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Monday, September 29, 2008

Good Time to Buy Aircraft

The slowdown in the aircraft market that started earlier this year is sure to worsen given recent turmoil in the financial markets, predicts David Wyndham of Conklin and de Decker, who added that, despite the fiscal chaos, it is a good time to buy aircraft for those who make aircraft acquisition decisions based on long-term need.
“One thing is certain, things aren't as bad as they seem,” he said. “But it may get worse before it gets better. Speculators are facing a bloodbath and they are probably getting what they deserve.”
Windham studied the AMSTAT aircraft-for-sale database of turbine business airplanes, and found 11 percent of the entire active turbine fixed wing fleet for sale. “As a rule, this indicates an overall balanced market between buyers and sellers,” he observed, adding the rate has held steady throughout the summer although individual models have fluctuated. “We've seen an increase in the number of larger business jets for sale.”
For current production models, only six percent of the active fleet is for sale, he said, indicating a good market for late model turbine airplanes. However, he sees a weak market for older aircraft but observed this is nothing new.
“What we are likely to see over the next six to 12 months is an increase in the number of newer aircraft for sale, and a larger increase in older models for sale,” he said. “The manufacturers will see a decrease in their backlog, but those with strong order books will survive just fine. The aircraft market is definitely shifting to a buyer's market.”
He also predicted opportunities to acquire new models this year, noting they might qualify for bonus depreciation if they are coming direct from the manufacturer. Prices will drop on some high-demand models, he said, advising buyers to negotiate carefully. He also advised buyers to evaluate the price of the aircraft in excellent condition with refurbishing and updating an older model selling for a great price. Of course, given the tight capital market, he said that buyers should not plan on low financing rates but assured them credit was still available. He suggested leasing if buyers plan to lease for five-plus years and if they do not need the tax write off.
Windham noted that sellers have a tough choice. “There will always be a good market for quality used aircraft,” he said. “If you have to sell, then be prepared to wait a bit to get a good price. If your aircraft is in excellent condition and is a desirable model, then find yourself a good broker who knows your aircraft's market. Be advised that dealers with a sizable inventory are not likely to be interested in your aircraft. Now is not the time to run away unless your 401(K) was heavy into financial stocks. It will be a cold winter, so bring extra blankets and keep active. One last tip: take a 72-hour news fast and disconnect. Watch the sun rise or set and enjoy the company of a good friend or a good book. The sky is not falling.”
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