Market Overview Early in the New Year

Tony Kioussis (00:33):

Welcome to another Asset Insight Podcast covering the aircraft ownership life cycle. I am Tony Kioussis, president of Asset Insight and your host. Founded in 2006, jetAVIVA has grown to become one of the largest sellers of pre-owned turban aircraft. The company is focused on providing clients with comprehensive services that allow them to choose the right aircraft and operate it with maximum efficiency and safety. Joining me today is jetAVIVA’s recently appointed CEO, Emily Deaton. Emily joined jetAVIVA in early 2019 as vice president of sales. She was appointed to the role of chief operating officer in March 2020 and helped jetAVIVA to two record breaking sales years in 2020 and 2021. Thanks for taking the time to participate in our podcast, Emily.

Emily Deaton (01:25):

Thank you, Tony, for having me. I’m very happy to be here.

Tony Kioussis (01:29):

We asked Emily to discuss her company’s views on the current market. So let me start off with where things stand following the conclusion of the industry’s traditional year-end frenzy. How are is demand shaping up for 2022 based on what you’re seeing early in this first quarter?

Emily Deaton (01:49):

At this point in the year is when we’re starting to get a clear picture of the demand. The early part of the year traditionally has some carryover deals, things that for one reason or another we couldn’t get closed before December 31st, but now as we sit in the second half of January and early February, we’re starting to see that the early indicators for demand remain positive. Our team is busier than in previous years at this time, and we don’t see that slowing down unless something significantly changes.

Tony Kioussis (02:24):

From the company’s experience, what percentage of the sales in 2021 were from first-time buyers? What type of private transportation mechanism were they using? Was it charter, was it fractional prior to their acquisition? And what were the primary drivers these entities cited as their reason for acquiring an aircraft?

Emily Deaton (02:47):

That’s a great question, Tony. And as we’ve discussed previously, it’s something that’s very top of mind in our industry. So I took the opportunity here to do a little bit of research within our organization and try to give you the clearest picture I could as to what we are seeing at jetAVIVA. And looking back at 2021 in terms of potential buyers, so just anyone that perhaps reached out to our organization and expressed an interest in purchasing something, about 10% of those were identified as first time buyers. So in a higher volume situation, about 10% of people looking to acquire were first time buyers. Interestingly though, when we drill that down and we look at the number of people that ultimately did successfully transact with us, out of all of the acquisitions we did last year, almost 30% of those were first time buyers. And I found that even knowing that we had experienced an increase, I thought this data point was very interesting, that seemed quite high to me.

Emily Deaton (03:43):

And that is consistent across different market segments. We did see new entrants coming into the entry and light jet segments, which jetAVIVA’s well known for. We also experienced first-time buyers coming into the market in mid-size and large cabin categories as well. Different drivers for different folks, which you would expect, but there were some similarities. A large, I would say, percentage of them were coming out of charter, and for different reasons, there was some just need-based demand saying, “I’m flying more, I want to have more access, I want to have more control, et cetera,” but interestingly, management companies were encouraging clients to purchase whole aircraft, because the management companies then could take those aircraft and put them back into the charter fleet as well. So this benefits the first-time buyer, but it also benefits the charter company, and that was something that I found very interesting driving the whole aircraft purchase. But other drivers such as personal health and safety, flexibility and things driven by the pandemic are still very much apparent so we are seeing people getting into whole aircraft ownership as a result of those factors as well.

Tony Kioussis (04:49):

What leads to successful transactions in the current market, whether you’re a buyer or a seller?

Emily Deaton (04:55):

In my opinion, some of the fundamentals, regardless of the market dynamic, remain true. Building the right team around the transaction is critically important in successful buying and selling. We have the opportunity at jetAVIVA to see our clients work with truly outstanding professionals in our industry. They support the clients from tax perspective, legal finance or lending, escrow services, and many, many others. And when then our clients approach the transaction with the right amount of support and the appropriate level of expertise, it always goes more smoothly.

