Economic recovery and airplane prices

[Morne]

Weird stuff rattling around in my brain:

Suppose that five years from now we are in the midst of a very strong economic recovery and all is right with the world. No, I am not interested in discussing the politics angle of this, just the airplane pricing end of it. Nor am I saying GA will automatically recover to its prior glory, but figure that the folks who want to fly will be able to afford it much better than today. No, AvGas will not ever again be $2/gallon, but if the pilot community's discretionary income is higher then we can afford to burn more of the $4-6 stuff.

What happens to used aircraft prices? Any difference single vs twin?

Presumably the prices go up, since there is more demand on roughly the same supply. However, there are also new planes around and homebuilts are a reasonably priced alternative. So do the old 60s and 70s vintage birds lag behind the pack?

What about maintenance rates? Will it be roughly the same price to overhaul an engine then as now? Will factory reman costs go up? Will the paint and interior shops be charging more?

Perhaps some of you can see what I am driving at, PLANE BANKING. After all, if you can buy a relatively inexpensive plane with runout engine in tody's buyers market and then give it a fresh MOH and sell it 5 years later for a profit you could be doing well. OBVIOUSLY you'd need somewhere safe to store the plane, but the deserts aren't full up just yet.

Alternately, this could be the ideal time to buy that "dream plane" and put it on ice (or slowly have things fixed/upgraded on it) for several years until you're ready for it.

Sure, there are ownership costs even with a non-airworthy/non-insured bird sitting at a desert tiedown. But depending upon the strength of the maket's recovery it could be very much worth it.

I'd be interested to see an inflation-corrected graph of aircraft prices over the past several decades to see how much volatility there really is associated with economic swings.

Thoughts?

ETA - Graphs here http://www.aircraftbluebookmarketline.com/

 

[Jim Logajan]

Airplanes depreciate in value. People have to spend money on them to continue to use them, and it is that constant expenditure that makes it appear as if they don't depreciate. At least that is the way I see it. I would not treat any purchase as an investment of any sort, regardless of future market conditions.

 

[dell30rb]

No, AvGas will not ever again be $2/gallon, but if the pilot community's discretionary income is higher then we can afford to burn more of the $4-6 stuff.
Thoughts?

ETA - Graphs here http://www.aircraftbluebookmarketline.com/

I don't think that the economy will ever recover to its former glory if the cost of energy remains high. High oil prices are a significant drag in every sector of the economy.

 

[wabower]

Some grist for the mill.

No, AvGas will not ever again be $2/gallon, but if the pilot community's discretionary income is higher then we can afford to burn more of the $4-6 stuff.

The pilot population continues to shrink from attrition, with those most able to absorb high fuel prices comprising a disproportionate percentage of the shrinkage. Whether or not they/we can afford it, the proof to date is that pilots won't afford it and aircraft usage and resale prices will continue to stagnate if prices remain at current levels. The real question is how high they will go.

A friend was GM of the local Landmark FBO for the past six years. He shared the PPG/Sales charts over the years, all of which showed that $5 was the activity break point in the DFW area. During the 12 month period after the first big price run-up following the 2008 crash, 100LL sales decreased by >40%.

What happens to used aircraft prices? Any difference single vs twin?

While the aircraft industry continues to look for reasons it will get better, the investment banks who track it will only say that it doesn't appear to be getting any worse. A couple of years ago 2012 was predicted to be a turn-around year, but now they say the ongoing recession has erased that possibility. Prices have stabilized, except for twins, which are dead meat and will never recover due to the combined pressures of operating costs, maintenance costs, training costs and prohibitive insurance costs and pilot requirements. On a brighter note, the production of new planes appears to be less than the number that are wrecked each year, so at some future point the inventory might shrink to match whatever remaining demand exists at the time.

Presumably the prices go up, since there is more demand on roughly the same supply.

More demand ain't happening. The pilot population is proected to decrease by 50% by 2025.

However, there are also new planes around and homebuilts are a reasonably priced alternative.

Homebuilts appear to be biggest source of growth within GA, but the most-popular models are sporty two-seaters.

So do the old 60s and 70s vintage birds lag behind the pack?

Transportation-value airplanes will continue to sell at far-reduced prices, spam-cans will continue to flounder. $10,000 Cherokees are a distinct possibility.

