If you’re selling a plane today, there’s a good chance that you purchased the aircraft for less than what you’re currently asking for it (that is, IF you purchased it prior to the run on airplanes at the end of 2020). You may have upgraded or made modifications, but regardless, what you’re asking today is completely relevant to your cost basis and what you’re willing to negotiate or price your aircraft.
How much is your cost basis determining the market today?
As the market slows down, cost basis certainly has an impact. Today 43% of the current aircraft for sale were purchased during calendar 2021 and after. These sellers have a vastly different cost basis than their competition (the other 57% for sale). Today buyers have more available aircraft to choose from. As inventory levels tick upward, the seller who bought prior to 2021 may be more apt to negotiate lower pricing because of their low relative cost basis. This dynamic will be in direct contrast to the current sellers who bought post 2021 at a much higher cost basis.
As we have said before, not only did your Pilatus go up in value, but so did all other aircraft. Commensurately, your entry point into your next aircraft will be at a higher value as well, but you are also capturing more value for your existing aircraft today—relatively a wash here. This delta impacts those exiting aircraft ownership or entering it for the first time.
So, what is a normal market?
We can talk about absorption rate; we can talk about how many PC-12s the world will consume pre-owned on a yearly basis. It’s traditionally around 115 units worldwide. This year, we estimate around 90-100 units. We know that 65% of our clients pay cash, which means some people are still using financing. Does this affect someone’s attitude to purchase an aircraft economically as well? In the little Pilatus world we live in, people don’t use their last dime to buy an aircraft. When they go to sell that aircraft, what are they doing? Are they going to have to pay a premium on that other aircraft? Are they walking away from aviation? Are they replacing with a brand-new aircraft? Factoid time! Statistically, 28% of the time the latter is true—when someone buys a pre-owned Pilatus, they turn around and buy a new one down the road. Also, 28% of the time that a person purchases a new Pilatus, they end up buying another brand new one in the future.
How does this affect the ups and downs of the Pilatus market we live in? I would suggest it keeps the highs and lows from being too crazy. We’ve had a myriad of aircraft for sale over the last few weeks. We’ve had everything from a 25-year-old aircraft to 5-year-old aircraft. What we’ve noticed is the potential buyer activity is virtually the same for the young airplane and the 25-year-old machine. Don’t you find that interesting? In addition, we also see airplanes that are less than 5 years old, with low time, like our 2019 for sale, garnering premium values. Go figure. Here are some valuable comparisions of the pre-owned Pilatus market worth noting:
Last month there were 59 pre-owned PC-12s for sale. This month there are 66.
Last month the average PC-12 price was $4,756,500. This month the average price is $4,694,500 – a 1.3% decrease.
Last year during this time, there were 88 pre-owned PC-12s delivered. This year to date there have been 78 delivered.
In the end, what is a normal market?
A normal market is what a willing buyer and seller will transact the asset at today. The key to this “Captain Obvious” comment is that this willing buyer and willing seller equation changes with model year, equipment, etc.—and, as we’ve pointed out, the seller’s cost basis.
We feel that it’s our job at JetSwiss to give willing buyers and clients real-world feedback that will help navigate the course for making offers, establish asking prices and negotiating their best price and terms when selling. It’s our goal to paint a picture of the new ‘normal market’ to our clients. This may mean we are searching for sellers with low cost basis in some instances, and conversely, we are advising our selling clients to be priced correctly. Placing an aircraft for sale with “pie in the sky” pricing will not fly today. Those days are over…. Do your homework, kids.
Fly safe, Bub