The Baron owner approached us at an evening pilot meeting. He looked stricken. He had just sold his airplane after more than a year of trying and the selling price was nearly a third lower than he had wanted. “I really never thought things would get this bad,” he said.Welcome to the harsh world of aircraft ownership in the 21st
century. Not so long ago, the myth that airplanes were actually a good investment was abroad in the land. As recently as 10 years ago, many popular airplanes were increasing in value at more than 5 percent a year and had been doing so for a decade. Ten percent annual appreciation wasnt uncommon for some twins.
What a difference five years can make. When we looked again in 2003, we found very few airplanes that could even keep up with the modest 3 percent inflation of the time and our recent sweep of 50 used aircraft models reveals values have continued to decline for most models.
For years, the common wisdom in the light airplane business had been that new airplanes would lose value for the first five or six years and then gradually begin to appreciate, sucked upward by the ever-increasing sticker prices of new airplanes. Not anymore. Declining demand for used airplanes and increasing volume of new aircraft have finally caused the value curves to cross, perhaps permanently.
In our current look at aircraft values, we used the same 50 airplanes that we examined in 2003 and the same dozen top models we indexed in 1998, drawing the value lines forward for all. This time, we also looked at more recent history for some new airplanes that didnt exist in large numbers in 1998, as well as new versions of traditional airplanes like the Skyhawk and Cessna 182. While some used airplanes are still appreciating, most suffered single digit loss in value. As the chart here shows, the Grumman Tiger appears to be a big appreciation winner, but otherwise, value trends are downward.
A quick flip through theAircraft Bluebook shows a lot of “no change” and down arrows in the value trend column. Its getting hard for even the most delusional owner to make the case that light airplanes are investment-grade assets, or for even the most accepting spouse to believe it.
Take the good-as-gold late-1970s Cessna Skylane. Between 1987 and 1997, the value of that model just about doubled and from 1997 to now, the value of the same airplane has increased by about 20 percent. But during the most recent five years, the Skyhawks value has flattened, although its not negative yet.
The Mooney 201, long a value stalwart, has also begun to fall below the value curve. Between 1987 and 1997, a late 1970s 201 appreciated about 61 percent in value. During the last 10 years, however, appreciation dropped to a marginal 1 percent and in the past five years, these airplanes have slid about 13 percent.
During the golden age of aircraft ownership, the Cessna 421 Golden Eagle increased in value more than any of the other twins that we looked at, rising 91 percent. During the last 10 years, the value of 421s headed downhill by 15 percent, possibly as a result of high fuel prices.
We also looked at the newer generation of airplanes, those built from 1997 on, to see how they held their value. These airplanes behaved like new cars and smartly lost value each year. Nothing new there. Its too soon to tell how their value will hold up as used airplanes. But it seems unlikely theyll enjoy what used to be the standard six-year price dip, followed by a level off and then solid appreciation.
Whats It Worth?
Putting a precise value on airplanes has always been more art than science, especially as airplanes get older. According to the General Aviation Manufacturers Association, the average four-place single-engine airplane in the U.S. general aviation fleet is 36 years old. Some rack up much more time than others. Some get the latest in avionics goodies. Some get repainted, some dont.
By the time theyre 30 years old, as the majority of the fleet is, no two airplanes are alike. But there are markets for avionics, engines, paint and interiors and we know about what all of these things cost, so we do the best we can to compare apples and lemons. The three leading price indicators for used airplanes are theAircraft Bluebook and Price Digest, V-ref, and www.AeroPrice.com. Each of these starts with an airplane with average everything and deducts or adds for things like new radios, recent paint or interior or a low-time engine.
But all, of course, show general downward trends. How can we explain this abrupt change of fortune from 1997 to 2003 and continuing today? Is it possible that airplanes actually, well, get old? You bet. And while older airplanes can be made like new with fresh engines, paint and radios, the cost of an engine overhaul, new paint and interior and upgraded radios is often more than the airframe is worth. You can easily spend much more making an old airplane like new than buying an airplane thats 10 or 15 years newer.
Part of the reason for the big change in used aircraft values lies in the fact that between 1985 and 1995, few new airplanes were built. There is, in effect, a 10-year long Grand Canyon between the “older” old airplanes and the “newer” old airplanes. While the market has always fluctuated, many more airplanes were built most years before the mid-1980s than since. The high water mark came in 1978, when 17,811 GA airplanes were built.
Production fell off drastically after that and by 1988, annual production was below 700, including light airplanes, corporate turboprops and jets. To put the relative age of the fleet in perspective, more single-engine piston airplanes were built in 1978 alone than have been built in all the years since 1995 combined.
With the passage by Congress of the General Aviation Revitalization Act (GARA) in 1994, companies started to build airplanes in larger numbers. Manufacturers like Mooney, Piper and Beech had been building airplanes all along, but in small numbers. After GARA, Cessna started high volume production, as did Cirrus, although large numbers now meant hundreds of airplanes rather than thousands. These two companies currently account for two thirds of all light airplanes built. Production has grown every year for almost 10 years and, according to GAMA, 3146 GA airplanes were delivered in 2006. While this doesnt sound earth-shattering, there are now used post-GARA Skyhawks and Skylanes that are 10 years old.
While there are varying opinions about when the used aircraft market began to head south as a whole, most people agree that it happened in 2000 and that it had actually started to come back slightly by September 11, 2001. Whats changed since our last look at airplane values in 2003 is that now large numbers of these airplanes are being sold by their original owners and there are more potential airplanes and fewer potential owners every year.
