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Experts See Positive Signs in Business Aviation Industry Indicators

Jan. 24, 2014

Analysts are hoping that 2014 will be the year when business aviation finally “recovers” from the Great Recession, and as the first month of the new year ends, there are a number of encouraging signs emerging.

J.P. Morgan’s Aerospace and Defense analysis for January 2014 says demand for new business jets “remains weak,” but the bank’s analysts added: “Our confidence in a recovery is based on leading indicators such as falling used [aircraft] inventory... and faster GDP [gross domestic product] growth.”

According to J.P. Morgan, the used jet inventory fell again in December, dropping 90 basis points for the year to 9.2 percent of the total fleet, a level considerably lower than in recent years. The reduced inventory and falling prices are seen “as a positive that should bring the used market toward equilibrium.”

“Flat is the new up when it comes to used aircraft prices,” said Jay Mesinger, president and CEO of Mesinger Jet Sales in Boulder, CO. While prices for many previously owned business jets are still falling, Mesinger said the number of aircraft transactions increased in the last quarter of 2013 and the market is off to a strong start in the first quarter of 2014.

More importantly, “first-time buyers are coming into the market,” he said. If the industry can put together two to three sustainable quarters of not-negative pricing, “flat is going to look beautiful,” Mesinger said.

Carl Janssens, editor/chief appraiser of Aircraft Bluebook, also is encouraged by the increasing number of transactions, but agrees that aircraft prices are not likely to rise any time soon.

“At very best, this recovery will represent no increase, no decrease in [aircraft] values,” he said. “It’s about the best 2014 is going to be able to produce.”

However, lower prices are offering operators a chance to move up to a larger class of aircraft than they might otherwise be able to afford, added Janssens. “You can get a lot of equipment for good value in this market,” which is helping spur the increase in transactions.

Since 2008, the availability of aircraft financing has been sharply restricted. But, now the credit climate for qualified buyers is improving.

“Banks are out there competing for business, so there is credit available,” said Janssens, who noted that some financial institutions that used to limit their aircraft financing to U.S. customers are now expanding their portfolios to include overseas buyers.

Aircraft utilization, which showed some improvement in late 2013, is still basically flat, however. J.P. Morgan said FAA reported that U.S. flight operations decreased by 1.5 percent year-over-year in November, but were up 1.7 percent overall for the first 11 months. European flight operations were up 0.8 percent in December, but fell 2.4 percent for all of 2013.