2021 is in the home stretch, so we asked Jay Mesinger, CEO of Mesinger Jet Sales, to join us for another discussion on the market. Topics covered include:
Jay Mesinger is the CEO and Founder of Mesinger Jet Sales, an international aircraft brokerage firm, with over 47 years of experience in the aviation industry. Mesinger Jet Sales has modernized the formula for buying and selling aircraft providing their clients with the best market intelligence for aircraft sales pricing and correct acquisition expectations leading to successful transactions.
Jay is an industry leader and figurehead. He was a Member of the Board of the National Business Aviation Association (NBAA), and the Chairman of the Associate Member Advisory Council (AMAC). He was the first aircraft broker to serve on the NBAA board and served on the AMAC committee for 10 years ending in October, 2013. Jay has also been on the Customer Advisory Boards of Jet Aviation, Airbus North America and Duncan Aviation. Jay is and has been a member of Gulfstream’s “Key Player” team and Bombardier’s “Influencer” group since their respective inceptions. Jay is also a member of the European Business Aviation Association (EBAA) and the Colorado Aviation Business Association (CABA). And, Jay serves on the Board of Directors of The Morris Animal Foundation.
In addition, Jay regularly speaks at industry gatherings, writes the monthly Mesinger Pulse newsletter, and started the very first aviation brokerage website over 25 years ago.
Mesinger Jet Sales has modernized the formula for buying and selling aircraft providing our clients with the best market intelligence for aircraft sales pricing and correct acquisition expectations leading to successful transactions. Transparency, a hands-on process, forward-thinking intelligence and analysis, technical support throughout the transaction and an unwavering commitment to protecting our clients’ best interests are just some of the things that set us apart and all part of what leads to our success for our clients.
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. 2021 is in the home stretch with business aviation’s, normally transaction heavy fourth quarter halfway completed. The question is how much will the current lack of inventory affect the final sales figures to see if we can answer that question and a few others, we asked Jay Mesinger, CEO of Mesinger Jet Sales to join us for his perspective on this unprecedented market. Thanks for taking the time to join us again, Jay.
Jay Mesinger (01:11):
Always Tony. You know, the first question is how much will the current lack of inventory affect final sales figures? To be honest with you, I don’t know whether or not the final sales figure have created the lack of inventory or the lack of inventory will affect the final sales figures. I went back and looked at some sales figures, retail transactions from January 2019 through November 2019 were 1679 retail transactions. In 2020, same period, January 1st, 2020 through November 2020. It went from 1679 in 2019 to 1808 in 2020. In 2021 from January 1st, 2021 through November 2021, we’ve had 2340 transactions. Now that clearly affects the inventory and that lack of inventory has put our entire market and its process, which is even more interesting, on its ear. There is no such thing as even two or three of any one kind of airplane for sale at a time.
Jay Mesinger (02:29):
It’s one at a time. And by the time they hit the market, the idea that there aren’t already three or five or 10 full price offers. And that sellers are saying, well, wait a minute, we’re not going to deal with the first person that came in, we’re going to put it out there for everybody. And we’ll wait a few days and just pick the highest one. And here, Mr. Buyer, Mrs. Buyer is an LOI that you can use or here is a contract that you can use. And here is the timing that you must uphold and it doesn’t look like it leaves you much room for a pre-buy, but if you want this airplane, that’s the term. Those are the conditions and that’s the price. We’ve never had anything like that. You know, I tell my clients, now we must be patient. We’ve used those words quite a bit over the last several quarters. Patience is great.
Jay Mesinger (03:22):
The other thing I tell them is be patient, but be ready. So let’s get our aviation attorney in place. Let’s get your entity in place. Let’s get your tax strategy in place. Let’s ask your aviation attorney to prepare an LOI, so we’ve got that in place. Let’s get a management company in place. Let’s get everything you need to get going in place just in case today or tomorrow is the day we find the piece of equipment. Tony, that’s not even fast enough today. That’s not even quick enough. When you think that you might have three, four, five full price offers in the first hour that the airplanes on the market.
