Personalized Business Aircraft Acquisition and Sale Services

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.

Par Avion describes itself as an international aircraft marketing firm that specializes in the exclusive representation and acquisition of pre-owned business jets. The company was established in 1997 by Janine Iannarelli, an industry veteran, who saw a need to provide more personalized service within the business aircraft acquisition and sale arena. Today, I’m pleased to have Janine with us on this podcast. Welcome Janine.

Let’s start off with the issue of determining the optimal America craft model or models, for the client’s mission. How do you help a client make this decision or this selection?

Janine Iannrelli (01:20):

Good question. Because often, what their wishlist consists of differs from what might be the ideal aircraft to meet the mission profile. And let me refine that further by saying the majority of the mission that they need to accomplish. Because oftentimes we sit down with a prospective client who’s thinking about greater horizons. They want to fly to Europe. They’re going to take all their friends down to the Caribbean. And then on a regular basis, let’s say they fly out of Houston, Texas to Chicago, or New York, or Atlanta. And that turns out to perhaps be 75% of the trips that they’re going vague. And the ones that I think described initially are once a year, once every two years. So we first start off by counseling them how they don’t need to buy the airplane necessarily to meet those specific missions. But the one that should meet the vast majority of the missions that they need to undertake.

Janine Iannrelli (02:14):

If they’re insistent, of course I’m not going to push back on insistence and desire. But we obviously want to keep people in the aviation industry. So I think starting off right is buying the right fit, and then let them grow into their needs.

Janine Iannrelli (02:29):

All this being said, we have a series of questions we generally go through with the clients that starts with perhaps how many people do you normally carry? How far do you normally go? Or what is the length of time you usually are airborne? Where do you see your business going? Or if it’s personal, are you making any significant changes in your life? I.e. the addition of a second or third home that is going to require a longer stage length than what you’re presently doing.

Janine Iannrelli (02:58):

And of course, there are some different questions you ask people who are first time buyers and are making that transition from whatever they were utilizing prior. Airlines or a charter, or a fractional share.

Janine Iannrelli (03:10):

Their answers to these questions guide both of us in the direction of let’s say the size of the aircraft and the mission capability. And we continue to refine that by going through, are they age sensitive? Are they price sensitive? Are there particular features that they are in need of? Are we weeding out aircraft because of expense to keep them operational? A question that’s sort of arisen to ask clients is age sensitivity married to the budget? And will they consider buying maybe a perfectly suitable aircraft that’s slightly older or higher time knowing they may be the last owner of that aircraft?

Janine Iannrelli (03:53):

That’s the case that usually translates into tremendous upfront savings in the capital investment, managed costs throughout the remaining lifespan, but a retirement at a certain point in time.

Tony Kioussis (04:05):

All good points. And that brings up a broader issue, which is utilizing a consultant. Whether to acquire or sell an aircraft. What advantages are there to doing so? What is the overarching role a broker can play as the deal progresses?

Janine Iannrelli (04:20):

Well, I like to define the broker today as the project manager. I mean, certainly we fulfill the traditional role of an aircraft broker/consultant in that we have the ability … we collectively, I speak for the brokerage trade, to gather the information that is needed in order to ascertain what is the optimum value within a particular make and model airplane. I mean, there is just a multitude of data that is presented. collating that data and making sense of it is a monumental job. That is perhaps first and foremost, where the broker plays a significant role and offers a tremendous advantage to anyone who is a prospective buyer or seller.

Janine Iannrelli (05:02):

Time. Time is equally important commodity as everything else. This is my job. This is what I do day in, day out. Most prospective buyers and sellers, this is something that they might be able to do in their relatively little spare time or delegating it to someone within let’s say a flight operation or within the company. There’s only so much information that they’re going to be able to gather.

Janine Iannrelli (05:27):

And in absence of having depth of data, i.e. historical information. So you have comps and trends. It would be nearly impossible to get down to how you formulate your offer and your best deal.

Janine Iannrelli (05:42):

So the broker right upfront, presents you with a tremendous advantage over someone who is not represented. Because they’ve gathered this information. So through actual, empirical data, years of experience, hands-on application, they offer the best guidance possible in traveling down that path to an aircraft transaction.

Janine Iannrelli (06:06):

And then as I said, they segue into becoming the project manager. This role becomes more pronounced once you’ve already identified the aircraft. You’ve made your offer, your offer has been accepted. And now you’re perhaps in the negotiation stages of contract, or you’ve moved into the stage of the pre-purchase evaluation. The broker becomes the central clearing house for all the information that’s going to be generated throughout the rest of the sales process.

