The business jet market has been on the mend for quite some time, but only recently has the improvement shown clear signs of acceleration. According to recent statistics, it was about one year ago that the inventory of used business jets began to shrink at a faster rate than during previous years. Since last year’s NBAA Convention, the industry has experienced a 10-percent drop in used aircraft inventory, or nearly 300 fewer aircraft. As we enter the last quarter of the year, often the most robust for aircraft sales, this number should drop further as the momentum the market now has seems to be building even higher.
And the actual inventory might represent an even tighter market for buyers. Once they starts to impose their individual shopping parameters, the available choices naturally winnow down, narrowing from the roughly 3,200 for sale today worldwide. For instance, a buyer who will consider only aircraft from North America has about 1,500 to select from—less than half the total inventory.
Filtering the market further to aircraft of 2000 or newer vintage drops the choice further, to about 450 in round numbers. If you want a 2000 or newer jet that is North America-based with 2,000 hours or less on its airframe, well, then you have only 175 aircraft to consider, a lot less than the 3,200 total at the beginning of this exercise. Now suppose your budget is capped at $10 million for an aircraft that meets these parameters? Now you’re down to just 55 aircraft.
These are realistic constraints that buyers often impose upon themselves, sometimes for good reason and other times, no one knows why. But it illustrates how a pool of more than 3,000 aircraft can be whittled down pretty quickly for buyers with discriminating taste. And there is no shortage in that brand of customers.
GV, 604 Gain Ground
So, some markets have added to the their supply from last year and others have contracted. Consider the Gulfstream G550, which at NBAA show time last year presented buyers with just 11 choices. Since that time, G550 availability has nearly tripled. Yet of the 32 for sale a few weeks before the show opened, 11 are based in North America, nine are in Europe, nine in Asia and three in South America. Again, if you implement the buy-close-to-home game plan, choices remain extremely tight.
But the G550’s predecessor model, the GV–which looked left for dead until the second half of the year–has kicked in. One sale in early January was all we saw until June, when buyers began to realize how compelling a buy the GVs are. That’s when activity picked up again. Between June and August seven aircraft changed hands in rapid succession, and prebuy facilities report that they are brimming with several more, as of this writing. In my view, the GV has been the most undervalued, best bang for the business-jet buck in the long-range category this year, perhaps replacing the Challenger 604, which has executed a similar about-face over the last year or two.
Speaking of the 604, there were about 50 for sale last year. That sounds like a high number, and it was, but not as high as the nearly 70 for sale when inventory peaked in 2012. What a difference a couple of years makes. With cyclonic force, buyers swept in and gobbled up the inventory, resulting in 40 transactions in the last year and also leaving only 22 for sale at present, 10 of which are based in North America. Europe claims nine and the remaining three are in Asia.
The trend is firmly in place with the current number having reached a multi-year low. With Challenger 604 sales prices ranging from a low of $4.5 million and topping out at around $10.75 million (according to research firm AircraftPost), that jet has been a great value play for buyers. Despite the market shrinkage, the 604 still has plenty of room to run and likely will continue selling strongly during these final three months of the year. The 22 for sale today represent 6 percent of the more than 360 in operation. While that is well below the nearly 20 percent available for sale at the inventory peak, it wouldn’t take too much to move the needle into the 5- or even 4-percent range, by year end, especially if the 604 continues to average the 3.5 sales per month as it has during the last six months.
Super-mids Slow
The Challenger 300 reached that 4-percent supply level slightly more than a year ago when 19 were available for sale. News travels fast. Sellers become more emboldened and raised prices. And as typically happens, inventory built up again, nearly doubling to 36 in May. But sales are re-gathering momentum again, and the inventory recently dipped below 30, with about half of those based in the North America.
Speaking of super-midsize jets, during the last six months the Citation X has sold at a rate of 1.5 per month, which has not been enough to stem the tide of newcomers to the market. In fact, the Citation X inventory is sitting at a 12-month high of 37 for sale. It had been as low as 25, late last year. Asking prices start at less than $4 million and jump to nearly $13 million, for one of the last ones built.
