How To Detect A Breeze
In The Air
by Jay Mesinger
I have a
host of old clients and new prospects calling me saying,
“We’re in a recession, call me with deals.” Then they go on
to say there is no way they would buy now, because they’re
sure prices will tumble.
There is no
question that economic changes are taking place. Significant
ones. Changes that are rocking certain segments of our
economy. Taking heed to these changes and paying attention
to evidence of such is of course vital for any industry
segment, and no different in ours. In response to this, I
want to point out some obvious indicators in our industry to
watch for, and some not so obvious. I also want to point out
one way that certain segments of our market can broaden the
appeal of their aircraft, and some things to think about in
order to provide a possible hedge to future and current
values.
Many of the
indicators that any market would use to judge change also
exist in the aircraft industry. Supply and demand comes to
mind first and foremost, but I’m not seeing large shifts in
supply. I do, however, see a few extra planes in certain
categories being added to the ‘for sale’ supply side. You
can look at the sellers of these added planes and see that
they are following the segments of the industry that are
being most affected by the overall economy. So there are no
surprises or startling trends being developed there.
Another
example of change in the market is the amount of time an
aircraft is on the market. Again, in changing times, buyers
might say they’re not going to pay “that kind of retail
number,” and correspondingly sellers say there is no way
they’re going to drop the price “that far” just to have a
sale. Hence the number of days that it takes to sell a plane
increases.
I have
likened this in past articles to a high school dance. Girls
are on one side of the gym and the boys on the other, and no
one has the courage to step to the other side to ask a
partner to dance. But I’m not seeing this shift occur
either, and have seen a fairly constant sales lead time.
Keep in mind that the lead times are always lengthened or
shortened by the actual offering. The new or like-new
aircraft sell very quickly and the older aircraft with less
international appeal take longer.
Lastly,
prices are a key indicator. In times of real change the
sellers will ultimately start to cross the gym floor to ask
a buyer to dance. This comes from sellers finally needing to
sell and creating the demand by lowering prices, yet I’m not
seeing this occur either. So supply does not seem to be
changing, selling lead time is not changing, and hence
prices are not being used to create demand.
In terms of
some of the less visible indicators, the pace with which
manufacturers are taking future orders can be evidence of a
market shift. Yet, as I speak to them, I am not hearing the
backlog change in any direction except longer! I also
continue to hear the manufacturers’ backlogs and current
deliveries being 60% international. In fact, the migration
of our fleet to other countries is really a more threatening
problem than the US economy, one we as a group should
consider when weighing the issues.
Once the
fleet leaves us, will it bring a return of high prices due
to shrinking supplies? Not an immediate problem, but one of
which we must continue to be aware. On the other hand, with
this new and astounding international growth and appetite,
who would say no to a high price offer from an international
buyer?
So how do
we hedge our value bets? One way is to have your newly
purchased aircraft JAR Ops Certified. It may cost slightly
more today in options, but without this certification it
will cost you considerably more in the future in lost
opportunity for global appeal in resale.
In a sense,
we will create this self-fulfilling prophecy by equipping
our new planes to meet global standards while planning an
exit strategy that includes selling it abroad. Interesting
competing priorities.
To sum this
all up, the sky is not falling. The breeze everyone might
feel actually has some appeal compared to the stifling hot,
still air we have been experiencing, and the change in the
air is not hurricane season. We always hear that when the US
sneezes the rest of the world catches a cold.
We can wake
up every day and watch the world market results from the
night before, then watch the economic pundits predict a wild
ride on our market today. No doubt the economic connection
has global reach. The sheer size of these emerging markets,
however, compared to the number of planes that are in our
universe, do create a greater market to absorb these
aircraft than ever before in our collective history.
The sheer
size of our market should keep the winds to a minimum and
our values better than in previous market shifts. I’m not
planning on making a mantra out of change, but I do plan on
watching and reporting on the areas of the market that I
pointed out in this article.
When I
sense a need to report on these important segments based on
occurrences that feel or look like trends, I will. Having
been a participant in this industry for 34 years, I have
seen and can identify these changes as they come about.
I want to
be very careful not to misinterpret occurrences that are
normal fleet aging and transitory change as people take
deliveries of new aircraft and put the old ones on the
market. I will carefully watch the activity and report
accurately. Thank you in advance for your confidence to
report these important indicators.
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 AMAC. Additionally, he is on the Duncan Aviation Customer Advisory Board.
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