Positioning Oneself in a Seller's Market see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares his strategy for positioning yourself in a buyer's market.
In a seller’s market, the best way for a buyer to position themselves is through a three-pronged strategy of pre-approval, extra liquidity and nimbleness. Buyers who finance may find themselves up against cash buyers. That’s why being nimble is so important. The buyer may have to make an offer on multiple planes before they finally get into first position on a transaction.
If you think you’re able to pay cash for a plane with the intention of getting it financed after the fact, make sure the transaction goes through proper escrow channels all the way to closing. AOPA Aviation Finance knows from experience that being pressured by a seller into purchasing a plane quickly without all the proper due diligence leads to bad outcomes more often than not.
Many buyers are aware that incomplete logs, damage history, or a title with a cloud over it are reasons for a finance company to nix the deal. However, in this era of heightened security measures, uncertainty where (and to whom) the money from an aircraft sale went might also prevent the ability to obtain financing. Not to mention, subject a buyer to unwanted scrutiny from one or more three-letter government agencies post-closing.
Finance companies have a regulatory obligation to follow the money. They must vet not only the buyer, but also the seller as well. This is done in order to ascertain whether money from a cash deal is destined for a bad actor on a list of prohibited persons who might possibly funnel the money to an organization on one of a number of “bad guy” lists. The simplest way to protect yourself from such close scrutiny while still preserving your potential for financing is to have the transaction go through escrow.
Buying a high-quality airplane in a seller's market has a lot to do with timing. In past seller's markets like this one, AOPA Aviation Finance has seen frustrated clients try two distinct tactics to improve their chances when their timing was off: offer a buyer well above asking price; and/or settle for a lower quality airplane.
We like to advise our clients that a tight market is a particularly important time to maintain objectivity, despite understandable temptations to the contrary. AOPA Aviation Finance helps a buyer by keeping a dispassionate perspective. However, in those instances when a buyer simply cannot remain objective, we counsel them to be prepared for one of three scenarios:
- A person dead set on paying more than where a plane ”book’s out” with the pricing digest guides needs to be prepared to pay for a valuation to justify why the plane is worth more, or
- They need to be able to shell out the difference between where it books and the asking price--in addition to the regular down payment, or
- A combination of the two
Lenders will finance an aircraft only on value as determined by an independent third party so the difference between that value and the buyer's asking price will have to be made up by the borrower. If a buyer can't afford to make up that difference without changing their global financial picture, AOPA tends to advise against the deal.
Some clients feel that settling for a lesser value aircraft at least gets them a plane. For instance, pursuing a well-appointed TBM 700 because they lost out on one too many highly sought-after TBM 850s. The thing is, it's very likely other frustrated buyers have drawn the same conclusion. They too flood the market, which boosts the popularity of TBM 700s, which artificially boosts their prices. Short term win, but long-term loss. That's because the market will inevitably reverse. When it does, the 700 will likely depreciate faster and farther, thus commanding less in resale as a result.
Is it worth it to bet that you'll use and sell that lesser plane before the market turns? Is it worth it to take that risk in a market whose output is only a few thousand aircraft annually, and whose market is heavily dependent on a robust economy? A conversation with an AOPA Aviation Finance expert can help guide your decision-making and help hone your acquisition strategy.
This article was originally published by AOPA Aviation Finance Company on July 8, 2019.
Five Vital Questions About Private Jets Answered see more
NAFA member, Jahid Fazal-Karim, owner of Jetcraft, answers your questions about private jets.
With more than 20 offices worldwide and 55 years of experience Jetcraft is one of the true leaders in private aviation. With new jet share companies disrupting the market - creating an Uber-like marketplace in the elite world of private travel, Jetcraft continues to offer its experience and expertise to that top percent looking to purchase a private plane. Having accrued unparalleled industry expertise and understanding of the varied global markets in which they operate, has made Jetcraft a leader in aircraft sales, acquisitions and trades. We spoke with the company's current owner Jahid Fazal-Karim to understand the nuances behind what he does and how he's built such a successful company.
1. What does Jetcraft offer in the market that wasn't already available?
Jetcraft is the largest international buyer, seller and trader of business aircraft. Through our 55-year history, we have amassed a global presence, with more than 20 offices worldwide. Our sales directors know the local market, speak the local language and have facilitated numerous aircraft transactions in each locale. This unique global structure means we are positioned to provide regional on-the-round expertise and up-to-the-minute insight within any region, and we’re never more than a few hours away from one of our customers.
