Used market trends, slowing flight operations and plummeting aircraft values are pointing to continued market woes as the summer approaches, industry data shows.
“A single month does not make a trend, but May used market data, including a sequential increase in inventory (+40 bps) and decline in pricing (-3.6%) not seen since [the] first half of 2009, suggest that business jet demand will remain weak,” says industry analyst J.P. Morgan, which tracks used market trends for in-production models.
Average asking prices were down 9% from a year earlier, and are 40% below market peak, J.P. Morgan says. Prices fell for all categories of business jets, with heavy jet pricing dropping the most at 4.8%, followed by medium jets at 1.7%. Prices for light jets were down another 0.6%, continuing the prolonged market depression in that niche.
“Used pricing has yet to bottom,” J.P. Morgan says, adding that low residual values are holding back a recovery, particularly in the light jet market. Owners want to trade in for larger or new aircraft, but the low residual values are leaving those owners “with a wide gap to bridge.”
In the light segment, “much of the existing installed base is in the U.S., and [with] independent business owners who are sensitive to macro and tax developments,” J.P. Morgan says, adding, “Firming prices are therefore an important ingredient for recovery and should take more time.”
While prices softened, used inventory for sale increased to 10.3% of the installed base of in-production models. “Inventory had looked set to break decisively below the 10% level at which it had been hovering for over a year, but bounced instead,” the analyst notes. Light jets led this increase, up 60 bps, “consistent with the ongoing weakness in this segment.” Medium jets followed by a 30 bps increase and then heavy jets at 20 bps.
The youngest models for sale, those less than 5 years old, fared best, with an available inventory dropping to 7.4%, below the 7.5%-7.9% range over the past nine months. “The younger part of the used fleet is performing better, but overall the trends were not favorable,” J.P. Morgan says.
Including both in-production and out-of-production models, the business jets “are showing a slow start,” according to data specialist Jetnet. The used market set a record for number of transactions in 2012, but Jetnet says that activity has slowed, down 6.3% through the first four months of the year. At the same time, business jets are taking more time to sell – 97 days longer than last year – and average asking price for all jet models is averaging a 3.5% decrease in asking price.
Business aircraft flight operations, meanwhile, have also slowed lately. Flight operations appeared up in the U.S. and Canada in April, but fell modestly in May and have remained down. Aviation research firm Argus, which tracks business aircraft operations in Canada and U.S., notes that flight operations were down 2% overall in May when compared with a year earlier.
This decline is predominantly attributable to a steep drop in fractional turboprop operations (23.1%) and Part 91 turboprop operations (14%). Part 91 and fractional operations of small and medium jets were also down. But Part 135 flights were up across all categories, and large cabin operations were up, regardless of how operated. And the May statistics were improved from April’s, according to Argus.
Likewise in Europe, business aircraft departures jumped in May – as they typically do – but were down 2.7% from a year earlier, according to European research firm WingX. A drop-off in Germany “weighed down the European market,” WingX says, offsetting a small improvement in the U.K. and in Southern Europe.
Private flights dropped, particularly in Switzerland, Italy, Austria and Poland, WingX says. But charter activity improved in several countries, including Spain and Portugal. But in Germany, charter activity was down 14%.