There is little consensus on what steps Donald Trump will take first as US President. His candidacy included central themes encompassing lower corporate tax rates and renegotiation of some major trade deals. American Aircraft Sales president Jet Tolbert reflects on possible opportunities for buyers of used jets for sale in 2017…
Lower corporate tax rates would have wide-ranging benefits within the US. We could expect corporations to have more money available for expansion, debt reduction, infrastructure and capital. Business Aviation flight departments are already beginning to think ahead.
Yet there are questions to be answered. For example, will Trump’s anticipated ‘protectionism’ lead to freer, lower-cost cross-border transactions, or will they have an adverse impact on International trade? Will countries like Brazil, which has traditionally been discouraging of US Business Aviation imports, see a mutual advantage in lowering their up-to-28% import taxes, in order to move more Embraer jets stateside?
Lenders, generally, are awash with cash but their lending standards are higher now than a decade ago. Will Trump’s tax and tariff policies make more firms and HNWIs eligible to finance purchases at more attractive rates? And will Trump be able to convince the EU nations that their (minimum) VAT on US imports is a bad idea?
If taxes and import-export rules do change, they certainly won’t be happening overnight.
What can happen overnight is a change in interest rates, however, and currency realignments as have occurred in Brazil, Russia and China.
Perhaps the tariff policies will not materialize and overseas companies won’t be impacted, but one would expect to see changes to foreign policy with some impact on international companies that, in turn, will be overleveraged and forced to liquidate some of their newer aircraft still being financed.
Many flight departments have been holding on to their business jets for longer periods of time on average (compared to pre-recession averages) or have reduced the size of their fleets. Now if billions of dollars were to flow back into US corporations, it could spark a buying spree, which could generate price increases in used jets ‘For Sale’.
As we embark on a New Year, and with a re-negotiation of the North American Free Trade Agreement (NAFTA) high on the incoming US President’s agenda, Mexico in particular could be the source of some great deals on Light to Mid-Size jets. When sanctions were imposed against Russia, Russian owners sought to liquidate assets as the Russian ruble fell. Could we see similar outflow from Mexico?
Many of Mexico’s newer, financed Light and Mid-Size jets are internationally registered. But they are overwhelmingly maintained at US factory service centers.
Trump is sufficiently sophisticated to know that the US business jet landscape is built around OEMs with strong International roots. Cessna and Gulfstream have engines and parts imported from around the globe. Learjet is part of Bombardier (Canadian). Boeings are made all over the world, while Brazil’s Embraer Phenoms and Legacy 450/500 are assembled in Florida.
2017? Act Now!
So, what’s my point from all of the above? If you find the aircraft you need, and you can arrange financing, don’t wait too far into this New Year – step into the market now.
We recently watched lending rates rise from 3.169% to 3.969% as we negotiated the delivery of one used jet! When you’re dealing with years of financing and millions of dollars, timing is paramount. Wasted time can kill a deal.
When the Chinese market realignment caught everyone by surprise last summer, we watched a ‘done deal’ evaporate. Escrow was lost; business relationships were soured; flight departments scrambled; and inconvenience rained down on everyone on both sides of the deal. It was nobody’s fault, but a day or two quicker would have bought a successful deal for everybody.
As of the beginning of 2017, we’re faced with the choice to follow our plans through or delay them. The Dow Jones stock index has reached new highs since the election.
There are smiles on long-suffering faces. Money is available at near-record low rates. In the used jet market inventories are sufficient in every segment of the market.
Will interest rates rise? If they do, will that dampen this new enthusiasm? Will the dollar continue to strengthen – and if so, will it matter? One economist will say ‘no’, while another will say ‘yes’.
This is a New Year – and used jet prices are probably as good as you’ll see. This is a great time to act.
