You Know It's Bad When... Prices For Used Jets Are Cratering

Tyler Durden's picture

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.

“It has been exactly the same price to charter a private jet for the past 10 years,” said Adam Twidell, chief executive of PrivateFly, a global booking service for private aircraft hire.
 

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IridiumRebel's picture

Goddammit. I just bought ten jets from Qatar.
They said they'd always go up in value like Bitcoin or Silver.

WTFRLY's picture

They could always sell jets to ISIS, they still have to stoke conflict in Africa, the Philippines, Pakistan and the rest of Central Asia. Someone isn't doing their market research, fill in the gaps!

Looney's picture

 

With prices that low, I might replace my pimp-mobile with a pimp-plane.  ;-)

Looney

bamawatson's picture

get some flashing spinning rims for your landing wheels
"know what i'm sayin"

secretargentman's picture

They only have to drop in price another 99.99% and I'll be able to afford one! Woot! 

Uncertain T's picture

Like everything else.... It's not the price of the asset, it's the carrying costs.  Taxes, storage, pilot, fees, and so on. 

OceanX's picture

Buying a used jet... isn't that like buying used underwear?

NoDebt's picture

Who the hell wants some crappy USED jet that's probably got transmission issues and the A/C doesn't work?  New or nothing for me.

 

evoila's picture

This could have something to do with the government allowing you to depreciate a private jet at the same rate as your office chair. And not only that, provides an exception to allow executives to fly on private jets without incurring much of any fringe benefit tax expense.

It's ridiculous.

Manthong's picture

 

So when are the financial predators going to start promoting, bundling and securitizing a sub-prime jet market?

I might crowd fund or ICO a reality show “Jet Repo Man” complete with screaming white and black trash as the G6 is towed from the apron of their sub-prime hangar.

 

el buitre's picture

What's the price tag on the Lolita Express?  

Thought Processor's picture

 

 

What's the working lifespan of the average Biz jet?  Gotta be something like 25+ years.  And the depreciation sched. is 5 years?  

 

I'm clearly in the wrong business.

Cardinal Fang's picture

The typical life span is 10 years of prime time, after that it is a boat anchor.

The real issues are that technology changes faster than the airframe ages and the aircraft manufacturers don't like to retrofit older models because they are in the business of selling new aircraft.

So there is built in obsolescence and the manufacturers don't supply the engineering data necessary for third parties to have a go at putting new integrated systems and powerplants on existing aircraft.

playit's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobproplan.com

zippedydoodah's picture

So what jet do you own? A jizz jet?

HowdyDoody's picture

And the crazy dancing suspension.

Kotzbomber747's picture

$7,7 million for a used Boeing 777 might seem cheap, but it all depends on the number of cycles (take offs and landings) that is in the aircrafts tech log.

Engines and landing gears require expensive overhauls, and the maintenance costs usually increase exponentially with age.

eatthebanksters's picture

Very few people are actually losing money selling their jets at discounts.  There is a great accelerated depreciation schedule where the government allows the owner of a private aircraft to write it down completely over a 5 year period....without it the private jet industry would never have 'flown'.  Super rich people buying new planes and writing them down and reselling them at a step discount is good for the rest of us who can't afford a new jet.  ;-)

bloostar's picture

Don't you know its the fancy spinning chrome rims that's where it's at these days?  Not sure my local alloy wheel shop sells rims over 21 inches though..

Stuck on Zero's picture

I was thinking of crowd-sourcing the purchase of a widebody and creating a new company we would lease to the deep state: "ChemTrailAirways."

GUS100CORRINA's picture

You Know It's Bad When... Prices For Used Jets Are Cratering

My response: We are witnessing this situation in everything from planes to cars to earth moving equipment (Caterpillar) to high priced homes. We are even seeing declining prices in food.

Of course everything is declining except HEATHCARE!!! Healthcare is something that everyone needs and who do we have to thank for rising healthcare costs? One word: OBAMA!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

This GUY did a lot of damage to the USA that will take decades (if ever) to unwind.

President TRUMP is correct when he states: "I HAVE INHERITED A REAL MESS!!!

icedoc's picture

Healthcare costs are rising for one reason only: government regulation. Compliance costs are astronomical with absolutely no benefit.

Abbie Normal's picture

Other more developed countries all have government regulation of healthcare and their costs are under control.  The ONE REAL REASON for rising healthcare costs in the USA is the MEDICAL INDUSTRIAL COMPLEX.  Nowhere else does a pharmaceutical drug go through as many as 13 middlemen before reaching your neighborhood store.  Get rid of this just-as-deadly MIC as its namesake and prices will drop.

any_mouse's picture

Prices for food are not declining. The quality and quantity per dollar are declining.

assistedliving's picture

like Obama didnt.  A depression, a war only you wanted, a party that openly said they would block his very move

HRClinton's picture

Don't worry. You can always use them for charter flights to millionaire Preppers and their families, who will bug out to NZ, when the Market Crash happens.

