Evidence Shows Strength For New Models But Discounting On Older Airplanes

As the European Business Aviation Convention & Exhibition 2014 (EBACE) opens its doors in Geneva, International Bureau of Aviation (IBA) takes a look at the market values for business jets. Jonathan McDonald, ISTAT Certified Appraiser and Senior Aviation Analyst at IBA specialises in the corporate aviation sector, highlights movement at the top end of the BBJ market: “Due to relatively tight production numbers and therefore constrained supply, aircraft such as Boeing BBJ2, BBJ3 and Embraer Lineage 1000 appear to be holding well in terms of market value. We are less bullish on the smaller Boeing BBJ where much of the fleet is now over ten years old and therefore inherently quite heavily depreciated.”

According to IBA, Gulfstream products make an interesting analysis. On the one hand, Gulfstream G650s  (pictured) appear to trade at premiums. Higher specifications help boost the values of Gulfstream’s flagship, but basically limited supply and a desirable aircraft means that ultra-high-net-worth individuals are happily prepared to pay above list price either for a young used aircraft, or an earlier delivery slot. “Typically IBA’s model would compute a ‘new-ish’ G650 at around $65 million but in reality if we had to appraise one we know, we would probably be looking at around $68 million given the strong demand out there for the model,” continues McDonald.
 
In contrast, IBA would probably value a more mature G450 (say 2006 model) at around $17.5 million. Considering that one of these aircraft probably cost around $36 million when new, eight years ago – a time when customers were paying heavy premiums in a boom economy - that equates to losing around $2.5 million each year, or an average of 6% to 7% per annum.
 
So have high brand business jets values held up during these challenging times?
 
In a few instances yes, those customers who can afford the ‘must have’ G650s for example. But based on the majority of the available business jets which include many that are five years old and older, such as G450s, G550s, Globals and BBJs, IBA would have to say no.

“When you consider that a 2001 delivered Global Express (2003 model pictured) would probably have cost the best part of $43 million in a pre-911 and credit crunch era. Now that same aircraft would be doing well to attract a value of little more than $17 million. If you were to park a 1996 delivered G-IVSP alongside a recently delivered G450 many wouldn’t be able to tell the difference between the two. Yet one is probably still worth around $36 million, the other perhaps $6.5 million. When you consider that the G-IVSP probably cost $ 28 million new, that aircraft is now worth barely a quarter of its new price.”
 
These examples alone are reason enough for IBA to have to take another look at some of its long term value forecasts – and with virtual unanimity, take a more conservative view on how it depreciates business jets.
 
Does that mean business jets are poor investments?
 
“Absolutely not, as leading experts such as Minsheng Financial Leasing will quickly point out” concludes McDonald. “But IBA does not expect to see the same levels of business jet value buoyancy that were evident in 1997 and 2007. Times have changed and we suspect most industry observers within the corporate sector will agree.”

(Images from file)

FMI: www.ibagroup.com