AINsight: The Fuzzy Math of Preowned Business Jet Values

Thirteen times seven is not 28, no matter how you try to calculate it. Remember the old Abbott and Costello bit where Lou proves to Bud through addition, multiplication, and division that 13 times seven is 28? If you haven’t, here is a refresher.

His warped math did not add up (pardon the pun), but Lou was able to prove every which way that 13 times seven really is 28. Those guys were good!

Lou’s math may be applying to values of late-model preowned private jet aircraft. The preowned market continues to be as hot as a firecracker, with supply approaching the lows we saw in the middle of the pandemic in 2022. We are seeing values for most popular models go up over the last few months. Here are a few equations for readers to ponder.

The spring 2019 Vref and Blue Book price guides showed values of a 2016 Challenger 350 at $18 million and $17 million, respectively. Seven years later, that same Challenger is worth approximately $17 million. It has aged seven years and flown 2,000 hours and has lost a grand total of between zero and $1 million in market value, depending on which book you like. This is somewhere between a 95% and 100% residual value retention.

Both spring 2019 guides have a $15 million value for a 2014 Challenger 350 with approximately 2,500 hours. That same aircraft with 4,500 hours seven years later is worth the same amount! 100%. No market depreciation in seven years.

Let’s try another. The same spring 2019 guides had the value of a 2016 Gulfstream G650ER at $55 million and $57 million—then three-year-old airplanes with approximately 1,500 flight hours. The same airplane now is worth something close to $45 million or more. That would be about 90% retention of market value over seven years.

OK, one more—let’s try a light jet. The same spring 2019 guides had the value of a 2016 Cessna Citation XLS+ at $9.5 million. That same airplane today is worth about the same amount seven years later. 100%.

What does all of this mean? Is the market overinflated now or was it undervalued before Covid? Hard to know for sure, but there are several fundamental things that come to mind for me.

There has been an unprecedented amount of wealth created in this country and all around the world over the last several years. Add to that the pandemic that introduced a large number of people into the equation who purchased charter, shares, or whole aircraft. Simply put, there is a wider audience that wishes to fly privately than there was seven years ago. It has been a wild ride during this period.

Nothing seems to be slowing the demand out there; not even the war in Iran and stubbornly high fuel prices are doing much to slow things down.

Before the math changed and when there was no way 13 times seven could be 28, the spring 2019 price guides showed a seven-year-old 2012 Challenger 300 worth approximately 50% of its new purchase price. They showed a seven-year-old 2012 Gulfstream G550 worth about the same 50%. A seven-year-old 2012 Citation XLS+ was also at the same: roughly 50%.

The old assumption that real market depreciation is approximately 8% per year after years one and two just does not hold up anymore. 50% residual value went up to 100%, even as they all became seven years older. Check the chalk—maybe it’s the chalkboard?

Imagine if the new car you just purchased would be worth 100% of the purchase price in seven years? Maybe with this new math, 13 times seven really could be 28 if you look at it long enough. Lou talked himself into it. He even talked Bud into it.