Tony Kioussis (06:33):

When you’re acting in the role of an acquisition consultant, what factors do you consider to address the issue of new versus used aircraft?

Janine Iannrelli (06:42):

I think there are two that are at the fore, and certainly we come right back to price sensitivity, budget, and age. Let’s just speak to my sweet spot, which is the entrepreneur or the privately held company. And in some cases, the publicly held company that’s led by a figure head. Let’s say a family grown business. They are the lead. And usually the decision maker on anything that has to do with an aircraft acquisition.

Janine Iannrelli (07:09):

So if their personal preference is brand new, because they like the idea of being able to build the aircraft to their specifications to wait out the process, to enjoy the process as it goes. I’m not one to argue with that. They may more actively look at the pre-owned marketplace when they realize availability of something new has a long lead time. Maybe even longer now, given the delays that we’ve had in production as a result of the recent crisis with COVID-19.

Janine Iannrelli (07:38):

So if they are age sensitive, most prospective buyers that we’re considering new, we’ll also look at nearly new. Five years or newer, still a little bit of warranty left. Usually a very low time aircraft. Usually state of the art equipped, very well spec’d, good cosmetics. So it checks all those boxes that they otherwise might have. It’s just, they will not be the first person to sit in that airplane.

Janine Iannrelli (08:05):

And another compelling reason to take a look at something nearly new is the depreciation factor. In essence, to make it a good comparison to a broad cross section of your audience. It’s like buying a brand new car and driving off the lot. It immediately is going to take a hit in its market valuation. And some very wise businessman that I know they don’t like that feeling of taking that huge depreciation in that first year. It’s perhaps more psychological now that we have all these other tax benefits that offset that depreciation. But nonetheless, it’s a reality.

Janine Iannrelli (08:40):

And some of the clients want to look at residual values. What is that airplane worth? What does that model, how has it performed over a 10 year life cycle in the resale marketplace?

Janine Iannrelli (08:52):

So the new for me as a private individual, it’s driven by desire, more than anything else. I would venture to guess with publicly traded corporation, part of the interest is the tax benefits and the warranty. The warranty helps mitigate a lot of surprises through those first few years of ownership.

Tony Kioussis (09:13):

I know that Par Avion uses a team approach to complete aircraft transactions, adding specific expertise or advisors in order to address legal and tax implications, those kinds of things. Along of course, with technical oversight. Would you discuss your team approach and its benefits?

Janine Iannrelli (09:32):

I think this is an evolution of the aircraft sales industry. Frankly, if I were to work with someone on the other side of the aisle that hasn’t already assembled a team of professionals, I would start to scratch my head because these transactions have gotten much more complex than they ever used to be. And I’m old enough to remember the days of handshake deals and one page documents that found everyone, and everybody’s good word. And all of that is still in place. But to some degree out of necessity, and just because of maturation process within the industry, it does require a little bit more investment if you will.

Janine Iannrelli (10:08):

And I’ve long been an advocate of the team approach. It is recommendations that I make to the client. And the team approach involves let’s say players on their team, not necessarily third party contract workers. But run through a few of the areas of expertise.

Janine Iannrelli (10:28):

First and foremost, you have the aircraft broker who is charged with responsibility to source an airplane, or in the case of selling it to manage the marketing program, implement it, and arrive at finding a qualified buyer for their aircraft. And outside of the broker’s role, I like to bring in technical expertise. Particularly again, if we’re on the buy side and the need is to go look at an airplane first prior to making that offer. Or if we’ve made the offer and it’s subject to an initial review. If the buyer does not have someone on staff, i.e. maintenance expertise, or in some cases, a extremely knowledgeable flight crew member who is comfortable delving into the maintenance aspects of the airplane. Then the recommendation is to hire someone, an engineer, who has that particular expertise in that make and model of airplane. And who’s current in their knowledge. Because you want to charge them with the responsibility going to evaluate mostly based on records, but as well as a cursory physical review of the airplane. And on their recommendation, you would proceed to the next step.

Janine Iannrelli (11:41):

Legal advice, I think it goes without saying. Aircraft sales contracts have become very complex. And quite frankly, legal should be involved from the onset. You can draft a letter of intent, but I think you should make sure that the attorney with the aviation expertise is comfortable with what’s been drafted. Because whatever is in that LOI is going to migrate into a greater, more expanded document, the purchase and sale agreement.