Tony Kioussis (03:59):
It is truly an unusual market. The thing that you mentioned that I’m hearing from a few buyers now is that some sellers are restricting the amount of time they’re willing to allow for the pre-purchase inspection. How does a buyer deal with that risk effectively?
Jay Mesinger (04:18):
They deal with it at their own peril, no buyer that I would represent would I allow to do that. That is going to create some post sale distress. Had you had the time to do a pre-buy a reason to maybe have rejected the airplane, even in the course of what would be a hard deal, having determined, significant findings. If you can’t look to find significant findings and you don’t figure out that you’ve got them until after you own it. And you put it down for either an inspection later, just because it’s in the normal course of what needs to be done, or you have some reoccurring problems that start to happen. Or you look at the logbooks for the first, or even worse, you buy an airplane knowing you want to put it on a 135 certificate and you go to a management company or a 135 certificate holder post buying it and say, please put this on your certificate.
Jay Mesinger (05:15):
And you find that the 8130 tags you need are not available. You find that maybe the airplanes not fire blocked to the standard, it needs to be. You find that the flight data recorder installed on the airplane is not a 135 qualified, because a parameter flight data recorder, but that’s how much you care about potentially capturing bonus depreciation. You might even buy the wrong plane for the mission just to get in the game with bonus depreciation. Oh, only to find out after you bought it, that it won’t go to A to B, which is your main mission. Then what I’m so afraid is going to start to happen is people are going to call and say, will you please put my airplane on the market? And we’re going to find out that the airplane that they asked me to put on the market is worth 20, 30, 40% less than they just paid for it because of the frenzy. They got engaged in to not miss a target date, as opposed to not miss the right airplane.
Tony Kioussis (06:12):
Yeah, I think there’s also one other thing that the sellers aren’t really considering. If you do not allow someone the time for a pre-buy and they acquire the aircraft and God forbid this happens. But if the airplane has an accident and it can be proven that what occurred could have been found during, and would’ve been found during the pre-buy, I mean, I can see the seller being liable. If I’m a seller, I’m not sure I would want that risk. And yet some of the sellers are giving the buyers so little time for a pre-buy that in some cases you’d be lucky to find what you really need to look for.
Jay Mesinger (06:55):
Well, I would say that not be being an attorney, but knowing that there are fabulous aviation attorneys and usually involved on both sides of the transaction, I would assume that, unless you as a seller are misrepresenting and you have an awareness of something that you’re not disclosing, that the paperwork you signed starting with your contract, and then the delivery receipt would absolve you as a seller from that liability. Unless of course you as a seller are fraudulent and are misrepresenting something that you know to be true and you’re not disclosing it. So I don’t know about that, Tony. I’m just afraid that even if somebody doesn’t get hurt on the worst end, but they buy the wrong plane permission or they do find things that would’ve said, okay, I found major repair, or we found some corrosion now at our next inspection. That was clearly there when we bought it, but we didn’t have the right or the inclination to inspect for it.
Jay Mesinger (07:58):
And it’s corrective action creates non-standard reoccurring inspections or creates major repairs, things that would’ve allowed you to even get out of a hard deal because of those findings. And it’s too late at that point, because you have bought the airplane, you accepted it on the basis which you accepted. It’s as is where it is from that point forward. Again, I would say unless there’s something that’s intentionally withheld in terms of information that seller has knowledge of. I just think these are recipes for disaster. And I know that the pendulum swings in both directions and when the pendulum starts to swing back towards a little more balance of inventory demand and supply. The values and the prices of these planes will shed immediately I think the opportunity price that you paid just to get the airplane within a timeframe to capture bonus depreciation, which doesn’t go into the value of the airplane it’s lost.
Tony Kioussis (08:56):
Yeah. Yeah, really excellent points. Let’s talk a little bit about pricing. We’ve seen prices increase for certain assets, not a surprise given the limited supply. What have you seen and what do you expect over the next three to six months?
