Secondary Thoughts

<< Back to Robb Report, October 2014
  • Shaun Tolson

The economy has rebounded, stock prices are soaring, unemployment is down, but the secondary-aircraft market is still a buyer’s market. Prices of pre-owned aircraft plummeted during the recession that started in 2008, largely because of the flood of planes from owners who could no longer afford them or could no longer justify the cost of owning them. In the ensuing years, the supply of pre-owned aircraft has remained high, and so prices have stayed relatively low. According to Jetnet, a company based in Utica, N.Y., that tracks the private- and commercial-aviation markets, the average asking price for pre-owned private aircraft 15 years old and newer in 2013 was $8.7 million, compared to $10.9 million in 2009. 

The attractive pricing has deepened the pool of prospective buyers, which now includes people who are new to jet ownership and people who previously were more limited in the type of aircraft they could afford. “When you look at small-, mid-, and large-cabin [pre-owned] planes, prices are as low as they’ve ever been, generally speaking,” says Robb Report Private Aviation Advisory Board member Keith Swirsky, the president of GKG Law and the chairman of the firm’s business aviation group and tax group. “As they continue with that downward trend, all of a sudden you have a buyer who can afford a large-cabin plane or a new buyer who’s buying into a small-cabin plane.” 

The buyers acquiring larger aircraft may be adding to the supply of secondary aircraft by selling their current jets as they upgrade, but both types of buyers are increasing the overall demand for jets, which eventually could transform the buyer’s market into a seller’s market. “Guys selling now are doing so to move up, whereas during the recession they were moving out,” says Dave Richter of Jeteffect, a jet-sales and -acquisitions company headquartered in Long Beach, Calif. “We’re starting to see some equilibrium in the market. People have money again, and the stigma of having a business aircraft has started to recede.”

Swirsky says that, in many cases, owners are upgrading or buying their first jet because they can, not because their needs dictate it. “I have more and more clients who tell me that their utilization hours are 50 to 100 [per year], and that’s a substantial underutilization of that aircraft,” he says. Swirsky recommends jet ownership if a client flies 200 hours a year or more. He notes that other consultants’ recommendations range from 150 hours to 250 hours. 

When an aircraft is underutilized, the owner usually will make it available for charter, seeking to offset some of the fixed costs of ownership. However, like the secondary-aircraft market, the charter market is glutted. At the start of this year, the General Aviation Manufacturers Association forecast that the number of business jets available for charter in 2014 would increase by more than 400 compared to 2013 and by nearly 1,000 compared to 2012. Consequently, many jet owners may not realize the revenue that they anticipated from the charter market.

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