Janine Iannrelli (12:08):

Tax advice. Most certainly, if you don’t have that in-house, then it’s certainly advisable to consult with someone on the subjects of sales and use tax. If you’re setting up an interesting structure, let’s say a holding company for the airplane, or you’re going to incorporate it somewhere else. If you’re a foreign national living in or out of the U.S. but want an aircraft that’s an N numbered airplane, you’re going to need that sort of expertise.

Janine Iannrelli (12:33):

And then of course, there’s the escrow agent. I can’t think of an aircraft transaction that I’ve ever been involved with that did not employ the services of an escrow agent. And even that has to be a careful choice and has to be mutually agreed upon. So it takes a team. And everyone has an assigned role. And the clearing house, once again is the aircraft broker.

Tony Kioussis (12:54):

Comes to escrow agents. Can you tell me why they’re all located in Oklahoma City?

Janine Iannrelli (12:59):

That’s historical in nature. And that is because the FAA records building was in Oklahoma City. And back in the day, everything was done with paper, right? And they were time date stamped. So an escrow agent might have a desk on the first floor of the FAA records building. They would go from their offices, literally with the bill’s sale, with any other documents that needed to be filed. And stand in line with the clerk to get it clocked in. And if you had a desk on the floor, the desk would sit there and wait for the, I don’t remember if it was hourly or how often the documents would come back around and get handed out. And then it was either a mad dash back to the office. More than just a phone call, but mad dash to share the news. So you could complete a closing. But it’s historical in nature. And it was simply to be in close proximity to the FAA records building.

Tony Kioussis (13:51):

Wonder how many people know that. And thanks for that explanation. Please discuss with us your thoughts on the use of a professional management company. Is this something everyone should be considering?

Janine Iannrelli (14:03):

Like many things in life, one size does not necessarily fit all. But a management company certainly serves a great purpose in our industry. And particularly for the private individual who doesn’t want to establish a separate department or manage people for that matter. And managing the aircraft onto itself is a huge endeavor. It’s its own little mini corporation. A management company facilitates that, where it gets down to just client interface and meeting the needs. And the needs generally are, “I have a trip coming up, just have it ready for me to make use of the airplane.” So management company makes it for one stop shopping for the individual or corporation that just doesn’t want to have a department that involves all other employees. Human resources, personal relationships, accountability. Now, all you have to do is make a phone call to your customer service rep at the management company.

Janine Iannrelli (15:02):

And you will enjoy presumably economies of scale through the management company. Because the larger the size of the fleet, presumably the greater leverage they have. Whether it comes to discounts related to insurance or fuel, or subscription services.

Tony Kioussis (15:17):

The advantage of scale is one of the areas that makes the most amount of sense to me anyway, about a professional management company. And of course, the fact that you don’t have to manage your employees or an additional number of employees. What about chartering your aircraft? Is it financially worthwhile or even prudent? And what owners are likely to benefit the most from placing their aircraft on charter?

Janine Iannrelli (15:41):

There seems to be still to this day a little bit of a myth that perpetuates that if you charter the airplane, you’ll be able to cover the costs of ownership. And I just don’t see how that’s possible. Even if you were able to operate your aircraft on the scale that let’s say a fractional, like NetJets does where you’re flying 700+ hours a year. There’s the capital investment, first of all. And then there are all the variable costs that come with aircraft ownership.

Janine Iannrelli (16:10):

So what chartering will do is potentially help offset a percentage of those variable costs. And is that justified for chartering? I think there’s a happy balance that can be achieved. I have a number of clients that I think it’s maybe more for their own peace of mind that their airplane is working when they’re not using it. And they limit the amount of hours annually, or even monthly that it can be utilized.

Janine Iannrelli (16:37):

I have one client that buys with their charter management company. That the only trips that they’ll accept, is if they are at least certain stage length or duration. I think it goes well beyond the minimum two hours, it’s probably more like a four to five hour minimum total trip. They want to manage the hours accrued on their aircraft because they’re very conscious about rising time. Detracts a bit from overall value. And they want to be judicious in the use of the airplane. And they want to have it available for themselves. So if it’s out on frequent short trips, that doesn’t really help them much. And this is the profile of just one client.

