AINsight: No Sign of Preowned Bizjet Market Slowing

There has been plenty of commentary lately about the strength of the preowned business jet market, and I agree with the sentiment. It is a seller’s market with buyers outnumbering sellers with what seems like unending demand caused by plenty of wealth creation.

Whenever I catch myself saying things like this, I stop and play pessimist and wonder when the music will stop playing. The war in the Middle East and high fuel prices do not seem to be quelling this demand lately.

One thing that has remained consistent and strong, however, is the U.S. stock market, which is currently more than 51,000 points. The strength of the stock market seems to have trumped the events happening in the world and is relatively undeterred by them.

One of our clients asked recently when we think the rising costs of fuel, aircraft maintenance, engine programs, and pilot salaries will slow down the preowned market. The answer I gave him was I do not think that is going to be what does it.

When demand is this strong, history tells us that the root cause of a market correction rarely comes from within—instead, it comes from the outside. Let’s revisit the last three events that have significantly caused preowned values to decline substantially.

In 1999, demand was very strong with limited supply. In March 2000, the dot-com crash saw the Dow Jones drop by 38% and the S&P fall by 49%. This abrupt drop in the stock market caused preowned values to correct to the tune of 25%.

In 2006, 2007, and the first half of 2008, demand was unprecedented. Business jets were suddenly in demand in areas of the world it was not before. In September 2008, the financial crisis saw the Dow Jones drop by 54%, and the S&P fell by 57%. The net result affecting preowned pricing was even more acute than the dot-com crash.

In 2019, the aircraft market was stable but not superheated. In March 2020, the Covid outbreak caused the Dow Jones to drop 37% and the S&P to drop by 34%, although these corrections were rather short-lived. Preowned prices immediately dropped by approximately 25%, but this drop in values was about as short-lived as the stock market dip was.

No other event in my recollection over the last 30 years has affected values more significantly than these three events. Fuel prices, interest rates, pilot salaries, imposition of regulations that require significant expenditure like RVSM, TCAS II, and FANS did not affect the market in even a remotely similar fashion as these three stock market events did.

In each case, it was the black swan event that caused it. Something far larger than fuel prices. These events instilled fear in the minds of the buying public, something that seems very far away from the typical aircraft purchaser’s mind at the moment.

In other words, rising expenses do not influence behavior in our industry as much as fear does.

We now have very strong demand in the preowned market with inventory well below historic levels and years-long backlogs for most new models. It feels like 1999 and 2007 all over again in the “airplane world.”

Our feeling here is such that, barring that black swan event or something that instills that four-letter word—fear—in buyers’ minds, the preowned market, as well as new aircraft orders, will remain robust through the rest of this year. If history repeats itself like last year, the bonus depreciation train will soon leave the station and cause buying to ramp up this summer.

It feels like we just ought to hang on and enjoy the ride. I will pretend my pessimistic side didn’t hear that.