ‘Free in- Pay out’ service. This means that
anyone who can verify that they have an aircraft for
sale can have their aircraft or listing added to the
service at no cost. Brokers and dealers use this
excellent resource in a paid subscription service, thus
the phrase ‘free in and pay out’.
‘Free in-Pay out’ is a great tool for brokers and
dealers who can have access to that information, but
here is the problem: One such service reported recently
that asking prices were still going down, but in reality
most sellers do not have asking prices, instead inviting
interested parties to “make offer”. Consequently there
are a limited number of sellers that even report their
asking prices to these services - and they alone cannot
be true indicators.
The real indicator is the price that airplanes are
actually selling for - and in our industry this
information is hard to accurately acquire. It is
certainly not readily given to the “Free in-Pay out”
services. These numbers are often only told between
brokers with established relationships and with a quid
pro quo understanding. So when asking prices are
lowered, it often reflects the sellers who are adjusting
asking prices to capture the reality of the market - not
a true snapshot of what the markets are actually doing.
It simply shows that the sellers making the adjustments
are choosing to actively get in the game!
To gain an
insightful understanding of whether asking prices are
trending down, one would really have to analyze each
offering and make a judgment about the starting place of
the asking price. Was it a realistic asking price that
is being lowered in expectation of a lower sale price,
or was the seller simply lowering an asking price that
was far too high for the market in the first place?
Inventory levels can
also be a confusing measure. Alone, they cannot
demonstrate an increase in real supply or a diminishing
level of inventory. Sellers list their aircraft for
various reasons, and not all of these are to sell the
aircraft. Often times the listing is for optics. In
fact, sometimes the aircraft that are listed with high
asking prices are also the aircraft that get removed
from the market.
Services that track
inventory levels do not report on the reasons the levels
drop or increase - they just report on the total number
of aircraft for sale. There is a much more important
indicator to watch, and that is actual sales in each
category and how those sales contribute to the inventory
level adjustments. In reality, ‘Free in-Pay out’
services do track transactions, and they do a great job
with the limited information to define the transaction.
They show retail transactions; they identify lease
transactions; and they show new delivery transactions to
name just a few of the transaction categories.
Unfortunately, however, they do not always connect the
inventory level discussion with the transaction
discussion - and this disconnect can create confusion as
to the reason levels are changing. So how can you take
so many reporting tools and make sense out of them as a
buyer or seller?
If you are a buyer,
the timing should be centered around need: Once the
value proposition of buying elevates to a place where
not utilizing Business Aviation is a hindrance to
company growth, then it is time to explore the
opportunities available. As a seller, once the decision
to sell the aircraft is made, the plan should be
formulated to understand the current market conditions,
price the aircraft accordingly and market the aircraft
One thing that is
true about today’s market: it is getting better, based
on increased transactions - but prices in most
categories are still soft and not firming. There are
also fewer buyers than pre-downturn.
How should these
facts direct the seller? Today, sellers must be good
listeners. Certainty of a sale being completed is as
important as price. Be open to buyers and their specific
needs. Buyers’ timelines may be longer than in years
past, often due to lenders’ protracted processes which
adds significantly to start-finish timing. What used to
take a week can now easily take four-six weeks.
Conversely, as a buyer, be sensitive to the need of the
seller to have certainty in their transaction planning.
In essence, this is
a great time to buy, and for a seller there are
transactions taking place. I used to liken declining
markets to a high school dance: Buyers were on one side
of the gymnasium and sellers were on the other and no
one was really dancing. Today transactions are taking
place - there really is a dance.
If, as a buyer, you think waiting will net a better
purchase price, all you may really miss are the best
airplanes and be left with something other than the