By Dennis Rousseau, founder and president of AircraftPost.com. This article was originally published in the Aircraft Bluebook Marketline Spring 2014 edition.
On average, five – seven percent of the available fleet on the resale market is considered ‘normal.’ Should the percentile lean more in the 10 – 20 percent range, we then tend to see some severe price cutting as was the case with the Challenger 604 in 2013, where we saw 47 transactions and average selling prices drop from 9.5M in 2012 to an average of 7.2M in 2013. We should also expect seven percent of the available fleet to trade hands during the course of a ‘normal’ year.
When we consider year-over-year pre-owned business jet sales, total annual transactions are up each year since 2008, and more than 50 percent
when comparing the 2008 results with those of 2013! In some circles that could be construed as a successful rebound; however, whether we review current production aircraft or out-of-production, selling prices are down more than 50 percent when comparing the results of 2008 with year-end 2013 and continue a downward trend with the start of 2014.
If you consider an aircraft has a useful life of 30 years and apply the effects of major maintenance events and age-based depreciation through the end of life (aka salvage value), we then have a fairly predictable course for
determining value at any given point (minus inflationary effects). However, when we incorporate the instabilities and uncertainties of the overall aircraft market and global economic factors, our once predictable course
becomes uncharted. When taking these latter points into account, it becomes apparent that our once stable markets are now reflecting selling prices 30 percent under what could be deemed a normal course of events.
From another perspective, perhaps this present course is our ‘new normal’.
Reflecting on the results of 2013, the average days on the market are hovering around the 300 mark and/ or 10 months. As well, on average there’s a 9 percent
difference between the ask price (at time of sale) and sell price. If the aircraft is priced commensurate with the market, buyer/seller expectations stay in check and the number of aircraft on the market continues below 10 percent of the available fleet, perhaps we can better define the ‘new normal’ in 2014.