Janine Iannrelli (17:16):

Charter serves a purpose. I would not look at it personally as a revenue generator in the sense that you’re going to have positive cashflow out of your operation. You’re just going to have some offset to your variable costs of operation.

Tony Kioussis (17:33):

Yeah. I think the wear and tear that charter places on the aircraft is something that a lot of operators, especially novices to the industry often forget. And its longterm eventual impact on the value of the aircraft when they try to resell it.

Janine Iannrelli (17:50):

Well, that’s exactly correct. I mean, you want to be very careful about the utilization and how it’s utilized. For me, longer stage lengths are better. They’re more profitable trips to begin with that keeps the cycles down on the aircraft. It’s healthy for an aircraft to go fly. If you talk about an individual owner for example, that only flies 100 hours a year. Sure. You’ll have a nice load time airplane, but airplanes don’t like to sit. It actually would be beneficial to see that aircraft do twice that amount of time in the course of a year.

Tony Kioussis (18:20):

Let’s move on and discuss the issue of pricing. How do you go about deriving and justifying an offer price in an acquisition or an ask price in the case of a sale listing?

Janine Iannrelli (18:31):

My firm is very data driven. I’ve always been very data driven. I focus on gathering as much primary information as possible. Though we make extensive use of all the secondary information sources that are out there for the trade.

Janine Iannrelli (18:47):

And the purpose of that is to gather information on available aircraft. And let’s say we’re focused on the Falcon 7X marketplace. It’s not just what’s advertised that is the story of the market. It’s all those other opportunities that have not yet made their way to the public domain. Those airplanes, not necessarily in remote corners of the world. And even literally sometimes in my own backyard, that the owner has yet to articulate. We get lucky sometimes in the course of doing our cold calling. Finding the right person who says, “As a matter of fact, we’re getting ready to present the aircraft. We’re interested in selling it.” I could go into a whole host of opportunities that that presents, but the important part is we’re gathering information on an available aircraft is otherwise not public knowledge. We’re getting some pricing information. And usually, we let the seller first give us the number. And some guidance may be required, which certainly I’m happy to offer.

Janine Iannrelli (19:52):

But when we see a pattern developing and we take this data, and plot it first in a Word document, because we can be much more descriptive about each and every airplane. And then I move it to a graph format so I can see the trend based on price relative to age. And we can start to see clusters for pricing. And then I revert back to the more detailed data about each and every airplane, because price and age alone does not tell the story of value for a particular airplane. We start to take in all the other items that contribute to that. Total time, equipment, programs, cosmetic condition, the significant maintenance event. When was that last done? That factors into this is what the value of the airplane is.

Janine Iannrelli (20:45):

Now I know some people will simply make use of the two research services that are out there, JetNet and AMSTAT, and rely upon what they have for pricing. Some will go to Bluebook. I’d like to say we use a little bit of everything, but most of it comes from personal contact with the seller of an airplane. Their idea as to what the asking price should be. And there all the odd ball numbers that you toss out, but the pattern starts to evolve. We do our calculation based on a weighted average for the attributes of the airplane to arrive at what their market value should be. And then the offer, the offer may be something different than what the numbers are pointing to. And now you’re asking yes, I sit on the buying side of the aisle. Well, now I’m going to look at who’s selling the airplane. That factors into our decision making as to what that final offer price will be.

Tony Kioussis (21:41):

Okay. So you’ve developed the offer price, making the offer and placing a deposit on the aircraft. What are the steps the buyer or the seller needs to take as they start down the path toward an aircraft acquisition?

Janine Iannrelli (21:54):

So presumably, we’ve narrowed the field down to a select few of aircraft. Depending on the market environment, I mean an extremely competitive environment where you potentially could lose the airplane. I would say we put aside that step of going to look at it first. We make the offer. We find out if we can come to terms, and then we’ll look at the aircraft and go from there.

Janine Iannrelli (22:16):

Outside of that, I encourage a review of the airplane initially. Let’s make sure we know what we have to work with. Because if we come to find that it’s missing something significant, that’s going to impact the price that we should be offering for the airplane.

Janine Iannrelli (22:32):

That would be my first recommendation is to go see the airplane. And if the opportunity presents itself, spend some time with the records as well. Outside of that, you can take it at face value. Your offer is predicated on as I described before, the trend within the market. How do you position the airplane? And the best way to make an offer is in a written format. I don’t like verbals. They sound like that proverbial would you take. There is one correct way to convey your interest in an airplane, and that is in a well constructed letter of intent that clearly states the price that you are willing to pay and the terms and conditions under which you are willing to execute this plan.

