May 1, 2011
Brian Foley, President, Brian Foley Associates
Here’s a thought your boss—who may not receive AOPA Turbine Pilot—might not come up with on his or her own. If you’ve been wondering when and how to move up from your present turbine aircraft, get ready to push those throttles forward. There’s plenty of market justification to pique the interest of any boss (or spouse) who’s cautious on the subject—and who would also benefit directly from any upgrade (see “ Sales Revival,”).
Now, why are you hearing this from me? We’re not an aircraft broker; nor are we a lender, completion center, appraiser, maintenance facility, or anyone else who benefits from market churn. Rather, we are independent general aviation industry analysts who identify and report on interesting trends. In this spirit, we want to share our thinking on what may be a window of opportunity.
First, let’s review some recent market happenings. We’ll use business jets in this example, but the same dynamics would apply to virtually any other turbine out there, from a Bell 206 to a Piper Meridian. We used to have a rule of thumb that 10 to 12 percent of the business-jet fleet would be for sale at any given time, worldwide. That was before the economic plunge. When the bottom fell out, this figure ballooned to 18 percent—nearly one business jet in five with a for-sale sign in the window.
Lately these inventories have started to recede a little, but the market has been scarred. Because of momentum, pricing tends to lag supply changes by a year or more. Even as good preowned aircraft are getting relatively scarcer, prices still continue in a downward spiral. Some are 30 to 40 percent less expensive now than a couple of years ago.
Now we see a gradual firming of the preowned market—especially for the larger-cabin jets. It’ll eventually work its way down through the midsize and smaller preowned categories before affecting the new-aircraft market as well, at which point sellers will be less flexible on price and delivery wait times will be longer. For the time being, though, it remains a buyer’s market and the selection of quality aircraft has never been better. Just remember that we’re at the bottom of the cycle. Changes, when they happen, can come fast.
Now, here’s the part that may interest you as turbine drivers. The turbine aircraft market is indeed analogous to that of boats in one respect: Owners tend never to trade down or sideways in size and capability—only up. So we can assume with some certainty that your next aircraft will probably be bigger and/or go higher, farther, and faster than whatever you’ve got now.
One of the canned objections to moving up is that your current aircraft, along with everyone else’s, has lost value; that you should wait for its price to go back up before trying to sell it. Such thinking can actually work to your detriment.
Let’s say you’re moving from something such as a late-model Hawker into a bigger Challenger. Your Hawker was worth $10 million (round numbers) before market forces drove it down to $7 million today—a 30-percent loss. But don’t forget, that Challenger was also walloped 30 percent and its former $20 million price tag is only $14 million now.
See the logic now? Sure, you’ll lose $3 million when you sell, but you’ll be getting an effective discount of $6 million when you buy. In a lingering down market such as we have today, the numbers work clearly in your favor. It’s like putting $3 million in your pocket, assuming you can justify the upgrade operationally.
By the way, don’t worry if you’re not in the Challenger league just yet. Chances are your upgrade will be a lot more modest, such as from a Cheyenne to a King Air, or from a small Citation to a bigger one. To make the point above, I deliberately chose an example from a more upscale product segment where prices are already stabilizing. For smaller-than-midsize jets it’s still more of a buyer’s market, so you can actually gain more, percentage-wise. It’s worth a look.
In summary, if you’re financially capable, have confidence in the economic outlook, believe that financing rates won’t go much lower, and think your upgrade makes strategic business sense, now may be a perfect time to make that move. And what’s our reward for sharing these perspectives? Just the relief that AOPA asked us to contribute to its “Logbook Entry” feature rather than “Never Again”!
Brian Foley Associates provides industry analysis and forecasting, market research, strategic planning, and other services. Brian Foley is an instrument-rated private pilot with 400 total flight hours.
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