Podcast: Where Are Pre-Owned Bizjet Values Heading In 2022?

Last year the market for pre-owned business jets and turboprops was marked with record low inventory, rising prices and exuberant buyers. How is 2022 shaping up?

Chris Reynolds, Valuation Manager and Chief Aircraft Appraiser for Aviation Week Intelligence Network’s Aircraft Bluebook, joins Molly McMillin, Aviation Week managing editor for Business Aviation, on the BCA Podcast to share his insights into where the market is heading.

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Rush transcript:

Molly McMillin:

Good day and welcome to today's podcast on the pre-owned market for business aviation. I'm Molly McMillin, Managing Editor for Business Aviation for Aviation Week and for Business and Commercial Aviation. I’m delighted to have with us Chris Reynolds, Aviation Week's Aircraft Bluebook Business Aviation evaluation manager and chief aircraft appraiser. Thank you for joining us, Chris, and thank you all for listening.

Chris Reynolds:

Good morning.

Molly McMillin:

Good morning. Chris, before we start talking about what you've seen in the pre-owned market, why don't you tell us what you do in your role with Aircraft Bluebook?

Chris Reynolds:

We're responsible for valuing somewhere in the neighborhood of more than 6500, less 7,000 model year instances of business and general aviation aircraft, and in this matter of helicopters as well. What we do is that the book (Aircraft Bluebook) comes out every 90 days. We evaluate what we've seen over the previous 90 days up until we go to press essentially - what the markets are doing, what the individual aircraft segments are doing and individual models are doing. So, we speak to a lot of different people over the quarter. We've taken a lot of different research from people that are willing to share information with us and the information that we can dig up as well as the information we can observe in the open market. So, we take all that information and then triangulate to where we believe the opinion of value of those assets are.

Molly McMillin:

And I know the past year the pre-owned market pricing has been unpredictably good, I would suppose. And the amount of inventory has been at record lows. Can you describe what you've been seeing in the market, Chris?

Chris Reynolds:

Yeah, it's a lot of what you just said. There's a huge supply and demand issue. We have a lot of demand and not enough supply right now, whether it be from the OEMs delivering new aircraft or the inventory levels we see right now for used aircraft, just completely depleted.

Molly McMillin:

I was noticing some of the charts that you compiled on aircraft values of certain select business jets by quarter. When I look at large business jets, year over year from 2021 compared to 2020, large jet values went up an average of 8%, while medium jet values went up an average of 15%, small business jet values went up an average of 13% and turboprops went up an average of 14%. Can you talk about that, and what went into that, and maybe what you might be seeing going forward?

Chris Reynolds:

Well, the super-mids have always been a really popular segment. They've always been strong performers and does not change, really. It's continued to perform well. Obviously, I think the large jets, the large cabins had the biggest room to move because I think they also suffered some of the largest hits during the pandemic when we saw values completely going the opposite way they are now. And since we've seen the spring back recovery over the last year, we've regained the losses in the pandemic in 2020 and actually are in better position we are going into it. And that probably is not going to change in the short time future.

Molly McMillin:

I noticed that the International Aircraft Dealers Association came out with their fourth quarter market report, they are  saying that in 2021, dealers closed 20% more deals than they did in 2020. And in a survey of their dealers, they're still predicting increased demand for the first six months of 2022. Is that kind of what you're seeing?

Chris Reynolds:

Yes. Like I said, we don't really see any immediate abatement to what has been going on in the marketplace for the last year. Fourth quarter obviously was a very race to the finish there. But so far in the first quarter of this year, we're seeing it really kind of pick back up where it kind of left off in the fourth quarter. I think a lot of this depends on how long this goes. Its way depends on supply, depends on demand, depends on the OEMs and their production levels, depends on inventory levels in the pre-owned world.

Chris Reynolds:

But it also depends on where we're headed in this, I won't say post pandemic, but as the pandemic kind of subsides somewhat, how things continue to open up or close up either way. So a lot of those things come into play, a lot of things will come into play with the economies, whether the inflation remains a problem or whether the Feds in the U.S. raise interest rates and how aggressively they raise interest rates. All those will ultimately help decide where this goes after these first couple quarters in this year.

