Story ID: 015PreownedUpdateAINNov14EditedByAY_NM
Pre-owned Update: November 2014
By: Bryan A. Comstock
Caption: The supply of late-model aircraft in North America continues to get tighter, motivating buyers to see what the European market has to offer.
Word Count: 1064
Many players in the pre-owned market have commented how active it has been of late, and the numbers bear this out. Today’s inventory level is inching ever closer to the pre-derailment levels of six years ago and now offers more than 800 fewer aircraft than the market’s weakest moment. That’s quite a sea change, considering that the fleet size has grown considerably since then.

Some markets have added to supply from last year and others have contracted. Consider the G550, which last year presented buyers with just 11 choices and has nearly tripled since that time. Yet of the 31 for sale, 12 are based in North America, 10 are in Europe, six in Asia and three in South America. The predecessor GV appeared to have been left for dead until the second half of the year. Only one sale occurred in the first half of the year (in early January); when June arrived buyers began to recognize how compelling a buy the GV had become. Between June and mid-October eight aircraft changed hands in rapid succession and at least two others are currently under contract.

Another notable model is the Challenger 604. Last year there were approximately 50 for sale. While that number sounds high, consider that when inventory peaked in the prior year there were nearly 70 for sale. Since then buyers descended upon this model and began gobbling up inventory, with 40 transactions in the last year, leaving only 21 for sale at present, just 11 of which are based in North America. Europe claims eight and the remaining two are in Asia. The trend is firmly in place, the current number representing a multi-year low. With sales prices ranging from a low of $4.5 million to $10.75 million, according to research firm AircraftPost, the airplane offers a great value play for buyers. Despite the market contraction, the 604 may still have room to run as we finish out the final quarter and witness historically the most active sales period of the year. The 21 for sale today represent 6 percent of the more than 360 in operation, quite a contrast from the nearly 20 percent at this model’s inventory peak.
Volatility Among Super-mids
The Challenger 300 reached the 4-percent supply level not much more than a year ago when 19 were offered for sale and then steadily built and nearly doubled that figure this past May. It recently ducked below 30 again and in all likelihood will continue on that path through year-end.

Among other notable super-mids, over the last six months the Citation X has sold at a rate of less than 1.5 per month, which has not been enough to counter the tide of newcomers to the market. In fact the aircraft sits not only near its 12-month high of 37 but also above its 12-month moving average. The inventory of the aircraft had been as low as 25, late last year. Asking prices start at $3.295 million and jump to nearly $13 million, for one of the last ones built. The successor model, the Citation X+, earned its FAA certification in June.

The G200 mirrors the Citation X, hitting its 12-month low of 24 early this year and now sitting near its 12-month high of 34. Asking prices begin at $5 million for an early model with 4,430 hours total time and travel up to $13 million for a 2010 model with 1,000 hours. Like the Challenger 300, two other active models are the Falcon 2000 and Citation Sovereign. The Falcon 2000 is down from 27 last year to 18 today. With the inventory split about evenly between Europe and North America and a two-per-month sales rate, buyers’ choices have become thin. Prices fall within a range of $5 million and $13 million. Sovereign inventory is half what it was a year ago and sits just a tick above its 12-month low of 13. In terms of percentage of availability based on respective fleet size, the Sovereign is the hottest property with less than 5 percent of its fleet for sale, followed by the Challenger 300 at 6.4; Falcon 2000 at 6.9; Citation X at 11.8; and the G200 at 12 percent. The G200 has chalked up just one sale a month over the last six months, but that may be about to change as value buyers begin to circle. Reportedly at least four have recently gone under contract.

The percentage of all aircraft for sale in Europe continues to be greater than that in North America, but only slightly. The real dichotomy is the percentage of year 2000 and newer aircraft between the two continents. Although the percentage is lower in both areas than it was a year ago, Europe still offers a significantly larger percentage of newer aircraft than North America (12.6 percent compared with 6.5 percent). The takeaway is twofold. First, the supply of late-model aircraft in North America continues to get tighter and, perhaps because of that, acquisitions where buyers hire brokers to flush out a deal for them appear to be on the increase in terms of the buy/sell ratio among brokers. Second, as the North American supply gets thinner, buyers might want to take a closer look at Europe’s supply. Of course travel time and hassle, cost of aircraft ferrying, import costs and so on would have to be factored into the purchase price for it to make sense.

In the small company and owner-flown segment the CJ3 stands out, with only 5 percent of its more than 400 built for sale. Only seven are for sale in North America, which equates to a mere 2.3 percent of the North American population. Prices are firm and should stay that way for now. Supporting that view is not only the small supply, but also the scaled-back production over the past five years: just 73 were built during that span, compared with annual production of 88 and 77 in the boom years of 2007 and 2008, respectively. The Phenom 100 is also in low supply at 21 for sale, or slightly less than 7 percent of its fleet. The Phenom 300 has fewer still, with only 10 of the slightly more than 200 in operation for sale. A few 2014 positions round out the inventory here.

With ever present geopolitical risks, wild stock market gyrations and so on there’s no telling where things are headed, but for now, industry participants haven’t been this upbeat in quite some time. As inventory has tightened, the only complaint I have noticed is that brokers are running out of aircraft to place, something not heard in years.