The new smaller business aircraft manufactured from the 1980s up to 2007 have experienced very predictable depreciation. Historically, it has been in the neighborhood of 5 to 10% a year, down to where an aircraft reached a certain value, perhaps 60-70% of its original purchase price.
And then in three to five years the aircraft would start appreciating again - due to replacement costs being higher on the same airplanes. A buyer could get a five-year-or-older airplane with relative certainty that it would maintain its value. Consequently, the real cost of flying the aircraft would be fuel, insurance and maintaining it properly. Buyers could rest assured that they were going to recoup 75% worst case, or as much as 125% of their investment when selling.
Microtrends the Key
You can no longer make those broad generalizations. Today, buyers and sellers must understand industry trends on the micro level, the microtrends. Sometimes a microtrend is not applicable across the whole industry, or across a fleet, or across a brand, but it is applicable model-by-model, and sometimes year-by-year for each model. Some airplanes are maintaining their values better than others and some aircraft are more susceptible to quicker devaluation.
Certain Aircraft Fully Depreciate
Some planes, like boats and motor homes, continue to depreciate. There’s no leveling off after a few years and plateauing. The newer ones depreciate more slowly, but older aircraft still have not stopped their downward trend – they just keep going down, and down, and down. Moreover, it may not have bottomed out.
Generally, there is an old/new divergence. The older legacy aircraft, especially ten years and older, continue to devalue, especially in the small and mid-cabin aircraft range. And the trend of popularity interest is definitely skewing towards the new model, four, and five and six year-old airplanes, that have the latest technology and the latest innovations.
Those seem to be the aircraft that are in demand, whether it be in the small end like a TBM or a Pilatus through King Air. The old King Air 200s are not selling. The newer 350s are in demand. Same thing is true for Citations.
The old Citation IIs and Vs are languishing on the market. The market is good is for the newer CJs and the newer larger cabin airplanes, XLSs and Sovereigns, for example.
Over-Supply of Some Late Models
A little bit surprising has been the devaluation of some late model technology airplanes. It is a situation of “oversupply to demand” in such models as the Embraer Phenom 100s. Those 2008 through 2011 models have really devalued and continue to. The same thing holds true with the Cessna Mustang.
Cessna’s CJ3s went through some rough times from 2008 until recently, and Cessna cut some very, very good deals for owners buying new aircraft. That and the general malaise in the marketplace took CJ3 values down precipitously.
New Aircraft Production Cuts Can Be Good for Used Market
Today, some manufacturers are cutting production of certain models and that has begun to affect the marketplace. For example, Cessna has limited availability in a couple of the airplanes, like the Mustang and the M2. It has severely restricted availability of some new airplanes. Embraer has done the same thing in the Phenom marketplace by cutting production, especially on the Phenom 100.
For the first time we are seeing some re-strengthening in the CJ3 marketplace. For example, the 2007/2008 airplanes had gone down to the $4 million market. Now they are back up a bit to the high $4 million, even $5 million range.
Supply and Demand at Work
It can be entertaining and educational to watch supply and demand work. It, in fact, is very alive in the small business aircraft marketplace. When the factory limits supply, the worldwide market gets a little better. The values come back up and the number of used airplanes available on the market drops quickly. It has to be tracked model by model and year by year, because it is not across the fleet. There is no better source to help unravel the microtrends than a NARA Certified Broker or Dealer.
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