Tom Allett, editor of Airports International magazine, asks is it really worth investing in a new, off -the production-line jet?
Like new cars, executive jets are well known for losing much of their value as soon as they are purchased. Yet, while the economic squeeze upon the corporate aviation business is as tight as ever, it seems that the quantity of second-hand corporate jets available for sale has grown to the point of flooding the market.
Perhaps there is an element of ego to corporate aircraft procurement? Many ‘ordinary’ folk will admit to always buying new, rather than second-hand cars, simply for the status value. Extrapolate that same philosophy to the super-rich and perhaps it also affects the corporate jet market.
I think I can safely say that I’ll never be able to buy myself an executive jet, so I sought the opinion of Dr Siegfried Axtmann, CEO of FAI rent-a-jet, headquartered in Germany. Dr Axtmann also believes the second-hand jet market has been replete for a while now adding that he can see no prospect of the situation changing soon.
He considers the pre-owned corporate jet market to be taking the same direction as the second-hand super yacht and used luxury car markets. “The supply by numbers is increasing. The manufacturers state that by percentage of production the number of new aircraft is not growing, but I think they are closing their eyes to the fact that the amount of used aircraft available for sale is increasing.”
He recalled the purchase of a classic Global Express jet, acquired in 2011 for $20 million, which he described as “a steal”, but the aircraft’s value has halved already.
“And it’s the same situation with Falcon 7Xs and Gulfstream 550s,” he adds. “So it’s not an isolated problem of one manufacturer. It’s just that the number of used aircraft up for sale is growing and this is forcing down the price of second-hand jets.”
This is, of course, a global situation; you can buy these pre-owned corporate jets at approximately the same price all
over the world. But how did the corporate jet industry find itself in its current predicament?
Looking back, Dr Axtmann traced the market situation to two events. First, around the turn of the century, when the economies and politics of many former Eastern Bloc countries had matured to the point where their financial elite sought to buy private jets, a new market was created. Suddenly, demand temporarily outstripped supply and, naturally, the aircraft manufacturers responded by upping their production
The second key event, the arrival of the 2008 global financial crisis, meant many businesses and individuals were
forced to sell their jets, yachts and luxury cars. This effectively flooded the respective pre-owned markets, but many in the corporate jet industry thought the situation would be short-lived; the glut of used airframes would soon be disposed of and the market cost of second-hand jets would return to the pre-2008 levels.
So far, it hasn’t happened. Dr Axtmann commented: “Today, relatively speaking, the economy is warming up, but the number of used business jets for sale is still increasing in line with the markets for used luxury cars and super yachts. There are too few buyers and in these situations the motivated buyer becomes the ‘market maker’.”
Can it be all bad though? Surely, when supply exceeds demand it provides a boost to aircraft operators, who can obtain quality airframes at a lower cost? Dr Axtmann provided a note of caution. “Yes, the jets are cheaper to buy, but the most important factor is how will you utilize them? I think the move to purchase a jet — or not — isn’t the key decision. The bottom line is if I purchase it, even at the right price, can I fly it enough to cover the future loss of value and the operational costs? Is the purchaser willing to accept the future loss of value and able to achieve a fruitful operation from the day of purchase – or not?”
As some new aircraft buyers adopted business models which ultimately failed, many former owners have sold their aircraft and based their business around charter services. At least the current situation has slightly boosted the charter market.