How long is this going to take?
UTICA, NY (Vocus) July 23, 2010
JETNET LLC, the leading provider of corporate aviation information, has released the June 2010 results for the pre-owned business jet, business turboprop, and helicopter markets.
The 10th annual European Business Aviation Convention & Exhibition (EBACE) ended its three-day May 2010 conference with sold-out exhibit and static display spaces, 11,174 attendees and a general air of optimism that the global industry’s economic outlook is on the upswing. Halls 6 and 7 of Geneva PALEXPO and the Static Display of Aircraft were full with 436 Exhibitors and 65 aircraft out at Geneva International Airport.
While it was generally agreed that optimism was in the air, questions about the recovery still lingered. “Are we there yet?” and “How long is this going to take?” were common thoughts among the many attendees, without many clear answers. Reflecting on some historical data, and examining and understanding the metrics that underline our recovery, will shed some light on what to expect.
New aircraft orders are based on the successful sale of existing aircraft in the pre-owned market, a good first predictor. Recent history of the build-up in the inventory for sale business jets shows that the market went “negative” sometime in 2008. After some five years of record sales and rising aircraft values, the bubble finally burst amid a world economic collapse and banking crisis of historic proportion.
Chart A: Pre-Owned Business Jet Aircraft For Sale (link right)
In pure market numbers, June 2008 appears to be when the resale market demonstrated it was in obvious peril. This was significant because it was the last time the For Sale business jet market was under 2,000 aircraft.
In October of that same year, there was an increase of 216 airframes for sale from the previous month—a single month increase of 9.8%. This was a substantial number and it happened even before the Big Three automakers flew to Washington D.C. asking for a bailout in November of 2008.
Beginning in August of 2009, For Sale inventories began to decline, and have continued to do so through the first six months of 2010. The fall in values of select pre-owned jets may have convinced some less-than-serious sellers to remove them from the market. Others decided to start flying again.
On the flip side of the For Sale inventories are Full Sale Transactions. There was a rapid decline in Annual Full Sale Transactions for two years in a row (2008 and 2009) for both business jets and business turboprop aircraft. In the first six months of 2010 we are finally seeing an increase in the monthly and first half year Pre-owned Full Sale Transactions compared to 2009.
Table A: Pre-Owned Business Jets For Sale and Full Sale Transactions (link right)
As the For Sale inventory has declined, the number of Pre-owned Full Sale Transactions has increased by 33.6% in the first six months of 2010 versus 2009, which is very welcome news. However, when the first six months of 2010 (at 854) are compared to the first six months of 2008 (at 1,011), we see that Pre-owned Full Sale Transactions are down 15.5%.
Other recent industry metrics reveal a mixed picture. The current average number of days that a pre-owned business aircraft remained on the market is 346 days, or 85 days more in the January-to-June 2010 period than the same period in 2009. Also, the average asking price during the first six months of 2010 fell by 17% compared to the first six months of 2009.
Just as the increase in Full Sale Transactions is excellent news, the first quarter of 2010 U.S. Gross Domestic Product (GDP) grew by 2.7% (that is, from the fourth quarter), as reported by the U.S. Bureau of Economic Analysis. This is the third consecutive quarter that the U.S. GDP has shown growth after four quarters of decreases. Historically, when GDP has been greater than 3% business aircraft are in a growth mode.
Additionally, the FAA reported that U.S.-based Business Jet Flight Operations in the first five months of 2010 grew by 11.7% compared to the first five months of 2009. So more companies are flying in 2010 compared to last year, when flight operations had declined by 30.5% in February 2009 compared to February 2008. While this flight operations increase is welcome news, it is still 20% below the first five months of 2008.
Chart B1: Total U.S. Based Business Jet Flight Operations - Domestic (link right)
Chart B2: Total U.S. Based Business Jet Flight Operations - International (link right)
The U.S. FAA-reported Business Jet Flight Operations are split between Domestic and International markets. Domestic flight operations account for about 85% of all flight operations in the U.S. These have been increasing rapidly in recent months, but are still well below the 350,000 recorded during 2007 (by about 106,000).
International flight operations reached a new record peak in March 2010 at 60,906. However, since the volcanic ash problem in Europe, Flight Operations activity in April and May 2010 have declined by 24%.
Business Turboprop Aircraft
The inventory levels for pre-owned business turboprop aircraft for sale at the end of June 2010 have followed the same pattern as the business jet aircraft market. The percentage of pre-owned business turboprop aircraft for sale was 10.9% in June 2010, and has declined from the peak set in both May and June 2009 of 12.0%. The number of business turboprops for sale at the end of June 2010 was slightly less than 1,400 aircraft, nearly half the number of business jets currently for sale.
Table B: Pre-Owned Business Turboprops (link right)
The number of Pre-owned Full Sale Transactions for business turboprop aircraft increased by 9.5% in the first six months of 2010 compared to the same period in 2009, which is good news.
However, it is taking longer (more days) to sell in the current market environment. The average days on the market before business turboprop aircraft sold was 307 days from January to June 2010, an increase of 10% or 28 more days compared to the same period in 2009. Additionally, the average asking prices decreased by -10.0% in the first six months of 2010 compared to the same period in 2009.
Helicopter – Turbine (excludes Russian manufactured helicopters)
The number of pre-owned turbine helicopters for sale in June 2010 was less than 1,200 helicopters, or 243 less than the business turboprop market. The percentage for sale at 6.8% (a buyer’s market) in June 2010 was higher compared to 6.5% in the June 2009. A Buyer’s Market in the helicopter world is when the percentage of helicopters for sale exceeds 5% of the fleet.
Table C: Pre-Owned Helicopters – Turbine (link right)
The number of pre-owned full sale transactions for turbine helicopters increased by 6.1% in the first six months of 2010 compared to 2009.
The average days on the market for turbine helicopters was 336 days or 97 more days in the first six months of 2010 compared to 2009. Also, the average asking price decreased by -1.3% in the first six months of 2010 compared to 2009.
Helicopter – Piston (excludes Russian manufactured helicopters)
The number of pre-owned piston helicopters for sale in June 2010 was 554 helicopters, or half the number of turbine helicopters. The percentage for sale at 6.2% (a buyer’s market) was below the 7.4% level from the same period of 2009.
Table D: Pre-Owned Helicopters – Piston (link right)
The number of pre-owned full sale transactions for piston helicopters decreased by -10.1% in the first six months of 2010 compared to 2009.
The average days on the market for piston helicopters was 301 days or 109 more days than in the first five months of 2010 compared 2009. However, the average asking prices for the piston helicopters remained unchanged from January to May 2010 compared to 2009.
The reality is the current business down cycle will last longer than the industry would like. The good news is that the business aircraft market is on the right track. Recently, some industry analysts predicted that the new business jet market is about halfway through this difficult three-year business cycle, which leaves 18 months to go. However, all indicators point to a pre-owned business jet market that will rebound ahead of this prediction.
Since 1988, JETNET has delivered the most comprehensive and reliable business aircraft research to its exclusive clientele of aviation professionals worldwide. JETNET is the ultimate source for information and intelligence on the worldwide business aircraft fleet and marketplace, comprised of some 60,000 airframes. The company offers services for both fixed wing and helicopter aircraft. Headquartered in its state-of-the-art facility in Utica, NY, JETNET offers comprehensive user-friendly aircraft data via real-time internet access or regular updates.