Turbine Edition: New vs. Used

Conventional wisdom: There’s a direct correlation between U.S. corporate profits and business jet sales.

Not anymore. Despite a persistently sluggish domestic economy, business jet sales and deliveries have never been higher. And the global economic forces and surging wealth driving international jet sales in the Middle East, Russia, China, India, and Europe are likely to continue.

Fuel prices and business aircraft sales are inversely related: When one goes up, the other goes down.

Not anymore. Despite record high fuel prices, sales are up. Corporations used to ditch their jets at the first hint of economic trouble, but as airline travel has become increasingly unpleasant, expensive, and time consuming, businesses regard corporate aircraft as essential equipment.

New aircraft buyers pay a premium for airplanes that come right from the factory.

Not anymore. Used aircraft available immediately are sometimes selling for more than the sticker price on brand-new aircraft with delivery times many months or years in the future.

The topsy-turvy market for turbine aircraft is most pronounced at the ultra high end in the rarified world of inter-continental jets that cost $30 million or more.

“The market for big iron is very tight with huge backlogs and delivery dates extending years out in the future,” said Bill de Decker, president and co-founder of Conklin & de Decker, an aircraft appraisal firm. “A used Gulfstream 450, Falcon 900, a big Challenger, or Global Express can sell for more on the used market than new—and people are selling their delivery positions for serious profits.”

A decade ago, U.S. corporations bought 80 percent of the business jets manufactured here. But this year more than half of the world’s new corporate jets will go overseas, according to National Business Aviation Association statistics. While the lion’s share are bought by companies, wealthy individuals are purchasing incredibly opulent airframes, including an Airbus A380 reportedly going to a Saudi magnate and a Boeing 767 for a Russian oligarch.

Slowdowns in the U.S. economy used to lead to an immediate glut of used corporate planes on the market—but de Decker credits the Transportation Security Administration (TSA) for convincing executives to hold onto company airplanes.

“The corporate jet used to be the first thing that went on the chopping block when times were lean,” he said. “The TSA has done the used aircraft market an immense favor. I make sure the CEOs that I work with have to get out there and ride the airlines a few times a year so they remember what it’s like.”

Among mid-range jets, it’s still a sellers’ market, de Decker said, but their advantage isn’t totally lopsided.

“Small Citations and Lears aren’t cheap,” he said. “But they are available.” Twin-engine turboprop sales have been revived somewhat by updated instrument panels, more powerful engines that allow them to fly higher and with greater fuel efficiency than pure jets—and King Air C-90 GTis with Collins Pro Line 21 cockpits are sold out for the next 18 months.

Single-engine turboprops such as Pilatus PC-12s and TBM 850s have also proved popular among pilot/owners and small corporations. But shorter production times mean that delivery dates for new aircraft don’t extend so far into the future. Socata, for example, has sold out TBM 850 deliveries through 2009. That’s a record for the French firm, but wait times aren’t too long to dissuade buyers who have their hearts set on new aircraft.

“If I had 10 TBM 850s on the ramp right now, I could sell them,” said a TBM salesman who asked not to be identified. “Tax laws like the extension of bonus depreciation have really helped. And the safety of single-engine turboprops isn’t in question anymore. We see people coming out of Barons and King Airs because they want the speed and fuel efficiency that we offer.”

Very Light Jets with two engines such as the Eclipse 500, Embraer’s Phenom, and Cessna’s Mustang sold briskly since Eclipse pioneered the category in the late 1990s. But the high-profile retrenchment of some of the air taxi firms that placed hundreds of orders for the planes has created questions about future demand. And industry analysts say recent Eclipse 500 price hikes also could cool demand.

But de Decker said VLJ buyers aren’t too sensitive to prices as long as the planes provide new capabilities, quality, and reliability.

“People buy jets for the same reason they drive BMWs,” he said. “Because they’re the best, most exciting products in their category—and they can afford them.”

Competition among single-engine jet makers including Cirrus, Diamond, and Piper is getting stiffer with Eclipse’s entry into that category with its V-tail Eclipse 400.

De Decker said thousands of piston twins such as Barons, Navajos, and Cessna 421s are likely to be replaced in the next few years with single- or twin-engine VLJs. And he said a Cessna Mustang performs essentially the same mission that a 421 used to.

“A Cessna Mustang is everything a 421 was in its heyday,” he said. “It’s fast, it’s got a nice cabin, and it can get in and out of short strips.”

Fuel prices influence the lower end of the turbine market more than the high end. With jet fuel bumping $7 a gallon, it can cost $20,000 to fill up a large Gulfstream, Falcon, or Challenger. Operators are taking steps to cut fuel usage by slowing down, refraining from using auxiliary power units (APUs) on the ground for long periods, and tankering fuel to avoid buying in particularly expensive places. But fuel price increases haven’t slashed turbine aircraft use nearly as much as the piston fleet, industry officials said.

The companies marketing turbine aircraft have endless spreadsheets and PowerPoint presentations that compare costs on a broad variety of aircraft and transportation modes. But de Decker said buying decisions are seldom purely economic.

“It’s not the money—it’s the value,” he said. “NetJets is a very expensive form of transportation. But people love the experience, and it provides a good value. The same is true for VLJs and other turbine aircraft. They offer value that owners can’t find anywhere else.”