As the pre-owned business jet inventory continues to shrink from its peak in 2009 at the height of the economic downturn, when approximately 18 percent of the fleet was available, to a current level of around 10 percent, according to industry data provider JetNet, prices of available business jets have yet to stabilize. That uncertainty continues to cause consternation among those engaged in the buying and selling of aircraft.
“It’s been pretty irrational for the last few years,” said consultant Gil Wolin, as he moderated a panel discussion on the topic at NBAA’s Regional Forum at Teterboro Airport. “The conversation about trying to track aircraft values has gotten more and more complex because the market is less and less rational.” Formerly tried and true indicators of aircraft demand–such as rising U.S. corporate profits–have remained decoupled from the start of a new boom cycle, causing uncertainty to linger.
Some believe the industry is hampered by the lack of a centralized body to record actual aircraft selling prices, which are often identified on a bill of sale under the cryptic “sold for one dollar plus other value considerations.” Others believe that each transaction is unique, citing the broad range of prices an aircraft can command. For example, the Gulfstream G550 sells from anywhere from $22 million to $50 million depending on age, equipment and engine coverage. “The market is so fluid and so transient that, quite frankly, if I just did a G550 thirty days ago, I’d have to start from scratch again today,” said Joseph Zulueta, a licensed aircraft appraiser and managing partner of Florida-based Aeronautical Systems.
Expect Pricing Volatility
In the past, buyers and sellers would depend on aircraft valuation guides, but the volatility in pricing these days can leave those trailing the current values, according to some industry sources. “With the price guides, you need to realize that the minute you’ve got that book in the mail it’s already 90 days old,” said Zulueta. “The price guides are just an indication of value; you can’t hang your hat on them.”
Speaking at the JetNet IQ Summit in New York City in June, Steve Varsano, founder of aircraft brokerage The Jet Business, noted serious discrepancies between the values identified in the publications, on the order of several million dollars in some cases. “Residual values are impossible to forecast accurately, but what’s worse is you can’t even tell what something’s worth today according to the industry experts,” which he identified as Vref and Aircraft Bluebook.” He noted that for certain high-end aircraft, there is a limited available inventory, and through careful study of the market and all the aircraft variability, a seasoned broker should be able to peg the current worth of a specific aircraft to within $100,000.
Such comments have followed Vref since it started publication more than a quarter century ago, and publisher Fletcher Aldredge notes that the price guide doesn’t claim to portray itself as anything other than a historical reference when it comes to determining current aircraft values. “It is part of the puzzle. You’ve got to look at each serial number individually because your serial number that you’re trying to sell might be very low time, it might have all fresh inspections or…it could be damaged, it could need paint,” he told AIN. “When it arrives on your desktop, if you’re an unbiased appraiser Vref will allow you to give an extremely accurate appraisal.”
In response to comments that the publication cannot keep up in the current fast-paced aircraft valuation market, Aldredge said, “You would have to be weekly. And the worst thing that we could be in this marketplace is weekly, because we would drop to every single trough.” He added, “In the past seven years, the market has trended steadily downward. “We’ve not shown the trough of the desperation sales or the fractional sales or those damaged rough airplanes; what we’re showing is an average.”
In its second-quarter newsletter, Vref listed the average pricing changes for 2008 models of six popular jets–the Global 5000 and Global 6000 (XRS), the Falcon 900DX and 7X, and the G450 and G550–all of which declined in price from the previous quarter, from 5 percent for the Falcon 900DX to 14 percent for the Global 5000.
Varsano points to the crowded market as both a burden and a plus. More than 145 different makes and models are available for sale. “In the old days,” he said, “it was small, medium and large-cabin airplanes. Now every little inch, there’s another aircraft in between and they compete with themselves.” Despite that competition, he believes the sheer number of models will actually serve as an eventual brake on falling jet prices. “There’s a squashdown effect that is now slowing all those depreciating numbers. For example, a GV today is somewhere in the $12- to $15 million price range, underneath that is a G450 and then there’s a GIV, GIII and GII; there’s not much room for these to go down even further because there’s too much support from other models underneath.”
Regardless, for the financial community, the focus on residual values is now sharper than ever, according to Michael Amalfitano, the former head of Bank of America’s corporate aircraft finance division, who had seen his share of price pancaking over the past few years. He noted that in the past, business aircraft in a stable market would depreciate on average 4 to 6 percent a year. “It didn’t matter what cabin class it was or how big it was, or how far it went, and after the financial crisis, there was an absolute bifurcation of cabin class,” he said. “The large-cabin marketplace, the midsize marketplace and the small marketplace, by cabin class, those are three different decay curves now.”