June 28, 2019
How Long Should I Own My Airplane
In this video blog, Guardian Jet’s Don Dwyer provides a business aircraft market update following Quarter 1 2019 results.
In it, he highlights the activity level of aircraft transactions; OEM and pre-owned aircraft market insights; the impact of 2020 regulations; and what’s going on at Guardian Jet, including our exhibition at EBACE and a new promotion.
Watch the video or read the edited transcript below.
Hi, I’m Don Dwyer with Guardian Jet.
Welcome to another in our series of videos for our clients and friends, talking about what’s going on in our industry and the marketplace.
Today I want to talk about a few things: the activity level of aircraft transactions; a few insights into some of the markets we track; the impact of 2020 regulations; and some of the things going on here at Guardian Jet.
I’ll start out with the very interesting times at the OEMs. Our OEM new purchasing business is going well. All the OEMs have interesting things to talk about.
There’s a lot of speculation of what’s coming next at Gulfstream. But the 500 and 600 introduction is going along smoothly. The G650 still continues to be the real "rock" in their lineup.
On the Bombardier side, it’s very exciting to have the 7500 out flying and delivering. We also look at the 6500 and 5500 as game-changing airplanes. They are priced very competitively.
Of course, Dassault with the 6X and the 8X that is not so far out. A lot going on there.
And with our friends at Embraer, with the Praeter series of airplanes, is just absolutely incredible. We’re seeing them engaged more and more into the corporate community and they’ve certainly always done well with the high-net-worth individual.
And Cessna—Textron—has a lot going on. In general, the OEM community feels very healthy right now. A lot of people are talking about new airplanes.
Of course, the stabilization of pricing in the used market helps that. So our new aircraft buying business is going well right now. And it’s really spread across a lot of OEMs—so it’s pretty exciting there.
I want to talk about the used market and the number of transactions. As you know, 2018 was another great year. In the 125-130 markets that Guardian Jet measures (not everything that Bluebook or GAMA measures, but in the markets we play with everything from single engine turboprops to G650 and Global 7500), 2018 was a great year. There was a little more than 10% percent growth over 2017. But what really grew was the number of ultra-long-range transactions. There was a lot of activity.
So 2019 comes along, and we talked to brokers, bankers and people in our industry, everybody felt it slow down a little bit. And we kind of felt the same thing. Our business is going great, so so waited until the end of the quarter.
And here’s what it looks like:
In the markets we measure, in the first quarter of 2018, there were 458 transactions. And in the first quarter of 2019, there were 397. That’s about a 13 percent drop-off in number of transactions.
I’m not sure that accurately reflects the real picture of those three months. Because a lot of those deals are hangovers from the end of the fourth quarter. This is true in both the first quarter of 2018 and the first quarter of 2019.
I think we might feel it in the first couple of months in the second quarter. I think you’ll see that trend continue a little bit and the number of transactions industry-wide be off a little bit.
Now, I will tell you this, anecdotally, it’s booming right now.
About a month ago, the phones started ringing off the hook. We normally have about 20-25 airplanes for sale at any given time. And I will tell you that in the last 30 days maybe 75 percent of those are somewhere now between letter of intent (LOI) and closing.
So, there’s been a big push and a lot of activity in the last 30 days.
I don’t know what that means. I still want to wait for second quarter numbers are like before we start talking about what really happened. But we know right now that activity is good.
We also know that as we buy airplanes, there’s less airplanes available in the used markets. I’ll give you an example in the G550 market. Right now, there have been three airplane sales a month for the last six months. Very active market. But what’s different from now vs. this time last year is that there are fewer planes for sale. So the absorption rate—or the months of inventory that are currently on the market—is very, very low. Now when you’re buying airplanes, you might have to go further away than you want to if you have to have the airplane now.
We are practicing patience with all of our customers that we are buying airplanes for. Because we want good pedigree airplanes. We want good value. That’s a little bit harder to find right now. There is a smaller percentage of U.S.-based used planes in the inventory for sale than we’re comfortable with. They get snapped up very quickly.
It’s something to keep our eyes on.
So what does that all mean toward pricing? Last year, pricing stabilized. What I call a stabilized market is when you’re losing somewhere between 3 and 6 percent in residual value over the course of a year.
Stabilization is way better than the double-digit residual value loss that we saw in most airplane markets.
What we have seen—and continue to see—is the best pedigree and newest vintage airplanes have actually increased in value. We hadn’t see that since 2006 and 2007.
I do think that that is slowing.
There are a couple of trends we’re watching in ancillary markets as they slide a little bit, we think everything else is going to soften. I don’t think that, on the good pedigree airplanes, we’re going back to that real horrific residual value loss every year.
But we probably are going to see it soften a little bit. Certainly not have airplanes get the premium that they’ve been getting.
There’s no evidence of that yet, but it’s just something we’re keeping our eyes on.
I do think that the regulatory issues coming in 2020 are going to have a dramatic effect on our business. My good friend, Rollie Vincent, and I did a talk together and he said there’s something like 12,000 in the general aviation/private jet fleet that will be obsolete.
What will this do to pricing on the lower end? Could that boost pricing? I don’t know. Certainly, it’s nice when you’re selling an older airplane to have all of the regulatory issues complied with. The real question now is: do you do it? Or do you just live with what you got and move on? Because some of the values in these airplanes are so low.
But if you have any questions, this is stuff we analyze all the time here at Guardian Jet. Please reach out, we can help you with that.
A couple things going on here at Guardian jet that I want to just touch on. We’re just about ready to head over in May to EBACE.
We’re very excited about EBACE this year because it’s the launch of Vault 3.0.
A lot of you know that we have an online portal for our customers where they can look at values of their airplane. We store their documents where they track their sales going on, and they track the activity levels on the airplanes. The whole myriad of the relationship they have with Guardian Jet can be followed online 24/7.
Vault 3.0 is way more user-friendly. It’s much more intuitive and cleaner looking. It is a big jump for us as we’ve spent a lot of time and energy on it, so we’re very excited to introduce it at EBACE this year.
And then the last thing I want to touch on is a lot of our customers know—and certainly a lot of industry and the brokerage community know—Samantha Langen. Sam has been running our internal sales team for the last couple of years and doing a spectacular job. She’s a really competent professional.
Sam has accepted a position with us as our Midwest sales representative. She’ll still be based here in in Guildford, but she’ll cover Chicago, Minnesota, Wisconsin, and some of the big markets out in the Midwest. We’re really excited to have Sam join the team. We wish her every success and we’re pretty sure she’s going to be spectacular. Congratulations to Sam!
That’s all I’ve got for today for this business aircraft market update. Thanks for taking the time to watch the video. If you’ve got any questions please give me a call, call my brother, Mike, or call any of our people here at Guardian Jet. Thank you so much.Contact Guardian Jet
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