2. What is unique to Jetcraft unlike its competitors?
Jetcraft holds a unique position in the industry, situated between a traditional broker and a manufacturer. We have one of the world’s largest inventories of new and pre-owned aircraft, and we’re one of few companies with the resources to invest in owned aircraft, allowing us the ability take in trades and offer our customers a seamless transaction.
3. What advice would you give to a prospective jet buyer?
Don’t overlook the value of pre-owned aircraft. For some buyers, only a new aircraft will meet their needs. But, a pre-owned jet, especially five-years or younger, can offer a very similar product at a good value.
4. How many clients to do typically meet in a day?
At the risk of sounding clichéd, there really is no typical schedule in our line of work. I could spend time with one client or 20 depending on the day, but I do prefer to conduct face-to-face meetings as much as possible. Our connections are one of the many things that make working with Jetcraft so valuable - meeting in person and building relationships, will always be an extremely important part of our business.
5. How did Jetcraft begin? And how is the company planning to grow and innovate?
Jetcraft was founded in 1962 by Charles ‘Bucky’ Oliver, making it one of the oldest and well-established specialists. In 1987, the company began operating under the name Jetcraft, and I became co-owner in 2008. As international markets presented new opportunities for business aviation and large business jets became the preference, we grew from a primarily US-based organisation to an expanding international corporation, introducing operations in Russia, Dubai, Switzerland, Asia, Turkey, Australia, Africa and the UK.
We have facilitated hundreds of aircraft transactions, including more than 550 deals worth more than $10 billion in the last decade alone. Over the past 12 months, we’ve opened a new London HQ office and doubled the size of our European team. Looking ahead, our plan is to continue to cater exactly to the market’s demands without losing the intimate family that Jetcraft has always been and will remain to be.
We thrive on our rich history, experienced team and financial strength. But it’s our global reach that allows us to connect buyers and sellers across the world, help them find the best value and structure a seamless transaction. It’s simple in principle, but only feasible to do quickly and effectively if you have a solid network of offices and expertise in place.
Shift to Sellers Market Expected as Business Aircraft Demand and Ask Prices Increasing see more
NAFA member, Asset Insight, releases third quarter 2018 market report.
October 31, 2018 – According to Asset Insight’s quarterly Market Report (AI2 Market Report), the third quarter of 2018 saw strong demand for younger models of for-sale aircraft, contribute to the increased value for that group of inventory. Conversely, older models spend considerably more time on the market and is impacting the average pricing data.
The 3Q 2018 AI2 Market Report analyzes values for every production year of every modern make and model Business Class aircraft, while the Report’s maintenance analytics cover 93 fixed-wing models and 1,553 aircraft listed for sale.
Other trends detailed in the 3Q 2018 Market Report include:
Younger jet aircraft demand, and low availability, is raising their values; older models continue to linger and negatively impact average pricing figures;
Ask versus final Transaction Value gap narrowed substantively during 3Q;
Demand strong for younger models; overall down slightly due to Small Jets;
For sale fleet attains "Excellent" Asset Quality Rating posts a 12-month best;
Excellent Asset Quality improves inventory fleet's Maintenance Exposure;
Maintenance Exposure to Ask Price Ratio ("ETP Ratio") continues to hinder sales of older aircraft.
“With a low number of young aircraft for sale on the market, and a very high demand for those limited aircraft, the value for those excellent quality aircraft increased in Q3” said Tony Kioussis, president of Asset Insight, LLC. “The seller's market in the recent model aircraft category does not translate to older for-sale inventory, however. In fact, we saw older, aircraft with higher Maintenance Exposure to Ask Price ratios spend 58% longer on the market than their younger counterparts. We forecast that average prices for lower-time aircraft will continue to increase over the next 90-days, and the price of higher-time units will continue to decline, albeit more slowly, through the end of 2018.”
Note to editors, managers and owners: Please see the bottom right corner of each category page for a concise summary of the results and conditions in that specific market segment.
Exclusively available from Asset Insight, the AI2 Market Report includes eTrendTM, a 90-day forecast for aircraft value by make and model. This tool is especially helpful to sellers who are evaluating offers on their aircraft while concurrently considering if their prospects are likely to improve.
