Used business jet market tilting toward sellers
Strong economy fuels rebound of purchases
DALLAS: Buying a used business jet is getting harder — and that’s a sign of a longawaited shift in the market for luxury planes.
“Only a dozen or so pre-owned Falcon 7X planes are on the market now, down from about 35 a year and a half ago,’’ said Steve Varsano, an aircraft broker in London.
When a client wanted to buy the model from Dassault Aviation SA, the tightening market pushed him to bid sight-unseen on a plane in India.
Going that far afield would have been unheard-of until recently, so Varsano was surprised to find three other bidders vying for the same plane. He came up empty.
“The tables have turned,’’ said Varsano, founder of The Jet Business in London. “Just last year, the person running the sale would have been calling me everyday saying, ‘Hey, when are you coming over’?’’
The private-plane market is finally tilting toward sellers after years in which a glut of used jets enabled buyers to call the shots. Bolstered by the strong economy and US tax cuts, companies such as Emerson Electric Co, NextEra Energy Inc and Anadarko Petroleum Corp are fueling a rebound of purchases.
The timing couldn’t be better for planemakers including Bombardier Inc, Embraer SA, Textron Inc and General Dynamics Corp’s Gulfstream unit, which are all rolling out new models.
New aircraft deliveries are poised to rise 8% next year after being flat or down since 2014, according to JetNet IQ, an advisory and forecasting service.
“The United States is driving the rebound while demand from emerging markets has flagged,’’ said Rolland Vincent, a consultant in Plano, Texas, who produces JetNet IQ in conjunction with researcher JetNet.
About 70% of the new aircraft deliveries have gone to the US, which is home to about 60% of the world’s private-jet fleet.
“In the US the reduction of corporatetax rates — to 21% from 35% — has given companies more cash. The fiscal overhaul also included a rule change to allow full depreciation of capital investments in the first year, which has increased the incentive to buy private aircraft,’’ Vincent said.
“New models always attract buyers, and a lot of planes are making their debut.’’
Demand is also picking up for factory-fresh planes based on older designs.
Anadarko Petroleum Corp, a petroleum and natural gas exploration and production company, took delivery last month of a 2018 Gulfstream G550, according to Federal Aviation Administration registration records. That was a precursor of the G650 and is still prized for size and range. Anadarko didn’t respond to a request for comment.
Synovus Financial Corp, a regional bank, went in with a partner on a 2018 Embraer Legacy 500. NextEra Energy Inc, the owner of Florida Power & Light, acquired the same model. NextEra and Synovus declined to comment.
Emerson Electric Co, a maker of airconditioner compressors and automation equipment, purchased a pre-owned 2013 Falcon 7X in September.
“Emerson is retiring an ageing corporate aircraft,” the company said in an email. “The 30-plus-year-old plane is significantly less efficient than the 2013 plane, which will offer better fuel efficiency and a much improved range to access global facilities.”
Stepped-up demand for used planes is important for the overall market because increased purchasing has helped stabilize prices after several years of declines. That feeds into the market for new aircraft as well.
“Inventory is getting picked over,’’ said Barry Justice, president of Corporate Aviation Asset Professionals, a consultant near Dallas. “Good airplanes with high-quality avionics and interiors in good condition are getting harder to come by.’’
“The increase in sales of new planes will, in turn, help restore pre-owned inventories as buyers trade in older jets,’’ he said.
“But for now, with the used market tightening, buyers are adjusting their expectations,’’ said Janine Iannarelli, founder of Par Avion, a plane brokerage in Houston. “They have to wait longer for the plane they want to become available or consider buying a fixer-upper jet.
“There are plenty of airplanes out there that are projects,’’ she said. “Now, you have to help your client rethink. Let’s go buy that airplane that requires upgrades.’’
“Pre-owned inventory is down 13% from a year ago,’’ said Gaetan Handfield, senior manager for market research for Honeywell International Inc’s aerospace unit. “For jets that are younger than 10 years, inventory has decreased by 30%.’’
The decline bodes well for new sales. Honeywell estimates deliveries of 7,700 planes over the next decade, based on an annual company survey of more than 1,500 aircraft operators. More than 60% will be large jets.
“Planemakers pared production in recent years to avoid oversupplying the market while demand was weak. Now that sales are turning around, manufacturers should be careful not to ramp up output too quickly,’’ Handfield said.
“Down the road, the manufacturers will have to be careful not to overproduce,” he said, “so they don’t end up in the same situation where they have too many young aircraft in the pre-owned market.”