We did, it's absence does create an issue in some cases, but it doesn't really effect inventory.

The logic with 100% bonus deprecation is that as long as you buy the replacement aircraft in the same year you sell the original aircraft, the tax benefit offsets recapture.

Interesting trend I have noticed since Chip started this thread. I am seeing inventory levels on controller creep up now...and planes staying longer before being sold. Inventory of Beechcraft is now at 75 which I have not seen in a while.
This aligns with some other asset classes too. Interesting data on guns. People re buying less and prices are going down. Availability of new-used guns have increased and prices have come down according to a few gun dealers in Phoenix. Ammo prices are still up due to supply constraints though.
Housing refinancing is down 40% due to interest rates and more rate hikes are to come this year
Overall asset classes are seeing a slowdown.

Bloomberg had this interesting article yesterday about something they call "whackflation". I am a supply chain professor so this resonated with me.

Here is what it says -
“Almost everywhere you look, prices are spiking. But amid all the talk of inflation , there are some signs that we might be reaching the point at which price increases begin to weigh on demand.

On the Odd Lots blog, we’ve previously dubbed this state of affairs “ whackflation,” the notion that prices can have big busts as well as booms. The global economy was given a big “whack” by the pandemic, and as it struggles to right itself, it produces major swings in production and price.

It’s the monetary equivalent of the “bullwhip effect,” where small changes in supply and demand at one end of the supply chain can lead to big swings at the other end. A classic example is when goods suddenly become scarce (because, say, everyone decides they need more toilet paper). That leads companies to order more of the goods. But eventually, the cycle turns, and it becomes clear that companies have over-ordered. People have enough toilet paper to last them for a long time.

The bullwhip effect obscures the real level of demand, and makes it difficult for the economy to stabilize. In the meantime, there are often big run-ups in prices followed by sharp drops.”

Thoughts on this trend?

I'm glad you brought it up, I've been updating our clients on the market but haven't posted an update here.

The inventory levels are going up, we are seeing movement for the first time in months, I would no longer refer to most aircraft markets as constipated. We are seeing aircraft hit Controller at a significantly higher rate than at any time in the past six months.

Having said that, it is primarily because the sellers are hoping to get an exorbitant price, this is also why many of those airplanes are staying on the market. It's interesting to watch things from our perspective because we are talking to lots of aircraft owners prior to them listing their aircraft with a broker. We of course are trying to buy at a reasonable price, if they're not willing to sell at our number, they put it on Controller and see if they can get a premium. In many cases it's the fact that we contact them that plants the seed and triggers the aircraft being sold.

We had that very thing happen last year on back to back 2019 Pilatus PC-12NG's, we were fortunate enough to get one bought, albeit at $250k more than the number that originally had the seller saying "sure! I'd sell it for that!"

On the other one, even nicer and lower time, we made a full price verbal offer to the owner, he indicated he would take it and then talked to a broker, he ended up listing it and selling it for $250k more than we offered, with a backup $100k over that.

In hindsight we should have met his number, those prices have increased by another $500k

Now, several PC-12's, both Legacy and NG's are on the market at very high prices, so are many other airplanes, especially the really hot markets, what happens next is hard to predict, but I expect that once these airplanes get stale, buyers will sense the opportunity and that the pendulum has shifted back to their side. It's important to remember that buyers always lead the market, a little softness emboldens most buyers to lower their offers, buyers typically lower what they are willing to pay a lot faster than sellers lower their expectations.

I think over the next few months we are going to see inventory levels continue to rise, followed by sales at lower prices.

From a friend in boats

As a professor I collect data to see supply chain trends and all of them at this moment are pointing to what you are saying - across all asset classes.

Not only is this observation anecdotal, it is based on some of the thinnest research I could muster.

Yesterday and last evening, North MS experienced its last cool weather of the season. With temps around 50 as the sun went down, Karen asked if we could have a fire and enjoy mocha lattes before supper. Sitting there reviewing a very interesting week, (we are being run over by investors trying to purchase our properties), we got around to airplanes. Well, I'm as happy as a clam with my four , but, well, you know how it is: you have to dream a little.

I was musing about how, once more before I hang up my wings, I would like to own a brand new airplane. A new 58 Baron? A new Seneca V? A new Vision Jet?

So while we were musing, I started looking for the price of a new Seneca V and could find none published. I did see some two and three year old models at absurd asking prices. Like more than a 58 Baron would bring.

Now, I like Senecas and all, but who would be stupid enough to pay more for a Seneca than a 58 Baron?