Statistically, Asset Insight's eTrendTM forecasts are based on some of the most robust data analytics in the industry and have been thoroughly back-tested to confirm a significant degree of accuracy.
This press release was originally published Asset Insight on October 31, 2018.
NAFA member, AircraftPost writes about Pre-Owned Market Performance. see more
NAFA member, AircraftPost, writes about pre-owned market performance.
Over the last few months there have been varying perspectives regarding the “decline in pre- owned inventory levels and an associated rise in pricing.” Whether in-production or out of production, 50% bonus depreciation or 100%, medium or long range, all segments seem to offer similar results with some outperforming others and a couple even flatlining.
There’s little question new aircraft deliveries are on the decline year-over-year. However, although few, there are exceptions. For example, Latitude deliveries for 2017 numbered 57 which represented a 26% increase over 2016. It should be noted that 36 of those delivered last year (59%) went into fractional service. Conversely Challenger 350 deliveries are down from 64 in 2016 to 54 in 2017 (26 sold to fractional providers), representing a 17% YOY decline.
Other M/Ms that showed positive YOY results were the G650 which delivered 62 aircraft in 2017 compared to 57 in the year prior. The Falcon 8X fared better in 2017 delivering 16 vs 3 aircraft in 2016. Aircraft such as the Global 5000/6000, 7X, G550, Challenger 650 all showed YOY declines ranging from 29 to 44%. In years past when new aircraft sales declined the pre- owned markets saw an uptick in activity, however todays results are sending mixed signals, even when considering the new 100% tax deduction.
Price points for the longer-range, cabin class aircraft do not have mass appeal, however those same aircraft that may have turned prospective buyers away due to the ~$50M price tag are now selling pre-owned at levels that are recognized as value propositions to a wider audience. For example, a 2010 Falcon 7X had a resale price of 25.9M in 2016 when 12 [total] aircraft change hands. In 2017 there were a total of 18 7X transactions and the same 2010-year models traded at 19.5M. When we compare YOY quarterly results, Q1 2017 saw 2 transactions vs. 10 in Q1 2018 and the average price for a 2010-year model increased from 19.5 to 19.8M.
Another large cabin aircraft that’s seen increased market activity is the Gulfstream GV. YOY quarterly results show 0 transactions in 2017 and 7 in 2018 with the average price point for a 2000-year model rising from 9.8 to 10.1M. Similar results are evident with the G450 where the average [resale] price for a 2009-year model rose from 10.5 to 12.7M, although the number of sales flatlined at 6 for Q1 in each year. The G550 had a sales price decrease of 9% (2008 YOM) as well as fewer transactions (10 to 4).
The number of sales for the Hawker 900XP showed a slight YOY drop in each respective quarter (5 to 4), however a 2009-year model had a price uptick from 3.9 to $4.1M. Conversely the Challenger 300 slipped in the number of transactions from 15 [Q1 2017] to 10 in Q1 2018 and the average [selling] price for a 2008 vintage dropped 15% (9.3 – 7.9M) while also seeing the average DOM increase (271 – 395). The Challenger 604, has near doubled Q1 transactions from 2017 to 2018 (6 to 11), however values continue a downward trend citing a 2001 YOM that went from 4.4 to $4.2M.
Citation Sovereign had impressive YOY results where the average price for a 2008 vintage increased from 5.7 to 6.4M while the number of transactions increased from 3 in Q1 2017 to 8 Q1 2018. The XLS+ was down in both the number of transactions as well as average trading price with a 2009 year-model going from 5.5 to 4.7 YOY.
With the above-mentioned results it does not appear the 100% tax benefit has done much to stimulate new or pre-owned sales. Perhaps with the Longitude, G500/600, Global 7000 nearing certification, buyer’s interest could circle back. However, one thing that will continue to gohead to head with new aircraft sales is the pre-owned market. Whether it’s a new G500/600 orGlobal 7000, as pre-owned G650s near the mid 40s price point, the 7X under 20M, buyers will be taxed with the value for dollar proposition once again. Consider that in 3-years  Falcon2000 EASy’s have dropped from 19M in 2016, to 15.8 and 14.8 Q1 2018. Should this continue,our markets may stagnate as buyers wait for the next ‘deal’.