C&L Blog

Home/C&L Blog
C&L Blog 2017-06-13T02:14:15+00:00

Lower prices tempt buyers into private jet market

 

 

 

 

 

 

 

 

 

 

The proportion of the global business jet fleet on the market has fallen to levels not seen since before the worldwide financial crisis. Yet while the sector is keen to view this as a sign of the good times returning, market messages are mixed.

The most recent business jet market report by Swiss bank UBS says used aircraft accounted for 10.5 per cent of the aircraft for sale in July. This was the lowest level since November 2007.

“We’re now at a new beginning point of steady, healthy growth,” argues Chad Anderson, president of sales agent Jetcraft. “The market is back to a point where there is more than one buyer for aircraft that are correctly priced, marketed and positioned. Inventories are back to pre-recession levels.”

Steve Varsano, who founded The Jet Business, broker of sales of super-midsize and larger business jets, says this is feeding into prices.

“Prices of second-hand jets have come down drastically over the past two years,” he says. “Now prices are really starting to stabilise.”

15%
Reduction on the total number of recent model jets listed for resale YoY

The used-jet market has also acted as a brake on sales of new aircraft. In its latest Global Business Aviation Outlook last month, Honeywell, the industrial group, said this was one of a range of difficulties for plane makers.

“Declining used aircraft prices, continued low commodities prices and economic and political uncertainties in many business-jet markets” remain concerns for new jet purchases, says Ben Driggs, president of Honeywell’s after-market sales in the Americas.

Another important factor is the cost of depreciation. This will be “much more on a new jet than the maintenance cost on an old jet”, points out Oliver Stone, managing director of Colibri Aircraft, a European jet broker.

The balance between depreciation and maintenance illustrates the case for buying nearly new planes, especially aircraft that are still under a manufacturer’s warranty or have a good maintenance contract.

“Take a 2005 Bombardier Challenger 604,” says Mr Varsano. Owning that $6m large-cabin, long-range jet would cost about $400,000 a year in maintenance, he adds. “But if you spend $10m more you could get a 2014-15 Challenger 605. If borrowing costs are 3 to 4 per cent, the interest would be $300,000 to $400,000 a year. And with the newer aircraft you would have better reliability and a better residual value.”

The falling prices of used aircraft have tempted new buyers, according to Mr Stone. “There’s been a pretty significant uptick in first-time buyers buying pre-owned aircraft,” he says.

620-640
Expected deliveries of new jets in 2017 according to Honeywell

A huge number of aeroplane transactions are driven by a “liquidity event”, he adds. “People who have sold companies, or who have more cash flow from growth — they’ve been chartering for a while, and have seen the business benefits, so they want to try owning a plane.”

Choosing the right aircraft is difficult, especially when rising numbers of buyers lack experience, says Mr Varsano. “Twenty years ago people first bought a small plane and worked their way up.” Now “more and more first-time buyers are getting into a bigger aircraft.”

Catering to this is The Jet Business’s showroom on central London’s Park Lane. It contains a mock-up of an Airbus Corporate Jet cabin and a sophisticated computer tool that displays life-size images of jet interiors on a wall of screens. This allows buyers who may have little knowledge about aircraft to compare models easily, says Mr Varsano.

He also stresses the interplay between the used and new jet markets, citing the Gulfstream G550. “There are about 540 in the world,” he says. There were about 35 for sale when deliveries of the more capable G650 started, he adds, partly from people upgrading to the newer jet. Now, of the G550s “with the preferred forward galley, less than five years old, there are just three for sale.”

“Prices have come down so far, people are keeping their aircraft for longer,” he says. “It used to be four to five years. Now it’s six to seven years.” People used to buy a small plane and work their way up. Now more first-timers go for a bigger aircraft

Honeywell’s expectation was of 620-640 new jets being delivered in the 12 months to the end of 2017 but statistics about the global fleet can be misleading, says Mr Versano. “A lot of aeroplanes are 30-40 years old,” he notes. “Fifty per cent are more than 30 years old. How many of those will get sold? I don’t know anyone buying a 30-year-old plane.”

