headlines move articles not always facts

Depending on who you ask - the 2020 biz av market is either booming or on the verge of total collapse. That’s a bit of the world we live in today - hardline positions make for more entertaining arguments and surely help boost search results, but they make it difficult for the rest of us who just want real facts. Misinformation can leave the business aviation industry exposed to an undue optics problem that can ultimately lead to market instability. I’m not breaking out the crystal ball today (I’ll save that for future posts), but here are the facts you need to know.

The Truth…

Extremes are statistically rare. Without delving into the raw mechanics, it’s important to understand that the market always seeks balance and stability. That means that if someone is forecasting record-breaking growth or the world’s largest bust - your spidey-senses should be tingling.

The reality is, it’s tricky to forecast a single segment’s movement and even more so an entire industry. Does movement in the single-engine turboprop market have a huge bearing on the stability of large cabin biz jet sales? No, not necessarily. Business aviation serves as a support role for so many industries, and aircraft classes can serve distinct market segments that may help bolster (or bust) their values.

Here’s the “inside” scoop - the lower the intrinsic utility of the aircraft the more volatile the values will be. It may seem simple and it is really, but this concept has caught the market off guard more than once. During the financial crisis of 2008, the business aviation market faced major market instability with values plummeting across all aircraft types and classes. However, those that suffered the most were those with a lower intrinsic utility to their respective owners. In some cases, large-cabin business jet values fell by over 50% between 2008-2009. Certainly, these aircraft had more to lose in terms of monetary value but a close look at market conditions would reveal that while a high-utility turboprop like the King Air 350 did have an accelerated value loss after 2008, the market overall remained liquid; while an aircraft like the Gulfstream GIV-SP suffered a nearly 40% loss in core value due to downward market pressure from a flooded market (among other factors) which was not an uncommon sight among heavier business jets. I’m not picking on the GIV-SP as a “low-utility” aircraft, it’s a good airplane, but the reality is, the market certainly believed it had lower utility than a King Air - it’s much harder to pivot a GIV-SP from carrying executives from industries that simply no longer possess the capital for continued operation to say, carrying cargo. The great news is manufacturers are more aware of this dynamic now more than ever - low utility aircraft simply don’t sell well.

OEM’s Want a Stable Future

Manufacturers across all types and classes are focused on delivering aircraft that deliver exceptional value to the widest variety of customers. That doesn’t mean that OEM’s are less concerned with delivering a great on-board experience - but they need the “bling” to be backed by discernible value for the customer - like being able to fly faster, further, and higher than ever before while staying connected to what’s happening at the office in real-time. This pressure to innovate or become obsolete has never been more apparent. Over the past decades, we have witnessed a continual consolidation of OEM’s that were not able to keep pace with an industry set on moving forward and overall, that’s good for the consumer. OEM’s that are dedicated to creating true value for their customers not only build better airplanes but are helping assure a more sustainable future for business aviation.

Here’s the Takeaway:

• Market forecasts are not always reliable and that’s a problem for consumers and the business aviation industry.

• Forecasting values of all of business aviation is disingenuous. Biz av supports a huge variety of industries, many of which, have very little effect on one another.

• The intrinsic value an aircraft serves to its consumers is a huge driver of market stability - low utility aircraft will suffer the most during market downturns.

• Aircraft manufacturers care about the future. No group has more at stake to guarantee that their planes have a long-lasting value-add for their customers. Especially in a world where consumers are more sensitive to purchasing assets that offer quantifiable ‘real-world’ value.

Author:

Cameron Tipton, ASA, ARM-MTS

accredited senior appraiser

appraisal review & management - mts

Flight Level Partners