In 1998, because of the decade-long manufacturing hiatus, Skyhawks, Skylanes and Cherokees built in the mid-1970s were only 10 years older than the newest examples available, aside from a handful of new airplanes. Nine years later, these airplanes are now 30 years older than the newest models which are readily available and the older airplanes are beginning to look long in the tooth.
As the number of used current-production airplanes available increases, the downward price pressure on the older airplanes grows. If you can buy a 1997 Skyhawk for $90,000, theres a hard cap on what you would pay for a mid-1980s version and still a lower cap on what you would pay for an airplane 10 years older than that.
Apart from age, theres another factor thats helping to push the value of used aircraft below the 20-fathom line: Part of what kept the value of Skyhawks and Warriors and Bonanzas and Mooneys growing over time was the fact that the airframes hadnt changed in decades. If you shopped for one of these airplanes in 1990, your choice was old Skyhawk or an older Skyhawk. In a universe where there were no recent airframe changes, older airplanes held their value longer. The advent of the long-body Mooneys has helped to clobber the values of the 201 and 231/252. Glass-cockpit Skyhawks and Skylanes are more attractive to buyers, especially young buyers, than their steam-gauge equivalents. As the number of used Cirri and Columbias grows, theyre going to be an attractive option to Skyhawks and Skylanes for many first-time buyers. Does this mean that all old Cherokees and Skyhawks will be hauled off to the knackers yard and sold for $15 per ton? No, but it does seem these airplanes will command ever lower prices.
Its also apparent from looking at the numbers that general aviation as we have known it is continuing to evolve in ways that are sobering, but also occasionally encouraging. According to the FAA, between 1980 and the present, the U.S. pilot population has decreased from 827,000 to 597,000. The realist in us likes to think that this is mostly due to the passing of the generation that was trained in World War II and Korea.
A closer look at the erosion shows that the problem is somewhat worse than it appears. The ranks of professional pilots, as measured by the number of active ATPs, has actually doubled during the same period, even though the overall pilot population has dropped almost 28 percent. This means that the drop in non-professional pilots is far greater than the overall decrease in pilots. Worse, the number of active student pilots has dropped by almost 50 percent from 1975 levels and the number of new private certificates granted has fallen from just over 100,000 in 1980 to 18,000 in 2006. Not surprisingly, the average age of private pilots has increased from 43 to 48 since 1993.
Another sobering statistic is the drop in annual piston flying hours from almost 36 million in 1980 to 16 million in 2005. During the same time period, the amount of hours flown in jets has almost tripled. Despite the vanishing pilot syndrome, the number of instrument-rated pilots has actually grown substantially. While some of this can be explained by the increase in ATPs, the fact remains that more than 60 percent of all pilots now hold instrument ratings.
What to Do
So with all the fundamentals looking so gloomy, is general aviation dead? We dont think so. Weve never been shy about making bold, unsubstantiated predictions and we will make one here: We believe that light airplanes are too useful and too much fun to perish from the face of the earth forever. We do think that the landscape of GA has begun to change and will continue to do so.
According to the FAAs forecast for the next 10 years, the number of piston-powered airplanes is expected to stay about where it is, with new construction staying just ahead of attrition. The turboprop fleet is expected to grow about 2 percent per year, but the real growth in the next 10 years will be in the jet fleet, which will see average annual increases of 10 percent per year.
Bottom line: New pilots getting into GA will be more affluent than pilots were in previous decades. Theyll probably become instrument rated and will look at airplanes as a way to support a business or to travel reliably to vacation homes. Its increasingly likely that new entrants will learn to fly in airplanes with glass cockpits and that the first airplane they own will be a new-generation airplane like a Cirrus or a Columbia.
These pilots will be looking to move up to turbine equipment more quickly than in the past and both the training and insurance establishments will be challenged to keep up. We do not foresee a time when airframers will turn out new airplanes for the masses by the tens of thousands. We see smaller numbers of more capable and more expensive airplanes being built in the future.
And what about the 167,000 or so airplanes knocking around right now? Their numbers are simply too great to ignore. They will continue to make up the vast majority of the fleet for many years to come. The continued production of new airplanes being built for a shrinking number of pilots means that the older airplanes will almost all be worth less as time goes on.
The older and more worn out examples will be parted out, others will have their value propped up with large cash infusions to fund engine overhauls, radio upgrades, paint and the larger maintenance bills that come with older airplanes. As one broker said, “The glory days of airplanes appreciating and paying for themselves are over for now. Dont even think of buying an airplane as an investment. Only buy an airplane if it will help you in your business or if you love flying and can afford it.”
For anyone now in the market for a used airplane, its a buyers market. Harsh though it may be, as our Baron owner learned, theres likely to be a lot of price giveback from sellers, especially on models not in high demand or those with beater avionics and bad paint. If youre trying to sell one of those, youll need a lot of patience and luck. Buyers are harder to come by than ever.
Upgrading an airplane for sale-new avionics, paint and/or interior-has always been an iffy proposition. Traditionally, it has rarely paid off to make the improvements pre-sale. But now, you may have to upgrade just to move the airplane at all. The best strategy remains buy and hold. Shop carefully for an airplane youll keep for awhile, upgrade incrementally and when youre ready to sell, you might get your feet wet but youll avoid the full bath.