Pre-Owned Business Jet Pricing
With Q1 coming to a close, Sales and Acquisition specialists Matt Walter and Kyle Canna sat down to discuss a spring update on Overall Market Conditions, Hot & Cold Markets, and 2023 Predictions for pre-owned jet pricing.
They buy and sell a high volume of airplanes together and we think you’ll find their take on the current market very compelling.
Get an insider take and watch the full interview with Kyle and Matt on our youtube, or continue reading highlights below.
Host: Kyle Canna, Director of Market Research, leads a team of 5 full time researchers monitoring value and access to > 120 different aircraft models. They work to analyze current market values, execute sales, and assist in acquisitions for our clients. Since 2020, Kyle has been directly involved in 95 Pre-owned acquisitions totaling over $1 billion dollars.
Guest: Matt Walter, Vice President Sales Northeast, is responsible for business development and revenue generation, primarily managing client relationships and executing trades on their behalf. Matt quarterbacks the whole relationship with our clients, from their pilots and mechanics, to managements companies, bankers, attorneys and family offices. He oversees transactions, step by step, with assistance from our technology platform and the trading floor. Matt is a CPA and 10-year veteran of the aircraft sales industry having completed over 150 deals worth over $2 billion dollars.
Overall Market Conditions
Kyle: Let's jump into what we want to hear. Matt, what are your thoughts on the current private jet market and the overall conditions?
Matt: I’ll say the one thing we’re seeing is values haven’t fallen as fast, as far, and as quickly as we thought they would heading into this year. But some things we know for sure, supply is definitely increasing and has been since the middle of 2022. The pricing stayed constant throughout the end of 2022, and started to fall off at the end of December.
Kyle: But the new inventory that’s coming on, hasn't been the best quality inventory.
Matt: Right, what we're seeing now is a less frenzied, more patient, more cautious approach from buyers. There doesn't seem to be a rush to buy airplanes right now. The increased inventory isn’t all quality; it's still very difficult to find top tier, US, corporate pedigree, low time, well equipped, fresh out of heavy maintenance airplanes. This is one of the reasons values are falling but at a slower pace.
It's more an important than ever why you need an advisor to guide you through the market. The quality listings are there, but you need to dig deeper, look harder, and have access to off market aircraft. We say in 2023 you're going to work harder to get the same amount of deals done.
Kyle: It sounds like things cooled off at the end of the year, got stagnant earlier this year, and have picked back up again. Would you agree?
Matt: Yes, I'd say the demand is still there, but nobody is willing to rush a purchase or overpay to have an airplane immediately. It’s the whole “is the market going to have a soft landing or come crashing down?” discussion that we've all been having for awhile now. I think we’re in the midst of the soft landing.
It wasn’t a bubble because values were truly up, significantly, and for good reasons. All the reasons we have been discussing for the last 3 years. Everyone is frustrated with their current aviation solution, whether that's commercial, charter, or fractional. A lot of wealth was gained from 2020-2022, and most importantly there's a lot of new entrants to our market. I read something awhile a back that said 10% of the people who could actually afford to fly private do, which means a lot of the growth in our industry has come from new owners and first-time users.
If you think how the markets are up somewhere from 20-60% depending on the model, and as we're returning to normal annual 5-10% residual value rates, it’s going to take a couple of years to get back to the pre-covid values. That makes sense to me though, because looking back pre-covid values, I am more surprised at what the values were then, than what they are today. If you think of super midsize and large cabin airplanes that you can buy sub $10 million dollars: these are airplanes that seat 8-9 passengers, that go coast to coast or farther, that are corporate pedigree, low time airplanes and you can buy for under $10 million dollars.
Kyle: An incredible asset and investment for under $10 million dollars.
Matt: That was a surprise to me. Where we're at now is less surprising, but it's all relative. People are comparing the values now to where they were 3 years ago, and they perceive them as being high.
Hot & Cold Markets
Kyle: What markets are still hot? Things are still on fire in a few markets.
Matt: Light jets, certain midsize and super midsize jets. What I'll call first choice airplanes which are the near new, gently used, low time, corporate pedigree airplanes. We're seeing about 1-4% for sale in those, so still seller's markets.
Kyle: Still low, 1-4%.
Matt: Very low.
Kyle: What would you want to see it at to be average?
Matt: We used to see 10% as average. Somewhere less tends to favor seller, somewhere more tends to favor buyer. We're just seeing demand is especially strong still in those markets, that $1-10 Million dollar entry level airplane. Planes that can get you coast to coast in 1 or 2 stops, pricing has been firm on that. New aircraft pricing has either increased or remained firm. Lead times have increased, now on average 18-24 months.
Kyle: So you think this is going a little bit of time to get back?
Matt: Yes, I think it's going to take seeing more quality inventory enter the market. While supply has doubled since last year, it's still low at 1-4%.
Kyle: Yes, we'll definitely need to see some more inventory. On the other side of this, which markets are cooling off?
Matt: We're seeing the biggest jets and the oldest jets that are affected the most. In these categories, 7-13% of the market is for sale. We're seeing lower demand, there were a lot of closings in Q4 vs. low single digit closings to date in 2023.
You're just seeing buyers and sellers at a stalemate. Sellers have not quite come to grips with what buyers are willing to pay. Buyers are willing to wait them out and be patient until they do. It's a domino effect, what we're seeing in the bigger and older jets are eventually going to get down to the midsize and the light jets.
Kyle: That's what I was going to say, it's coming for all the airplanes. No airplanes are going to be exempt at the end of the day, but things are definitely still hot in some of those markets we touched on.
Matt: I agree.
Kyle: What do you think is going to happen in the rest of 2023?
Matt: I'm still confident. We're still busy, very busy. We're doing lots of deals, we have close to 20 airplanes pending on either side of the transaction. Activity is still up, demand is still there as we talked about. There's a lot of buyers that are waiting in the wings right now. There's 80% bonus depreciation still this year. If all these buyers that are waiting for the perfect time to buy enter the market in September and October of this year, we're going to have a busy Q4 again.
It's more important than ever, if you’re looking to buy, that you align yourself with a trusted broker that has the right team in place to find the right jet.
If you’re looking to sell, on the other hand, it's necessary to work with a broker with industry leading market intel and relationships. Pricing is going to be critical in 2023. You have to price your airplane to be the next to sell, so the phone keeps ringing, but you don't want to be too aggressive where you're leaving money on the table.
I hope you like what you heard today. If you have any questions, or want to discuss a transaction or the aviation markets, please give us a call at Guardian Jet.
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