FXSolutions Quarterly Update – Q3 Recap/Q4 and Year-Ahead Outlook
Management visionary Peter Drucker was famously quoted as saying, “The only thing certain about the future is that it will be different.” While the sentiment holds true, this year’s election was different in that it brings a degree of familiarity – an administration that presents us with a business environment we’ve navigated before.
In this update, I’ll discuss three key topics that are shaping the year to come:
- Election – How the new administration and shift of balance in the House/Senate may impact business aviation
- NBAA BACE 2024 – Standouts and notable takeaways
- State of the Industry – How the year is unfolding and what to expect in the year ahead
ELECTION
Donald Trump’s victory will offer some degree of reassurance as certain conditions for growth have a better probability of being championed in the years to come. Having experienced the effects of the previous Trump administration, we are familiar with not only how version 2.0 may navigate policy and legislation, but as an industry, we are well-seasoned in how to react to it. Expect businesses and investors to enter or expand their involvement in business aviation as a result.
Some caution is warranted, of course. Trump’s election reintroduces the likelihood of a fresh round of trade-oriented conflicts that could introduce new hindrances to recovering OEM and MRO supply chains.
However, provided he can appropriately manage these factors, our industry may have much to look forward to. Trump’s business-friendly approach and policies will likely fuel growth and investment due largely in part to a better probability of a federal government that will hold pat on the reductions in corporate taxes achieved in 2017 or further lowering.
Additionally, with both the Senate and House now in Republican control, we see a potential to return to 100% bonus depreciation. This would have a correspondingly positive downstream effect on aircraft purchases, further strengthening the market.
BACE 2024
The National Business Aviation Association (NBAA) touts its three-day conference as the world’s largest business aviation event, with nearly 800 exhibitors in attendance. At this year’s conference, the variety of exhibits was better than ever, ranging from the Airbus Corporate Jet (ACJ) to helicopters to eVTOLs to the usual array of business jets on display. A few items stood out:
- Brokerage Panel Discussion Indicates Optimism – A group of leading aircraft brokers participated in a panel focused on current and future market conditions, identifying several factors at play that indicate overall optimism in the market. Participants indicated robust demand overall, with no signs that newcomers who entered the market during the pandemic are planning to leave anytime soon. The panel also noted that while the market is slowly moving toward equilibrium, demand continues to exceed supply, and values are holding steady.
- Starlink – Easily one of the most significant developments of the inflight experience aboard business aircraft, Starlink is gaining traction as the go-to provider of in-flight connectivity and is truly a game changer. It’s not the speed that makes it stand out, necessarily, but rather the consistency and reliability. Because the system is not land-based, execs can now bank on the ability to schedule and hold calls and meetings in flight, wherever they are in the world, whereas previously, sketchy connectivity made such meetings tentative at best. Expect to see Starlink STCs rolled out to an ever-expanding list of aircraft types in the near future, many of them now in-market or under development by our sister company Flexjet and its engineering arm Nextant Aerospace.
- Garmin Integrated Flight Deck – While Garmin has become known for its strides in the Part 23 aircraft segment, its focus on turbine business aircraft reinforces its expansion into larger segments. Their newly unveiled G3000 PRIME is the first all-touchscreen integrated flight deck to be certified and was selected by Textron Aviation for use in the new CJ4 Gen3. Touchscreen capability aside, the new suite stands out with its unique Autoland feature. At the press of a button – even by a passenger, should the pilot become incapacitated – the system selects a suitable airport, determines a flight path, deploys landing gear and flaps, communicates with air traffic control, lands, and comes to a stop on the runway. All of this happens with no human intervention beyond the initial press of the button. While this inherently bolsters safety, such technology could, in theory, affect the regulatory development of future eVTOLs by adding a next-generation safety net to single-pilot incapacitation.
STATE OF THE INDUSTRY
Overall, the market continues to show robust levels of activity in both the buying and selling sides of the equation. Earlier this year, we identified a trend of buyers making purchases in a more calm, controlled manner than in the past, and this trend continues. They’re taking the time to be selective and discerning, identifying the right inventory for their needs.
This is made possible by inventory levels that, while not matching pre-Covid levels, are nevertheless gradually returning to normalcy. From what we are seeing, we agree with J.P. Morgan’s estimates that 0- to 5-year-old aircraft inventory stands at 4.5% of the active fleet as reported on a seasonally adjusted basis at the conclusion of Q3. For context, this hovered near 7% in the months leading up to Covid in 2020.
We continue to see Owners fine-tune their private travel with carefully considered decision-making that often encompasses a strategic variety of solutions. Whole owners, for example, are utilizing jet cards and charter, when appropriate, for supplemental lift. Similarly, newcomers utilizing charter solutions are testing the waters with lower-commitment jet cards to secure more financial predictability. Fortunately, the stickiness of the Covid buyer is stronger than anticipated – the majority are firmly sold on the benefits of private aviation and are choosing to continue utilizing it, albeit in varying manners.
This retention of new entrants is good for the market. Whereas before, manufacturers were scraping for a bigger slice of the pie, Covid increased the size of the pie altogether by attracting newcomers. As this market segment learns more about the benefits of private aviation first-hand, a significant portion is progressing from smaller, entry-level types to midsize, super-midsize, or larger. And unlike their first foray into the industry, they’re now bringing pre-owned aircraft to market as they trade up.
With interest rates improving, new aircraft sales are strong, and most manufacturers have a 2–3-year backlog. While this presents challenges for impatient buyers, it’s healthy for manufacturers – the incoming revenue enables them to invest more heavily in R&D, and with years of firm orders in place, there’s much more certainty when it comes to production pipelines and supplier orders.
As the year closes out, we’re seeing a big move toward year-end transactions to take advantage of depreciation. Newer, late-model aircraft are holding values extremely well, while older and out-of-production types are not. This is creating a two-part market, with values largely remaining above pre-covid levels but gradually returning to normal.
Whatever unfolds in the coming year and beyond, leveraging experience and expertise to navigate the ever-evolving market will be critical. That’s where FXSolutions comes in, and we look forward to assisting you however we can.
-Matthew Doyle
Managing Partner, FXSolutions