Mr Varsano, who started his aviation career in statistics, says a cut-off that excludes jets over three decades old would give a better idea of the state of the market. His figures put the number of jets for sale at 2,208, with 562, or just over a quarter, more than 30 years old.

There is a problem with the oldest business jets, says Mr Stone of Colibri. “A Challenger 601 from the late 1980s that needs its engines overhauled will cost $1m per side . . . but then the aircraft will still be worth just $1.7m.”

A looming concern is upgrades required by regulators to avionics equipment. One key US deadline is the end of the decade. There are not enough maintenance facilities to overhaul all the fleet, so “we’re starting to see a negative impact [on value] of not having had the upgrade done,” says Mr Stone.

But opportunities exist in cheaper jets and what remains a sluggish market for used aircraft. Lower hardware prices are cutting jet chartering costs. Leasing company Global Jet Capital is putting its aircraft out to charter when it takes them back at lease-end, until they are sold or re-leased to new clients.

Ben Murray, Global Jet senior managing director of asset management, says this can throw up customers who might never have thought of leasing. “We might approach a charterer [of the aircraft],” he says, “and actually sell them a lease.”

by 

November 30th, 2017|Aviation News, Blog|

IRS AUDITS AND RECORDKEEPING

The IRS audit process can be challenging for any business aircraft owner or operator, so NBAA has created resources to help Members prepare for audits and understand how the process functions. Developing a record-keeping system that maintains the information commonly requested by IRS auditors is one of the most important steps in preparing for a potential audit. In general, taxpayers have the burden of proving they are entitled to a specific tax deduction or credit, which makes having the necessary records for substantiation very important.

In NBAA’s Member resource, Record-Keeping Rules for Business Aircraft (300 KB, PDF), the history of IRS substantiation and record-keeping rules is reviewed, and specific best practices are provided regarding the types of records that an aircraft owner or operator should keep. For example, the resource provides details on how to substantiate the business purpose of a flight, which is a common audit topic.

NBAA also created a Navigational Guide for Audits (225 KB, PDF), which describes the IRS audit process from start to finish and includes details on appeal options for taxpayers. Starting with the initial contact by the auditor and moving through the information document request process to the audit findings, the guide provides business aircraft owners and operators with resources to manage IRS audits.

by NBAA

October 26th, 2017|Aircraft Tax, Blog, Government Regulation|

White House Announces Drone Regulation Pilot Program

AeroVironment Qube quadcopter

The U.S. Department of Transportation (DOT) will conduct a pilot program to evaluate how state and local governments might participate in regulating drone traffic at low altitudes—a role the FAA now serves. The department expects to select at least five industry-government partnerships to test the proposition.

According to the October 25 announcement, President Donald Trump issued a memorandum directing Transportation Secretary Elaine Chao to begin the Unmanned Aircraft Systems Integration Pilot Program. The DOT will issue an official public notice in the Federal Register in the coming days with details about the application process. Selections will be made within 180 days of the notice for what is planned as a three-year program.

Participating local governments and drone operators will have “regulatory certainty and stability” to conduct various operations, including night flights, flights over people, flights beyond the pilot’s visual line of sight and package delivery, the DOT said. The program also will serve as a testbed for detect-and-avoid and counter-UAStechnologies.

Importantly, the partnerships will evaluate the issue of federal preemption as applied to drones—testing where and when a community should regulate low-flying aircraft relative to the FAA. The federal government has claimed sovereignty of the airspace since 1926, but drones have complicated that understanding.

The pilot program will draw on the findings of a “roles and responsibilities” work group of the FAA’s Drone Advisory Committee (DAC) called Task Group 1. In July, AIN reported that state and local governments largely were not participating on the work group, apparently due to concerns that industry was over-represented. More recently, The Washington Post, citing internal documents and emails, reported that the process “has been riven by suspicion and dysfunction.” One of the newspaper’s sources complained that a representative of Shenzhen, China-based DJI, the world’s leading small-drone manufacturer, co-chairs the task group.

Plans call for Task Group 1 and other work groups to summarize their findings at the next full DAC meeting, which is scheduled for November 8 at Amazon headquarters in Seattle. Pre-registration is required to attend the meeting, according to federal advisory organization RTCA, which manages the committee.