Tony Kioussis (23:15):

Once your offer has been accepted, or you’ve accepted an offer on an aircraft you’re selling, there’s the pre-purchase inspection. What level of due diligence should be completed as part of the inspection? And do you approach it differently if you’re representing the buyer or the seller?

Janine Iannrelli (23:34):

Following the offer, the next step is to post the deposit. And that generally happens immediately if there’s not already money on account. The deposit is a good faith deposit. It obviously says that we plan to go to the next level. We’re acting in good faith.

Janine Iannrelli (23:50):

You must first draft a purchase and sale agreement. I think perhaps adding a little bit more content here before getting to that pre-purchase. But that letter of intent is going to be folded into a very definitive agreement between the buyer and seller, that clearly defines the roles and expectations of both sides of the transaction. Including what can and cannot be covered in the course of the upcoming due diligence inspection.

Janine Iannrelli (24:18):

I have seen contracts go to great detail where they will actually attach the work scope. And deviation from the work scope is going to require a pretty significant reason in doing so.

Janine Iannrelli (24:31):

So let’s fast forward and say that all that has been agreed to, the documents are executed. Now you take the aircraft to the designated maintenance facility. The level of due diligence I think is commiserate with the age and let’s say condition of the aircraft that you have targeted. If I’m on the buy side, most of the time, I think people gravitate towards an aircraft that is midlife on those heavy inspections. Ideally, you want to try to buy it well enough out of the next heavy inspection. So you are not finding yourself immediately facing a huge expense, potentially huge expense, and downtime associated with it. In a way, it allows the new owner to get their feet wet with a new airplane, learn the nuances of it, deal with the gremlins that may come up. Budget and anticipate the next set of heavy maintenance.

Janine Iannrelli (25:27):

Then there are the opportunists who think having heavy maintenance is an advantage. And I have to say that sometimes it really is. And that becomes a negotiable tool. Do you ask the seller to deliver the aircraft with the heavy maintenance done, or do you compromise and say, “We’re going to use the heavy maintenance as the foundation of our due diligence inspection. Reserve the right to expand upon it, because it may not include things that would be on a standard pre-buy inspection as dictated by the OEM.” And you pay that flat rate cost. And I stress that, because it gives the buyer one thing. A little bit of say in the matter as the transaction progresses. And you shift the responsibility for the fault rectification to the seller of the airplane.

Janine Iannrelli (26:15):

The shared partnership approach to a due diligence inspection when you’re talking about heavy maintenance, I think is a very fair and reasonable means by which buyer and seller come together. And it’s a common shared goal. It should not be adversarial positions with each other. You’re working both to achieve a fair and reasonable transaction.

Janine Iannrelli (26:35):

I like to say that the people I represent have nothing to hide. So as long as it’s not extraordinary requests, making people jump over real hurdles, then there is a reach across the aisle approach to accomplishing this work, because it’s in everyone’s best interest to do so.

Janine Iannrelli (26:55):

So to come back to the premise of your original question, what level of due diligence is really dependent upon the age of the aircraft. And to some degree, the make and model. Because experienced industry practitioners, people who practice the art of buying and selling aircraft are aware that select models of airplanes have potential problems let’s say with corrosion, or corrosion in a particular area. Or stress in a particular area. Or wear and tear that is now viewed as uncommon.

Janine Iannrelli (27:32):

If it’s not specifically spelled out in a standard PPI or pre-purchase inspection report or guide, then it’s incumbent upon someone who’s involved with the transaction to ask those questions to the maintenance facility. Are they identifying any areas of concern that should be looked at and added on to this list?

Tony Kioussis (27:55):

What recommendations do you have for a client relative to optimizing the value of the asset they want to sell and its marketability?

Janine Iannrelli (28:05):

If an aircraft comes to us. And I’m trying to think back over the last year, because I’ve had a wide variety of airplanes from the absolute pristine looks like brand new, where you probably don’t need to do anything. To ones that could have used a few years back perhaps some cosmetic work. Well, I have to take the temperature of the client as to where they’re at. Do they want to make any further investment in an asset that they just want to dispose of? Or are they willing to make a reasonable investment to update it let’s say up until December 31st of last year, the conversation revolved around ADS-B Out and [inaudible 00:28:45]. And for me, it was in 99% of the cases a no brainer that if they weren’t ADS-B Out compliant, they were going to be at a distinct disadvantage. And not just because of the obvious of what would happen come January 1.

