Mallory Libex | October 30, 2021
Insights

The Twilight Zone!

The Twilight Zone!

In a world of meme stocks, digital currency, and never-ending cash, the propensity of current aircraft buyers has arrived at a truly new concept. The price of entry for a buyer to procure an aircraft in today’s markets has reached astronomical heights. It is almost impossible to accurately value an aircraft at this time. Aircraft are worth what someone is willing to pay and the willingness to pay top dollar has no shortage of participants.

As Rod Serling would say as he began the “Twilight Zone” TV series, “You unlock this door with the key of imagination.” We have entered another dimension in aircraft sales. The paradigm that once existed around aircraft values is lost in space. The big question is: how high do prices go, and how long do they stay there?

About 15 years ago, I went to an estate auction that included the previous owner’s large collection of Triumph Motorcycles. He had four T120 Bonneville’s in identical shape and exquisite condition. He also had a fifth T120 of the same vintage that was in daily use condition but still very nice. The auctioneer started with the best looking bike to sell first and worked his way down to the daily use bike. The first four motorcycles sold for more than my budget, but I eagerly waited for the slightly used one to come up in hope that I’d have a chance to purchase it. As soon as the auctioneer began to sell the last one, I knew that I had no chance at it either. The bidding for the last bike was even more ferocious than the previous four, and it sold for a premium over all the others. I was left scratching my head. Why did the less desirable bike have way more bidders and sell for so much more than the nicer bikes? It took me awhile to come to an understanding, but the logic finally made sense.

There were two important factors playing a role; first, there were more buyers chasing after limited supply. Second, the lack of time and the fear of missing out had taken over the psyche of the remaining bidders. This is exactly what is happening with the pre-owned aircraft markets in the fourth quarter of 2021. Inventory is at multi-decade lows which is limiting buyers to chase fewer and fewer aircraft with little time remaining in this year. It’s a perfect storm! When a decent option hits the market, buyers immediately fasten their seatbelts!

A buyer in today’s market can expect to throw out the book values. Recent sales comps over various markets are showing prices ranging anywhere from 25% to 50% over book values. Buyers and sellers can expect these premium prices to continue through the remainder of the year. When the new year arrives and the dust settles on 2021, there might be a cooling off period for prices. However, without some change in monetary policy and/or inventory supply, it would not be surprising to see pre-owned aircraft values hold steady at these inflated values. The ball dropping on 2021 does not wave a magic wand and restore inventory numbers to equilibrium. The market is starved for decent inventory and this problem will likely extend well into 2022. Buyers that can wait for next year should be patient. Chances are that January will bring calmer waters. On the other hand, sellers hoping to capitalize on these amazing prices, with certainty, have a limited window left to act.

With today’s aircraft values, it’s safe to say it’s time to remove all previously learned rational. It’s a new normal for now. Buyers and sellers can either choose to be a part of this market or choose to sit this one out. Either way, Rod Serling had the best paradox that captures this market, “All this is a very small exercise in logic, straight from the Twilight Zone.”

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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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