Mallory Libex | December 4, 2021
Insights

The Pendulum Never Stops!

Honesty is a virtue for a reason. No one likes to admit their own errors or oversights, but learning from these miscalculations is key in preparing for future events. Regardless of what anyone says, no one remotely predicted the type of aircraft market we find ourselves in today. This includes myself. If, 12 months ago, you would have told me that we’d be selling jets for up to 50% over book values, I would have marked you off as crazy. It won’t happen, it can’t happen, but it happened, and the trend continues. However, the pendulum never stops moving. How long can these crazy prices continue? The only honest answer to this question would be: not forever.

Over the past 4 months, I have spent more time on the phone than I probably ever have. I have spoken to aircraft buyers, sellers, other brokers, and everything in between. If I have had the pleasure to speak with you on the phone, you might recall me asking for your opinion on how long these crazy prices might continue. This was not just small talk, but rather an ongoing mental experiment. I have been trying to gauge the community sentiment on how long prices will stay inflated and what the landscape will look like when the markets do eventually calm down. I’ve heard every variety of opinion from there is no end in sight to some downright apocalyptic predictions. In general, there is a common feeling among most of the industry that prices will cool a bit in January, but the lack of inventory will keep prices somewhat inflated for the near-term. This is more than likely the most accurate prediction for the near-term, but I feel like it is an important exercise to ponder the following theory.

For pre-owned markets to have a gradual pullback, it would indicate that there are very few limits to how far aircraft prices can expand in the long-term. A pendulum never stops halfway down. Maybe prices do cool down a bit but stay somewhat inflated. If so, we will more than likely find ourselves back in the same landscape next winter, which in the long-term is simply unsustainable. Prices have jumped out of equilibrium and the smart money is betting on a return to normal over the long-term.

Next year is most certainly going to bring higher interest rates and more government limits. This might just be the cold shower that brings these markets back to normal. If you read the “Great Economic Pendulum” theory by Paul De Grauwe, his assessment of the future of markets is very interesting – “sometimes the dynamics of the system seem unstoppable, particularly because it generates material wealth as no other system can, but it repeatedly stumbles on limits and falls victim to its own success.” Are the pre-owned aircraft markets in danger of falling victim to its own successes? No one that is being truly honest can answer this for certain. All of my acquisition clients receive the same cautionary disclaimer: prices are inflated, they will likely not stay inflated forever, and I cannot guarantee the aircraft’s value in the future. Without an acquisition client hearing this from their broker, they just aren’t getting an honest assessment. A normal pre-owned aircraft market allows for sellers to receive a fair value for their aircraft and for buyers to have adequate choices. This is the only market that is sustainable in the long-term and the one we should all be rooting for.

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Ryan Linn – Vice President of Aircraft Sales

Those who know Ryan know his longtime passion for planes. As a matter of fact, Ryan soloed his first aircraft before receiving his driver’s license at age 16. Today, he holds multiple jet type ratings (LRJET, CL604 and B737) and is responsible for aircraft sales, brokerage, acquisitions, market analysis, data research and special projects. Ryan puts client needs first, always respecting time and understanding the importance of investments. Outside the world of aviation, Ryan enjoys spending time with his wife and two children. He also enjoys heading out to the golf course as often as possible.

rlinn@flyomni.com | (916) 753-4797

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