Pre-owned on the turn
Jay Mesinger, CEO and President of Mesinger Jet Sales, on developments in the pre-owned market
Q : How much does the presence or absence of plenty of pre-owned inventory influence the jet broker community’s ability to have a decent year?
A: What I always say is that balance is key. The market has gone from being a buyer’s market in 2009, probably all the way through to 2016ish, when it began to change. I have, however, been very careful not to call this a seller’s market yet.
You can watch the inventory to see how the position is changing. We have seen a big shift from the era where an aircraft would sit on the market for 100 to 300 days waiting for a buyer. That went down to 90 days, then to 60 days, then to 30 days. In 2017 and 2018 we had a firm offer on everything we sold during those two years within an average of 34 days.
Now, I could have rushed to coin that as a seller’s market. But I was careful. If you jump to label the market one way or the other, then you send people to the sidelines. If you coin a market too quickly as a seller’s market, buyers become worried that they are going to be induced to overpay. Buyers are afraid that any offer they make will get them involved in a horse race. So they say I will wait.
If you coin a market too quickly as a buyer’s market, then sellers will say, I’m not going to take that little amount of money for my aircraft, so I’ll sit over here and wait until it comes up a little bit. So I am always careful to call a market balanced until it is absolutely not a balanced market any more.
When you call it balanced, then a change does not have to be so dramatic. Right now, in 2019, we are probably going to have a little more inventory coming into the market, because of the new models that some of the OEMs are introducing. So that changes the numbers dynamic, but not dramatically, and not quickly. When the Gulfstream 650 came to market it dribbled out. The OEM doesn’t dump 200 G650s on the market in one day, so there is time to keep the balance correct.
Q: What is your sense of the OEMs’ production lines. How fast do you think they are minting them?
A: That is a secret that none of the manufacturers will tell you. They play that one very close to the chest. They will give you an idea as to how many months of backlog they have in their orders pipeline, but not how fast they are planning to clear that backlog. I would think that they would plan for around 100 to 120 units a year, so you can anticipate 10 units a month coming down the line, in all likelihood.
That is still a huge production challenge. When you watch car assembly lines on TV it is all robotics and things moving along the line really rapidly. In aircraft assembly there is just so much hand-crafting and specialised hand work to be done that things move at a fraction of the pace of a car assembly line. They could never produce faster, and the demand for faster production runs is just not there.
The industry is in a real chicken and egg position. We haven’t found out how to get beyond the limited number of units that are produced because there is no robotics and so much is done by hand. This keeps the price high and throttles back demand, yet no one can take the gamble and invest in robotic manufacture. And if they did it would have a hugely disruptive impact on pricing throughout the sector – and probably not in a good way, given the fact that the market is only in a position to buy just so many aircraft.
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