Gulfstream delivered the first G600 last week and Prevailing Market Wisdom suggests used G550s are about to flood the market, crushing values and creating “unprecedented” buying opportunities. From what we are hearing, ramp and hangar space worldwide could become scarce as all these poor G550s have to collect dust somewhere.
It’s amazing the G550 has any market value at all because this exact same Tsunami attacked it in 2012 with the onslaught of the G650. Resilient plane.
Of course, all these G550s will pound the GV market which will eviscerate what remains of the GIV-SP market and pretty soon values will be negative.
This illustrates the common thinking every time a new model is introduced. Yes, many G600s will get sold to G550 owners who will put their planes up for sale. But will we really be able to feel the effects in the used market?
Here are a few reasons we won’t:
- There are over 500 civilian G550s. If Gulfstream delivered 30 G600s per year ALL to G550 owners, that would churn 6% of the fleet. The market needs used G550s, can absorb 30 planes a year, and won’t care why they are for sale.
- Not all G600 deliveries will be to G550 owners. First delivery- not a G550 owner.
- The G650 didn’t cause G550 values to fall off a cliff when it started delivering in 2012. The lousy market was already taking care of that.
- GIV in 1986, GIV-SP in 1992, GV in 1996, G550 in 2003, G650 in 2012, G600 in 2019. This is the way the market works, there is always a new plane coming out. While the new ones deliver the old ones get older.
- Keep in mind that used prices are not exactly at premium bubble-market levels in the first place.
- It’s a mistake to think so narrowly. There are several comparable and tangentially comparable models. When opportunities arise in one market buyers will shift focus until a new equilibrium develops. This mutes the observable effects in any one market.
And what happens if busloads more G550 owners sign up for new G600s tomorrow? That’s an indicator of strengthened overall demand. Lead time grows to forever and the next guy looking for a long-range jet is buying a used G550. A rising tide.
Major declines in near term bizjet values are almost always driven by a sudden and comprehensive evaporation of buyers. Think recessions, major stock market declines, trade wars, actual wars, etc.
The effects of new production take so long to materialize that they just feel like ambient temperature. Happy shopping.