Don't think for a minute that we are going to actually spend our money on a new airplane. It's just "musing". But, the point is, I wonder if we are seeing, in the aircraft markets, a version of the old adage "a candle burns brightest just before it goes out".

I told you it was seriously anecdotal and seriously from shallow "research", but it is more than just nothing.

Jg

JGG,

It took a while for you to agree that the market was boiling, but now I think you are spot on. The current price trajectory is unsustainable, at some point people will give up on their airplane ownership dreams or simply stay with what they have.

Prices can’t just keep going up and up.

I don’t follow the Baron or Seneca markets but I suspect what you’re seeing is no Barons for sale and someone trying to win the lottery by selling a Baron buyer their Seneca.

My buddy Todd said it best “I think the exuberance for this market is fading!”

I think the market for new 100LL twins is basically done; too many good used aircraft that even when upgraded to the latest and greatest everything are cheaper than brand new.

unless there is something new that fills a need like the Diamond DA62 there will be few if any new ones built.

By april 2019 120 were already built. there is an unmet need for a jet A fuel aircraft with its capabilities.

think diesel Apache

to make a buck with volumes of less than 10 per year is a huge cost even if all the designs and certifications are already available like the Senneca and Baron.

Hey Bill,

People have overstated the demise of the piston twin before. On this very forum, in fact, and a few short years later the market for them launched into low earth orbit.

But to Chip's point, there is also considerable emotional "lag" that occurs in pricing any assets.

As he pointed out, as well as others, folks are starting to see some instability at the top. What this means is that the people hoarding assets, looking to cash out, not for practical reasons, but in a speculative way, MAY be losing their nerve. The people using the airplanes aren't going to be selling.

Where does this lead? Not just for twins, airplanes, boats, and, most likely, homes as well, is probably a siren call by brokers (no offense! you're doing your jobs!) to sell now while the gettin' is good. This will probably spook those looking to cash out at the top, and you'll suddenly see a flood of inventory as soon as the price starts to waver even a little bit. This will take several weeks, and probably months.

While that may be good for buyers, I've seen this show before. In 2006/07, just before the financial collapse. The aircraft market was similarly nuts, same as it is now. Garden variety 182s were well into the 200's. Bonanzas, 210s, Saratogas were all into the 3s, and remember, no glass or super high end panels as you might find today. The avionics load outs between your high end and low end birds was much narrower.

While the run up in prices, which had started in the 90s and had culminated in about 2007, the drop was unbelievably sudden. That same 182RG that had sold for $295k in 2007, was about $145k in 2009.

The people who didn't have a whole lot invested, from a percentage of assets standpoint, seemed to bail out pretty rapidly. By that I mean, I guy/gal who has 20 mil in assets, and treated his/her airplane with a blank check, seemed to not be phased by cashing out at a fraction of what they put into the airplane. "Well, if they were so flush, why did they have to sell?" Good question. "Reasons" I guess. Anyway, this flooded the market with inventory of highly upgraded airplanes. If you were a cash buyer, you could score some outrageous deals at that time. I know one cat who bagged a T182RG, ridiculously upgraded, including radar and TKS, for not much more than $150k.

People who did have a lot of their net worth tied up in the airplane, however, missed out. These were folks who had bought in during the mid-2000s. The flood of highly upgraded plans forced the values of their airplanes even lower. A lot of people refused to participate, for the most part, at the new value level of the market. They simply pushed the airplanes to the back of the hangar, padlocked the door, and were very, very bitter. When I was looking for my first airplane, I encountered several of these folks, and they were quite grumpy.

I hope, and I mean this sincerely, that some of those airplanes were sold in this up market. An up market, which stinks for those looking to buy or upgrade, is a godsend for airplanes in those hangars. They can get sold, refurbished, and put back to flying, which is where they need to be. The last two years, I've seen all kinds of random airplanes put back into the sky....Commander 112s/114s, Cessnas from the 50s/60s, piston twins of all kinds, and scads of Musketeers. That means they're back to flying and in circulation.

It's a different situation this time around. There seems to be more cash money involved, and I'm not quite sure the people who sunk "open checkbook" money into their airplanes are as exposed to the markets as they were in 2008. There is a astounding level of cash floating around, and there doesn't seem to be a lot of people depending on financing. In Palm Beach County, waterfront lots that were going for 1-2 million in 2020 are now listed at 10 times the amount (yes, $10 million for a 0.25-0.50 acre spot of grass), and there's no sign of it backing off.

