Prices About Half Of 2008 Highs

One market analyst's research indicates that the factors driving the current aviation marketplace as a true “buyer’s market” are a combination of general economic conditions that include a historically high used inventory level, prices that are 50% below the 2008 highs and still relatively low corporate demand, according to UBS and JP Morgan industry reports.

As the global economy stabilizes and corporate earnings improve along with rising demand from newly-minted wealth in the most rapidly growing global economies of Brazil, Russia, India and China (the BRIC countries), Daniel Jennings, founder of The Private Jet Company, sees private aircraft prices first hold, and then begin to increase, with demand decreasing the used market supply.

Jennings feels that market indicators currently in place and giving a clear signal for a general market bottom and thus creating a “buyer’s market.” Prices of private jets have fallen over 50% from 2008 highs, due to the oversupply of aircraft on the market being offered for sale by companies and institutions affected by recession and lack of demand. In 2008 Gulfstream GV’s that traded at $45 million and today can be purchased in the mid to low $20 million range according to JETNET data.

And prices are continuing to fall, but at a slower rate. This is what market-watchers call the “second derivative” of price movement, and as it turns positive, it indicates that prices will soon bottom and begin to turn up.

Inventories are increasing as seen by JETNET and Amstat data tracking, but at a slower rate than in the recent past indicating that soon inventories will reach a top, and begin to decrease. Smart investors know that the best time to buy is when prices are still falling and inventories are still rising, as most buyers will wait and sit on the sidelines and enter the market only when it is clear the market has turned. As a result, these smart investors will face less competition for assets and will have maximum leverage with sellers.

Interest rates are at historical lows, but are beginning to slowly rise. Today a borrower with excellent credit rating can obtain an aircraft loan at Libor + 200 bps, or approximately 2.30%. However, interest rates are rising, as can be seen in the recent movement of 10 year US Treasury Bond rates. 10 year US Treasuries have moved from 2.38% in October to 3.39% in December, a move of 100 bps in less than two months. Smart investors will look to purchase aircraft now while they can still lock in historically low interest rates.

Corporate Buyers will most likely be re-entering the marketplace as their earnings continue to improve. JP Morgan estimates that demand for private aircraft lags the cycle of corporate earnings by about two years. Corporate Earnings have rebounded from their lows in 2008 and are near pre market-crash levels. Historical relationships imply that corporate buyers will begin to re-enter the market as buyers of private jets over the next 12-18 months. Smart investors and corporate buyers will move before a larger number or corporate buyers re-enter the market and changes the current favorable supply-demand relationship from a “buyer’s market” to a “sellers market."

BRIC countries are minting new millionaires and billionaires at an ever-increasing pace. This trend is having significant impact on the private jet market, as it is generating a pool of private jet buyers that is growing faster than the available supply. This trend is only going to accelerate over the next decade as emerging market economies generate a larger and larger portion of global economic output. The smart investor will take advantage of the current market conditions to purchase a private aircraft before the growing pool of newly wealthy individual buyers realize the value and prestige of private aircraft ownership and increase demand relative to the limited supply.

FMI: www.ThePrivateJetCompany.com