Jay Mesinger (09:13):
Well, let’s look at the source of the supply or the lack of it. You certainly can see the number of transactions have increased pretty dramatically and that eats up supply. We’re still not really importing as many airplanes as we usually do, and that affects supply just because of COVID still and its effect. Corporate transactions are still not back up, and a significant part of the transaction activity. And as I mentioned, I think in our last podcast, first time buyers coming to the market are a little bit like people going to a party and not bringing in the ORs or any beer wine and just eating the host food and drinking their liquor because they’re not bringing an airplane to trade. They’re just depleting. That’s a source of lack of supply.
Jay Mesinger (09:55):
And so I’m hopeful that as the corporate transactions come up again and they start to get in the air and start to fulfill their admissions and start to look at their fleet and go through the normal transaction of modernization or upgrading that they’ll bring a plane in for every plane they take out, that’s going to add some supply. And as soon as there is just a few aircraft in each category, I believe that that supply is going to change the trajectory of prices from going up so rapidly. But next three to six months, we might not see much change yet in supply. And yet I still think that we’re going to have a huge amount of demand. Now what telling my clients I’m hopeful will have subsided will be the frenzy of bidding wars that are created by five and 10 people looking for the same kind of plane and trying to get it in service by year end. That’s going to, I hope take the frenzy away. It’s not going to take the demand away.
Jay Mesinger (10:54):
You know, Tony, as I talk to my clients and you talk to your clients, we deal with high net worth individuals, both you and I. And I don’t think there’s ever been as much wealth created as there has been in the last couple of years. And one of the things people are doing with that wealth is defending themselves against traveling in high density environments, like the airlines and that’s, what’s driving them to either fractional charter or whole aircraft ownership. I don’t see that changing for a while. I just hope that the frenzy will help settle down some of the pricing.
Tony Kioussis (11:28):
Yeah, we recorded the highest ever figure when we ran our third quarter analytics relative to demand and we don’t see any abatement in that figure anytime soon. I really can’t point to any factors on how demand might change over the first half of 2022. And it sounds like neither can you.
Jay Mesinger (11:48):
No, and I’ll tell you, what’s so interesting about that is this is not just demand in the polar aircraft inventory. This is demand throughout our industry. This is demand on our charter fleets. This is demand on our jet card utilization. This is demand on our staffing, be it pilot and maintenance technicians. This is demand on space at inspect facilities. This is demand on supplies that are backed up on every level of need for our inventory, for our maintenance of our airplane. It’s almost as if it’s a perfect storm hitting at once. And our industry is just not geared for this kind of growth on all these levels at the same time.
Tony Kioussis (12:34):
This might sound like a crazy question, but let’s talk about headwinds for a second. Are there any that you fear we might face in 2022 or are there additional tailwinds for that matter?
Jay Mesinger (12:46):
Well, I think that we’re going to see consolidation. Consolidation I think among management companies, charter operators, those people that supply the fulfillment for the demand and that use of aircraft. Consolidation is probably the gentlest thing we’ll find. I think we could also find some companies not being able to weather this demand because of the cost. For instance, if you’re a jet card operator and you’ve sold jet cards far outnumbering the immediate fleet that you’ve got access to, and you’ve got to go and buy third party charter to fulfill the largest percentage of your jet card use. That’s going to put a financial strain on these companies that is going to be very difficult potentially to overcome.
Jay Mesinger (13:32):
I see charter rates going up, we’re watching an already, just by virtue of the pilot’s salary increases, fuel cost increases. It trickles down to the hourly cost of charter growing up. It’s interesting, I can’t tell you the number of my clients now who are experiencing a higher amount of charter opportunity for their plane than they ever have. So they’re not employing two pilots anymore, they’re employing three pilots. So it’s not that we have that many more airplanes at play, we’ve just got more crew on each airplane and that’s depleting our crew supply.
Tony Kioussis (14:07):
The more you get involved in the nuts and bolts of what’s happening out there, the more intriguing this marketplace gets. The days on market for older aircraft, this is another interesting example, has continued to increase during the third quarter, although a surprising number of older aircraft traded as well. Is this a case of people wanting an aircraft so badly that they will just buy almost whatever they can find? Or do you think the average age of in-service equipment is just destined to increase rather than the number of retirements?
