I was recently reflecting with a client of ours on the state of the market. He was particularly interested in the inventory levels and how they compared to recent years. In a very quick calculation, I told him that the market today reminded me of Q3 2021. If we go back and think about what had just occurred during that time, we were coming out of COVID and there were a lot of new entrants in private aviation. At the end of 2020, there was a run on airplanes for various reasons. 100% bonus depreciation was in place, the DOW was recovering rapidly, people had been sitting on cash, interest rates were low, and companies were coming off record years despite a global pandemic. That momentum continued into and throughout 2021. If you were to use an X / Y axis to plot the trends, at that time the market was preparing itself for an exponential increase in pricing while heading toward record-low inventory. Today, we are on an inverse path except for pricing. Inventory is ticking upward, and pricing is remaining level. The market has reset, and aircraft owners/buyers are starting to realize such. We aren’t in a bubble.
Let’s take a look at August 2021 and see what that snapshot in time looked like:
There were approximately 45 airplanes for sale with asking prices ranging from $1.95M to $4.51M. At this time, new airplanes (NGX variant) were delivered for approximately $5.5M and there was about a 1-year backlog. On the pre-owned side, a 2020 NG with 300 hours sold for $4.925M (98% residual value). Further, a 2009 NG with 2,500 hours sold for $3.2M (original sicker for $4.1M).
Now, let’s take a look at the market today, almost 2 Now, let’s take a look at the market today, almost 2 years later:
There are 43 airplanes for sale with asking prices ranging from $2.8M to $7.5M. New airplanes are delivering for around $6.0M and there is north of two years’ worth of backlog. Side note, Pilatus does not release production levels more than 18 months in advance, so backlogs are an estimation. Lastly, looking back at the airplanes mentioned which sold in August 2021, the 2020 NG would sell today for $6.0M and the 2009 NG would sell for $4.2M commensurately.
Thus, the pre-owned market has reset its value by $1M.
If you secretly ask dealers if their backlog is growing, they will almost always say yes. However, they will also admit that some people have jumped out of the game (moving people up in line). Therefore, we really don’t know the extent of the “dealer backlog” and the full picture. As the dealers most definitely have movement within their folds, one could easily assume some folks have exited. It was this backlog that allowed the preowned market to reset its baseline pricing in the first place. As inventory levels of preowned airplanes increase, the market will return to equilibrium allowing for standard depreciation rates to return. However, it should be noted that the baseline values have been reset. Keep in mind, 45 airplanes for sale in August 2021 was historically low at the time. As a reference point, in August 2020 there were 95 airplanes for sale. So, until the market feels downward pressure from the top or inventory jumps to 70+ airplanes for sale, we won’t experience a drastic decline in pricing.
Fly Safe,
Bub