So for months now I have been closing watching the Aviation Industry in terms of the market and primarily wondering when things are going to get better!
There are a lot of talking heads out there including myself and they are all saying something different. Some have a very bright outlook for the near term future of General Aviation while others say things are still very bad and will remain so for the time being.
I’ve been in this business for more years then I care to admit and I’ve personally never seen it this bad for this long.
One of my first realizations in the business many years ago, was that General and business Aviation was like riding a roller-coaster. Things are up one year and then down for two years. When things were good in the business it was just OK, but when things got bad they got real bad!
Traveling about the state of California and that of the country gives me the opportunity to talk to a lot of people and I’ve generally found that the overall industry attitude is not one of optimism.
In terms of sales, the market is still bottomed out and not moving very well at all, but I’m still seeing headlines from publications like Flying Magazine “Used Aircraft Market indicates a comeback.” Where is this happening?
From Bob Howell of Door Aviation, a major aviation financing brokerage company states “Over the last several years, I have witnessed the aviation lending environment morph into something that hardly resembles its prior state. One of the major industry changes is that we no longer see the 10% down transactions that once dominated the market. There are also barriers left and right in regards to both collateral and credit.” Bob is further stating things like “Cash is King (Down Payment) in terms of being able to finance” and a “650 credit score is no longer considered good.” He further states that “Any Jet aircraft older then 10 years will pose a problem obtaining financing.”
Brian Jacobson of NAAA claims to be “seeing more buyers coming into the market this year that are a step above the bottom feeders we have been seeing for the last 18 months or so. These people are looking for good aircraft and they are willing to pay reasonable prices. Of course, reasonable prices are still well below what they were two summers ago, but the feel of the deals I have been made aware of is different.”
Brian further states that “Bottom feeders turned off many potential sellers who then removed their aircraft from the market or kept the asking price well above any level where the airplane could be sold. However, with more reasonable buyers coming into the market we will see more aircraft trading and perhaps an uptick in the most popular aircraft.”
Brian Foley of Brian Foley & Associates, Sparta, New Jersey, believes that sales of piston aircraft will lead the next GA comeback; and it's already started. Foley contends that piston-aircraft buyers march to different market beats than jet or turboprop customers. For example, he cites the immediate post 9/11 period when sales of pistons dropped by only 2 percent when sales of jets and turboprops fell off by 14 percent and 34 percent respectively. He does call the piston market "more price-elastic" as in the period beginning in 2007 when sales of pistons began dropping off while turbines continued to spool up.
Foley attributes the contrast to high fuel prices, imploding personal financial portfolios and the shrinking credit market that had more direct effects on buyers of personal aircraft. Foley looks to the summer for a fuller rebound of piston aircraft sales (based on pent-up demand, among other factors), as much as a double-digit percentage increase from last year's admittedly depressed numbers. And he expects the trend to continue "at least a couple of years."
During this period of transition I’m sure we will see some positive signs as things begin to warm up more and the “GA Selling Season” as I call it (April through Thanksgiving) opens up this month and hopefully we will see some more good inventory hit the market and get sold in a reasonable period of time.
A very solid constant that remains to be the case in terms of pre-owned aircraft is the fact that the aircraft that have the latest and greatest in terms of technology/Avionics are the aircraft that are moving. The older/original aircraft are sitting and not moving nor are they commanding a higher pricing plain because the buyers today are not interested in purchasing an aircraft and then having it sit in a shop for 3 months or longer while it gets new avionics, autopilots, cosmetics etc installed.
In terms of the appraisal business, this seems to be picking up some which is a strong indicator that both buyers and sellers are once again beginning to look at what aircraft values actually are now, in real time market conditions.
While we are beginning to see some signs of increased sales activity, companies like Cessna laid off another 95 employees at their (Single Engine) Independence, KS facility.
So the long and short of the status of the industry is both positive yet negative and much like early spring where winter is not quite ready to yield its cold clenches to Spring’s new warm growth, so goes the Aviation business.
I believe that as the economy continues to recover and the banks get on more sound footing, aviation lending will be less restrictive and sales will continue to revive again but how soon and much less restrictive? Stand by one and lets see!
Stay current with Aviation Sales and Aircraft Appraisals by visiting OakTree Aviation Services.
Rick Rossner
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