The Differences In A Downturn
by Jay Mesinger
I wrote about how to detect a changing market. As usual it’s
about supply, demand, and increased days on the market,
factors that are easily recognizable and still allow all
participants to continue to find buying and selling
opportunities with only slight shifts in strategy. Then the
article reflected the accurate data points that one should
use to anticipate and work with change.
all that, I wanted to try to draw some parallels between
this upcoming market shift and shifts gone by. The
precursors to the shift all seem similar - some financial
market meltdown. In 2000 it was the Dot- Com calamity,
followed immediately by 9/11.
In fact, I
Googled the Dow from 2000, and on March 7th of that year
there was a startlingly similar headline to what we’re
seeing now. “A surprise profit warning from one of Wall
Street's big blue chips prompted investors to dump so-called
old economy stocks Tuesday, pushing the Dow down by nearly
375 points.” The article went on to describe the NASDAQ
flirting with, but not reaching, the 5,000 mark! Honestly, I
had blanked out the huge fall of the stock market in all of
its sectors during that time. Imagine a NASDAQ at 5,000 and
all of that technology money whisked away. With those losses
went the aircraft market momentum.
catastrophic and there was no way to minimize or speak
lightly about the real losses suffered by many. The effect
on our aviation market was significant. In every segment,
prices went down, and in some segments the decreases were
very significant. In fact, manufacturer’s backlogs all but
disappeared. So what would be different this time around?
What might create some floor for losses in the aviation
segment? Globalization! It’s not, by the way, that I feel
this is some sort of panacea. It is just the reality of this
market versus any in our history. Let’s take a look at the
impact and the outcome.
It is never
easy to buy into what could look like a declining market. No
one wants to leave money on the table. Why buy now when
waiting might yield you a better price? We are hearing those
and other similar sentiments every day in our office, and
sellers are equally as vocal as buyers. “There is no way
that I am going to sell my plane at a loss.” “There is no
way that I am going to take less than I owe.” “There is no
way I can afford to sell at that price.” So now we have
shaped the feelings on both sides. It really all sounds the
same, but something is different.
mentioned above, the difference will be the global market
that exists today that did not exist just five years ago.
Will it solve all ills and keep prices high and firm? No.
Could it soften the freefall of prices that we have seen in
past downturns. Yes and no. This will depend on the segment
of the market into which your aircraft falls.
mentioned many times in past articles about the segmentation
that exists as a result of this world expansion for
aviation, let me remind you where the appetites are. First
and foremost, emerging markets like Asia, Russia, the Middle
East, Africa, and Eastern Europe all want new, or as a poor
second, like-new aircraft. This period in our short aviation
history has the manufacturers taking orders and delivering
new aircraft to all of these markets just named. In fact,
now upwards of 60-70% of the orders taken are not from
United States buyers. These backlogs, depending on the
manufacturer, represent deliveries for the next 3-5 years.
Never before have we experienced this book of orders.
mentioned, in the last downturn that many, if not most,
manufacturers had aircraft sitting on their ramps ready to
be striped and delivered, and production had been turned way
down, if not off. This current backlog, even if adjusted by
canceled orders by 20%, leaves a sustainable, survivable
future for the manufacturers and, in fact, will still leave
them with annual growth.
like-new aircraft, those that are no older than five years,
and with no more than 2,000 hours, will also continue to be
soughtafter and their values propped up by this
International explosion. Premiums may be shaved to more
realistic amounts but I do not believe, given the numbers of
the new aircraft being delivered annually and the available
like-new aircraft that fall right behind, that they will be
sold at anything that resembles deep discounts.
So as a
buyer lurking for a deal, be sure you have the right
expectation so that you do not miss a deal. It will not be
50 cents on the dollar! There is no rational reasoning, even
in irrational times, for prices of this segment to drop in
those areas. Find a seller who is respectful of the changing
economy and is prepared to take a lower number than a recent
transaction netted and work closely with them. If you are a
real buyer who needs the plane, not just someone that is
buying bargains with no real need for the asset, you may
walk away with a better deal than has been available.
market may not be so kind will be with the older, less
globally compliant aircraft. The future of aircraft such as
those that are out of production, are not fuel efficient,
require significant investment in order to meet the
regulatory requirements , and that have been flirting with
noise issues, will rest squarely and solely on our U.S.
advice here is this: If you no longer have the need for the
aircraft and selling is the right answer, get into the
market now and get in very pro-actively and aggressively. Be
a smart listener when approached by a buyer. Giving the
buyers a reason to sit back waiting for worse economic
conditions will only create the very prophecy that is
driving the buyers today.
Jay Mesinger is the CEO of J. Mesinger Corporate
Jet Sales, Inc. He is on the NBAA Board of Directors
and is Vice Chairman of the AMAC. Additionally, he
served on the Duncan Aviation Customer Advisory
Board for two terms, is a member of MEBAA, EBAA
and is associated with IBAC.