"The Prices Are Insane": You Know It's Bad When Used Private Jet Prices Are Crashing

Tyler Durden's picture

America’s wealthiest have never been richer, thanks to 9 years of Federal Reserve "wealth creation" which has favored the top 1%, leading to an imbalance in wealth accumulation that has resulted in a record split between the haves and have nots. In fact, as the Fed admitted two weeks ago, the top 1% of Americans are 70% wealthier than the bottom 90%. But even though the number of millionaires and billionaires living in the US is at an all time high, and is on track to increase by nearly 700,000 a year between now and 2021 – assuming the market does not for the next 4 years – 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 Bloomberg reports, sales prices for used private jets have fallen as much as 16% over the past year - and more than 35% over the past 3 years - with the average price falling from $13.7 million in April 2014 to $8.9 million as of this summer, according to research by Colibri Aircraft, which specializes in the marketing, resale and purchase of pre-owned private aircraft. And, as a glut of planes came on to the market in the wake of the economic downturn, owners have lost millions on the value of their existing business jets. The resale price of a Bombardier Global XRS, which sold for $50m, has dropped from $31.3m to $20.4m — down just under 35%.

While most major manufacturers, including Gulfstream and Bombardier have modestly pared production in the last couple of years as demand for private jets slumped, it has been nowhere near enough to shrink supply in line with the collapse in demand, and as a result it has not been enough to halt declines in aircraft values, say consultants for the $18 billion industry quoted by Bloomberg.

And with bargains aplenty on machines with few flight hours, including various new timeshare startups which have made it even more economical to rent than to own, manufacturers are slashing prices and cutting deals to entice buyers to purchase new planes. Meanwhile, they keep churning out aircraft and introducing new models.

It is this excess production glut that has sent prices tumbling by double-digits. “It’s a question of who wants to blink first,” Rolland Vincent, a consultant who puts together the JetNet iQ industry forecast, told Bloomberg. “Nobody - because whoever blinks, loses share.”

In the latest, just released long-term outlook on the state of the Business Jet Aviation, Honeywell forecast up to 8,300 new business jet deliveries worth $249 billion from 2017 to 2027, down 2-3%  points from the most recent 10-year forecast released one year ago.

And unfortunately for makers of private jets, a rebound in demand for new company planes, which would help stabilize the market, isn’t in the cards. Corporate plane-buying plans have hit a 17-year low, according to an annual survey by Honeywell International Inc. of more than 1,500 flight departments. Companies expect to replace or add planes equivalent to 19 percent of their fleets on average over the next five years, down from 27 percent in last year’s survey.

"Declining used aircraft prices, continued low commodities prices, and economic and political uncertainties in many business jet markets remain as near-term concerns for new jet purchases, leading to a modest growth in 2018," said Ben Driggs, president, Americas Aftermarket, Honeywell Aerospace. Driggs noted that the declined was most significant in Chinese and Russian purchase plans; Brazil remains a bright spot by recording strongest new aircraft purchase plans in survey from a major aircraft market though overall buying plans also declined year over year.

Meanwhile, all those "aspirational" buyers who hoped to impress someone with their full-priced toy purchase, are seething said Barry Justice, founder and chief executive officer of Corporate Aviation Analysis & Planning Inc.

And so, to stimulate some demand, Gulfstream slashed as much as 35% off the price of its G450, which is being phased out as the new G500 aircraft nears arrival, Vincent said. The G450 had a list price of about $43 million, according to the Business & Commercial Aviation guide.

Others are similarly liquidating: Bombardier has offered discounts of as much as $7 million on the Challenger 350’s list price of about $26 million as it fends off competitors entering the super midsize space, he said. The weakness across the industry in private-jet sales is adding to the pressure on Bombardier, which is also struggling to sell its C Series commercial planes. The U.S. government slapped import duties of about 300% on the single-aisle jetliner in the last two weeks after a complaint by Boeing.

But what is most surprising is that the corporate aircraft segment - the one catering exclusively to the world's richest, i.e. those who have explicitly benefited from central bank policies in the past decade, the global market hasn’t fully recovered from the last U.S. recession, when plunging demand popped a bubble that had flooded the industry with more than 1,000 new jet deliveries in both 2007 and 2008. A nascent recovery in 2013 and 2014 fell apart after the price of oil and other commodities collapsed, drying up sales in emerging markets such as Russia and Brazil.

Deliveries of new private jets are forecast to drop to 630 this year, from 657 last year and 689 in 2015, according to JPMorgan Chase & Co. The number is forecast to rebound slightly to 640 next year.

