Prices for used business jets are going up which should encourage new aircraft production.
JETNET recently announced that the used jet market has transitioned from a buyer’s to a seller’s market. This proclamation is predicated on the fact that, as of January 2018, the number of corporate jets available for sale has dropped below 10% of the number in the fleet. Historically, when this occurs, prices increase.
JETNET also announced that used business jet transactions increased by 7.1% in 2017 versus 2016. So, we should all anticipate that prices for new and used business jets will increase in 2018, and so too, perhaps, will trading activity increase.
But hold one all is not good news to start, the sales of new business jets ion 2017 dropped 6% from 2016’s activity. In addition, the percentage growth of the world’s business jet fleet was lower in 2017 than in 2016.
And there are a couple more issues that could cause rain to come down on our parade. First, will the price increases, which will be attempted by both new and used aircraft sellers, produce more sales resistance than sales?
Switching to sunny day mode, short of a major economic or political upheaval, history tells us we are on the cusp of another sale run for business aircraft. The price of used planes will go up and drive activity to the new aircraft manufacturers. In turn, they will raise prices and become even more profitable. This will encourage product development which in turn increases sales.
To add to this confidence, I’ll point out that JETNET’s numbers reflect actual sales, not pending sales. It doesn’t make much imagination to see that the supply/demand numbers have inverted from what they’ve been these last 10 years and perhaps dramatically so.
Our market is driven by psychological factors to a great degree. Products shortage is a huge driving force in generating sales. Not only are we soon to experience these shortages in the used market, but it won’t take long for these shortages to show up in the new plane market as well. Just as we can’t create more availability of used planes, we can’t suddenly increase the manufacture of new planes by any significant factor.
So before we see production increases from the manufacturers we will see them firm up and increase their prices. They will then increase production, and therefore sales. This will increase profitability. This will encourage product development, which in turn increases sales. Heavens. It’s like a treadmill.
Here’s the formula, take notes:
Increased demand-decreased supply=higher prices. The fear of higher prices=higher sales and order activity. Greater sales=profits + product development=even greater sales. And this formula is 100% accurate until you read, as I did just yesterday, that Embraer’s business aircraft group is forecasting flat sales in 2018. Happy days are here again. I think. Maybe.
Article by – Bob Rockwood (He has been in the aircraft brokerage business since 1978), from “PROFFESIONAL PILOT“