Listen as Chris Reynolds, valuations manager and chief aircraft appraiser for Aircraft Bluebook, joins host Molly McMillin on the BCA Podcast to explain how the pre-owned market is changing.
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Rush Transcript
Molly McMillin:
Hello and welcome to today's BCA podcast. I'm Molly McMillin, managing editor for Business Aviation at Aviation Week, and I'm here with my colleague Chris Reynolds, valuations manager and chief aircraft appraiser for Aircraft Bluebook. We'll be discussing what's been going on with business aviation values and what's happening in the market. Thank you all for joining us today and thank you, Chris, for being here.
Chris Reynolds:
Thank you. Good to be here.
Molly McMillin:
Before we get started, just a reminder that you can subscribe to the BCA podcast on Apple Podcasts or wherever you listen.
Chris, you've had a front row seat watching valuations over the years and especially in the last couple of years since the COVID-19 pandemic. Can you describe what's happened to valuations in the past, say, a couple of years, and then what's happened at the end of 2022 and into the first quarter of 2023?
Chris Reynolds:
Sure. Well, we've seen valuations obviously dramatically rise over the last year and a half or so compared to where we were really at the run-up to COVID and then obviously right at the heart of COVID. At that point in time, we had some rather significant drops in values, especially from large cabin aircraft and so forth.
But as we started reemerging from that and people started seeing, I think, a better emphasis on what business aviation assets and private aviation in general could provide from a health and safety aspect and availability aspect, as the airlines were largely not helping people get to where they needed to go, the value really quickly became evident to folks who maybe weren't convinced before of its ability to get people where they needed to go. So, we saw drastic rises in folks who were using own NetJets, stuff like that, fractional.
On top of that then we were able to see the demand had just skyrocketed for purchasing aircraft. We went from having a fairly good amount or normalized amount of inventory in aircraft to people buying everything up that they could get their hands on anywhere in the globe, really. What that did was create a huge supply crunch on top of all the other factors that were really work in a supply-demand scenario. On top of manufacturers having to cut down on what they were doing for COVID, a lot of that stuff doesn't spool just back up immediately. Decreased output from the manufacturers combined with insatiable appetite from the marketplace really created a pressure, a supply-side pressure, on available markets.
What we saw was what we gave away in value quickly was absorbed and then surpassed coming out of COVID as far as valuation. With some models 10 to 15% to even 20% or more at the peak of COVID and then we very quickly got that back in models and then immediately have kind of blown through that. So as the availability was not there for new aircraft, once those orders were kind of taken up, that quickly put a lot of pressure on the secondhand market. And we've seen values just drastically increase really across the board and nothing has been safe from pretty much drastic increases, whether we're talking about legacy aircraft that are long in the tooth out to pasture almost, or aircraft that normally would be trading for much lower values we've seen just some fairly significant examples of values just really going up across the board for anything because people just needed to get those lift options and there hasn't always been a lot to choose from.
Currently, now the state is that the OEMs, I think, have started to kind of ramp the production back up a little bit, but they're also enjoying some pretty healthy backlogs right now. So, if you're placing an order today, you're looking at 2024, 2025, maybe even further in some cases to get a new delivery aircraft. For the short term, that still keeps a lot of pressure on the used market and the values there reflect that.
What we started to see a little bit here in the last year was a little bit of a softening, I guess. Number of transactions have kind of been reported to be a little bit softer than they were this time the previous year. I mean, last year was just robust. We are starting to see a little bit of a taper at the end of the fourth quarter, the end of the first quarter. We have started to see a little bit of values starting to soften. A few more aircraft out there that are on the market we see with actual offering prices, as opposed to just make offer. And we've seen some reduction in prices where people have had stuff listed where people aren't necessarily always getting full list price. So, there's a little bit of a softening or tapering, I guess. I think we're still doing well above where we have been traditionally, but we've seen a little bit of a softening and reduction.
Now that may not be the case for every model. I think manufacturers are still enjoying a healthy clip on their new deliveries. We've seen some reports from institutions for new delivery aircraft that prices are actually have kind of gone up. Whether that be maybe a little bit of increase in list price or a little bit of an increase in options pricing seem to go up a little bit for some models as well. So have still seen some new delivery contracts that are a little bit of sticker shock, eye shock factor, I guess. We still see a little bit of a golly gee whiz, I guess, aspect to this market. It continues to amaze.
Molly McMillin:
Is there any particular section that's standing out from another, whether large jets, mid-size, small, and then the turboprop market?
