By most accounts the fourth quarter of last year was active. While not atypical for that period, the activity was a good sign for the market that tradition seems to be intact, or at least reestablished after being pushed off course a few years ago. With the U.S. economy doing incrementally better, the hope is that this activity will spill into the first quarter and beyond. Many eyes now are cast upon Europe, where last month S&P lowered its credit ratings on nine nations. Though the move was widely expected, it’s clearly not going to have a positive effect on jet sales for the region, which has been experiencing an uptick in inventory over the past year.
In fact, inventory in Europe now stands at nearly twice, in percentage terms, what it is in North America. The increase is reminiscent of the one the U.S. market experienced in late 2008 and from which it is still trying to recover. One dubious benefit for the European market is that prices have gotten crushed over the last few years, so it’s doubtful prices are going to experience any of the eyebrow-raising drops that we’ve already witnessed, despite the economic woes. They may continue to trickle lower in some cases, or you might see a couple of one-offs if lenders have to step in as they did in the U.S. and blow out a few of them to get them off the books in a timely fashion.
The developing situation is going to be interesting and one to watch. Right now there is ample supply to fill U.S. demand, so it’s doubtful too many U.S. buyers will travel abroad for what they can get on home soil. If Europe experiences the buyers’ strike that befell the U.S. market in late 2008 and 2009, inventory could continue to rise. One possible outlet might be U.S. dealers. These dealers were noticeably absent when the U.S. market cratered, but reduced prices and enhanced confidence are slowly bringing more of them back to the playing field.
The most likely candidates to be picked up are the mainstream aircraft, which may be in lower supply in the U.S. than in Europe. As an example, the Citation Excel is in greater supply in Europe (13 aircraft) than in the U.S. (10). The difference seems small, but consider there are only 58 Excels in Europe and so the number for sale represents 22 percent.
Shrinking Inventory
Despite what’s going on in Europe at the moment, the overall number of aircraft for sale worldwide continues to recede. A year ago the figure stood at 2,712, and today there are 2,498, a signal that buyers and sellers are being realistic about values, allowing deals to get done. Such was not always the case, as prices floated lower during the correction, stalling the process.
The story is much the same as it has been in terms of what’s hot and what’s not. The late-model, large-cabin sector continues to move, as it has done for the last couple of years, and may be slowly joined by others going forward. The heat also seems to be on aircraft built in and since 2000, which number about one third of the nearly 2,500 aircraft for sale today, and 85 percent of them are based Europe and North America.
Prices among many model types seem to have reached the sweet spot that have lured buyers. In fact, it may be just that they reached such low levels buyers are no longer concerned about any potential downside. Prices are so attractive right now that if the U.S. economy were firing on all eight cylinders it’s a safe bet inventory would be nearly wiped out in two quarters and prices across the board would rise. That’s clearly not the picture at the moment, however, except among a few select models that offer only a small percentage of their total fleet numbers for sale. The G550 continues as the poster child for supply scarcity, as it has for some time, with fewer than 5 percent of more than 325 aircraft in operation for sale. Only a third of those for sale at present reside in North America, another third in Europe and the remaining divided between Africa and Asia. The G550 is in good company with the Global Express XRS and Falcon 7X with even fewer in percentage terms and fleet size less than half that of the G550. The breakdown in demographics closely mirrors the G550.
So it remains a segmented market and will most likely stay that way through this year. While older aircraft such as the Learjet 60 have made impressive moves slimming down a bloated inventory, they are still stuffed. The Learjet 60 dropped from about 80 for sale at the peak to 50 today, but that still represents nearly 20-percent availability (10 percent often defines normal). The Learjet 60 is not the only model with a large pre-owned inventory. The Gulfstream IV also has nearly 20 percent of the fleet on offer, with 40 aircraft (of 210) on the market at present. The fact that the GIV now occupies the pricing territory the Learjet 60 once held illustrates just how low pricing has gotten. As a result, there will be plenty of quality aircraft for sale for quite some time and pricing should remain attractive.
