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Rise in Pre-Owned Aircraft Prices May Be ‘Precursor’ to Recovery

April 25, 2014

An April 2014 J.P. Morgan analysis of pre-owned business aircraft sales offered a glimmer of encouragement to an industry hungry for signs of an economic rebound, with a reported 1.9 percent month-over-month increase in aircraft asking prices. While that marks the strongest increase in asking prices in more than a year, those involved in selling previously owned aircraft met that figure with guarded optimism.

"It's a drop in a data point bucket that I label 'precursors,'" said Jay Mesinger, president and CEO of Mesinger Jet Sales. "We'll change that name to something closer to 'recovery' as we see more data points supporting that, but we're not there yet."

The Business Jet Monthly report also found that the percentage of aircraft for sale worldwide has remained flat since January, though Mesinger cautioned that demand remains volatile, adding that "flat may be the new up" for aircraft prices and inventory levels.

"In some respects, the reality we’re seeing doesn't quite match what analysts are reporting on," Mesinger added. "For example, I noted in a presentation two weeks ago that 2 percent of the worldwide Gulfstream G550 fleet was up for sale in the third quarter of 2013, but that has since increased to 7 percent, with 31 units on the market. That's a significant increase to inventory for one type in just two quarters."

Similar conditions are evident in the medium- and light-jet segments, Mesinger added, with the North American market continuing to drive global trends.

Par Avion Ltd. founder and President Janine Iannarelli noted that demand and pricing continue to fluctuate as well among the aircraft her company offers for sale.

"As one aircraft comes off the market, there's always another one to replace it," she said. "We have seen some stability in select models of aircraft; within that group, the [Cessna Citation] CJ2 and CJ3 have been bright spots so far this year. Last year, Lear 31As were up, but those prices have since corrected once again.”

Iannarelli added that, despite gains in the stock market and company profits, the industry continues to lack several key indicators supporting a true recovery.

"I remember that in the winter of 2009, an analyst told me this would be a seven-year process," she stated. "I didn't believe that then, but I do now.”

Mesinger reiterated that it would take two to three quarters of sustained stability for the industry to experience the beginnings of a true recovery.

"I do believe we're heading in the right direction," he said. "Once we’re able to maintain transaction prices, that momentum will build and then we'll see a true reduction in inventory. For now, though, there continues to be greater supply than demand, even though we are seeing more demand than before."

The J.P. Morgan analysis also cited a 5.8 percent increase in the three-month moving average growth in flight operations, the best uptick since February 2007. Also, European flight operations posted their first month-over-month increase in flight activity for 2014 in March.

Read the J.P. Morgan analysis. (PDF)