Emily Deaton (05:31):

I think there’s a general perception that there is a cost to those elements, but I think you will find that by building the right support network and having the right expert players involved in the opportunity, it typically saves the client time and it typically saves the client money and it certainly enables them to ultimately achieve what they’re trying to do, which is buy or sell their airplanes successfully. Of course, in this market dynamic of low inventory and high demand, speed still does remain essential and also having a high degree of trust in the team that you’ve built around you, which would include your broker as well.

Tony Kioussis (06:06):

When it comes to the team aspect of it, a lot of first time buyers underestimate how important having a strong team around you is to concluding a successful transaction. It really never ceases to amaze me how new buyers sometimes try to use a lawyer that focuses on real estate to help them buy an aircraft, which never is a good conclusion.

Emily Deaton (06:28):

I think there’s a general perception that purchasing an airplane is in many ways like purchasing something else, insert other expensive items, purchasing a home, purchasing a yacht, et cetera. But frankly, the dynamics within the aviation industry are very different. There’s infinitely more variables there and having the appropriate level of expertise, it certainly benefits the transaction. We see it all the time.

Tony Kioussis (06:53):

Keeping the current market conditions in mind, what do you feel are the primary reasons for a prospective buyer or seller to seek the services of an experienced aircraft broker? We started to talk about that, or I should say you started to talk about that earlier, and I’m curious to pursue that.

Emily Deaton (07:11):

Well, as you can appreciate in your business, Tony, aircraft values in a market like this can be very challenging to pin down. So what that creates is the necessary level of specific focus to enable the buyer and seller to meet the goal that they’re trying to achieve. Many sellers right now are expecting to receive top dollar for their aircraft. So what is top dollar? Well, that can very much depend. It can depend on the seller’s expectations and also what the market can bear. So having a brokerage firm and a specific representative that has the right knowledge of the aircraft and the right knowledge of the buyers and the other side of the equation to accurately pin down and execute the right sales strategy to meet the seller’s expectations I believe is critically important. So on the seller’s side, where right now we’re in a seller’s market, there’s a general perception that it’s easy to sell your airplane.

Emily Deaton (08:02):

You can quickly find buyers, but you can also just as easily leave money on the table if you don’t play it right. So from a seller’s perspective, I think it’s still critically important to consider working with an experienced broker. On the buyer side, it’s a little more transparent as to the value that we can provide. Frankly speaking, it’s becoming nearly impossible to source inventory without using a broker. The data around transactions that are occurring versus the percentage of aircraft on the market for sale is very compelling. I think it’s clearly presenting a picture that the majority of airplanes are being bought and sold without ever hitting the market. The days of going online and pulling up Controller and looking at all of your options and then reaching out and saying, “Hey, I’m interested in purchasing your airplane,” frankly, they’re long gone. So enabling the search functionality of sourcing aircraft is critically important, and your experienced aircraft brokers have the network and the wherewithal to do that. And then of course, as we mentioned before, once you’ve identified the right fit, successfully executing the transaction side of the equation.

Tony Kioussis (09:09):

We all know that aircraft listings are at a historic low. What should buyers do to be prepared to execute an acquisition should they locate the right aircraft?

Emily Deaton (09:19):

The easiest answer here is to be prepared to move quickly. And it sounds obvious, and yet I find that we are saying it all the time. In order to be able to move quickly, there has to be a high degree of trust with the client and the broker. I emphasize this because in moving quickly it can create feelings of uncertainty and pressure. It’s not something that most buyers in a purchase decision like this are accustomed to, but because the options are limited, they don’t have, quite frankly, what I would consider the luxury of evaluating their options, considering what offer they want to make, expecting there to be a counteroffer. We’re dealing with multiple offer situations, they’re all happening the minute someone realizes that the potential aircraft is available.

Emily Deaton (10:09):

If the aircraft is presented to the buyer that meets their criteria, we encourage them to have a high degree of confidence in the guidance that’s being given to you by the broker and be prepared to move quickly. If you can accomplish that step, if we can get the airplane tied up and under contract, then it becomes a more traditional process and methodology, in which case you can successfully navigate the transaction through to close. And there’s many, many variables there, but the most essential element is controlling the asset. In order to do that, it does require some confidence and quick decision making.

