Private-jet glut spurs ‘insane’ bargains for aspiring buyers
Corporate-jet makers are flooding the market, spurring deep discounts for new aircraft and fuelling a three-year slide in prices of used planes.
Most major manufacturers, including Gulfstream and Canada’s Bombardier — which is also contending with rising hurdles in its commercial-jet business — have slowed production in the last couple years as demand for private jets sagged. That still hasn’t been enough to halt declines in aircraft values, say consultants, brokers and analysts in the $18-billion industry.
Gone is the optimism stoked by the election of President Donald Trump, a corporate-jet maven with his own Boeing 757, along with hopes for speedy tax cuts that would bolster plane purchases. Instead, the news has been full of setbacks. Health and Human Services Secretary Tom Price resigned under fire for his frequent use of private planes at taxpayer expense. General Electric is selling off its corporate fleet to cut costs.
The jet glut is one reason pre-owned prices were down 16 per cent in August from a year earlier. With bargains aplenty on machines with few flight hours, manufacturers are cutting deals to entice buyers to purchase new planes. Meanwhile, they keep churning out aircraft and introducing new models.
“It’s a question of who wants to blink first,” said Rolland Vincent, a consultant who puts together the JetNet iQ industry forecast. “Nobody — because whoever blinks, loses share.”
A rise 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 of more than 1,500 flight departments. Companies expect to replace or add planes equivalent to 19 per cent of their fleets on average over the next five years, down from 27 per cent in last year’s survey.
The steep discounts on new aircraft are galling customers who paid closer to a full price, said Barry Justice, founder and chief executive officer of Corporate Aviation Analysis and Planning. General Dynamics’s Gulfstream unit slashed as much as 35 per cent 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 and Commercial Aviation guide.
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 mid-size space, he said.
For corporate aircraft, 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, down from 657 last year and 689 in 2015, according to JPMorgan Chase.
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 per cent of its original list price, on average. That’s down from 64 per cent in 2012, according to a report by Jetcraft, a plane broker that expects to close more than 80 deals this year. The value retention was as high as 91 per cent in 2008.
Prices for used aircraft right now are “insane,” said Justice. Some companies and wealthy individuals are buying preowned aircraft for the first time because the bargains are too good to pass up.
“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.”