According to Bloomberg, the more conservative pace has done little to relieve the glut, creating a buyer’s market for used aircraft. A five-year-old jet sold in 2016 was worth only 56% of its original list price, on average. That’s down from 64% in 2012, according to a report by plane broker Jetcraft. The value retention was as high as 91 percent in 2008.

Prices for used aircraft right now are “insane,” said Justice. And yet, prices are only going to get even more insane.

“There’s a vast overproduction of large-cabin airplanes and there are only so many people in the world who are going to step up and pay $60 million-plus,” he said. “What happens is, people are going to that pre-owned market.”

Of couse, none of this should be a surprise, as 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 Bloomberg is reporting: Back in 2015, we reported that 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 eyebrows, and caused smirks among industry "experts", that 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 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, and less expected this year. But the drop hasn’t been fast enough to balance out oversupply in the used-jet market.

The silver lining is that the chartered private plane industry stands to benefit as more owners give their planes up for charter. 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.

However, it is just a matter of time before the primary cost deflation spreads to the services segment and who knows: at this rate of plunging prices, it may soon be (much) cheaper to charter a seat in a private jet than to fly commercial first (or even business) class.

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The_Juggernaut's picture

The rich aren't getting richer anymore?  Oh, the humanity!

giovanni_f's picture

jets with those obscene "TRUMP" logo on it were the biggest price decliners

Manthong's picture

 

If I had Gates, Bezos or ZuckerF*cker money, I would have my own AN-225 complete with luxury crib, hot tub, sauna, racquetball court and dual purpose bowling alley/pistol range.

I would have the Rolls and the Lamborghini  stowed in external pressurized and heated wing pods… the Harley and the BMW 6 cylinder touring bike can go in the fuselage cargo/baggage space.

 

pc_babe's picture

Why you think Saudi King is in Russia ... rumor has it, Putin threw in a herd of virgin goats for entourage to close deal.

bamawatson's picture

used virgin goat prices are crashing

secretargentman's picture

STILL can't afford a biz jet. Dammit. 

auricle's picture

Glad to see airplanes depreciate at the same rate my car does. 

Fishkiller's picture

LOL,nice.
But there are only, what, a couple dozen runways that are long enough for it to take off?

jin187's picture

If I had that kind of money, I'd put it all into crypto, watch it become 100 trillion dollars in 6 months, and cash out before the crash.

Then I'd hire Blackwater, take over some small 3rd world country, and declare myself their new God-King. I'd pay off China or Russia before I did it, to make make sure any votes that went against me in the UN Security Council got vetoed.

bitplayer's picture

And you'd be even more miserable than you are now. Who needs any of that shit?

bitplayer's picture

"Backstreet Boys" actually.

Omen IV's picture

NO the game is narowing - to a smaller and smaller circle - look at realestate alone for malls collapse - retail - mining - many others

 

pretty soon the 1/10th of 1% will have it all and the revolution starts with the proletariat

SixIsNinE's picture

hey, I remember a game like that :  Monopoly!

i figured that game sucked pretty quick as a kid - it always ended up with somebody owning most of everything.  And everybody else had to pay everything to rent to barely get by.

 

Monopoly Baby, it's what's for Breakfast, and has Electrolytes!

 

how about the Tylerz buying a couple Bombardiers and give loyal Zeros a super hourly deal for charter flights - we can get a deal on some Puerto Rico beachfront and timeshare it as we all build it up into Casa Royale Zero ?

 

 

ElTerco's picture

You read that wrong. They are getting *much* richer. They are just getting greedier at a much faster rate than they are getting richer.

Oldwood's picture

So you're saying there's a chance.....that I might still afford my private jet. Just when I was working on plans to build a wooden version in my shop.

ebworthen's picture

Whatever it takes to crash the Ponzi, I am on-board and read to pop a bottle of cheap champagne!

Juggernaut x2's picture

If you want 50% depreciation in a couple of years just buy a new Mercedes instead of blowing millions on a jet.

marketheretic's picture

As they say, if it floats, flys or f*^ks then rent don't buy.

HRClinton's picture

Boats and Planes don't have perpetual payments or take half your wealth, when you part ways.

Ask any guy whose ex was a trophy wife.

jin187's picture

That's why you don't get a trophy wife unless you can lose half your shit, and be like "meh".

max2205's picture

Jets and pussy....only rent 

Gatto's picture

If they fall another 98%, I would pick one up!

marketheretic's picture

The cost of buying the plane is only the start. There is a reason why these depreciate fast: storage, operating, pilots, maintenance & insurance. You can't park them and forget about them they must be operated regularly. The economics very rarely make sense more of a vanity purchase for the ultra wealthy. Even if they give away the aircraft.

Mr. Universe's picture

It worked out for Arnold Palmer. Not so much for Payne Stewart.

