Differences from other market downturns

Cause and effect — In 2007, we had a few structural issues that let the air out of the balloon, in the aircraft markets and beyond. In the preceding years to the downturn, aircraft were “appreciating” in value, which is mind numbing for a depreciating asset. Manufacturer book to bill ratios were amazing, and backlogs lasted years. Speculative position buying was rampant and like the overall market, it was overvalued with fewer real buyers and more speculation. Used prices on some Gulfstream and Bombardier models were millions higher than new delivery pricing and used markets were well inflated over historical norms.

Priceless recovery — In the recovery following the last crisis, the markets did recover with several years having exceptional bright spots, the last of which was 2018. Young used inventory got down to historical low levels, however even in the tightest markets pricing never really recovered above retail and in most cases was slightly below retail. The energy in the market recovered, value became a main driver, super mid and entry level large jets with economic operating costs in focus led the charge, and pent up demand for ultra-long range and large cabin aircraft completed the recovery. The important difference is that our inventory levels are historically average to low, even after some increase in 2019. Most of this inventory sold into the US, and there was limited buying in outside markets.

Show me the money — As we all remember we had a catastrophic lending failure and a systemic collapse of our financial institutions, there was no hope for equipment lending for almost 2 years for all but a few, the introduction of financial controls and the destruction of the resources of the financial industry altered our landscape of owners, and how people could afford to finance, lease, and even operate aircraft. The institution of controls, specifically the Basil-3 requirements for bank accounting of lending value narrowed the field of lenders and it took years to get a robust lending facility back in place with multiple good options and players. Now it feels like the lending and capital will not be a problem, with Government injected liquidity, low interest rates, and a good base of lenders with room on their balance sheets for assets. Those in a position to buy will likely get rewarded with the most favorable terms seen in a generation.

Availability of financing, liquidity, and underlying economic base strength — We don’t have to rebuild Rome in a day this time, we just need to restart it. This downturn will have its victims in a literal and a financial sense, however all estimates are on a timeline, not a complete failure of the underlying financial system and the strength of the economies supporting it. This may change, depending on duration however one can hope the recovery even if it is a lopsided v, w or u will be quicker and less damaging than the last time.

We’ve already re-stacked the deck — During the last collapse of the corporate aviation market we had multiple factors:

Corruption in China being confronted by the then new President Xi and the outflow of aircraft from an immature and difficult to export market of first-time owners who knew little about ownership and care, leading to comp trades showing false lows and creating new value levels.
Russia Russia Russia — Oil prices collapsed, Putin firmed his grip, and political winds took their toll on the oligarchs, money which was hidden in asset purchases like planes began hiding on foreign registries and eventually panic liquidating.
The fall of Europe — beset with horrible lending from some collapsed banks and bad valuations caused the fall of corporate ownership, initially there were scores of repossessions, and in the preceding few years economic weakness sold off a huge portion of inventory to satiate the US demand. All time highs of imports to the US happened in 2017–2019 and there isn’t too much pain left on the European side to flood the market.
Talking Turkey — Although Erdoğan has caused pain in the economy, uncertainty, and selling – we estimate only 50–60% of the stressed inventory is “really” for sale. This will change now and we will see the further addition of these planes to the market.
Asia — Asia has sold off and new purchases are few and far between, they will add some inventory, but have mostly been sold off in the recent hot market.

Flight to value — The last recession taught some important lessons; buyers were savvier and more focused on fixed and variable ownership costs. Opulence went out and efficiency came in, reshaping the desired fleets and remolding the different segments and markets.

International travel, want or need? — Interestingly we’ve seen decoupling from China, trade spats, economic weakness in Europe, and more internal US focus and less international growth. This has reshaped markets by type and size. While there was some very good sales growth in long range and large cabin aircraft in 2017–2018, the inventory has grown a bit and it seems to follow economic strength and business trends. Focusing on needs analysis and overall value to the individual or business is critical and helps with residual values and trends. There are going to be some great buying opportunities if executed properly. Moving through the markets with efficiency and determinant valuation will lead to some big rewards — put us in the game coach!