Please note: this article is more than one year old. The views of our team may have changed since it was published, and the data on which it was based may have been revised.

 

With prices and market complexity rising, especially where young used aircraft are concerned, you need to be clear about your objectives and options.

 

The past year has seen some dramatic changes in the global market for private jets.

 

In June 2018, an important psychological barrier was breached when the share of the global fleet available for purchase fell below 10%[1] for the first time since the global financial crisis, according to data by aviation research firm JetNet. In September it fell further to reach just 8.9%[2]. And this trend was even more pronounced for the large-cabin long-haul types of aircraft that we specialize in financing at Deutsche Bank Wealth Management, falling to less than 2% of the active fleet available for purchase in August 2018[3].

 

At the same time, overall use of private jets rose significantly, with total flight hours increasing by 6.5% year on year in 2017–18[4].

 

With supply falling and demand rising, prices are naturally being driven higher. For manufacturers, this is a market that appears to be on the mend, with more people wanting to acquire an aircraft today than they have in the last decade. For buyers, by contrast, things are becoming more complex – not just in terms of the unusual market conditions but also the variety of new aircraft models and options becoming available.

 

From our point of view, there are three trends in particular that buyers need to be aware of:

  • Younger used aircraft are increasing in value. This has been caused, in part, by the high prices of new aircraft. When the private jet market was at its peak in 2008, manufacturers were producing record numbers of aircraft and selling them at increasingly higher prices.  More recently, as a result of the fall-out from the global financial crisis, people started to look for good-quality, used aircraft that were only a few years old, but where prices were significantly reduced in comparison with new models.  As more people did this and the availability of the best-quality aircraft (i.e. five years old or younger) fell to a decade low, prices were pushed back up. Young, used jets remain highly sought after, many don’t make it into the public marketplace before they are sold, and the private markets for such aircraft are highly competitive. So, without relevant industry experience and expertise, you may find it difficult to buy a used aircraft that meets your specific needs. In extremis, this could mean you are forced to order a new aircraft and join a waiting list of up to three years.   

  • The U.S. has consolidated its position as the main market for private aircraft. The U.S. has always held a dominant portion of the global market share for private jets. However, in recent years, this has dramatically increased – from 50% in 2012 to 64% in 2017[5]  – and the US market for private aircraft has become very competitive. With fewer desirable used jets available in their home nation, buyers are looking to other countries, even out to the emerging markets they haven’t previously considered, to purchase aircraft. There are two key drivers behind this trend. First, the recent strength of the U.S. dollar has enhanced their position as buyers. Second, at the end of 2017, U.S. President, Donald Trump, introduced new tax legislation. Part of this included a 100% bonus depreciation for business expenses such as aircraft. This means when someone in the U.S. purchases either a new or used private jet and it can be shown that the aircraft is going to be used for business purposes, 100% of the cost of the aircraft may be depreciated during the first year of ownership, subject to the specifications of the law.  

  • Buyers are taking advantage of the low-interest-rate environment. Interest rates remain low compared with historical averages, and the preferred means of purchase for private aircraft have therefore shifted. Historically 80% of purchases were made with cash, based on our experience at Deutsche Bank Wealth Management. Now, it appears the market is more balanced, with up to 50% of purchases being made with finance.  It boils down to opportunity cost: in the present economic environment, a client may be better off investing their cash rather than spending it on private aircraft, which are very much depreciating assets. 

 

How Deutsche Bank Wealth Management can help private aircraft buyers to navigate today’s market challenges

The recovering private jet market is more competitive, which is making the purchase of an aircraft, let alone finding an aircraft that is suited to your needs at a good price, increasingly difficult.

 

Seeking the assistance of private jet financing experts could help you navigate this fast-paced market, and secure the purchase of an aircraft that meets your requirements. Focusing on the large aircraft sector, our private aircraft financing team is well positioned to support clients through this process. We offer flexibility by supporting older aircraft.

 

Our team has developed an extensive network of manufacturers, private jet buyers, sellers, and operators. And, as well as assisting you in the financing of an aircraft, we can work with you on refinancing and the delivery of your jet.  

 

We have helped clients finance private jets since 2012, and in 2014 and 2015 we won the Corporate Jet Investor ‘Best Business Jet Financier Middle East’ award.

 

Chris Partridge is Head of Private Aviation at Deutsche Bank Wealth Management.

 

Find out more about the Private Aircraft Financing services we offer or get in touch

Footnotes

1.
JetNet: Pre-Owned Business Jet, Business Turboprop, Helicopter and Commercial Airliner Market Information, https://www.jetnet.com/news/jetnet-releases-june-2018-and-first-six-months-of-2018-market-information.html
2.
JetNet: Pre-Owned Business Jet, Business Turboprop, Helicopter and Commercial Airliner Market Information, https://www.jetnet.com/news/jetnet-releases-september-2018-and-first-nine-months-of-2018-pre-owned-market-information.html
3.
JetNet: 0-10 Year Old Used Business Jet Inventory, 13 Sept 2018
4.
Jet Support Services Inc. (JSSI): JSSI Business Aviation Index Q2 2018, https://www.jetsupport.com/articles/jssi-business-aviation-index-q2-2018/
5.
General Aviation Manufacturers Association (GAMA)


The products and services described on this page are not appropriate for everyone, so you should make a decision based on your financial, legal and tax situation after consultation with your tax and legal advisors. Deutsche Bank does not provide accounting, tax or legal advice to its clients. This information is not financial advice or a solicitation.

This is not a commitment by Deutsche Bank AG or any of its subsidiaries or affiliates (collectively referred to as “Deutsche Bank” or “Bank”) to make any loan. Loan transactions are subject to (i) the Bank’s due diligence procedures, including but not limited to “know your customer” policies, (ii) satisfaction with the proposed borrower’s financial position, legal structure, ownership and management, (iii) review and approval by the appropriate credit departments, (iv) internal lending and collateral limits, (v) compliance with applicable laws and regulations in effect from time to time and (vi) the execution and delivery of approved documentation for the transaction in form and substance acceptable to the Bank and its counsel. The Bank’s lending programs are subject to periodic review and change without prior notice. Where applicable, additional loan-related and closing costs may include, but are not limited to, title insurance, document preparation and attorney’s fees.

Investing with borrowed money contains risk. No assurance can be given that investors’ investment objectives will be achieved, or that investors will receive a return of all or part of their investment. Investments using borrowed money are suitable only for persons who can afford to lose their entire investments. Before investing, prospective investors should carefully consider these risks and others, such as borrowing costs, repayment terms, and liquidity


  
The content and materials on this website may be considered Marketing Material and does not constitute an offer. The market price of an investment can fall as well as rise and you might not get back the amount originally invested.  The products, services, information and/or materials contained within these web pages may not be available for residents of certain jurisdictions. Please consider the sales restrictions relating to the products or services in question for further information. Deutsche Bank does not give tax or legal advice; prospective investors should seek advice from their own tax advisers and/or lawyers before entering into any investment. 

×