By John Basileo, Aircraft Finance
March 24, 2016Posted InWealth Advisory
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While the worst bear market in the industry’s history is set to continue in 2016, there are plenty of opportunities for potential buyers.
Business aviation suffered a bumpy landing in the financial crisis of 2008-09. As corporate profits fell sharply and financing dried up, top corporate executives and Ultra High Net Worth individuals adopted a wait-and-see position rather than placing new orders for planes. Despite seven years of economic recovery since, business aviation activity has failed to pick up meaningfully. This experience flies in the face of many experts’ predictions that, beginning in 2011, the industry would be in full recovery mode.
As a mark of the industry’s current state, take the pricing of the three leading 2013 models of each of the top manufacturers, Bombardier, Gulfstream and Dassault Falcon. In just three years since delivery, eight out of nine models have lost a significant amount of their average retail value, with the worst-affected dropping between 30% and 40%.
What is behind this sharp descent? First of all, the big three manufacturers have taken to aggressively discounting new aircraft. Understandably, lower prices for new aircraft have dragged down the pre-owned market. The impact has been magnified by the introduction of new models, with longer range, bigger cabins and superior avionics. The cooling of China’s economy is also being felt, with plenty of older aircraft up for sale in China and cancellations of orders for newer models.
The worst bear market in business aviation history therefore looks likely to us to continue in 2016. The new reality is one of higher depreciation rates and inventory, fewer sales, and lower sale-price expectations. But things are not all bad. For potential buyers, at least, we would stress that there are great deals to be had.
To read our Winter 2016 Aircraft Market Update, click here.