Janine Iannrelli (29:00):

So if I was able to influence the modification of the airplane to incorporate that, I would do so because it presented a distinctive advantage to the seller of the airplane. It takes the question off the table, allows the buyer to place the aircraft immediately into service.

Janine Iannrelli (29:17):

Cosmetics are a little bit more of a touchier subject. Because once again, you’re asking someone wants to dispose of an asset. And in some cases, they just don’t even want to see it anymore, to invest the time and money to do so.

Janine Iannrelli (29:31):

More often than not, what we end up doing is just taking it into account with the pricing of the airplane, and discounted enough that makes it reasonable for the next party to come along and put their signature colors, signature completion in the interior on the airplane.

Janine Iannrelli (29:47):

Maintenance is another big question. And that is another frequent discussion that I have. Certainly anything that is due at the time it’s introduced to market or coming due in the near term, we encourage that it be accomplished. One, you have to in order to maintain the airworthiness of the aircraft. Two, I advise clients that in advance of going into pre-buy, that they have their own staff if they have maintenance on staff, look the airplane over with that eagle eye and address do list items that they might’ve deferred otherwise to the next inspection. Consider getting them off the table.

Janine Iannrelli (30:26):

It’s beneficial in a way, because it saves you money if you address it upfront, as opposed to deferring to whatever maintenance facility has been selected presumably by your buyer to undertake this work.

Janine Iannrelli (30:37):

Coming back to cosmetics, one thing I do make a recommendation regardless is to have it professionally cleaned and detailed. I think that it’s extremely important regardless of the age of the aircraft, to always present it in its best light. And you’d be surprised that people, while they keep it clean and neat, what a difference and real deep cleaning by a professional cleaning crew can make. Brighten the leather, clean the headliner, the upper sidewalls, carpet. It raises it to a whole new level, and I’m a big believer in first impressions.

Tony Kioussis (31:12):

Like anything else, isn’t it you get professionals in there to polish the airplane up and make it look beautiful. It’s going to be more marketable.

Janine Iannrelli (31:20):

Exactly. Well, you make a good point about polishing. I was thinking the bright work on the exterior of the aircraft, oftentimes that gets overlooked. And even just water spots that get left on it. You have someone who knows what they’re doing with a buffer and comes in and polishes leading edges on there are plants that have that. And all the other bright work. And the aircraft just glistens in sunlight.

Tony Kioussis (31:43):

Let’s talk briefly about where the industry stands at the moment. It’s the middle of 2020. Any thoughts on pricing trends as we approach the second half of the year?

Janine Iannrelli (31:54):

Oh yeah. I mean, it’s been an interesting year to date. Hasn’t it? I think whatever crystal ball anyone had in December, maybe even January, they should take that ball-peen hammer to the crystal ball and start all over again.

Janine Iannrelli (32:08):

2020 is an election year. Election years historically have been slow for aircraft sales. It’s not unusual to see correction in pricing. And in fact, I have to say that we saw a slow down across the board, regardless of the make and model of aircraft in the fourth quarter. It became more pronounced as the year was ending. Certainly there were lots of transactions, but prices were sliding. And some markets were stagnating. January is traditionally quiet month, but we had a bit of an interruption that was totally unexpected by the spread of COVID-19 and ultimate closing of the world markets and stay at home orders. It has disrupted the process substantially for many reasons. It has changed. I think the complexion of our year in an interesting way. I mean everything has been put on pause. And certainly year over year numbers are not looking great. Month over month numbers though, seem to be improving.

Janine Iannrelli (33:07):

It’s not going to allow our business to produce the results in a typical election year, as might’ve been forecasted at the end of 2019. I understand that new deliveries now are forecasted at somewhere just under 500. And I have to believe that has more to do with supply chain disruption than it does cancellation of orders. And just the sheer difficulty in conducting a transaction.

Janine Iannrelli (33:35):

So let me clarify that by saying it’s difficulty in the sense that aircraft transactions require great oversight, due diligence, and lead time. Just because you say you want to go to pre-buy, doesn’t mean you can go next week. You still have to schedule it in. That’s something that existed pre-COVID environment.

Janine Iannrelli (33:58):

So we’ve had our year shortened a little bit. And there is this great demand. I’m experiencing it. I think all the other brokers I know are experiencing it. We need to see that demand manifest itself into real offers. And then you start to build the timeline.