Déjà view's picture

Can be a 'Payne' for an unlucky few...what is in a name...

Utopia Planitia's picture

How true.  The purchase price is nothing but an annoyance.  As you stated the real money goes into operational cost. (including the insane plethora of taxes and fees regulary collected by various insatiable government vipers...)

Caveman93's picture

I always measured bubbles by the number of PJ's landing at RDU. When that number starts declining we're in deep shit.

rlouis's picture

Your bubble measure is a good gauge, I've never seen so many nice/newer PJs landing and taking off at the local airport as I have in the last couple of months.  

NoDebt's picture

"“It’s a question of who wants to blink first,” Rolland Vincent, a consultant who puts together the JetNet iQ industry forecast, told Bloomberg. “Nobody - because whoever blinks, loses share.”"

My favorite business model!

It goes like this, as told by salesmen even older than I am:  Two sellers wait nervously at the negotiating table, facing eachother.  After a while, the buyer walks in the room and throws a tourniquet on the table.  The buyer, in no hurry whatsoever, takes a sip of his coffee and announces the terms of the negotiation which are as follows: "The first one who reaches for that loses."

 

 

Spectre's picture

Some of this story is true, some is not. 

slipreedip's picture

what an amazing observation!

bamawatson's picture

some of the observation was amazing

Silver Savior's picture

Would not want a jet even if I was rich. I would still live like I was poor as phuck.

Mr.BlingBling's picture

A used jet? USED?

Our overlords want a USED jet about as much as they want a tired, worn-out 14-year-old instead of a fresh young face.

Used. Sheesh.

Knobbius's picture

With real money in my my pocket, I would buy a low miles cirrus vision jet or a Honda VLJ, and get my jet rating, fly it myself. That would kick major ass. Having gold-plated shitters on a G500 doesn't hold much appeal for me, especially if they won't let me fly it.

ArthurDaley-OldieTimeTrader's picture

Its the piloting that's the skill. You've clearly never heard of the story of the surgeon who needed to get back to home for a surgery he was performing first thing Monday. He was forced to fly with an IFR flight plan and the weather was down to minimums. He crashed his plane on short final approach.. Operating a jet on a PPL/IR rating isn't all its cracked up to be. I know I've flown a celebrity or two in the past. 

I hate cunton's picture

There is a world wide pilot shortage.  Drunks and low time zit faced kids are all you can get these days.  Good luck passangers and pay close attention to the preflight safety briefing. 

idontcare's picture

I thought that I was the only one who realized how many "pilots" were falling down drunks.  On the other hand, I'd rather have a drunk with a few decades under his belt that the young, NON-ex-military simulator jockeys (U know, the kids who went to those high priced "flight schools") who in the 'real world' oftentimes confuse taxiways for runways and worse. 

 

jin187's picture

In the event the plane is forced to make an emergency landing straight into the ground at 500mph, tuck your head between your knees, and kiss your ass goodbye. Your seat may be used as a floatation device, assuming it's not on fire, or over dry land.

Don't forget to keep your seatbelt fastened at all times. When the plane loses a wing, you wouldn't want to get all knocked around before you get exsplatterated™.

Fundies's picture

Wait until the NFL players and hierarchy sell up.

Spetzco's picture

I know of a 27000 hour international airline pilot looking to be based in Scottsdale on a Gulfstream or Global Express.   He is one of the best in the business.  Let me know and i'll put you in contact. 

junction's picture

I'll buy that for a dollar!

MontgomeryScott's picture

Let me make my position perfectly clear in no uncertain terms.

BUY THE FUCKING DIP, YOU FUCKING IDIOT!

https://www.youtube.com/watch?v=0akBdQa55b4

According to the immutable laws of supply and demand, it seems that there are a much greater number of used executive jets on the market being offered for sale, versus willing buyers of such.

Sizzurp's picture

Corporations are saving the money on travel and teleconferencing instead.  I imagine commercial travel is being used more as well. There is definitely a shortage of qualified pilots as it costs a fortune to train them nowadays.  I know someone that was recently hired for a jet commuter airline that had around 2000 hrs. multi time and an ATP, but no turbine time !! That used to be unheard of.

LeftandRightareWrong's picture

why use private jets, office and retail space ... Skype and Amazon will do and save the climate too

jin187's picture

And think of all the extra time you'd have to drive your Hummer H1 to the steakhouse three times a day.

LeftandRightareWrong's picture

The Hummer with the Green Peace sticker on it in Marin County?

I love your wife's picture

Ya.  I was just thinking, "how are used private jet prices?"  Then I said, "oh fuck" because...you know...used private jet prices are like...bad.