Our primary indicators (financing leads and aircraft listings) have been pointing to strong demand and little supply. In the turboprop and owner-flown light jet segments, listings are still at near term lows. The aircraft that are available are the less desirable ones.
The lack of used aircraft inventory means fewer customers who are approved for a loan are closing on the sale. Approval-to-funding ratios remained at historic lows because of the lack of inventory, which in turn has caused finance buyers to lose out to cash buyers. Additionally, because of the lack of inventory we saw more and more aircraft with issues discovered during the prebuy process, causing buyers to back out.
There was an additional incentive driving demand in 2022: 100-percent bonus depreciation from the 2017 Tax Cuts and Jobs Act. The year 2022 was the final year where businesses could write off 100 percent of the cost of most depreciable business assets, including aircraft, in the year they’re placed in service; in 2023 it will step lower to 80 percent, tapering down by 20 percent every year to zero in 2027.
End-of-year demand wasn’t as strong as anticipated, however. Toward the end of the year we saw a slight improvement in inventory, and hints of a softening in demand as higher interest rates (see “Interest Rates Are Up,” January 2023 AOPA Pilot, Turbine Edition) and uncertainty over the economic outlook caused some prospective buyers to sit on the sidelines, waiting to see what 2023 has in store.