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You Know It’s Bad When… Prices For Used Jets Are Cratering

Courtesy of ZeroHedge. View original post here.

America’s wealthiest individuals are thriving thanks to an imbalance in wealth accumulation that favors the already asset-rich. But even though the number of millionaires and billionaires living in the US has been climbing, and is on track to increase by nearly 700,000 a year between now and 2021 – so long as the market avoids another crash – an influx of new potential buyers has done little to alleviate a supply glut that has been weighing on used jet prices for years.

As the Financial Times reports, sales prices for used jets have fallen as much as 35% over the past three years, with the average price falling from $13.7 million in April 2014 to $8.9 million today.

“Prices for second-hand private jets, many of which have barely been flown, have dropped as much as 35 per cent over three years to the end of April. The average price of a pre-owned business jet has fallen from $13.7m in April 2014 to $8.9m, according to research by Colibri Aircraft, which specializes in the marketing, resale and purchase of pre-owned private aircraft.

Owners have lost millions of dollars on the value of their existing business jets as a glut of planes came on to the market in the wake of the economic downturn. The resale price of a Bombardier Global XRS, which sold for $50m, has dropped from $31.3m to $20.4m — down just under 35 per cent, according to Colibri’s figures.”

The collapse of the private-jet bubble isn’t a new phenomenon, though the markdowns that some owners face are probably even larger than what the FT is reporting: Back in 2015, Delta purchased a used Boeing 777 for just $7.7 million, equivalent to a 97.2% discount off its list price of $277.3 million.

Delta CEO Richard Anderson raised some eyebrows in October when he said there was a “huge bubble” in used widebody aircraft, pricing a 10-year-old 777-200 at $10 million.

Anderson said that the market would be “ripe” for Delta to buy used 777s. To be sure, Boeing president and CEO Dennis Muilenburg was among those who pushed back against Anderson, saying the Delta CEO was valuing used 777’s much too low. Turns out, Anderson’s estimate was $2.3 million too high.

To be sure, the supply of new jets has fallen sharply in the past decade. In 2008, 1,313 business jets were delivered, compared with 661 in 2016. But the drop hasn’t been fast enough to balance out oversupply in the used-jet market. One theory is that the glut is being caused in part by wealthy individuals dumping their old jets to buy a new one.

The airlines say they’ve adjusted supplies in response to the market glut, but whatever they’re doing, it’s clearly not working.

Bombardier said it did not comment on specific pricing of its aircraft, but it said the company had realigned its production in the light of market demand.

Newer models coming on to the market had also caused prices to fall further, said Oliver Stone, managing director of Colibri.

“Customers are selling their current jet to upgrade to the new one,” he said. “Supply is increasing, but not demand.”

Yet even with the release of new aircraft, with many manufacturers targeting the larger cabin market, the delivery of new business jets has fallen dramatically over the past decade. In 2008, 1,313 business jets were delivered, compared with just 661 last year.

“Pre-2008, the jet market was in a massive bubble and prices have been decreasing ever since,” said Mr Stone.

Airplane manufacturers helped create the oversupply by embracing a strategy familiar to anyone who’s followed our coverage of US new-car sales data: For years, manufacturers relied on discounts and other incentives to meet delivery goals. Then, when the financial crisis hit, repossessions climbed between 2009 and 2012, according to Edwin Brenninkmeyer, chief executive of Biggin Hill-based Oriens Aviation.

“To keep pace with sales volume, manufacturers increased discounts to continue the high delivery volumes, often with 30 per cent discounts which became the ‘industry norm’.”

If there is a silver lining, it’s that the chartered plane industry stands to benefit as more owners give their planes up for charter. As the FT reports, the rise in available planes hasn’t had much of an impact on the price of a charter hour, which has changed little in the last decade.


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