What about maintenance rates?

Shop rates won't change, nor will parts and subcontract prices decline. Shops must pay current market prices to attract mechanics, and their payroll costs and benefits continue to increase. Their overhead doesn't change simply because the economy is in the ditch. Mechanic training mubers were in steep decline, and the airlines are continuing to hire from the GA ranks. The number of shops has decreased significantly since 2001, and the decline will probably continue.

Will it be roughly the same price to overhaul an engine then as now?

No, it will cost more. See above.

Will factory reman costs go up?

Yes. See above.

Will the paint and interior shops be charging more?

Over the short-term, maybe not. Their rates are unchanged and in some cases slightly lower than 5 years ago. Over the long term, who knows.

Perhaps some of you can see what I am driving at, PLANE BANKING.

A fool's errand.

After all, if you can buy a relatively inexpensive plane with runout engine in tody's buyers market and then give it a fresh MOH and sell it 5 years later for a profit you could be doing well. OBVIOUSLY you'd need somewhere safe to store the plane, but the deserts aren't full up just yet.

Resellers of any hard-goods item will tell you that carry cost of inventory is ~15%. NFW

Alternately, this could be the ideal time to buy that "dream plane" and put it on ice (or slowly have things fixed/upgraded on it) for several years until you're ready for it.

NFW. See above

Sure, there are ownership costs even with a non-airworthy/non-insured bird sitting at a desert tiedown. But depending upon the strength of the maket's recovery it could be very much worth it

.

That deal wouldn't have worked during the two biggest run-ups in GA history, from 1994-1999 and 2003-2007. Even those growth rates wouldn't support a buy-and-hold spec deal.

I'd be interested to see an inflation-corrected graph of aircraft prices over the past several decades to see how much volatility there really is associated with economic swings.

Track the NASDAQ during those periods, and offset the trends by 90-180 days for price swings. You'll be pretty close.

Thoughts?

ETA - Graphs here http://www.aircraftbluebookmarketline.com/[/QUOTE]

 

[ClimbnSink]

Young people don't care about cars, you think they are going to care about airplanes at any price? Old school GA is DNR.

 

[DavidWhite]

Old school GA is DNR.

Not if young people like me have anything to say about it.

 

[ClimbnSink]

Not if young people like me have anything to say about it.

All signs point to there not being enough people like you. Not picking on you, I think there has been a fundamental value shift, all the people I know making good money aren't spending it on toys. They can afford them but have decided that the value isn't there. Same as all the inactive pilots. Perhaps values will shift back to high consumption but that'll be 30 years down the road. The GA fleet will be destroyed by neglect.

 

[Everskyward]

I don't think an airplane is ever a good "investment" but I think the ones that will be easier to sell in the future are the modern ones, meaning that it would need at least an IFR GPS with moving map and more likely a glass panel. This has nothing to do with my preferences but I'm just judging by what I read here and other places on the boards. Most people like that new technology even though it's still a little strange for me to see it in small airplanes.

 

[MSPAviator]

I think the supply of used planes will be greater than demand...

I would like to own a complex single with a mogas STC. Is there such a plane?

 

[wabower]

Early Bonanza's.

I think the supply of used planes will be greater than demand...

I would like to own a complex single with a mogas STC. Is there such a plane?

 

[SCCutler]

I think the supply of used planes will be greater than demand...

I would like to own a complex single with a mogas STC. Is there such a plane?

P-model Bonanza with O470.

 

[Jay Honeck]

Airplanes depreciate in value. People have to spend money on them to continue to use them, and it is that constant expenditure that makes it appear as if they don't depreciate. At least that is the way I see it. I would not treat any purchase as an investment of any sort, regardless of future market conditions.

There was a brief period (1998 - 2002) when you could view an airplane as a dandy investment.

Example: I bought a Piper Warrior in '98 for $32,700. Flew the pants off of it, and sold it in 2002 for $40,000. Nice, no?

Then, I bought a Pathfinder. Also at the peak of the market.

My point is, if I had just sold the Warrior (as a lot of old-timers did), I would have pocketed a tidy profit. Sadly, happily, I continued to fly, and have since lost my buttinski, financially, on a fantastic aircraft that does everything I've ever asked of it.

