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Learn to Fly Private

Welcome to the 24th edition of "Learn to Fly Private". This is an unintentional Part 2 of a series about private aviation markets (an indication how far in advance I plan my content). Last week, I told you that your jet charters are getting cheaper [I think] due to softening demand and we looked at 3 market indicators. This week, we're going to the owner side, and I'll share how to spot key indicators on whether you're getting a good deal or not. We'll also break down a recent report that came out from Jefferies about the used market, and how a make/model has its own micro-market.

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Now let's dig in...

How to [maybe] get a good deal on a used jet

When deciding to upgrade or purchase your first business jet, you likely don't understand current market conditions. Like a house, you only purchase a few in your lifetime. Unlike a house, the buyer and seller pool is very small. And, unlike a car, you are buying a year/make/model that likely doesn't have many mark-to-market transactions in the last 12-36 months.

How many 2020 Yukon Denalis were sold in the last 12 months in the US?

Thousands.

How many Challenger 300's (2001-2013) in the last 12 months worldwide?

Thirty.

How many 2004 Challenger 300's sold in the last 12 months?

One.

How many used business jet transactions happen in a year?

Across the five major categories in business aircraft (another word for private jet/turboprop), there were 3,909 transactions according to the Amstat annual report. This breaks down to Heavy Jets (539), Super-Mid Jets (287), Medium Jet (728), Light Jet (1,053), and Turboprops (1,302).

Each segment was down year-over-year compared to 2022, and only the Light Jet (+9.7%) Super-Mid (+.6%) and Heavy Jet (+3.9%) were up over the 10 year average. Here's some nice charts from the report. I suggest downloading it as there is more details around asking prices and resale value.

Other than Light Jets, which includes the Cirrus Vision jet (primarily owner flown), the peak across the market was Q4 2021. What I find interesting is we are starting to test the 2019 transaction levels in a few markets, specifically the Medium Jet and the Turboprop market. These two markets are great entry points for those looking to make the jump into private aviation ownership because of their relatively low operating cost compared to their range or capacity.

Inventory Rises, Prices Fall

Remember last week when we talked about supply and demand. You're a smart individual and likely successful in business (hence why you're reading about private jets), don't need be reminded of this simple concept: supply and demand determine the price.

There was a report that came out from Jefferies that for sale inventory levels are up 26% YOY. It is estimated that 1,116 business jets are currently marketed as "for sale" which represents 4.3% of total aircraft in operation. The 5-year average is 5.1%, but this is up from the one-year average of 4.1%.

Side note: this likely doesn't account for the WhatsApp groups and the Slack Channels marketing "off market" aircraft. I'm in one that has had 18 marketed in March.

During 2021 and 2022, less than half that amount of aircraft were for sale. Pocket listings for brokers was the new standard, and if an aircraft actually made it to market it was either grossly overpriced or there was something significantly wrong with it (they still sold. It was wild).

When drilling down on a particular make and model, its important to look at the available fleet for sale. For instance, the Citation market has 111 units for sale (3.4% of the active fleet), primarily driven by Mustangs and Sovereigns. You may be able to hunt for a good deal in one of those markets.

What could cause inventory levels to fall?

Business jets tend to follow markets, because as companies do better, the appetite for private aviation increases. An increase in equity values, i.e. the stock market doing well, could be an indication that inventory levels could fall. The counter-point to this is that equities have been doing relatively well during 2023, but transaction levels fell and inventory has risen.

The other factor is interest rates rising, causing the private aviation financing to be more expensive.

In the aircraft financing markets, we're seeing most come in at 200-500bps over the 5 year treasury. In 2021, that would be roughly 3-5% interest. Today, the get-in rate is 6.3% for phenomenal credit but most closing in the 7.2% to 8.5% range, with outliers in the 9.5%-10% range.

Bonus Depreciation Coming Back (?)

This year, it is 60% on aircraft. As we covered a few weeks ago, the current administration is naming private aviation for closing down "loop holes" in the tax code. There was a bill that passed the house that would bring back 100% bonus depreciation for aircraft, but it has since stalled in the senate. We are unsure when the vote will happen at this time.

In Conclusion...

Assemble your team early in the transaction process. When you have decided it is time to purchase an aircraft, engage a team that understands the current market to maximize the value for your transaction. In the same way you wouldn't purchase a company without a team of advisors, you shouldn't purchase an aircraft without advisors either. I am in the aviation finance business and am not an aircraft broker, but I do know who the good ones are. If you need a recommendation, feel free to reply to this email and let me know.

Until next week,

Preston Holland

Disclaimer: Past performance is not indicative of future results. This should not be relied upon as financial or tax advice, and should be viewed for entertainment purposes only.