ELEPHANT IN THE ROOM: GOOD TIME TO SELL, BAD TIME TO BUY

An NBAA webinar threw light on business aviation in the US and its upward trajectory While demand for planes is strong, it is skewed. This is due to planes being in the market for two years without being sold. Maybe this is because they are not sellable

The National Business Aviation Association (NBAA) is one of the seminal organisations in US aviation. Founded in 1947 and based in Washington DC, companies wanting general aviation aircraft rely on NBAA to help make their businesses more efficient, productive and successful.

The Federal Aviation Administration defines general aviation as all flights that are not conducted by the military or scheduled airlines. So, in a sense, business aviation is a part of general aviation that focuses on the business use of airplanes and helicopters.

This community has companies of all sizes relying on many different types of aircraft – single-pilot planes, turbine aircraft, helicopters, fixed-base operations and many other services -- that support flight operations in the US in over 5,000 public-use airports. Almost 97% of the businesses are small to mid-size ones, often located in small towns and rural areas.

Business aviation contributes significantly to the national, state and local economies, and also provides vital air transportation in times of public need, including fire and rescue and medical evacuation services.

In this relation, NBAA had a webinar called News Hour where important topics of interest to its community are discussed. Recently, it discussed “Buying Aircraft – Business Aviation’s Elephant in the Room”. The participants, all industry veterans, were Jay Mesinger, President/ceo, Mesinger Jet Sales; Anthony (Tony) Kioussis, President & CEO, Asset Insight; Rolland (Rollie) Vincent, President, Rolland Vincent Associates and Todd Duncan, Chairman, Duncan Aviation.

NBAA said that in every “room” either wedged in the corner, hiding in an adjacent closet, or perhaps under the rug, there is an elephant. “In our industry, the elephant centres on the pricing of aircraft, the true availability of inventory, the causes of the seemingly lower supply and when availability will balance out.”

The four panellists also discussed if the scarcity of available inventory was causing price hikes, how supply chain delays were hampering transaction timing and whether the preowned market follows suit with other inflationary products affected by supply chain issues. Each of their views was as follows:

Jay Mesinger, President/ceo, Mesinger Jet Sales

He was the moderator of the discussion and Mesinger Jet Sales sponsored the event. He said that in the present scenario, despite Covid, there was demand but the problem was that there was little supply of planes. Today’s buyers are not willing to relinquish the plane they have and buy another one. They would rather keep both of them. Inventories will only increase. Meanwhile, retail jet transactions have only grown over the years to 810.

In addition, first-time buyers were coming to the market and signing all kinds of contract without really knowing the market. The greatest risk is for this buyer and, therefore, good customary practises and support should be given to them.

Another issue is that while Covid led to an increase in charter business in the US, would this be a long-term trend.

Anthony (Tony) Kioussis, President & CEO, Asset Insight

While demand for planes is strong and going up, it is skewed. This is because there are planes in the market which have been there for two years without being sold. Maybe this is because they are not sellable. However, when corporate buyers come back, the plane they will relinquish will be the one that will be sold quickly. But the lack of younger and newer fleet is impacting transactions. So, if we can get inventories up, customers will buy planes temporarily.

Another issue is the age of the jets in the market. It is out of whack now. For example, while a light jet may be worth $0.5 million but needs maintenance of $1 million, it is a limited asset and should be sold off. We are seeing aircraft which have reached their financial obsolescence and are usually with their last buyers. Remember, the maintenance of a plane has little to do with its age. But maintenance is a substantial part of a plane when it goes over 40% of its costs.

My advice is: If you are planning to buy a plane, get into the market right away. It will be challenging to get a plane and then do modifications. My advice to first-time buyers: Get a broker to help you, else it will be a messy affair to buy a plane yourself.

Rolland (Rollie) Vincent, President, Rolland Vincent Associates

Off market planes are much of our source. Good aircraft are moving quickly and are off the market. So, if you have a plane to sell, this is a good time, but if you want to buy, it is not. Twelve years ago, when we had the global financial crisis, we had massive plane cancellations. However, the present crisis during Covid is different -while there was a quick downturn last year, the market recovered fast. Pricing is firming and there are more buyers than sellers.

Corporate demand is coming back and demand for charters and fractional ownership (for five years) is bullish. It is a good place to be in. However, getting planes into the US is tough. So, getting machines and people back, especially senior pilots, is going to be tough. We have lost an entire generation of people and getting things back in order, will take time.

However, this year, we have picked up 15% of the backlog, so it is a good time for business aviation.

Todd Duncan, Chairman, Duncan Aviation.

There is a storm of activity post the pandemic. There are new entrants in the market and we are bullish about the future. A number of companies have pushed forward the maintenance of their planes during the pandemic and done MRO work. Savvy flight departments have moved forward despite the future being uncertain and a flurry of activity can be seen.

However, supply chain issues are being faced by MROS, but people are being flexible. People’s issues too are there and we could see deliveries being hit in the next 6-9 months. We are seeing shortage in computer chips which is affecting the industry. Also, paint shortage is there. We want supply chain help.

As for the shortage in the technical work force and other people, we should train new entrants and reach out to retired veterans too. Work force shortage will be an inhibitor to our industry. Also, we need better wages for our people.