Mente Group explains why there’s been an up-tick in the business aviation market, at least in terms of pre-owned aircraft, over the last 12-28 months.
There’s a good feeling about business aviation in the air at the moment, if you’ll pardon the pun. In the most recent UBS Business Jet Survey, 72% of respondents said they thought the outcome of the US Presidential Election would positively impact the market. It’s no wonder – whereas Obama felt every American should be entitled to a mobile phone, Trump’s more likely to intone all Americans are entitled to a private plane!, Brian Procter quipped, starting his address at the recent Corporate Jet Investor Conference in London.
However, new jets aren’t the focus right now. Instead it’s the pre-owned market that is going from strength to strength, and there are a number of reasons for that. The first is a generational shift: Unlike Trump, a bizav veteran who would likely boast about adding the newest model to his fleet, millennial CEOs and founders are used to the sharing economy generated by business models like Uber and Airbnb. They prefer value over brand loyalty, which can be attributed to a general slowdown in wealth creation.
The second reason is that residual values on new aircraft make owning and operating one a very expensive proposition. While a business jet’s residual values typically decrease by between three and four and a half per cent every year, we’re now seeing them decline by as much as 12% per year (depending on the model), he said.
Furthermore, the pre-owned jet market is improving because business jets are dollar-denominated assets. With the strengthening of the dollar, individuals in Europe, Asia and the Middle East are seeing better value in selling their aircraft. The North American business aviation market, the largest in the world, is soaking up those international sales and taking advantage of that market. That’s why we’re seeing a lot of international sales, but not many international purchases.
During the time in which OEMs continue to rationalize production and bring to market a number of new models – which, don’t get us wrong, are certainly overdue, as long as there aren’t too many of them – the MROs are going to reap the benefits. Owners are going to spend their money on sprucing up pre-owned jets, not just in terms of exterior paint and modern interiors but also as they meet new mandates, introducing, for example, ADS-B by 2020 in accordance with a new ruling from the FAA.
This all makes for exciting times for us at the Mente Group. 2016 was our best year to date in terms of the number of transactions we made, and with the aforementioned trends set to continue in the near future, we’re looking forward to another good few to come!