The G200 mirrors the Citation X, hitting its 12-month low of 24 for sale early this year and now sitting near its 12-month high of 34. Asking prices begin at $5 million for an early model with 4,430 hours’ total time and move up to $13 million for a 2010 model with 1,000 hours.
The movers and shakers joining the Challenger 300 in this category of hot sellers right now are the Falcon 2000 and Citation Sovereign. The Falcon 2000 is down from an inventory of 27 for sale during last year’s NBAA show to 17 today. With inventory split about evenly between Europe and North America, combined with a two-per-month sales rate, buyers’ choices may seem slim. Prices fall within a similar bandwidth as the Citation X mentioned above, from $5 million to $13 million.
The Sovereign’s inventory is trending in the same manner as the Falcon 2000, beginning the year at 27 and currently at a 12-month low of 16 available for sale. In terms of percentage of availability based on respective fleet size, the Sovereign is the hottest model, with fewer than 5 percent of its fleet for sale, followed by the Challenger at 6.4, Falcon 2000 at 6.9, Citation X at 11.8 and the G200 at 13 percent.
European Activity
The percentage of all aircraft for sale in Europe continues to be greater than that of North America, but only slightly. The real dichotomy is the difference in percentage of 2000-and-newer aircraft between the two regions, which, while lower in both areas compared with a year ago, is still twice the size in Europe it is across the Pond. The European level is 12.6 percent of the business jet fleet for sale and a relatively tight 6.5-percent for sale in North America.
The takeaway is twofold. First, the supply of late-model aircraft in North America continues to get tighter and perhaps because of that, acquisitions where buyers hire brokers to flush out a deal for them appear to be on the increase. Secondly, as the North American supply gets tighter, buyers might want to take a closer look at Europe’s relatively ample supply. Of course travel time and hassle, aircraft cost of movement, importing costs and so forth would have to be factored into the purchase price.
One aircraft that comes to mind when considering a purchase in Europe is the midsize Citation XLS. When I was researching the market recently for an acquisition client, I quickly noticed how few there were available, period, let alone how few were on home soil. Due to the dearth of North American-based aircraft, the supply was fully priced, so much so that I started to evaluate choices in Europe, where slightly more than half of the choices are.
Pricing definitely looked attractive, but before dusting off my passport to go take a look, the high U.S. pricing forced me to consider another alternative. I took a cursory look at the early XLS+, the successor model to the XLS, which until late summer had been quite inactive in the market. With some decided benefits and attractive pricing, the client decided to roll up into the newer model.
It’s not surprising to see so many XLSs for sale in Europe as the region deals with economic headwinds. The XLS supply in Europe is 13 percent versus about 4 percent in North America. So, it’s easy to see why the same aircraft might have two different trading ranges between continents.
Finally, China
One can’t talk about regions of the world without bringing up China, which has been on the radar of manufacturers and used aircraft brokers. The fleet in China is still young and small, but it is growing. Right now JetNet tracks about 250 aircraft that are “B” registered (Chinese registration), with two thirds of them having been delivered in the last five years. As China relates to the used market, it’s not an easy one to tap, with layers of minutia to deal with before even getting close to getting a deal done. A few brokers trying to break the code have teamed up with Asian brokerage partners and are co-branding their services.
Light Jets Firming
In the small-company and owner-flown segment, the Citation CJ3 stands out with only 5 percent for sale of more than 400 built. Only seven of those are in North America, which equates to a mere 2.3 percent of the North American population of these popular jets. Prices are firm and should stay that way for now. Supporting that view is not only the small supply, but the fact that Cessna has scaled back production over the past five years. Just 73 were built during that span. That is fewer than were built in the single years of 2007 (88) and 2008 (77), just before the Great Recession reared its ugly head.
As the final and most active sales period of the year unfolds, choices should continue to diminish. Looking at the October-October period for the previous three years, worldwide inventory held fairly steady around the level of 2,600 business jets.
Following last year’s NBAA Convention buyers began to step up their activity, pushing inventory down by 300 aircraft, a level not seen since 2008. Based on recent conversations with industry counterparts and corroborated by numerous other indicators, the used jet market has heated up to levels not experienced in years. Valuations continue to be compelling for buyers, clearly adding to the frenzied buying pace, which could easily carry into next year.
