At the end of each year we tally the number of aircraft delivered into service (EIS) by manufacturer and model. We then calculate the number of [pre-owned] aircraft, as a percentage of the fleet that came on the market during the course of the year as well as the percentage of the [pre-owned] fleet that sold. The number of aircraft entering or on the market fluctuates almost daily as aircraft are withdrawn or sold. In turn, this information provides quantifiable data from which we can extract market conditions and direction. By gathering actual selling prices and ask prices (vs. ‘Make Offer’) we can then dissect this further to reflect market depreciation.
Of concern today is the total in-service aircraft of a specific make/model, relative to the number of sales and their corresponding effect on residual values. A good casein-point is the price point of the Challenger 604 starting in 2009 when the average selling price went from $21M in 2008 to 12M and available inventory spiked to 95 aircraft (26% of the fleet) by 2012. It would be easy to surmise that the price decline was a direct result of the total number of in-service aircraft. The production run delivered 365 aircraft over a 10-year time frame, 1996 – 2006. Conversely, it’s nearest competitor, the Falcon 2000 delivered 230 aircraft from 1994 – 2006 and retained stronger residual values, as is reflected in todays selling price. Further consider when we add to these production numbers the various iterations offered in the ensuing years (i.e., the CL605, 2000 EX, EASy, LX, S), the EIS totals broach the 540+ aircraft for the 2000 series and 650+ for the CL604/605.
On the upper end of the spectrum the Gulfstream G550 ended 2014 with 475+ aircraft in-service since customer deliveries began in 2003. This in addition to the 192 GVs built from 1996 – 2002, brings the total to 665+ aircraft. The number of pre-owned 550s on the market has increased from 34 aircraft in 2013 to 55 in 2014, with the total [pre-owned] sales increasing from only 19 in 2013 to 22 in 2014, as the total in-service aircraft fleet continues to grow.
Over the last 5 years (2010-2014), an average of 35% of the aircraft that come on the market, sell to end-users. This has remained fairly consistent year over year, fluctuating at most +/- 2%. However as the number of aircraft on the market [as a percentage of the fleet] increases, the sheer volume has the propensity to drive selling prices downward. As has been the case in the business jet industry for many years, near term selling prices are typically tied to the most recent [low-ball] sale which further exacerbates any hope of price stabilization.
We are at a pivotal point in our industry from the perspective that we’ve not seen such high production in the super mid-size to long-range business jets. In the small jet category, the Lear 35 and Citation II, which produced 676 and 734 aircraft respectively, are good indicators of the effects of high production and lower residuals. Over the next couple years I believe we can approach the market with an element of certainty in that [new] aircraft production will inevitably continue and pre-owned market pricing will try to find its way among an over crowded market.