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NARA Roundtable: New vs. Pre-Owned? Price Not Only Factor

While brokers who are members of NARA (National Aircraft Resale Association) total just 3 percent of the more than 1,000 aircraft brokers worldwide, they are responsible for approximately 60 percent of the dollar value of the entire pre-owned business jet marketplace. What do NARA members say about buying new aircraft vs. pre-owned?
 
To find out, we asked three NARA executives with decades of aircraft sales and support experience to sit down and talk about this question, which every aircraft buyer must ask before making a decision. Our roundtable panel consisted of Doc Dwyer, Vice President of Sales at Guardian Jet, Al Qualey of 1st Source Bank and Andrew Young, general manager for Amstat, a market research company.

NEW VS. PRE-OWNED? PRICE NOT ONLY FACTOR

When it comes to deciding between a new or pre-owned aircraft, cost drives most buyers toward one option or the other. A new aircraft may be out of the range of many buyers, while some Fortune 500 companies and wealthy individuals wouldn't consider buying anything but one fresh off the factory floor.
 
However, a number of other factors can influence buyers, too. Aircraft broker Doc Dwyer said a warranty, the desire for the latest technology and what he calls '"the new OEM experience" all tilt some buyers toward new aircraft.
 
"If you buy a new aircraft through the OEM it's just going to be a little bit higher class experience," Dwyer, vice president of sales at Guardian Jet, said. "They're going to take you to the factory and give you a VIP factory tour. They are going to have training slots for you when you buy the airplane as initial pilot training and mechanic training slots will come with the airplane.
 
In some cases, they'll send people to your facility for the first week or two to help you get the airplane up and running in your department. They really show the love because you've given them the business." As enticing as that sounds, financial considerations, a desire for flexibility and a changing marketplace persuade more buyers to opt for pre-owned aircraft – even some who could afford new.
 
Al Qualey of 1st Source Bank, a leading lender in the market, said a segment of entrepreneurs "are backing away from new aircraft because they see what the depreciation cost is going to be, based on the last five to seven years of experience."
 
Until 2008, the residual value of jets after 10 years was considered to be 35 to 40 percent. "Today, I don't know anybody that's using more than 35 percent,” Qualey said, adding that even that figure could be high for some aircraft.
 
Buying  pre-owned aircraft is more of a short-term decision than buying a new one, which typically locks buyers into a commitment of up to 10 years. "If you don't like it a year later, it's pretty easy to sell a pre-owned aircraft,” Qualey said.
 
Based on his 40 years experience in the business, Qualey knows that buyers of new aircraft keep them on average twice as long as do buyers of pre-owned aircraft. "We have a lot of customers that every two to three years are making a step up one or two sizes in their jet," he said. "And they're consistently staying with pre-owned in that process."
 
When it comes to obtaining financing, Qualey notes, the bar for buyers of new aircraft may be set too high for some because as a lender "we certainly don't want to have a heavily depreciated one-year-old airplane in our repossession fleet."

Andrew Young, General Manager for AMSTAT, a market research company covering the global business aircraft marketplace said that looking at the new and pre-owned markets as a whole, pre-owned aircraft sales tend to anticipate new sales in terms of both peaks and valleys. This is demonstrated in the chart below.



Dwyer has noticed another trend over the past couple years: buyers who might typically choose new aircraft are opting for pre-owned, "near new" airplanes – one to three years old – instead.
 
"And I might say it's shifting back to buying new airplanes again," he said. "The activity is enough that the near new market is pretty picked over and could hopefully for the OEMs lead to some better days."

Posted on: September 19, 2017

Written by: Brian Humes