Viewpoint: The Best Time To Buy, Sell And Trade Aircraft

In any industry, a well-known transaction strategy is generally to “buy low and sell high.” Yet when focusing on airplane markets, it’s important to create a more refined strategy by delving deeper into both market conditions and aircraft conditions.

Five Market Conditions
Let’s first agree that airplane markets tend to be in one of five conditions. The first are easier to understand: high inventory and low prices favors the buyer; low inventory and high prices favors the seller; and a neutral market will stabilize supply and demand (and prices).

The fourth and fifth conditions are trickier to navigate: a market transitioning from a buyer’s to a seller’s. And, vice versa, a market moving from a seller’s to a buyer’s.

In the sea change of markets, we typically see a pause in transactions as participants are reluctant to let go of the positions that have recently favored them.

When you’re focusing on the best time to buy and sell, it’s best to go beyond a description of the markets, and discover the best strategy for each market condition, based on your perspective.

But, for a moment, let’s depart from “buy low and sell high” as our go-to mantra. Far more achievable (and therefore conducive to building strategy) is to either “buy high, sell high” in a seller’s market or “buy low, sell low” in a buyer’s market.

We should try and trade up in a buyer’s market (make $2 buying for every $1 you lose selling), and trade down in a seller’s market (make $2 selling for every $1 you lose buying). And, in a stable market, there’s no preference. Under those market conditions, you should look for a “buy low, sell high” set of circumstances.

As a seller, when values are heading south, you need to move quickly, as you’ll be attempting to “catch a falling knife.” The objective is to get ahead of the receding tide of value, because every day you sit on it, the market costs you $220 per $1M of airplane value.

Similarly, when values rise, be quick to move as a buyer. As a used buyer, your key indicators are transaction volume and inventory level. And, as a new buyer, you should watch the manufacturer’s lead times on next available deliveries. Buying new in a rising market ahead of the boom is ideal, because, while your new airplane is being built, your trade value goes up.

Airplane Conditions
Let’s switch to airplane particulars. And, in that, I’ll focus on used aircraft trading.

Technical Considerations & Maintenance Status

As airplane brokers, we’re often asked, “What’s the best value in buying a used aircraft?” And the answer most often relates to the age of the aircraft. The best value is right before or after the first or second major maintenance interval. This occurs for most aircraft at around eight years. It’s the first time that the airplane goes down for four to six weeks. This is when the guts are exposed for scrutiny and restoration, and all interior is removed and possibly restored.

This interval also synchs with our rule of thumb about refurbishing cosmetics. It pays to freshen up the airframe’s interior and exterior very 7-10 years.

For those wanting to customize an airplane, the ideal time is to buy ahead of the inspection. By doing so, you can put in your own interior, communications, upgrades, etc. If you are less selective, or find an airplane that is just right, you’ll pay more with fresh maintenance. But you’ll only need to put “gas and oil in” for several years.

Operational Habits
As you operate an aircraft, you have the ability to pay-as-you-go with engine and maintenance programs. These can be highly customizable for predictable expenses with no great surprises. Plus, programs give buyers great comfort, as they relieve an operator of any incentive to skimp on maintenance—and they’re typically transferable.

Engine programs are the most significant, as they build meaningful equity. They also increase the “liquidity” of the assets, as sellers are always selling “zero time” engines. What’s more, an impending mid-life or overhaul inspection is of no concern for the next buyer. If an aircraft is not enrolled in programs, try to sell well ahead of the next significant maintenance interval. Otherwise, you’ll be penalized in excess of the “typical” cost of the maintenance, since the next owner takes the risk of the imminent inspections.

Product Life Cycle
At Guardian Jet, we’ve found that buying an aircraft in the first half of the production run (usually 8-10 years) yields better value than buying the “last Ford Taurus” built.

In 2024, the only model years that matter are 2020 and beyond. With anything older than that, we’re much more concerned about parts, etc., being still in production, aircraft total time, pedigree, maintenance status, and other issues.

When it comes to selling, keep in mind that a new aircraft warranty typically expires after 5 years. Thus, owners will experience higher maintenance costs and more expensive maintenance-related requirements. It might also make good business sense to sell within 8-10 years after a new purchase, as mentioned above. From an airplane valuation perspective, this is an idea time because the fair market value depreciation curve. Just like with new car purchases, they’re most valuable within the first three years. And within time frame, selling becomes favorable when you couple depreciation with higher operating costs.

Optimal Transaction Timing
In closing, the edict is to buy in a buyer’s market, sell in a seller’s market, trade up in a declining market, trade down in a rising market. Likewise, buy and sell before or after a significant maintenance interval. And remember, operate to increase liquidity. Having your aircraft always ready to sell allows you to better take advantage of market opportunities.

Mike Dwyer is the co-founder and managing partner of Guardian Jet, a jet aircraft brokerage and consulting firm. He leads the development of the company’s proprietary Market Survey, and is responsible for product development of the “Vault,” the firm’s online aviation asset management portal.