I’m not sure I’m up for the challenge.
Ever think that? I rarely do. I’m typically very confident in life and in business. But we all have those moments of doubt and for me they seem to come up every year about mid-January. That’s when I get an email from Kim Blonigen, the editor of this excellent publication, asking if I’ll write about the state of the market.
I was really intimidated last year; how do you assess a market that seemed to be going a little off the rails post-COVID lockdown? I was still a little shell-shocked from watching my 2020 article turn out completely wrong by the time it was published! If having an article come out in March 2020 was risky … then March 2021 was insane! Yep, that’s when it happened. That’s when the “rumble became a roar” and things went completely crazy in the King Air market.
We had active acquisitions for several clients, some left over from calendar year 2020, and the inventory was drying up. It was the first time since I’ve been in aviation that you couldn’t just go buy a Blackhawk King Air C90B. We had a client who had simple requirements and a reasonable budget; the problem was, there were zero airplanes that were worthy of buying. We made exhaustive efforts to find something off market, to no avail. The client raised the budget to consider B200s; we found one and made an offer. A couple of days later we were outbid by $150,000! My first instinct was to walk, but my client made a statement that became concrete in my mind in the months that followed. He said “Chip, I don’t want to be sitting here with a wheelbarrow full of cash in a few months that won’t buy this airplane.”
It was the moment when I accepted that things were changing and the days of pleasant but strong negotiating were gone. The market was speaking and if we didn’t listen, we’d be left behind. We had a conference call with my client and his wife, and she asked, “What’s it going to take?”
I suggested a best and final offer that would end the negotiations, we submitted it, I leaned hard on the broker to not let it become a bidding war and we got the airplane. That airplane is easily worth half a million dollars more in today’s market than what we paid for it. What seemed at the time to be paying retail, ended up being a great buy. The best part is our client loves the airplane. The King Air B200 is better for his growing family than the C90B would have been, and they couldn’t be happier.
That was the last good buy on a B200 that we made in 2021. Despite our best efforts, the inventory has been sparce and we’ve been unable to find airplanes at a price that made any sense at all. I convinced a B200 client who has a full-time pilot that the smart move was the King Air 350 – that market seemed to be lagging behind. That deal worked out great, especially when an owner of a really nice model 350 called us to see if we were interested in buying it. That’s one advantage of only representing buyers: owners who want a person-to-person deal without listing the airplane will actually call us! We were just in time on the King Air 350; that market has come from behind and surpassed everything else in levels of absurdity. We are seeing $1 million or more in price increases from just a year ago.
The summer months of 2021 were tough – inventory levels plummeted and prices skyrocketed. It’s important to note that while I’m writing about the King Air market, we do acquisitions for all types of turbine aircraft and all the various aircraft markets are crazy. In fact, some are worse than King Airs. For instance, the Embraer Phenom 100/300 prices have soared, if you can find an airplane at all. We are very involved in the Pilatus market as well (don’t hate me King Air aficionados!) and its market is crazy as well. We helped a client purchase a 2019 PC-12 NG last
November, and similar airplanes are being listed for hundreds of thousands of dollars more than the inflated price we paid to buy the airplane and close by year-end for tax purposes. As I write this, there’s a PC-12 NGX listed for $7,995,000! That is over $2 million more than a brand-new one sells for, but it’s a moot point because you can’t get a new one until 2025!
The same is true of all manufacturers of new aircraft. I think Q4 is currently the earliest slot for just about any aircraft and by the time you read this it will probably be 2023.
So, what is the state of the market? It’s crazy and prices are stupid. It’s definitely a supply and demand issue. There are more buyers than aircraft and unlike real estate, the builders of new airplanes can’t gear up and build their way out of this. How long will it last? Your guess is as good as mine, but it isn’t likely to change until some major outside factor changes the market.
The reality is there have always been considerably more people who could afford private aviation than those who participated in it. Those folks have avoided private air travel because they were financially conservative or were concerned about optics. The airlines and COVID have changed that and it’s not a knee-jerk reaction, it’s permanent. I don’t see it changing, even if the airlines returned to their days of grandeur and mask requirements went away. I don’t believe the new market of people who have justified private travel are going to decide to start traveling on the airlines again. A slight paraphrase of a famous quote, “Once you have tasted private flight, you’ll never fly with the masses again.”
Sure, some of the people who are new to aviation will decide that the cost is too great, others will decide that it just isn’t for them, and even a modest downturn of the economy could bring back the feelings that optics are more important than convenience. But the result will remain that there is a lot of new blood in aviation. This is great for our industry, but not great for our aircraft inventory and buying opportunities.
The issues that we face today from an aircraft market standpoint are numerous. As I mentioned, we do have a lot of “new to aviation” buyers entering the market. This represents not only an increase in the demand for airplanes, but the new buyers do not bring a trade-in airplane with them. In the past, most of our clients were “move up” buyers – they were selling a Twin Cessna or a Baron and buying a King Air, or they were selling their King Air and buying a bigger King Air or a jet. They were taking an opportunity but creating one simultaneously. This created an equilibrium and a somewhat stable market. This new factor has changed the dynamics and how it settles remains to be seen; this has never happened before.
The second major factor is one I’ve been talking about for years – the aging fleet of aircraft. The reality is that many more King Airs were built in the 1980s than in any year in the last several decades. If you then consider all the Cheyenne, Conquest, Merlin, Commander and Mitsubishi models that were also built at that time, but are no longer manufactured, do you begin to grasp the enormity of this problem? As I said earlier, we can’t build our way out of this problem.
To fully understand why this current market cycle is so unprecedented, you must look back at the last decade. The market for turbine aircraft has been strong for 10 years. We were already seeing a shortage of nice, newer model aircraft of all varieties. This isn’t like the 2005-2008 boom in aircraft sales that was certainly a seller’s market and prices went up and inventory levels did decline, but not like this. That boom was on the backside of a serious downturn in aviation and there was an abundance of inventory. It was truly a seller’s market because there were a lot of sellers who wanted to sell. I would classify today’s market as a constricted market, there is unprecedented demand and very few willing sellers. We have a team that spends its days talking to potential sellers and the most common thing they hear is, “Sure I’ll sell, but first I have to find the replacement!”
The best advice I can give anyone considering purchasing an aircraft is to ask yourself a simple question. Do you want an airplane or do you need an airplane?
If you want an airplane or want to upgrade and you can wait … by all means, wait. I’ve been doing this a long time; the market goes up and it comes back down. It will likely take some type of catastrophic event to change the current trajectory of the used aircraft market, but that event will come. Things will settle down and life will return to normal.
If you are of the second group and you need an airplane, don’t wait. All indicators are that inventory will stay at historic lows and prices will continue to rise. You have to shake off the mentality of what things sold for; I know it’s hard … it’s been hard for me. It’s a typical risk-reward scenario – sure there is a risk if you buy now and the market drops and you lose. This is balanced by the potential reward – the market may continue to go up and your aircraft’s value along with it.
This market isn’t for the faint of heart; it’s hard to accept and even harder to understand. I’m in the business of providing information, I can tell you what’s going on, what I suspect may happen based on a multitude of factors, but I can’t predict the future. Today is Jan. 24, 2022, and you may be reading this in March thinking I’m a genius … or an idiot.
Chip McClure has been in the aviation industry for over 20 years. He and his wife Amy founded Jet Acquisitions in 2015; the firm exclusively represents turbine aircraft buyers and specializes in King Airs, as well as all models of current production turboprops and jets.