The direction of the aircraft market—climbing, leveling off, or descending—should inform your plans for buying a plane.
With the economy healthy and so many recently introduced models in production or in the pipeline, now seems like an opportune time to be in the market for a new aircraft. But whether this really is the right time to buy may depend on when you plan to sell that new plane.
According to Bill Quinn, president of Aviation Management Systems in Portsmouth, N.H., and a member of Robb Report’s Private Aviation Advisory Board, the business-aircraft market typically operates on five- to six-year cycles, meaning that downward and upward trends tend to last that long before the market peaks or bottoms out. How long the market stabilizes at the top or the bottom is less predictable. “If you assume that we rode the bottom in 2010, then 2016 could be when we hit the top,” says Quinn. “But how long will we stay at the top? You don’t want to be caught holding [a new aircraft] and then offering something for sale as the market drops.”
Recent figures from the General Aviation Manufacturers Association for worldwide business-jet deliveries, which always lag behind orders, seem to support Quinn’s assertion about the length of the market cycles. Deliveries for new business jets fell to 518 in 2003, then peaked at 1,313 in 2008 before plummeting to 672 in 2012. In 2014, 722 new business jets were delivered. (Through June of this year, manufacturers had delivered 305 business jets.)
The business-jet market may be rising—slowly, according to the delivery figures—but advisory board member James Butler, CEO of Shaircraft Solutions, a private-aviation consulting firm in Bethesda, Md., says many of his company’s clients are hesitant to spend tens of millions of dollars on a new aircraft. “Even though it’s clear the wealthy are getting wealthier,” he says, “there’s still somewhat of a hangover from 2008 in terms of caution.”
If you are a buyer, exercising such caution is advisable, says Quinn, and you should determine how long you intend to own the aircraft before you purchase it. “One of the most important things that you want to consider is your exit strategy,” he says. He gives the example of buying a new Gulfstream G550. You will spend about $50 million for it, he says, but if you plan to sell it in five years, and the market follows the five-to-six-year pattern and begins to fall after 2016, you could lose as much as 25 percent of the aircraft’s value as the secondary market’s inventory increases.
“If we’re advising a CFO or a CEO,” Quinn continues, “we’ll say, ‘Look, you’re going to have to suck it up and hold on to the aircraft for a while until the market stabilizes. You’ll have to wait for the [secondary-market] inventory level to drop before you’re going to see any increase in prices.’ ”
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