Molly McMillin:

The aircraft manufacturers so far have signaled that they seem to be raising production rates in 2022. General Dynamics recently had their fourth quarter and year-end earnings call. And they delivered 119 aircraft in 2021 and is raising (its forecast) to 123 in 2022. That production rate was mitigated because they're expanding their wing production capabilities in house. (Wing production is already) in house and they need to expand them. So that will help the 2023 (production) and beyond. So they're forecasting 148 deliveries in 2023 and rising to 170 in 2024. So that's something unique for them. They don't usually give out a forecast that far out in advance, but obviously they're expecting production to increase. Textron Aviation said they were increasing production. I guess it will depend on just how demand continues.

Chris Reynolds:

Yeah, and I think that has to happen. At some point, the production levels of the OEMs, if you can't get an aircraft on a new delivery, you're going in the used market but if you can't get your used market aircraft, you're going to the new. And right now, the backlogs are stacking up for the OEMs, which is a good place for them to be. But if you're in the market for a new jet, it becomes a little bit more difficult. It's nice to see the delivery projections out. We know that in '21, I think you may have said this earlier or maybe you didn't, but it was, I think in 2021 that the delivery business aircraft was somewhere in the neighborhood of like 10 to 12% higher than it was the previous year in 2020, which I think should have been expected anyway, just based on the deliveries that were cut, I think in 2020 where they scaled back as the pandemic was raging.

Chris Reynolds:

But we're starting to see a lot of sales reports already that we get from some of our information that we collect o good pricing on aircraft out as far as 2024 already - good contracted prices already. So that's encouraging to hear where they're at. Like I said, it'll be really interesting the next year or so to see how this all plays out.

Molly McMillin:

I know you do aircraft appraisals and I think you had mentioned when we were chatting before this call, that some deals are not going through pre-buys and pre-inspections so that the deal can get closed. What are you seeing when you do your appraisals, Chris?

Chris Reynolds:

Yeah, we've definitely seen that. There are definitely instances of where there are other arrangements that are made to hopefully account for anything that would've normally been found in that, but we've heard that a lot, actually. Where there's just not enough space (as inspection providers) to get in to get those things done right now, because things have been so busy at MROs and other facilities that it's just hard to get in right now. So, on the appraising world, I think we had one of our best years ever last year.

Chris Reynolds:

In the appraising world, chaos is always a little bit good, I guess, for that aspect of people needing to know what the aircraft is. The challenge for so many of us right now is with this market that's been so enthusiastic, if you will. The current sale (that took place) a couple of weeks ago oftentimes is outdated by the next one. So, it really becomes a challenge for appraisers or price guides, or even the people in the financial industry who are writing these loans to really determine and get a real firm handle on with the value even is of an aircraft right now.

Molly McMillin:

That’s because it's changing so quickly, right?

Chris Reynolds:

Yes. We saw some of this at the end of the year, last year, being that some of the prices that were paid where you think one was just a crazy deal and you would hear another one a day later that was even crazier. And some of that may have had to do with (bonus) depreciation where people are taking advantage of year end for tax purposes. And that kind of helps spur everything, right? So, people hear the value and the value is there. Our job as appraisers and our job as in the price guide, especially, is to try and find some sort of an average of these. But, unfortunately, when you get into some of these really highly fluid and dynamic markets, that becomes a challenge to weed out the, if you will, the one-offs, because there isn't necessarily a one-off when each one is higher than the last one.

Molly McMillin:

All right. I can understand. And I think you mentioned that the Spring price guide is coming out shortly. What can we expect there?

Chris Reynolds:

Yeah. We're finishing up the book right now for the spring book that comes out March 1. And so far, everything we're seeing is a continued strong market. We'll probably still see a lot of increases in most of the markets. They may not be as strong as they were in the fourth quarter, but the fourth quarter book probably had a little bit of catch up to do from the third quarter book actually. But it significantly had a lot of information that came in the fourth quarter, right at the very last. And in fact, we held the fourth quarter book a little bit longer than we normally do to pick up a lot of more information that happened in the closing portion of the fourth quarter there. So, the first quarter (of 2022) may not be as drastic as fourth quarter (of 2021), but we're still expecting to see some significant increases in the continued strong markets. Wow.

Molly McMillin:

Anything else you'd like to say or add Chris while we wrap this up?

Chris Reynolds:

No, I think everything, like I said, it's an exciting time if you're selling an aircraft, for sure. It may not be as exciting as you're trying to buy an aircraft, but it's an interesting dynamic. It'll be interesting to see how it plays out over the next couple quarters and in the next year or two.

Molly McMillin:

Well, that wraps up for our podcast for today. And I want to thank you, Chris, for joining us and thank you all for listening. Join us again next time for the next BCA podcast.