Sales Up, Prices Holding...

The Industry Trends committee of the National Aircraft Resale Association is seeing the ingredients for a recovery in pre-owned aircraft sales, based on factors ranging from the stabilization of aircraft values to opportunities created by the expiration of Fractional contracts. Aircraft dealers and brokers are also reporting anecdotal evidence of an increase in sales activity.

"Inventory levels are high, resulting in almost unprecedented choice. Interest rates are at historically low levels, and prices have stopped declining. The combination of these factors represents a classic buyer's market," said Tony Friend, Chairman of NARA's Industry Trends committee.

"Economic uncertainty is the wild card, particularly in the corporate market, since corporate aircraft sales typically correlate with corporate profits," Friend noted. "However, many aircraft dealers are seeing knowledgeable buyers moving back into the market because of the opportunity to get a very good deal in the current circumstances."

Pressures being placed on older aircraft are adding to the potential activity increase. Some financiers and insurers are becoming reluctant to support older aircraft. In addition, the high cost of compliance with requirements for modern electronics and quieter operation, coupled with the price tag for regular major maintenance, is causing owners of older aircraft to consider upgrading and modernizing their fleet.

Existing Fractional owners who are coming to the end of an existing contractual relationship are another source of potential buyers. Rather than renew their Fractional contracts, some are looking at extending the benefits of corporate air travel through whole-aircraft ownership.

Other evidence of a likely turnaround includes:

• An increase in turboprop sales reported by market research firms in late 2002 and early 2003.
• Price stabilization that has halted the precipitous drops of the past few years. According to ASO figures, for example, the average asking price for pre-owned Gulfstream IVs fell 3% between 2000 and 2001, then plummeted 17% from 2001 to 2002, but slipped only 1% in the last year. This signals to buyers that prices have hit bottom and that pre-owned aircraft are once again a good investment.
• First-time buyers entering the market, such as one corporate buyer who recently purchased a Beechjet 400 from Central Flying Service in Little Rock (AR), to save time in traveling to company locations in multiple states. Another first-time prospect is currently evaluating proposals from the same dealership because he believes he can reduce a grueling 74-day-a-year travel schedule by one-third through private ownership.

"Our phone activity has picked up dramatically in the last several weeks, and we're also seeing leads from Internet ads increase from three or four a week to several dozen. We're seeing action both in light jets and turboprops," said Phil Gustafson, Director of Sales for Central Flying Service. "I definitely think we've seen the bottom of the market, and in fact that the recovery has begun."

FMI: www.nara-dealers.com