Jay Mesinger (14:42):
Well, I’m not seeing the number of retirements that you would certainly predict in a fleet that’s got this much age in certain segments of it. Yesterday my son Adam was doing market research on several legacy kinds of planes, Global Expresses, Gulf Stream Fives, older Falcon 900s. Many of these airplanes that have been on the market four and 500 days are completely cleared out now and sold. So people are buying whatever they can get to get into the game. That’s what they’re doing with some of the wealth that’s been created, is they’re buying airplanes. That’s their aversion to being on a commercial airliner. I’m just watching planes that had not been selling, watching them sell now. Watching them sell at prices that you would’ve never considered they’d be getting, and even those segments are short or out of inventory.
Tony Kioussis (15:35):
I’d be interested in your thoughts on entities that acquire older aircraft and then invest a substantial amount of money to upgrade them. Is this a good strategy for acquiring the aircraft you wish to operate? And how do you see marketability of such assets a year or two down the road?
Jay Mesinger (15:55):
Oh, I see programs. There’s some Citation 10 programs out there where the company will lease your Citation 10 back from you, take all the operating responsibility and cost under their wing just to have lease fleets of 40 or 50 or 60 Citation 10s for instance. And they’re really encouraging any Citation 10 you can find to be bought and put into the program. So many of these programs have these Citation 10s that were old Net jet planes, 10, 12, 14, 15,000 hour airplanes. You know, I can’t imagine that the dispatch reliability of this segment of the fleet is going to really deliver what someone is expecting when they go to those companies to charter those planes. So what are the value of these planes going to be when they turn them out? I think that they need to consider they’re the last owner of that airplane.
Tony Kioussis (16:48):
You know, it’s funny, there is someone I know in the industry who keeps reminding everyone that every aircraft as a final owner. And I just wonder how many people don’t realize that they’re the final owner of the aircraft they’re presently flying.
Jay Mesinger (17:02):
There have been a few occasions where we’ve talked to people about airplanes of either that vintage or that utilization history. And we’ve told them, we think they’ll be the final owner and they average over their plane by the pound when they sell it. But there’s such a dispatch reliability disconnect in many of those planes at that age, that I think that the companies that are enticing these people to buy these planes and put them into their fleets so that they can be charter entities in the industry are going to be the ones who just can’t survive this. Because they’re not going to be dependable and reliable. And the bigger companies who need this third party charter are not going to depend on these companies.
Tony Kioussis (17:42):
I couldn’t agree with you more. I just think that some of these older assets, although they might look nice to the untrained eye, they are just going to be a dispatch, reliability nightmare. Any other topics we should cover about the industry or messenger jet sales in particular?
Jay Mesinger (18:01):
Well, thanks. It’s always fun to talk about me and our company. And we’re working hard to be sure that when this is over, when the pendulum settles back in that we have been a company that has guided our clientele properly through this process. Certainly we’re helping clients buy planes even today. And yes, they’re paying more for them than they would’ve paid just six months ago. But we were really trying to guide them in a way to not make bad decisions on the basis of due diligence. Not make bad decisions on the basis of mission fulfillment, and be careful about how much more you pay than you might have paid in the past. I do think that there’s a place where you’re okay and you’re safe. And then there’s a place, as I mentioned earlier, you’re really just paying for the opportunity to have an airplane.
Jay Mesinger (18:45):
That’s a benefit and a cost that doesn’t get to be passed on, it goes away that the day you pay it. In terms of the industry, I just want us to remain safe. There’s a lot of airplanes being fueled right now on ramps. There’s a lot of airplanes being pushed in and out of hangers. There’s a lot of airplanes taxiing past each other in close proximity. I want us to all to be paying attention, be vigilant and continue the high, fine safety work of our industry so that we can stay that industry, that at least from a safety side shines.
Tony Kioussis (19:19):
This has been another Asset Insight podcast covering the aircraft ownership lifecycle. 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.
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