With prices and market complexity rising, especially where young used aircraft are concerned, you need to be clear about your objectives and options.
The past year has seen some dramatic changes in the global market for private jets.
In June 2018, an important psychological barrier was breached when the share of the global fleet available for purchase fell below 10% for the first time since the global financial crisis, according to data by aviation research firm JetNet. In September it fell further to reach just 8.9%. And this trend was even more pronounced for the large-cabin long-haul types of aircraft that we specialize in financing at Deutsche Bank Wealth Management, falling to less than 2% of the active fleet available for purchase in August 2018.
At the same time, overall use of private jets rose significantly, with total flight hours increasing by 6.5% year on year in 2017–18.
With supply falling and demand rising, prices are naturally being driven higher. For manufacturers, this is a market that appears to be on the mend, with more people wanting to acquire an aircraft today than they have in the last decade. For buyers, by contrast, things are becoming more complex – not just in terms of the unusual market conditions but also the variety of new aircraft models and options becoming available.
From our point of view, there are three trends in particular that buyers need to be aware of:
Younger used aircraft are increasing in value. This has been caused, in part, by the high prices of new aircraft. When the private jet market was at its peak in 2008, manufacturers were producing record numbers of aircraft and selling them at increasingly higher prices. More recently, as a result of the fall-out from the global financial crisis, people started to look for good-quality, used aircraft that were only a few years old, but where prices were significantly reduced in comparison with new models. As more people did this and the availability of the best-quality aircraft (i.e. five years old or younger) fell to a decade low, prices were pushed back up. Young, used jets remain highly sought after, many don’t make it into the public marketplace before they are sold, and the private markets for such aircraft are highly competitive. So, without relevant industry experience and expertise, you may find it difficult to buy a used aircraft that meets your specific needs. In extremis, this could mean you are forced to order a new aircraft and join a waiting list of up to three years.
The U.S. has consolidated its position as the main market for private aircraft. The U.S. has always held a dominant portion of the global market share for private jets. However, in recent years, this has dramatically increased – from 50% in 2012 to 64% in 2017 – and the US market for private aircraft has become very competitive. With fewer desirable used jets available in their home nation, buyers are looking to other countries, even out to the emerging markets they haven’t previously considered, to purchase aircraft. There are two key drivers behind this trend. First, the recent strength of the U.S. dollar has enhanced their position as buyers. Second, at the end of 2017, U.S. President, Donald Trump, introduced new tax legislation. Part of this included a 100% bonus depreciation for business expenses such as aircraft. This means when someone in the U.S. purchases either a new or used private jet and it can be shown that the aircraft is going to be used for business purposes, 100% of the cost of the aircraft may be depreciated during the first year of ownership, subject to the specifications of the law.
Buyers are taking advantage of the low-interest-rate environment. Interest rates remain low compared with historical averages, and the preferred means of purchase for private aircraft have therefore shifted. Historically 80% of purchases were made with cash, based on our experience at Deutsche Bank Wealth Management. Now, it appears the market is more balanced, with up to 50% of purchases being made with finance. It boils down to opportunity cost: in the present economic environment, a client may be better off investing their cash rather than spending it on private aircraft, which are very much depreciating assets.
How Deutsche Bank Wealth Management can help private aircraft buyers to navigate today’s market challenges
The recovering private jet market is more competitive, which is making the purchase of an aircraft, let alone finding an aircraft that is suited to your needs at a good price, increasingly difficult.
Seeking the assistance of private jet financing experts could help you navigate this fast-paced market, and secure the purchase of an aircraft that meets your requirements. Focusing on the large aircraft sector, our private aircraft financing team is well positioned to support clients through this process. We offer flexibility by supporting older aircraft.
Our team has developed an extensive network of manufacturers, private jet buyers, sellers, and operators. And, as well as assisting you in the financing of an aircraft, we can work with you on refinancing and the delivery of your jet.
We have helped clients finance private jets since 2012, and in 2014 and 2015 we won the Corporate Jet Investor ‘Best Business Jet Financier Middle East’ award.
Chris Partridge is Head of Private Aviation at Deutsche Bank Wealth Management.