Hot commodity
The aircraft market is seeing a major resurgence
It doesn’t take long to assess the situation. Spend a few days shopping for your dream airplane and you’re likely to come away frustrated, forlorn, and unsure about the future. That’s true of almost any model you’re searching for, and it extends across almost all sectors of the market.
“We haven’t seen supply lagging demand to these levels since the 2007/2008 timeframe,” said Phil Winters, vice president of aircraft sales and charter management at Western Aircraft, and the treasurer and board member of the International Aircraft Dealers Association. The reasons are numerous, and although the coronavirus pandemic has certainly contributed, the situation didn’t begin there. Buyers are facing such a difficult market because of a vicious cycle that includes increased demand, supply chain problems in the new aircraft market, labor shortages in all industries, and, especially, low interest rates. “There’s a lot of cash and not a lot else to do with it.”
Jason Zilberbrand of the valuation service Vref said it’s a market unlike what we’ve seen in the past. A lot of factors have combined at once, and whereas previous price increases were usually only across a few sectors of the industry, almost everything is seeing a shortage of supply.
Zilberbrand ran through the various sectors. Flight training is very active right now as tens of thousands of new students begin to flood into a profession that promises good job prospects for many years into the future. Where flight schools have previously been able to purchase new aircraft, the factories can’t keep up because of labor shortages, supply chain challenges, pandemic restrictions, and more. That draws schools into the used market and drives up the prices of popular training aircraft, especially Cessna 172s. Vref says 172s increased in value almost 10 percent just in the second quarter of 2021. A mid-1970s 172M with a mid-time engine is selling at between $80,000 and $100,000—numbers unimaginable only a few years ago.
Winters said the used jet market is also hot, given the increase in charter demand, backlog from the manufacturers, and challenges with the airlines. Cessna has said fewer than 5 percent of all Citations ever built are currently on the market, a number that points strongly in favor of sellers.
Buyers are facing such a difficult market because of a vicious cycle that includes increased demand, supply chain problems in the new aircraft market, labor shortages in all industries, and, especially, low interest rates. “There’s a lot of cash and not a lot else to do with it.”The news is even worse for that sweet-spot airplane that can carry people and bags 300 miles. The Cessna 182, Beechcraft Bonanza A36, and Cirrus SR22 markets all have fewer than 1 percent of the fleet currently for sale, according to Zilberbrand. Instead of a handful of models available in each generation, buyers are looking at a handful across entire production runs, causing many potential buyers to either wait or look elsewhere.
Legacy aircraft sales businesses are also facing pressure as the way we trade aircraft continues to evolve. The strong market means that often an airplane is never advertised, and if it is, it may only be on social media. Zilberbrand said that many aircraft simply aren’t being listed in traditional trades as they have in the past, in part because of how we consume information and in part because there isn’t always a need.
Winters said that in a market like this, a broker can help. Because good airplanes on sites such as barnstormers.com are often gone in less than a week, a broker can work for you. They can help set expectations, and because they work directly with sellers, they potentially have access to airplanes before they hit the market. As a seller’s broker, Winters said, “We know the buyers. We call the two or three best prospects when someone is ready to sell.”
With such limited prospects, the tendency can be to accept more of a project, but here there are problems as well. Obviously, you have to know what you’re getting yourself into. But more than that, shops are facing some of the same challenges. The semiconductor shortage means much longer lead times on avionics installs, and labor shortages mean engine and airframe work are likely to take longer as well. If you added a fudge factor on previous projects, chances are you’ll have to add even more in the current climate.
It may also be tempting to wait out what some have said is a bubble. Winters and Zilberbrand don’t agree. “It’s only a bubble if the economy were to experience the type of effects we saw in 2000/2001 or 2007/2008,” Winters said. He said manufacturers are more efficient than they were 10 or 20 years ago, and there isn’t likely to be a new oversupply. “Even if demand decreases there’ll simply be balance.”
“Our industry is cyclical,” Zilberbrand explained. “But I think you have to keep it within the proper framework. We’re not dealing with what we did in the ’70s.” He means there aren’t going to suddenly be tons of new airplanes coming from manufacturers. If anything, supply will continue to decrease worldwide as retirements from accidents, maintenance, and obsolescence outpaces new manufacturing. It all speaks to a future with steady or increasing airplane prices and a further tightening.
