It has changed.
by Jay Mesinger
about 10 years ago when the publishers of Aircraft Bluebook
called me to ask about how they should deal with the
valuation of aircraft that have higher time due to their use
in fractional programs. Imagine that concept! Newer planes
with twice the hours. What to do? How to differentiate these
aircraft from the rest of the fleet? It was a fair question.
Should they have a separate column? Should there be an
entire new section of the book?
the most complicated question they had when trying to set up
segmentation in the pre-owned market. I do not mean to
oversimplify the very difficult job they do. They have to
set up many other factors that denote value differences,
such as engine programs and modifications, but even though
it was complicated, the segmentation was simpler. There was
pre-owned and then there was a segment of pre-owned that was
higher time due to a new use pattern.
ahead to today. Hold on and get out a scorecard. Things have
changed. In the good old days, one hardly ever really
compared new to pre-owned when thinking about the
valuations. Not anymore.
is a significant segment to be valued. Remember when you
compared new aircraft by just mentioning them in passing?
There were those that bought new, and then there was
everyone else. Remember when you considered new, yet you
knew it never really impacted the value of pre-owned? After
all, new was something we in the preowned resale business
knew existed, but never really bumped into. That isn’t the
case anymore, so let’s look at the complexity of the
segmentation in today’s market.
We have the
new. Most manufacturers’ backlogs are now exceeding 24
months. I just ordered a Global XLS and it is 33 months
until delivery! So guess what? A new segment was just
created - the ‘near-term new delivery’. That’s right, the
new aircraft from the secondary market with a delivery of
six months or less. I am seeing 20 percent premiums paid for
these aircraft that are priced in the $30,000,000 to
So we have
the new, the new near-term deliveries, and now let’s discuss
the ‘likenew’. These are the aircraft that are filling up
most of the wanted ads in publications. Even the
manufacturers are advertising for these planes. As the
backlog grows, buyers are pressing the manufacturers for
interim lift. This is putting huge demand and pricing
increases on the like new aircraft, aircraft that are only
one to three years old and have less than 1,500 hours. This
is not a momentary demand. This demand is sustainable. This
demand is worldwide. This demand is real.
it end as one works their way down the food chain?
real segment that now exists is ‘the traditional pre-owned’,
that segment that is, of course, enjoying some of the
benefits of globalization in our market. It still enjoys
full manufacturer’s and lenders’ respect and support, and in
most cases the products that are in the traditional
pre-owned arena are still current model aircraft. They are
the three to 15 year old aircraft that have, for the most
part, less than 5,000 hours and current technology.
still a very robust segment with several really good years
of predictable value left. These aircraft are enjoying a
boost in value at a rate that owners would be proud to brag
next, however, is not as pretty and nowhere near as
predictable - ‘the aging airframe’. This segment is
struggling to maintain value for many reasons. This is the
20-plus-year-old segment of our fleet. Inefficient engines,
older technology, and airframes that do not enjoy the
manufacturer’s full support make up this segment. Typically,
we always used to feel there would be a “life after us” by
sending them south.
Jetstars, Lear 20 series and even the older Hawkers and
Falcons were sure to find homes in third-world countries.
But that’s not a sure bet any longer. Today that segment
struggles to have selling times that are shorter than one
year, at prices that resemble anything above salvage. Sure,
the really low time for the year with great pedigree might
fetch a little shorter selling cycle and higher price, but
abounds. Buyers, sellers, lenders and insurance providers
view the segmentation. Believe me, it is no less confusing
on the top end with 20% premiums as it is on the bottom with
salvage value prices.
So what is
the take-away from this article? This market for the
foreseeable future is complex and must be approached with
open eyes. Priorities have changed and expectations are
different. Sitting on the fence in either extreme could cost
you more than being in play.
In fact, I
actually heard a manufacturer contemplating a desire to sell
aircraft that buyers had, for one reason or the other,
turned back into the manufacturer prior to delivery for a
premium, thereby capturing the secondary near-term delivery
market rather than losing those dollars to people selling
their near term position themselves.
This is all
leaving buyers, especially first time buyers, scratching
their heads. They are concerned and frankly, often put off
by this market. I wish that I had a take-away that came from
a crystal ball. None of us do. We are all tagging along for
the ride. Hold on, this market ain’t over yet.
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.