Way of the Shark

Notwithstanding fourth-quarter 2022 reports of robust transaction numbers and rising prices, the demand for new and used business aircraft looks to be flattening in 2023.

Analysts ascribe the slowdown to economic pressures, primary among which are worsening global recession, soaring interest rates, and the widespread eradication of discretionary income resultant of record-high inflation. Condemnation of private aircraft travel by environmental zealots and politicians eager to portray themselves in de rigueur shades of green has also adversely impacted the business aircraft market.

ACASS vice president of aircraft transactions Zipporah Marmor recalled an instance in which the acquisition of a preowned business jet was halted by the buyer following E.U. proposals to ban, tax, or regulate private aircraft based or operating within Europe.

Another business jet executive disclosed on condition of anonymity that he has recently contended with distressed business aircraft, the buyers of which have fallen behind payment schedules due to financial hardships. “We’re watching to see if it will level off as a soft landing versus something else,” the unnamed executive remarked.  

Planemakers rarely disclose instances of distressed aircraft, arguing instead that unwanted planes can easily be resold. Textron Aviation senior vice president Lannie O’Bannion stated: “If, for any reason, the final sale of an aircraft does not occur, the sales team works to match the aircraft with a similar customer’s mission, location and timeline.”

Canadian business jet powerhouse Bombardier reports it has resold five airplanes originally destined for Russian buyers but forgone on account of the Russo-Ukrainian conflict.

Contrary to the intuition and experience of the general populace, the COVID-19 exigency occasioned tremendous accumulations of wealth within select market sectors, thereby engendering myriad personal fortunes. Cresting affluence, access to low-interest cash, and legions of nouveau riche buyers gave rise to a sellers’ market for business jets and left airframers’ backlogs as swollen and rich as J.B. Pritzker.

The post-COVID era, however, has been characterized by rising interest rates, skyrocketing borrowing costs, and growing signs that the recession in which global markets are currently mired may degenerate into a full-blown depression.

Nevertheless, a number of aggressive buyers—sensing or hearing tell of blood in the proverbial waters—have sought out distressed aircraft for purpose of circumventing protracted wait-times for new business jets or availing themselves of favorable tax structures pertaining to pre-owned assets.  

Brian Proctor, CEO of aviation advisory and brokerage firm Mente Group, states he is aware of two buyers amenable to purchasing distressed aircraft even if the aesthetic or mechanical conditions of subject machines fall short of perfection. Mr. Proctor asserts also that the pace of aircraft sales has slowed, setting forth that pre-owned aircraft which formerly sold within hours or days now remain on the market for periods of time measurable in weeks.

Similarly, aviation attorney Stewart Lapayowker relates accounts of buyers “waiting on the sidelines ready to jump into a delivery that’s in default.”

Further evidence of a declining business aircraft market is furnished by aviation analyst Brian Foley, whose examinations of data compiled by the American Statistical Association (AMSTAT) reveal that inventory levels of pre-owned planes listed for sale increased by more than forty-percent during the last six-months of 2022.

Research consultancy WINGX determined branded charter activity in North America fell two-percent in 2022. The organization posits 2023 will see further diminution of charter flying.

In light of widespread naysaying and gloomy market predictions, investors and aerospace stakeholders are apt to be paying close attention on Wednesday, 25 January 2023 when General Dynamics and Textron Aviation—parent companies of Gulfstream and Cessna/Beechcraft respectively—report their 2022 fourth quarter earnings. Purveyors of private jets have endeavored to assuage investors unease by citing billion-dollar backlogs and high degrees of customer satisfaction. Such assurances will amount to little, however, should Wednesday’s reports reflect anything less than stellar earnings and vigorous fiscal wellbeing.

FMI: www.txtav.com  www.gd.com