Use Justice Bader-Ginsburg as a weather balloon, for when she leaves. 

;-)

junction's picture

While American airline companies are great at jamming passengers into jets like so many cattle, these greedy executives ignore the downside.  After being irradiated or groped by degenerate TSA screeners, getting on planes with defective air filtration systems and overcharged for luggage, flying in American passenger jets is something to be done as a last resort for many.  Stories about United Airlines, which charges for everything except free beatings, do not help.  The skies aren't friendly and with fewer passengers than expected, the demand for jets in the United States, new or used, is down.  Unless the arrogant CEOs of U.S. carriers wake up soon and realize how hated they are, they will have created a generation of non-flyers post 9/11.  These dimwits can start by pushing to eliminate the TSA and turning over flight screening to the local airports.  A loss for all those double dipping retired Secret Service and FBI agents hired to run TSA operations but too bad.  

Bunga Bunga's picture

Bought some too because "Association of Jet Dealers" told me that jet prices would never go down.

LoneStarHog's picture

No worries...Jets always go UP...Oh, maybe that is housing.

WinstonSmith1984's picture

tears are welling up in my eyes as I worry about these guys getting so much less for their jets.

I am Jobe's picture

Kinda like women in the USA. Used up , washed up and nothing to show for 

shizzledizzle's picture

I only care about the prices of vans. I got a nice spot by the river.

HRClinton's picture

Well, if you got a spot by the river, you can make money by giving advice to teens, as Chris Farley did.

yogibear's picture

Wait until the Chinese start selling jets. They aquired the technology from Boeing and Airbus. The Chinese also have the engine and avionics technologies.

Expect the Chinese to knock down new prices a lot. 

 

 

Bludklot's picture

The Chinese have yet to master the US and European certification requirements with aircraft of their own design, even though they have been working at it for at least 20 years. Actually the Chinese do manufacture some private planes through buying out the companies that went bankrupt in 2008, and they also manufacture large percentages of the structural components of a lot of planes. Aircraft manufacturing has a world wide supplier base. The Chinese do not have the engine and avionics technologies, otherwise they would stop buying ours and the Europeans. Their latest fighter jets use Russian engines.

Let it Go's picture

China's fledgling aviation industry is ramping up and when it hits its stride we can expect cutthroat competition. China is investing big in this vision with its State media touting the "advanced technologies" that will be used.

 This means we should not expect this industry to grow organically but it is logical it will be engineered by an aggressive government with a mission. Expect competition in this field to rapidly intensify.The post below delves into how rapidly China is moving and the implications.

http://brucewilds.blogspot.com/2016/09/chinas-aviation-industry-quickly.html

nathan1234's picture

So who are the fools buying new jets from  Boeing

Money that is Boeing Going Gone

SantaClaws's picture

"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."

I wonder whether it came with engines, radios, other electronics.  Seats?  Wheels, tires, wings?  Minor points, all.  Maybe bought for parts.

just the tip's picture

a ten year old aircraft is coming up on a scheduel "D" inspection.  that could mean engine replacement. either way, the engines of today are far more efficient than those dinosaurs of ten years ago.  either way, a schedule "D" inspection takes the aircraft out of service for at least four months, and will set the airline back about 5 million US.

 

zippedydoodah's picture

Thanks, that's very interesting. Wikipedia suggests it is 6 years but it doesn't cite any sources, which doesn't help. Personally I don't like the idea of flying in a plane that has more or less been stripped to it's component parts before being reassembled. More than likely, I've done it lots of times, scary shit.

Shitty Airways (sometimes known as British Airways), average fleet age 13.1 years. 

San Pedro's picture

What they don't tell you is the operating and maintenance costs run in the thousands to the tens of thousands of dollars plus there is an endless "required upgrade" schedule to maintain safety standards and licensing..and don't forget "landing and take off fees" that all airports charge. And what about a licensed pilot?? You'll have to hire a few of those  too!  

bamawatson's picture

we don't need no stinkin license

Last of the Middle Class's picture

Hasn't been that long ago that the airlines were talking about installing stand-up passenger stacking. Things were so good they thought they could put more on the plane standing up and were looking at how to do it. I guess that was about '08 or so. Can't imagine what's happened since then to kill the market. /s

Bludklot's picture

One airline, Ryanair, whose CEO once said they would offer blowjobs to get more people on their planes.

kenny500c's picture

That reminds me, why isn't Hillary blaming Madonna ("If you vote for Hillary Clinton, I will give you a blow job") for her loss?

She has blamed everybody else.

 

 

any_mouse's picture

I think that was Ryanair. Also, they were thinking of turning the lavatories into pay toilets.