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ALTEA’s perspective on the pre-owned business jet marketplace in 2023: Back to normal or new normal?

ALTEA Partners, Jean Sémiramoth and Andrew Butler share insights.

 

ALTEA knows aircraft inside and out. The organisation is retained by those who want fresh thinking secured by experience in asset management; procurement and sales; financial solutions and design.

 

Team members, Jean Sémiramoth and Andrew Butler share their personal retrospective views on the pre-owned business jet aircraft market in 2022 - and identify what trends can be foreseen in 2023.

“Immediately after the very first lockdowns, the COVID-19 pandemic acted as a dynamic catalyst for the entire business aviation sector. Demand and pre-owned business jet transactions were at an all-time high in 2021, resulting in only 700+ pre-owned business jets listed for sale at the end of Q1 2022, a record low in more than 20 years,” says Jean Sémiramoth, ALTEA Partner.

“Since then, the global inventory of business jets for sale has been on a constant upward trajectory with 1,175+ units available at the end of last month. This is an indicator of a market shift in 2022.”

Like many professionals, ALTEA projects there will be roughly 15% to 20% fewer pre-owned business jet transactions in 2022 than in 2021. Is this a result of low inventory levels? Or rather a result of less demand - and therefore another indicator that the market started to shift in the second half of last year? Probably both, from the organisation’s perspective.

“There’s a question mark as to what will happen with demand,” continues Sémiramoth. “There’s a consensus in the industry that demand will continue to slow down due to several underlying factors, namely volatile stock markets, rising interest rates, energy price hikes, rising commodity prices, troubling inflation and subsequently the shadow of an impending economic downturn combined with continued inflation or even stagflation. Continuing trade tensions, geopolitical unrest, plus the end of the 100% bonus tax depreciation in the US, as well as the rise of environmental concerns and flight shaming.”

On the supply side, says Sémiramoth, the market needs to factor in the business jet manufacturer backlogs. “With the pandemic, business jet manufacturers saw their book-to-bill ratio grow to 2:1 or even more in some cases, enabling them to sell near or at list price. Whilst rising order backlogs have led to production increases at most business jet manufacturers, supply chain issues and labour shortages have kept them rather modest and will continue to impede a significant production ramp up. As a result, new buyers must wait 18 to 24 months to take delivery of a new aircraft; a real incentive to look for alternatives on the pre-owned market.”

In these changing market conditions, ALTEA expects the following:

Sémiramoth also emphasises that buyers may be more fastidious about the condition of aircraft and other matters such as damage history, complete records and delivery conditions, which could incur more costs for sellers.

“Before listing aircraft for sale, sellers would be wise to engage an appraiser like ALTEA not only to get a realistic estimate of what their aircraft is worth in the prevailing market conditions; but also to be aware of issues and concerns prospective buyers are likely to point out and which could ultimately impede the prospect of a successful resale,” he says. “Financiers would be wise to do likewise to mitigate their risk exposure or simply to monitor aircraft value trends in what may be a pivotal year.”

Are we seeing a shift to a soft market? Should we worry?

“No, not yet. After all, whilst it’s undoubtedly narrowing, there remains a gap between supply and demand for now. So, rather than a disruption, we’re seeing a mild shift whereby, to the benefit of buyers, market conditions favour sellers a little less without moving to a buyer’s market - at least in the short term.”

Is it ‘back to normal’?

“Not really. It’s a ‘new normal’,” comments Andrew Butler, ALTEA Partner. “This shift away from a heavily biased demand-driven market is a blessing for most brokers given the rather extreme market conditions that existed post COVID. Quality pre-owned aircraft did not come on to the open market very often - being ‘snapped up’ before many discerning buyers even knew they were for sale.

“A ‘new normal’ is to be expected simply because the old normal had seen our industry plunge since the worldwide financial collapse of 2007/8. Inventory levels post the financial crisis reached nearly three times the inventory level of today. Whilst that was a short-lived experience admittedly, inventory levels remained at nearly twice today’s number right up until the pandemic of early 2020. Evidence shows that the business aircraft market had an oversupply of inventory for more than ten years.”

The move to overheating was rapid post COVID. But overall, ALTEA expects a cooling which could result in a more balanced market towards the end of 2023 and beyond.

ALTEA has already seen a number of newly ordered aircraft become quietly available - some with deliveries due in Q3 and Q4 2023. The organisation believes this is another sign that the market is cooling. One factor is certainly in the industry’s favour - a difficult supply chain has resulted in the OEMs being unable to build airplanes as quickly as they might like. “That is a real advantage and will also help us to avoid the doldrums that we will all be happy to see the back of,” concludes Butler.

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ALTEA

 

BlueSky Business Aviation News | 2nd February 2023 | Issue #687

 

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