An Update on the Business Aviation Market, Q4 2021

How was the used business aircraft sales market performing as we moved towards 2022? What factors were impacting jet and turboprop values? Jason Zilberbrand, President and Chief Technical Officer at VREF shares some insights…

What a difference a year makes! The doom and gloom within the pre-owned aircraft sales market just over a year ago is almost hard to believe. Here’s the latest market report as Q4 2021 got under way.

While there are still many unknowns in terms of the global supply chain, inflation, interest rates, and another winter of pandemic, the one thing we can say for sure is that General Aviation is back, as evidenced by recent used aircraft sales activity.

There was a time when that wasn’t even a thought. Cheap airline tickets, and service to every part of the world made it easy to forget how critical General Aviation is to the economy.

Today, however, the erratic behavior of passengers on commercial flights has been problematic, leading to a number of aborted flights. Attacks on airline employees and fellow passengers have made the headlines. As if the airlines needed any more issues to deal with, they also face labor problems, pilot shortages and vaccination mandates. These issues have helped propel private air travel, giving it a prominent place in today’s economy.

Many former airline passengers have experienced the benefits of Business Aviation and made a permanent shift, and they are unlikely to ever return to the airlines. This is all good news for General Aviation, and especially for Business Aviation.

The transactions reported in Q3 2021 comprised an interesting mix of first-time buyers and management companies seeking to add aircraft to their already busy, stressed fleets. Several of these large operators are turning business away, simply unable to support any additional growth for the time being.

Q4 is traditionally a hectic time of year for those in aviation. In normalized markets, the time between Thanksgiving and Christmas is the busiest period, and it’s not uncommon to see two- to three-times the number of aircraft valuations coming through VREF’s software. This, however, is not a regular market…

It appears ‘normal’ may be a thing of the past as the global economy shifts from pandemic towards recovery. Or maybe the economy is just dealing with the fact that the virus may be here for the longer-term.

What’s Influencing Activity?

The current market is not only one of the tightest we’ve seen during almost thirty years working in the industry, but also one that doesn’t seem to be tied to any single aspect of the economy. Many factors influence the activity levels – and the associated values today – and these are enough to make one’s head spin.

Some of the factors seem obvious, yet are rarely written or spoken about in detail. For example, the number of aircraft being removed from service due to expensive maintenance (or lack thereof), accidents, or simple technical or functional obsolescence, is hard to take in.

There has been a growing number of days over the past 12-18 months that I have needed both hands to count the number of aircraft being removed from service. Though this might not seem like a massive problem, it has snuck up and is demanding attention.

It could have been mitigated had we not lost so many productive years after the Great Recession. This “lost decade” found its way into every R&D budget, and just about every manufacturer felt the burn at one point or another.

Fast-forward into today’s market, and the hope of offsetting the attrition rate with new aircraft deliveries is just that: ‘Hopeful’. While there will always be a segment of jet buyers who desire, and have the financial ability to buy a new aircraft, this will never be the majority.

For most, the value proposition and mission profile analysis are always at the mercy of a budget, driving the majority of buyers to the used jet market. Thus, there will always be solid demand for older private jets and turboprops, until we see a technology-driven shift with alternative fuel or powerplants that force permanent change.

We also take for granted the fact that the Great Recession knocked down values to well below what was justified. For the most part, those same models that were so heavily impacted are only now starting to see a plateau in their deprecation. In some, rare, cases there is evidence some are seeing some appreciation (a word not used in the pre-owned airplane market since 2008). 

“A buyer choosing to pounce on ‘the aircraft of their dreams’ in the current market, ignoring issues that would not usually be overlooked, may find they create an expensive nightmare for themselves when the market cools.”

The Hazard of Hurry

The size of the fleet, combined with the number of pre-owned aircraft available for sale, is something appraisers use daily as a measuring stick. It’s something VREF has been tracking offline for many years, and there is a direct correlation between the size of the fleet, the number of aircraft for sale, an aircraft make and model’s popularity, and value.

The more desirable an aircraft model is, along with its specific features and avionics, the longer, and potentially more frustrating the wait becomes for buyers as their chances of finding one are reduced to slim-to-none.

The scarcity of pre-owned aircraft inventory in this current market has, for obvious reasons, had a direct impact on values and the amount of money a buyer is willing to pay. It has also created an environment that can trip first-time buyers and even seasoned aircraft purchasers up.

The ‘hurry-up’ mind-set, along with the low availability of good quality aircraft, is often a recipe for disaster. We have noticed a hard-to-believe trend in the current market in which buyers are prepared to overlook logbook issues, missing records, damage history, and uncertain back-to-birth traceability in used aircraft for sale.

The question that needs to be asked is, “what if the market changes, and is no longer hot?” Buyers must consider this question before deciding whether a transaction makes sense.

A buyer choosing to pounce on ‘the aircraft of their dreams’ in the current market, ignoring issues that would not usually be overlooked, may find they create an expensive nightmare for themselves when the market cools.

While there is no promise the next aircraft that matches the need will be better, when it becomes available, patience remains a virtue in today’s marketplace.

Market Trend Report

During Q3 2021, VREF subscribers generated, on average, 20,000 valuation reports every 30 days – up 7% from Q2 2021. The market supply is tight across the board, although some of the market activity has led to more aircraft availability in certain markets. 

While there is no crystal ball at VREF, we do have a lot of data, and we can see that not a whole lot has changed lately. If anything, the market has tightened for certain classes of aircraft. The number of available aircraft has generally continued to drop across the board, with some exceptions. Following are some market highlights at the time of writing…

• In the single-engine piston market, later model

Cirrus SR22s, Cessna 182s (all variants), and Piper

Cherokee 180s saw an increase in inventory availability, but values continued to increase. • The Light and Mid-Size Jet markets have remained active, and a steady stream of transactions continue to be reported across all popular models. • The Large Jets have done remarkably well, with demand increasing month-over-month during Q3.

It is also worth noting that many service centers report long waiting periods, and in some cases are quoting well into 2022 for availability. Be careful when trying to schedule pre-buy inspections, and always schedule maintenance as far in advance as possible, especially with supply chains continuing to be strained.

VREF’s Q4 values, updated at the end of November 2021, forecast little market change in the coming months. VREF expects the current market to stay the course for the foreseeable future, with a number of Q4 transactions carrying over into Q1 2022.

News from VREF

For the first time in many years, VREF has published a mid-quarter price update. “It is essential for all of our subscribers that we maintain accuracy, especially in a heated market like the one we have today,” Jason Zilberbrand explained.

“We will also soon release several new features and improvements to our software. We believe the new data will be well received, and will enable users to see the ebb-and-flow of aircraft transactions like never before,” he added.

“Another feature that I’m personally excited about is VREF’s stand-alone engine database, and engine conversions which are almost ready for deployment. As part of the update, users will be able to adjust the TBO on specific engines.”

JASON ZILBERBRAND

Jason Zilberbrand is the President of VREF. He is an Accredited Senior Aircraft Appraiser with the American Society of Appraisers (ASA), and an Accredited Member of the Appraisers National Association (ANA), and he is also an Accredited Member of the International Society of Appraisers (ISA). He is an expert witness, broker, inventorying dealer, acquisition agent, aircraft owner, aircraft operator, contract negotiator, consultant, teacher, conference speaker, and author.