 
October 26th, 2017|Aviation News, Blog, FAA, UAV|

Teal: Bizav Market To Return to Peak Levels in 2021

Gulfstream G500

Aerospace and defense market intelligence and analysis firm Teal Group, in its latest industry forecast, is calling for business aircraft deliveries to return to 2008 peak levels in 2021. However, it predicts deliveries will be down 2.3 percent this year, followed by “modest” market growth through the end of this decade.

Overall, Teal is forecasting production of 11,434 business aircraft worth $272.1 billion over the next 10 years. This includes 8,253 business jets worth $236.3 billion; 213 bizliners, $18.3 billion; and 2,968 business turboprops, $17.5 billion. For comparison, 11,247 business aircraft worth $260.1 billion were delivered over the last 10 years—7,800 business jets, $211.5 billion; 447 bizliners, $31.8 billion; and 3,000 turboprops, $16.8 billion.

Teal expects Gulfstream and Bombardier to be the market leaders for business jets, commanding 31.5 percent and 28.3 percent, respectively, by value of deliveries, followed by Dassault Falcon (17.4 percent) and Cessna (13.8 percent). Next in line is Embraer Executive Jets, with a 6.6 percent share by value, which Teal said is a “very significant increase” and particularly affects Cessna, which had 21 percent market share a decade ago. Honda Aircraft, Eclipse and Pilatus would share the remaining 2.4 percent, according to Teal’s forecast.

 

October 26th, 2017|Aviation News, Blog|

Global Jet: Finance, Lease Demand To Rise

Even if sales of new business aircraft are forecast to be relatively flat over the next few years, demand for financing and operating leases is projected to grow, according to new research from Global Jet Capital. Much of the growth will come from upward trends in operators’ reluctance to use their own capital for aircraft acquisition in the current economic climate. The projections stem from surveys among a panel of 144 business aviation professionals conducted by the company in September.

Results from Global Jet’s research indicate that more than 77 percent of business aviation professionals surveyed expect demand for business aviation finance to increase over the next five years, with more than one in six of those expecting the increase to be “dramatic.” Sixty-two percent of the professionals interviewed identified what the company called “a growing trend” for potential buyers to use less of their own capital. Meanwhile, 21 percent also pointed to operating leases as being attractively priced.

In fact, rates on operating leases are now so competitive that 46 percent of business aviation professionals surveyed expect to use them for private jet acquisitions increase over the next 12 months, with one in twelve (8 percent) also expecting a “dramatic” increase. Offsetting the risk of pre-owned aircraft residual values is expected to lead to greater use of operating leases by 43 percent of those surveyed.

Read Expanded Version

by AINalerts  10/12/2017

October 12th, 2017|Aviation News, Blog|

Jetcraft Forecast Sees Upward Sales Trend

In its annual 10-year business jet market forecast released October 4, Jetcraft (SD01) predicted an upward trend for new business jet sales. Jetcraft acquires, trades and brokers both new and preowned executive and VIP jets.

Jetcraft’s 2017 forecast calls for 8,349 business jet deliveries by 2026, representing $252 billion in revenues (based on 2017 pricing). North America leads the way with 62 percent of deliveries (5,176 aircraft), followed by Europe with 17 percent and Asia with 12 percent (1,420 and 1,002 aircraft, respectively).

Over the past decade the average aircraft list price increased by 56 percent. The forecast sees that number growing by an additional 16 percent by 2026. How might that happen? Jetcraft predicts that 98 percent of the forecasted revenues from new programs will be for widebody or large business jets such as the Citation Hemisphere, Global 7000 and Gulfstream G500 and G600.

“Pinpointing the transition into a new business cycle is challenging,” said Jetcraft chairman Jahid Fazal-Karim. “Our forecast indicates we are finally exiting the post-2008 recession period, entering several years of steadier, healthier growth and expanding revenues.”

Read Expanded Version

by AINalerts  10/9/2017

October 9th, 2017|Aviation News, Blog, Business Aircraft Industry News, Economics of Aviation|