Tony Kioussis (10:40):

I assume that in the current market you also find a number of different buyers vying for the same asset concurrently, aren’t you?

Emily Deaton (10:50):

Yes, absolutely. I heard stories at points last year where there were north of 20 offers on an airplane in the first 24 hours.

Tony Kioussis (10:59):

Holy smokes.

Emily Deaton (11:00):

Yes, I mean, wild numbers, these things will make you cringe, but what’s interesting is that presenting an offer is a strategy in and of itself. And this is something that our team does really well. We’ve figured out that there’s lots of variables inside an offer, and it’s not just about the price, understanding those variables and working with your client to recognize what is most important to them, and then drafting the offer accordingly to make it as compelling as possible to the seller to enable them to win essentially in this competitive offer scenario is huge, and it is something that we run into and spend quite a bit of time strategizing around.

Tony Kioussis (11:39):

Let’s talk in general about aircraft values. As we closed out 2021, we saw a demand at an all-time high and, as we’ve already discussed, overall inventory is at an all-time low. Based on that, what do you see happening to values this year?

Emily Deaton (11:56):

So I have to chuckle because you’re the master of aircraft values and you’re asking me my opinion on this question, but I will play along here. It’s interesting to me, logically speaking, we would expect to see a slight leveling off early in the year. We come out of the fourth quarter when demand certainly peaks, people have tax pressures that are driving end-of-year purchasing, and you would expect to see some of an easing as you move into the first quarter of the year. However, as you’ll hear me say to my team on a regular basis, in this market, the value of the airplane is whatever someone is willing to pay for it. At the end of the day, in this market dynamic, to some degree that is essentially true.

Emily Deaton (12:39):

Now, there’s variation within every single make and model, and then of course if you drill further down into that specifics within those makes and models based on age and program, et cetera. All of that inherently still remains accurate, but because, as you well mentioned, demand is at an all-time high and inventory is at an all-time low, you can essentially ask for whatever you want. Doesn’t mean you’re going to get it, but you can certainly try. And in many cases we’ve been so very surprised by what people are willing to pay for an aircraft. And I certainly don’t envy the lenders and the appraisers in this scenario, but from a pure buying and selling standpoint, values are a good at the moving target.

Tony Kioussis (13:17):

Do you see any hurdles as you look at this year, or do you feel business will continue to be strong throughout 2022, and why?

Emily Deaton (13:28):

If the last two years taught us anything, it’s that we should all retire our crystal balls. I joined jetAVIVA in 2019 and every year, every market dynamic since I joined has been completely different than the one previously. Do I expect there to be hurdles? Always. But overall, am I optimistic? Yes, I am. We can’t see the future. Something like COVID could present itself at any given moment, but at the same time, what we are experiencing in our industry right now is a positive. And so I think as individual firms and individual contributors into this industry, we will continue to capitalize on that for as long as we can.

Tony Kioussis (14:08):

I’ve got to tell you, as an industry, we have the most misguided crystal balls I’ve ever seen in my life. It seems like none of us can ever get it right. Thanks for a great discussion. I really appreciate it, Emily. What haven’t we covered that you would like people to know about the market and about jetAVIVA’s capabilities and services within the business aviation community?

Emily Deaton (14:29):

One thing I would leave you with is this, jetAVIVA is about to publish our January edition of what we call the state of the market’s report. This report looks at 27 different makes and models, everything from single-engine turboprops through super-midsize category aircraft. And it provides insights at a very specific level as to what we are seeing in those markets regarding the volume of transactions, the percentage of airplane on the market for sale, what we are seeing in regards to pricing and values and more. We spoke at a very high-level today about the market, but this can be a great resource that we provide for people that are considering making a change. It is available for free and you can get it on our way website. Before anyone assumes that I’m an expert in 27 airplane makes and models, I’m not, but I have a remarkable team of people that are, and I encourage you to check out what they have to say about the market as well.

Tony Kioussis (15:23):

This has been another Asset Insight Podcast covering the aircraft ownership life cycle. Please visit our ever-growing podcast library at assetinsightpodcast.com and select from any number of topics discussed with business aviation industry experts. This is Tony Kioussis, and as always, thank you for listening.