Chris Reynolds:
Super mids are really well. They perennially are very good strong breadwinner. I think large cabin values rebounded somewhat obviously from they were in the pandemic and those will always kind of fluctuate a little bit on where they're at just because there's a lot of competition for those and you obviously have a smaller segment of the general aviation market population that those aircraft are relevant for. So, they can fluctuate a little bit, but I think that we're still seeing fairly strong values there as well, though I would say those might be an area where the values have started to taper a little bit, maybe more than super mids and we'll see.
One thing we keep an eye on is the legacy aircraft on the secondhand market that were somewhat end-of-life or, like I said, in their final owners where values really just went, I don't want to say crazy, but they just really rapidly accelerated to where they had been for the last decade to five or six years. We'll be keeping an eye on those to how those values start moving across the board as more aircraft become available or don't, I guess. It would be interesting to see if those values remain strong for the really legacy-type aircraft.
Molly McMillin:
What about the turboprop market, Chris? What are you seeing there?
Chris Reynolds:
I think it stayed fairly robust and moved along a healthy clip just like everything else.
Molly McMillin:
I was at Sun 'n Fun recently and talking to some of the manufacturers and sales personnel there. They were all talking about the training market being just so hot where it's difficult to get new trainers. Is that kind of what you're seeing as well?
Chris Reynolds:
Yeah, the GA market itself it's a very interesting dynamic because you have a much more involved owner there that has a very personal asset and you have a lot of people out there that are willing to go after nice aircraft and paying whatever, I guess, they feel they're comfortable paying. But the market is specific and the trainer-type aircraft in general, that's been a very strong market since well before the pandemic, really. So, we've seen value appreciation there that's been ongoing for, I don't know, the last five, six years even there. I think it's remained strong, again, a quick glance through what's currently available in the market for 172s runs the gamut.
Actually, [there are] some old ‘76 model 172s that you still see anywhere from the $80,000 to $100,000-plus for a 45-year-old, 70-year-old Cessna 172. So those guys have gone drastically high. We look back to say like the late 2000, around the 2010 [inaudible 00:09:42] area, those same models were trading for $40,000 or so on the secondhand market. So, the training market definitely has its influence on aircraft that are dual-use planes, i.e., the training market uses the same type, but they also offer a nicer version of that aircraft.
But yeah, I foresee that to really stay a strong market for the foreseeable future. We have a pretty good conversations with folks that are in those industries, flight schools and so forth that talk to us quite a bit on what they see and their challenges and replenishing their fleets. Actually some of the values that they get when they aready to move to a newer airframe and they sell a very high utilized trainer aircraft, the values that they are able to get in their sales prices out of aircraft with significant utilization that have been trainers is still pretty staggering. So that really just gives another little insight into the appetite of the market out there to absorb about anything that that's out there.
Now we are starting to see skewing back like the business jet side, inventory has been a huge part of the driver of this value increase, and we are starting to see it kind of creep back up a little bit. You can take a quick run through the markets and see that those percent of available fleets compared to the number of operations, the ones that are percent available for sale, it's starting to come back up from zero back up to we're starting to see the one and a half to two to, in some cases, five, six, seven, and in some cases higher percent available. But there seems to be a pretty good average in that two and a half [percent] to 5% range we're starting to see as we kind of moved back, more of a balanced market, I believe. So that's been somewhat of the quarter call or the quarterly reports that have been issued that kind of have seemed to say the same thing in recent issues.
Molly McMillin:
Right. I was just looking at [information from] the International Aircraft Dealers Association. They recently put out their first quarter results. They survey their members who are dealers. And they reported that in the first quarter, the dealers had closed 239 transactions during the first three months of '23, and that's down from 288 in the same period a year ago, but up from 2021 when they closed 213. They report less frenetic activity, but still robust demand for aircraft sales and flight activity and MRO shop demand, but that things have slipped back from record highs of 2022. It sounds like that's kind of what you're hearing and seeing.
Chris Reynolds:
Yeah, and I think there's a lot of things that obviously play into this whole balancing act of where we've been. No doubt COVID created a very unique, perfect storm set of circumstances that also combined with other things going into it and coming out of it that really probably put under the microscope or amplified the effects of a normal supply-and-demand-type market. Obviously, we saw this with all kinds of products that had supply-side logistic issues within the global economy. Toilet paper was a great example about the availability of stuff versus the ability of manufacturing to create it. I mean, I don't pretend to know the ins and outs of making toilet paper, but it would seem to be one of the more easy things to produce and produce probably quickly. But when people have a strong demand for something, it becomes very hard to supply it, especially in a lean manufacturing or just-in-time-type economy that we really kind of run in these days.
