For almost ten years the number of used business jets for sale on the market had been declining reaching less than 9% of the fleet for sale in January 2019, a low not seen in that last 20 years. Brian Foley offers three reasons why this trend is set to reverse…
- US Economy
First, the economy is beginning to show early signs of fatigue in the US, which is the biggest purveyor of used jets. This will have the effect of causing inventory to rise as confidence deteriorates and discretionary spend on airplanes reigns in.
Next is simple analytics. Previous periods of contracting inventory in the 1990s and 2000s each lasted for a period seven and six years respectively. The current 2009-2019 ten-year inventory contraction has already exceeded those periods by 3-4 years, which suggests statistically that a correction is overdue in the cyclical business.
- FAA Mandate
Finally, a new mandate by the Federal Aviation Administration (FAA) will require all business jets to be equipped with new, expensive, electronic equipment to signal the aircraft’s whereabouts (ADS-B), by the end of this year. Some owners will put their aircraft up for sale rather than paying to comply.
What’s the impact?
A significant impact on new aircraft sales isn’t expected since an increase in older aircraft is not of interest to typical new aircraft buyers. For used aircraft brokers, somewhat fewer pre-owned sales activity can be expected since rising inventory is indicative of more people wanting to get out of ownership than get in.
Finally, don’t expect the pricing of used aircraft, which have also been in a tailspin for a decade, to recover much. Whereas supply and demand dynamics once kept used prices propped up, basic capital good economics have caught up to business jets and softer residual values are now the norm.