FXSolutions Quarterly Update – Q2 Recap/Q3 Outlook
As we enter the second half of 2024, it is becoming increasingly clear that the pre-owned business jet market is continuing to rebalance. On the backside of the overwhelming demand created by the pandemic, the industry is adjusting to what is appearing to be the new norm.
While the overall direction of the market is becoming more balanced and moving in a positive direction, there is nevertheless much to be gleaned from the present activity and bottlenecks that are becoming apparent in both the buying and selling processes. Taken individually, no single factor stands out remarkably – but when examined collectively, we are seeing positive momentum toward market equilibrium and a market that remains slightly in favor of the seller.
Supply chain issues continue to be one of the most notable and fundamental themes of 2024. Aircraft manufacturers continue to struggle with increasing skilled labor and sourcing components, raw materials, and engines, in particular. Unlike 2007, when manufacturers were able to significantly ramp up production, 2024 has a different set of challenges that doesn’t appear to be easing anytime soon.
This has a corresponding downstream effect. Buyers of new aircraft are facing backlogs of nearly two to three years. With the means to purchase new but with virtually no new aircraft available in the short term, these buyers are turning to the pre-owned market and searching for late model high pedigreed aircraft. The combination of high standards and strong purchasing power has resulted in a bifurcation in the pre-owned inventory. While the overall pre-owned inventory has been increasing, aircraft in these categories are in high demand, while older aircraft with less desirable pedigrees may spend a few more months on the market.
Supply chain issues are not limited to aircraft manufacturers. The MRO market is similarly affected, with replacement parts and qualified labor in short supply. This creates yet another downstream effect in the pre-owned market; pre-purchase inspections can be a challenge if certain parts require replacement or repair. Additionally, qualified technicians in some regions are similarly scarce, and the ones in place are stretched thin, exacerbating the repair and pre-purchase bottleneck.
In the meantime, high-quality inventory is moving quickly. It has been challenging to source late-model aircraft, and when such aircraft do become available, they tend to move quickly. Conversely, older aircraft and aircraft with less impressive pedigrees are less desirable than they were in 2022 but still create an opportunity for a buyer with a knowledgeable broker/dealer team behind them. In short, the pre-owned market is dynamic and requires skill and knowledge to navigate. The post-pandemic premiums have subsided, and opportunities exist for both buyers and sellers.
While supply chain challenges define much of today’s market, some secondary factors are also coming into play:
- Despite the supply-chain challenges, optimism abounds. Inventory levels continue to return to healthy levels, from a low of 2.6% of the overall installed fleet on the market during the pandemic to 6.6% earlier this year to the present figure of 7.9%—a trend that is steadily returning to the 10-12% characteristic of a balanced market.
- The anticipation of an interest rate reduction is delaying some otherwise inevitable aircraft purchases. We’re seeing buyers balk at the notion of having to pay tens of thousands of dollars in monthly interest above and beyond what they may pay if lower rates ultimately arrive. While this group of potential buyers is a subset, it’s not insignificant. We expect a rate reduction would create a mild floodgate effect, releasing a group of buyers into the market and boosting demand even beyond the levels we’re seeing today.
- The newly certified Gulfstream G700 is boosting—and will continue to boost—the higher-pedigree market. To date, 12 G700s have been registered to new owners. Gulfstream plans on delivering a total of 50 to 52 G700s this year—a figure that equates to an additional eight per month for the remainder of the year. With many of these deliveries going to flight departments, we anticipate an increase in late-model large cabin aircraft inventory as we get further into the back half of the year.
Small hinges swing big doors, and while none of these factors that define today’s market are groundbreaking individually, together, they tell a story. They tell us that the struggles we’re facing presently are transitory and, frankly, are good struggles to have. They suggest not only that 2024 is shaping up to be one of the best years for the preowned aircraft market but also that the trend will continue into 2025.