Janine Iannrelli (34:15):

For me, average transactions from start to finish, let’s just talk on the buy side. If you’re mandated to go search for an airplane. On that mandate to the time you get it out of pre-buy could easily be eight to 10 weeks, if not longer. And that depends on the make and model of airplane once again. There’s so many factors that come into play.

Janine Iannrelli (34:36):

So in a nutshell, I think the industry sits in a really interesting position mid year. And for the next few months to come, where we get to tell the world how beneficial it is to travel by business or private aircraft.

Janine Iannrelli (34:52):

I think we also have to be a bit careful about the messaging. Because I worry a little bit that it comes off as a bit of elitism when the truth matter is particularly for corporations. I think it’s going to be a matter of the ability to continue business in a somewhat normal fashion. And that is driven by the fact that airlines have diminished service, the difficulty with traveling by airlines, the amount of reduced routes and destination airports. That alone should speak volumes to anyone considering utilization of a private aircraft for business or personal travel, with what? Close to 5,000 airports across the country. One of them is going to be close to where you need to go.

Janine Iannrelli (35:35):

So pricing, how does that all factor in? It’s interesting, because we certainly see downward trend in select markets that we’re stagnating. No surprise there, not even the amount by which the pricing is correcting itself. There was some doom and gloom being expressed that prices were going to fall 35 to 40% as a result of the slowdown in the market. And yet, what I’m seeing is maybe so far at most, a 10% correction. Very subjective. I have one airplane for sale. But that market is as firm today as it was at the end of last year, because the aircraft is in tight supply. And I have another aircraft where we’ve seen the number of units available for sale climb by 30%. So that’s going to drive the price down for sure. But I don’t see a significant slashing to prices in this year.

Janine Iannrelli (36:28):

I think what people need to remember is that this is not the economic crisis of 2008 repeating itself. I mean, there’s liquidity in the market to start with. There are banks who are able to loan money. There are companies that have viable businesses.

Janine Iannrelli (36:44):

Second to that is we have a diminished supply of aircraft today as compared to 10, 12 years ago. Since 2008, really maybe since 2010. Because by 2010, 2011, those white tails that the OEMs were left with had been sold off. And all the manufacturers had curtailed production. And that has continued for 10 years. You can just look at the gamma numbers to see what’s produced in those last 10 years, and prove that fact up.

Janine Iannrelli (37:14):

On top of that, you have a fleet that’s been aging. So 10 years ago, you have a Global 5000 that enters the marketplace, but it’s 10 years old today. And there aren’t a whole lot of nearly new that pop into that market, or 6000s for that matter to replace the demand that exists there, or I should say satisfy the demand that’s out there.

Janine Iannrelli (37:38):

So that has to be taken into consideration that if there was this sudden rush to the market by a host of new buyers, I question as to whether there would be enough qualified aircraft. There’s plenty of airplanes for sale. But if you get selective. I.e. age, total time, equipment, you’re going to find it relatively few.

Janine Iannrelli (38:00):

I think one of the things that the audience should consider is that aircraft operate around the world. And consequently for the domestic U.S. buyer, don’t limit your focus to just an aircraft based in the United States. There are plenty of great aircraft that are being offered for sale around the world. Of course, it is a bit more challenging today. So it takes someone who has the ability to manage a cross border transaction, but also some ingenuity on how you could facilitate a sale.

Janine Iannrelli (38:33):

So I think when look at the market, you need to really look at the market and look at everything across the spectrum that’s offered for sale before selecting an airplane.

Tony Kioussis (38:44):

Thanks, Janine. This has been quite informative. Appreciate your comments. What would you like people to know about Par Avion’s capabilities and services?

Janine Iannrelli (38:50):

I built Par Avion as a small company to stay a small company. And one of the reasons is because I think this is a very personal service. I mean, I personally cannot try to be all things to all people. I often refer to us as a boutique aircraft marketing firm. And as such, we are in a position to be more client oriented, more client focused. To manage the portfolio of aircraft with which we are entrusted to sell, yet manage also on the acquisition side, the requests to source an aircraft.

Janine Iannrelli (39:28):

I never wanted to be a multi-listing service. I never wanted to grow so large that in economic downturns such as this, we had to rethink resizing the business. I like continuity. And I think continuity conveys confidence to our clients. We were there before the crisis. We’re going to be there after the crisis.

Tony Kioussis (39:52):

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.