TL;DR, Some on the margins might cash out, but I don't see the market getting flooded if prices creep down.

Best,
Rich

Thanks for saying I was "finally right".
My grandmother used to say "even a fool will say something right every now and then."


Jg

I haven't kept up with the entire thread, but *IF* prices are softening, what does the transition back to "normal" probably look like? Will sellers efficiently reduce prices, or will they allow listing times to lengthen while they figure out what's happening?

That’s really the question, will prices drop or just stabilize. The fact that we have very real inflation and devaluation of the dollar probably means prices won’t return to 2020 levels.

My bet is a 10% drop off of peak (20% for hard to move airplanes) and a stabilization at that point. Remember unlike 2008 these are less valuable dollars ….and the insane printing continues.

my point is not that the existing inventory will not be sold but that the existing aircraft when refurbished will fill the need. there will be very little market for brand new twins and singles as the need for 500 to 1000 per year of a model is not there and only if you can build 500 per year can you compete.
the only twin that is selling is the DA62 as it fills a niche existing aircraft cannot.





Hey Bill,

People have overstated the demise of the piston twin before. On this very forum, in fact, and a few short years later the market for them launched into low earth orbit.

But to Chip's point, there is also considerable emotional "lag" that occurs in pricing any assets.

As he pointed out, as well as others, folks are starting to see some instability at the top. What this means is that the people hoarding assets, looking to cash out, not for practical reasons, but in a speculative way, MAY be losing their nerve. The people using the airplanes aren't going to be selling.

Where does this lead? Not just for twins, airplanes, boats, and, most likely, homes as well, is probably a siren call by brokers (no offense! you're doing your jobs!) to sell now while the gettin' is good. This will probably spook those looking to cash out at the top, and you'll suddenly see a flood of inventory as soon as the price starts to waver even a little bit. This will take several weeks, and probably months.

While that may be good for buyers, I've seen this show before. In 2006/07, just before the financial collapse. The aircraft market was similarly nuts, same as it is now. Garden variety 182s were well into the 200's. Bonanzas, 210s, Saratogas were all into the 3s, and remember, no glass or super high end panels as you might find today. The avionics load outs between your high end and low end birds was much narrower.

While the run up in prices, which had started in the 90s and had culminated in about 2007, the drop was unbelievably sudden. That same 182RG that had sold for $295k in 2007, was about $145k in 2009.

The people who didn't have a whole lot invested, from a percentage of assets standpoint, seemed to bail out pretty rapidly. By that I mean, I guy/gal who has 20 mil in assets, and treated his/her airplane with a blank check, seemed to not be phased by cashing out at a fraction of what they put into the airplane. "Well, if they were so flush, why did they have to sell?" Good question. "Reasons" I guess. Anyway, this flooded the market with inventory of highly upgraded airplanes. If you were a cash buyer, you could score some outrageous deals at that time. I know one cat who bagged a T182RG, ridiculously upgraded, including radar and TKS, for not much more than $150k.

People who did have a lot of their net worth tied up in the airplane, however, missed out. These were folks who had bought in during the mid-2000s. The flood of highly upgraded plans forced the values of their airplanes even lower. A lot of people refused to participate, for the most part, at the new value level of the market. They simply pushed the airplanes to the back of the hangar, padlocked the door, and were very, very bitter. When I was looking for my first airplane, I encountered several of these folks, and they were quite grumpy.

I hope, and I mean this sincerely, that some of those airplanes were sold in this up market. An up market, which stinks for those looking to buy or upgrade, is a godsend for airplanes in those hangars. They can get sold, refurbished, and put back to flying, which is where they need to be. The last two years, I've seen all kinds of random airplanes put back into the sky....Commander 112s/114s, Cessnas from the 50s/60s, piston twins of all kinds, and scads of Musketeers. That means they're back to flying and in circulation.

It's a different situation this time around. There seems to be more cash money involved, and I'm not quite sure the people who sunk "open checkbook" money into their airplanes are as exposed to the markets as they were in 2008. There is a astounding level of cash floating around, and there doesn't seem to be a lot of people depending on financing. In Palm Beach County, waterfront lots that were going for 1-2 million in 2020 are now listed at 10 times the amount (yes, $10 million for a 0.25-0.50 acre spot of grass), and there's no sign of it backing off.

TL;DR, Some on the margins might cash out, but I don't see the market getting flooded if prices creep down.

Best,
Rich

I believe Piper is still selling Senecas and the Seminoles.

Best,
Rich