What did it sell for? …The Death of Comps
Be it real estate, equities or jets, buyers and sellers in second hand markets depend on recent sales data to establish their pricing expectations. But what happens when there isn’t recent sales data? And what happens when the recent sales data- even the recent, recent sales data- no longer applies? Such is the dilemma which continues to face buyers, sellers and brokers of private jets as we begin 2016. Now some seven years into the worst bear market our industry has endured, we have come to accept higher rates of depreciation and inventory levels as the new normal. But merely accepting these facts doesn’t solve the most basic question which every transaction depends on: what’s this thing worth?In the old days, when life was easy, deriving market value based on the last two or three transactions got you pretty close. A year older, a few more hours, a couple gizmos in the cockpit- we could easily account for all that stuff with some credits and debits. Do a little averaging and there you go.
But markets were comparatively stable back then. The global population of aircraft, even in past downturns, was not as totally imbalanced with the global population of folks who wanted to own aircraft. Today we have a disproportionate number of sellers to buyers. And that causes markets to move downward at such a pace that we can no longer use comps to reliably derive market value.
Consider the following. If we look at large cabin business jets in aggregate, there are over 15 months of available inventory. In some markets that number is much higher- 20, 25, almost 40 months in some cases. That’s well past the threshold of patience for most sellers and has precipitated price declines of over 20% in some large cabin markets during 2015 alone. On a $20M aircraft, that means $1M in market value per quarter. $11,000 per day.
Beneath the surface are a lot of deals which might have been consummated had sellers not been locked into a false perception of their aircraft’s value based on the “last sale.” In a market with 34 aircraft for sale and 3 transactions within the past 6 months- those transactions are meaningless, aside from a historical footnote. The market value of the next plane to sell is almost entirely dependent on the current motivation of the top 2 or 3 most motivated sellers. Even sellers in markets which are quasi-liquid must be careful- we’ve seen markets dry up overnight because of large, rapid price movements in comparable aircraft. The big picture matters.
In this environment past sales data can only be regarded as part of the puzzle. Study inventory levels, sales pace, and asking prices (particularly recent movement in asking prices), as well as what’s going on with similar makes and models, and you will get a much closer approximation of what your aircraft may realistically trade for.