Some segments of the used jet market have changed to favour the seller over the past several months, notes Jet Tolbert. But does that mean it’s a bad time to be a buyer? Which are the market segments to watch in 2019?
Some segments of the used jet market have changed to favour the seller over the past several months, notes Jet Tolbert. But does that mean it’s a bad time to be a buyer? Which are the market segments to watch during the coming year?
Over the past two years the used jet market dynamic has shifted somewhat. As a result, corporate aircraft have been holding their values better. While aviation assets undoubtedly continue to depreciate, the US economy and the availability of unprecedented tax write-offs for buyers of new and used aircraft has provided some price stability while making new purchases and upgrades more manageable.
Those with the need for a business jet or turboprop are finding ways to use those tax incentives and make their next purchase at what is essentially a 20% discount (after write-offs). The US market will continue to enjoy the benefits of 100% tax depreciation until 2021.
But beyond the tax incentives, there are some additional factors coming to the new market that will impact on the used market, both this year and beyond…
New Products to Market
The new Gulfstream G500 and G600 jets, for example, have replaced the G450 and G550 on the Savannah production lines, and could lead to additional (possibly newer) G450 and G550 used jet inventory in 2019.
With the price for a new G500 or G600 significantly higher than their predecessors on the used market, there’s a good chance that the recent top-down pressure from Gulfstream’s new aircraft sales may not be as destabilizing to the G450 and G550 markets as they have been.
With that said, G450 and G550 buyers are a savvy group. It’s my observation that they tend not to be early adopters of brand-new technology, paying a premium for it. They seek value in performance and comfort. Some may be waiting for Gulfstream to take more G450 and G550 trade-ins and are likely to be prepared to wait for the right aircraft to enter the market at the right price. The result could see a freeze in the G450/G550 market.
The bottom line is that while conditions may favour sellers more in today’s market than two years ago, sellers must continue to be realistic as to what the market will pay for their jets.
On the subject of new impacting old, Embraer’s Praetor 500 and 600 (both scheduled for certification in 2019) will impact the used Embraer markets (though to a lesser extent, due to smaller production runs of the Legacy 450 and 500).
Embraer carved out a niche within the Mid-size markets when it introduced the Legacy 450 and 500 jets. But these aircraft will now be replaced on the production line by the Praetor 500 and 600, respectively.
Operators of Legacy 450s can upgrade their aircraft to have Praetor 500 performance for $500k, but it will be interesting to see how many choose to do so, and how the Legacy 450 and Legacy 500 values play out in the coming years on the used market, along with their impact on the values of other Mid-size jets in the used market.
Older Used Aircraft Opportunities
Industry analysts have noted the plentiful supply of older aircraft on the used market. While these tend to be slower to sell, there are still a lot of buyers willing to consider these jets, as long as they can be upgraded (at a reasonable cost) to meet the 2020 ADS-B Out mandate, among other items. Many of these older aircraft were built around the turn of the century and can be purchased at a tempting price.
And there are plenty of even older aircraft from the 1990s and even 1980s with life in them, and with reasonable operating budgets. While buyers of these aircraft should be aware they could become the aircraft’s last owner, the purchase price can be very low – to the extent that the sum of the parts can sometimes be greater than the whole, making them viable disposable assets.
Buyers shopping this segment are typically looking for annual budget as opposed to the purchase price to find an equilibrium that justifies ownership.
There seems to be a psychological connection among buyers between buying a jet for $700k that costs $1m/year to run, whereas a smaller jet of the same vintage that costs $700k and has an operating budget of around $300k will find a home with a new buyer.
From experience, the ‘queues’ of buyers tend to thin out when an aircraft’s acquisition cost becomes less than two-to-three times that of the annual operating budget, so market awareness and exit strategy will be crucial for shoppers in the lower end of the market.
Considering that the current tax incentives are available through to 2021, buyers are likely to continue to find value in the used aircraft market throughout 2019.
If you have been thinking about moving from charter or fractional ownership into whole aircraft ownership, then this could be a great time to make those plans a reality.