Although, of course, I won't realize that loss until I sell it, some day.

 

[denverpilot]

As an interesting aside, there was an article from either AOPA or EAA today bemoaning that what's "really" killing LSA sales is lack of available financing.

Lending is tight and lending against unknown LSAs with unknown future values, especially for commercial (think flight school/FBO) is nearly impossible to find. According to the article anyway.

Lack of financing to fund a fleet refresh is an interesting problem. And I refuse to call LSAs an upgrade, but at their typical 1/3 to 1/2 or more price discount over a new "spamcan" certified airframe, they're the "entry level" for someone who wants a new aircraft these days.

Apples to apples, comparisons are possible on airframes like the 182, since they're still in production...

Our co-owned 36 year old 182 is affordable to a co-ownership or partnership of upper middle class folks, fairly easily.

The exact same technology (even if you drop the turbo and the G1000) off the assembly line brand new today would require all three co-owners in an otherwise identical LLC, to all be top 10% wage earners in the U.S. to afford it. Maybe higher.

It's untenable. Travel and pleasure flights by GA four-seater is already dead -- once the spamcan fleet wears out. Individual ownership of a $350K product? Crazy talk for most of the population. Only on the coasts is that price tag lower than a typical house.

And let's face it, the rise of the RV is simply because a sub-set of people has way more time on their hands than money.

Anyone who's busy with other interests in their life will need to see a new 4 seater with reasonable payload hit the $200K price point or individual ownership by the middle class is dead as a doornail.

The nickname for the 70s spamcans was "everyman's airplanes". Now it'll be "every club's airplanes", or "some aviation lover's business airplanes", probably for the rest of my lifetime. Business owners can currently on and off take advantage of accelerated depreciation of new aircraft but individuals can't in any way.

The few remaining aircraft manufacturers are walking dead at current price points if they don't have graft to live off of. Cessna has sold how many T182Ts to Civil Air Patrol, for example? Not saying that's a bad thing. But the production line probably would already be shuttered if it weren't for those sales.

 

[Tom-D]

I spent an hour up last week in the northern Puget Sound where all traffic is on one of two freqs. there wasn't a sole out there Whidbey Approach wasn't talking to any one but the big guys.

I attended a meeting tonight for the BVS support group and the question was raised of how many pilots were still flying, two raised their hands both were FEDEX Caravan pilots, based out of BVS.

Every one I talked to said they had not flown yet this year, asked why, they said it was the cost of fuel.

After the meeting, I was asked by 4 owners, how much I charge to preserve an aircraft.

pretty sad.

 

[wabower]

There was a brief period (1998 - 2002) when you could view an airplane as a dandy investment.

Example: I bought a Piper Warrior in '98 for $32,700. Flew the pants off of it, and sold it in 2002 for $40,000. Nice, no?

No, if you're counting all the costs and measuring it as a buy-and-hold.

Your insurance premium and hangar rent were probably more than the profit you might have made. It was clearly a better deal than you could probably make now, but still woefully short of the return necessary to make it a viable investment.

 

[Ted]

Wayne's got it spot on.

You buy a plane because you can use it. Jay did pretty well by selling a plane for higher than the purchase cost. That's about the best you can do.

For a while when I was in college, I was doing a good job of buying motorcycles at the bottom of the market (December) and selling them at the peak of the market (early Spring). I actually did sell them for enough money to pay for purchase and fuel. I usually didn't bother registering or insuring them (hey, I was in college). So, it was effectively free transport.

Good luck doing that with airplanes...

 

[Anthony]

Yeah, I think the days of buying a plane, putting a bunch of hours on it, then selling it for the same acquisition price, or higher are behind us.

 

[Jay Honeck]

No, if you're counting all the costs and measuring it as a buy-and-hold.

Your insurance premium and hangar rent were probably more than the profit you might have made. It was clearly a better deal than you could probably make now, but still woefully short of the return necessary to make it a viable investment.

Obviously your usage costs aren't going to be recouped unless you either (a) don't use it, or (b) don't hangar it, or (c) got it for virtually free.

I don't think anyone could/should ever have that sort of expectation on an aircraft they actually fly.