In the late fall 2008, my client, a GIV-SP owner, was final negotiations for a buy-sell upgrade to a late model G450. The deal looked good to both sides: my client was getting $23 million for his aircraft, and paying $43 million for the 450.

By January 2009 it was different story. The GIV-SP value had plunged to $13 million. Emails flew and the distraught client was ready to stick with his current aircraft – until he realized that the G450 market had taken a similar hit. That $43 million aircraft now commanded less than $33 million on the open market, and the market was now flush with late model 450s, all having taken similar hits in asking prices.

As had Gulfstream 550s, Challenger 604s, Falcon 900s, Hawkers 800s, and Citations and Learjets of all sizes …

It’s been five years since the business jet market took that plunge, filling the preowned inventory and creating a buyer’s market the like of which we’d not seen in almost twenty years. And while that inventory has shrunk in recent months – now down to 12.1% for the active fleet, as compared with 17.4% in March 2009, according to business aviation data company JETNET LLC – some of the decline is due to owners taking the aircraft off the market. They’ve decided they’d keep flying rather than take a loss on selling the aircraft, or simply park it and wait for the market to turn.

Now it appears that the business jet resale market has stabilized, reflecting a more positive economic outlook. JETNET indicates that first quarter 2014 pre-owned business jet sales transactions jumped 3.1% to 560 transactions, and average time-on-the-market declined by 73 days to 327 days as compared to 2013. But the most likely reason for that decline was the 11.6% decrease year-over-year in average asking price for business jets, to $3.893 million, and a 29.4% decrease in the average asking price for business turboprops. That decrease didn’t help the latter much, as turboprop sales transactions still dropped by 15.8%, and their average time on the market is now 398 days, up from 295 in 2013.

Increases in flight activity mirror that of preowned transactions, according to several business aviation consulting groups. WingX Advance reports 52,931 business aviation flights in Europe in March, a 22% increase over February and a 2.1% increase over March 2013, the third   consecutive monthly increase.

The same story is told by ARGUS TRAQPak data, as it reveals a 1.1% increase in corporate turbine flight activity, March 2014 over March 2013. It shows Part 135 charter up 4.9%, Part 91 corporate flying flat, and fractional flying down 3.1%. Flight activity by aircraft category also followed the recent trend with large cabin activity posting a 10.4% increase from March 2013. Mid-size & small cabin aircraft finished the period up 1.4% and 3.3%, in that order. The turboprop industry posted a year-over-year decrease of 4.4%. The largest growth for an individual segment occurred in the small cabin fractional market, with an increase of 23.9%; this marks the third month in a row that this segment has seen the largest growth year-over-year.

So 2014 is off to a good start, in both preowned sales and flight activity – and the forecasts for new aircraft look to follow suit. According to the JETNET iQ forecast released in April, new 2014 business jet deliveries are expected to grow this year for the first time since 2008, with 685 new jets delivered (not including bizliners), valued at $21 billion, versus an estimated 644 jets worth $20.5 billion delivered in 2013.

JETNET iQ’s prognostication is based in part on its most recent operator survey, which is far more optimistic than in 2013. Forty-three and one-third percent of respondents indicated that business aviation is past the low point and is now growing, with only 22.8% believing that the market has not yet reached the low point, a real reversal from 2013’s numbers.

Even more important for the long term, 25.9% of North American business turbine operators indicated they are “Very likely” to buy a new aircraft in the next five years, with 38% percent of European operators mirroring those expectation. Overall, JETNET iQ forecasts the business jet fleet to grow by 35% to 26,331 aircraft, during the next ten years.

The reasons for buying business aircraft seem to be evolving – a sort of “back to basics” move. Beginning in the late 1970s, the market began to view aircraft as an investment, as well as a mode of executive transport, thanks to investment tax credits, depreciation schedules, and inflation. The market decline of last five years brought that to grinding halt.

Chris Miller, managing director for business aircraft investments at Guggenheim Partners, recently noted that owners now must accept the fact that business aircraft no longer are considered appreciating assets. That reality was faced and accepted by my GIV-SP client in 2009.

Aircraft as transportation … now that’s not bad marketing message for the industry.

No Plane No Gain
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