Market Insights 2.qxp_MARKET INSIGHTS 21/06/2022 16:23 Page 1
MARKET INSIGHTS
Aircraft Values Climb Again, Despite Economic Jitters The first six months of 2022 have been filled with several contradictions in the pre-owned business aircraft sales market, according to VREF’s Jason Zilberbrand…
O
n the one hand, things have never been so good in aviation; demand for aviation is back, with littleto-no end in sight for high charter utilization. On the other hand, will the current aircraft market withstand the number of obstacles ahead? So far, the answer has been an amazing yes. But is the sentiment shifting, and the bubble about to burst? While a downturn is unlikely, we have probably hit the ceiling regarding escalating aircraft values. Despite the continued talk of a downturn, I believe one is doubtful because our current market has little to nothing in common with previous recessions, especially the ‘Great Recession’ of 2008, and today. I mention 2008 only because it was the fastest and scariest race to the bottom ever witnessed for many seasoned veterans in Business Aviation. With that recession engrained and embedded in our memories, many tend to fear the worst today. However, there are several key differences between previous downturns and today's economic jitters. 1. Inventory: First, pre-owned aircraft inventory remains extremely low. Although inventory has risen slightly since Q4 2021, the increase is barely noticeable. For the most actively traded models, supply is still nowhere near normal. Take, for example, popular aircraft like the Cessna
30 Vol 26 Issue 7 2022 AVBUYER MAGAZINE
Citation Excel/XLS and the Citation CJ3/CJ3+, which are trading at (or above) asking price. Even with a slight uptick in aircraft for sale, these models still have fewer than 2% of the total fleet available for sale. Even if off-market listings swelled the number closer to 3%, that’s still not enough to move the meter into a buyers’ market. The same holds true for just about every popular, actively-traded aircraft model. Despite a slight uptick in the number of aircraft for sale, there’s no slowdown in sight regarding buyers' appetites. 2. Healthy Balance Sheets: Secondly, the banks and their respective balance sheets are healthy, as is their desire to fund aircraft. While interest rates have risen, they’re still low compared to the past thirty years. 3. Loan-to-Value Rates: Thirdly, aircraft owners have skin in the game this time around. The loan-to-value requirements for aircraft lending has remained at approximately 75%, allowing most borrowers to stay far away from foreclosure and build equity. While there may have been a cooling for refinancing, the uptick in rates has not lessened offer purchasing. Lenders are more selective over the equipment, age, and several other factors, including enrolment in engine and airframe programs.
www.AVBUYER.com