That's one thing that the manufacturers learned good lessons from in the aviation world through recent downturns, was obviously producing just the amount of aircraft that we want to have. We don't want to see white tails and so forth and center. So there obviously always is a finite amount of aircraft that are available, a finite amount of aircraft that a manufacturer can or will make in a given month, in a given year. So, when you couple that with a downturn and a pent-up demand that then kind of gets unleashed and as things come back out from normal, from the pandemic and couple that with people sitting on a lot of cash and couple that with wanting to be safer and be around less people, the aviation was a natural selection winner of that huge demand item. And like everything else, whether you have the ability to meet that demand or not, be it not having enough workers back in factories to produce the aircraft or take any kind of wait-and-see before you flip the switch to this stuff all the way back up, that all plays into that availability.
And truth be told, [backlogs are good for the manufacturers.]. It's kind of a win-win for them. But it does create a little bit of a situation for the buyers that are trying to buy an asset and as certain assets become less and less available, people are forced with the situation they either get in line and wait, or they don't buy the asset, or they will have to move to their alternative and that kind of domino effects down. That's why we end up seeing things like what Citation X values did or what Bravo values, some of the old Cessna aircraft that, like I said, have just really ballooned in values that maybe those values were artificially low over the last decade from the last great recession so maybe some of that value was warranted to be there in the first place. But definitely the demand has brought those values well above where most people would've expected to say normal.
Do I think that was a bubble? No, not really. Bubble usually tends to have a notation of like something that bursts and immediately everything is destroyed and goes either way. I don't think that's what we've found ourselves in. It's definitely been more of a, I think, a tapered approach on the backside of this run-up.
Molly McMillin:
Right. Then you have manufacturers facing supply chain shortages, so they can't ramp up as much as maybe the demand warrants. But then they all say, too, that might be a gentler downturn if things do slow if we enter a recession or there's an economic downturn that it'll be gentler because they won't have ramped up as much so kind of a-
Chris Reynolds:
And that's always difficult for us to see. Obviously, as we move towards the end of last year with advanced bonus depreciation stuff, the way that is changing, end-of-year purchases are, especially when we're talking 40, 50, 60, $70 million business jet purchases can have some benefit to making those purchases for tax reasons. So, we always have to kind of sort through the data as we approach like third and fourth quarter-type stuff, as opposed to looking at how the market responds in the first quarter and the second quarter. Then we have all these added outside aspects that we have to kind of weigh as well. What's inflation doing? What's the interest rates doing? Are they having an effect? Are they not having an effect? What segments do they affect versus other segments? So we see all those impacts that overall people paying attention to what the economy's doing, too. Overall, that's probably aiding a little bit of the tapering, but the run-up that we were kind of seeing probably couldn't last forever.
And I think most people that have been in the market long enough understand that the market definitely has ebbs and flows. I think this is probably expected, but I think, like I said, what we're still seeing is very strong sales, robust activity, has, like I said in the IATA reporting, it's tapered a little bit, but I think that's good for everybody as well.
Molly McMillin:
Just one last question because we're about out of time. What's your prediction for the rest of 2023, Chris?
Chris Reynolds:
Well, we don't really deal with predictions at Aircraft Bluebook. We always really kind of observed the market from where it's been. But from all indicators that we've seen so far, like I said, things will probably continue to move the way they've been moving in this like tapered approach or rebalancing, I think, of where we're at.
Now, that could still and probably will remain higher than it historically happen, but it may be lower than where we've seen the great booms as people that have bought an aircraft a couple years ago, flown over a couple years and then sold the aircraft for more than they paid for it a couple years ago, essentially getting the aircraft for free, free use for a couple years, eventually that probably tapers down more.
Some of it is wait-and-see. We obviously have a lot going on in the world right now that always at any time can throw a monkey wrench into what we expect to see, compared to where we've been. But from in an internal and a vacuum-type perspective, I still feel like we're in a pretty good place with just, like we all said here, kind of a quantitative easing and tapering and a little bit less crazy, I think, market activity than what we've seen over the last year and a half.
Molly McMillin:
Okay. Sounds good. Well, that's all the time we've got for today, so thank you for listening and thank you, Chris, for joining us today.
Don't miss the next episode by subscribing to us in your podcast app of choice. And one last request, if you're listening to the BCA podcast in Apple Podcast and want to support this podcast, please leave us a star rating or write a review. Thank you, again, and bye for now.
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