We take grim amusement from the television commercial making the rounds these days in which the hapless suburbanite is chased over hill and dale by the postman brandishing an envelope. When the poor sap is finally caught, hes informed its just your brokerage statement, Al.
Considering the state of the used aircraft market, we sense there are more than few Als being chased across airport ramps or, if theyre trying to sell an airplane, trying not to think about how much prices have fallen during the past two years. Sometimes, its just better not to know.
But the news is not as bad as we had imagined. We recently conducted a price survey of 50 aircraft across all types and brands and although the robust price appreciation of some models is temporarily gone, price declines arent as gruesome as we had expected.
For some models, price anemia can best be thought of as a flattening or softening rather than a free fall drop, especially when inflation is taken into account. In general, most models seem to be holding their own against single-digit or less inflation.
Theres good and bad to be found in the current used market. The good is that if youre in a position to buy, prices are soft and there are bargains out there, particularly for those willing to shop hard. Further, interest rates are at historical lows and competition to loan money is intense. The bad? If you need to unload your current airplane to step into something else, youll need to adjust your price expectations downward and unless youre willing to whack some dollars off the asking price, dont plan on selling in a hurry.
We looked at Aircraft Bluebook Price Digest values for 50 models of aircraft across eight categories, ranging from inexpensive flivvers to light twins to working airplanes that ply the bush or fly businessmen to their appointed rounds in turboprop comfort. Our intent was to unearth any clear patterns in demand and/or values and although some models seem have done better or worse than others in the same category, we think the entire market has absorbed the damage about equally.
When we last looked at this topic five years ago, we concluded that although airplanes appreciate in value, they can hardly be thought of as good investment vehicles. The reason is that they require continuing upkeep-engines, avionics, paint, interiors-to keep the value propped up and depending on how frugally this work is done, ongoing upgrades can easily wipe out modest gains in value.
There are exceptions. Savvy buyers who bought right in certain categories five years ago-cabin class twins, for example, and a few turboprop models-enjoyed handsome gains if they timed the sale right.
In general, however, during the boom-boom 1990s, most models reliably appreciated in the 3 to 6 percent per year range, which easily keeps inflation at bay. Not anymore. Welcome to the world of price recession. Our survey revealed price declines ranging from under 3 percent to as much as 25 percent or more.
Where was the high water mark? Realizing that prices have taken a hit in the wake of the 9/11 terror attacks and more recently as the economy continues to struggle, we peg the top of the rising price curve in the late 2000 to 2001 time frame, which actually pre-dates the slide of the Dow Jones Industrial Average by nearly a year. To gain a sense of how prices have softened, we compared current prices from the Spring 2003 Bluebook to those of the same period in both 1996 and summer of 2001, prior to the 9/11 attacks.
The Big Hit
We looked at 50 models in eight categories, as shown in the charts (see end of story). (To further explore trends, we looked at various model years of the same airplanes. For space purposes, some of the models arent shown on the charts.) To establish some consistency, where possible, we examined 21-year-old models-the 1982 model year. In some cases, we looked at older models to see if buyers were more or less attracted to them and we used average retail as our guide, not airframes gussied up with mods and upgrades.
And well hang a disclaimer up front. Theres only one accurate way to determine value and thats what the buyer and seller agree to on the day of the sale. The various price guides-Bluebook, Vref and AeroPrice-do as good a job as is possible in tracking sales prices accurately. They depend on surveys of actual sales prices to determine market value.
But in a down market, there are fewer sales and thus fewer datapoints to measure value, thus a sharp up or down spike in value during one survey period may be reflective of only a few sales. Further, the price guides usually dont agree on value and these variances can easily mask any perceived rise or fall in value. For instance, Bluebook pegs the current value of a 1982 B58 Beech Baron at $277,000 while Vref figures it as $270,000, a difference of 2.5 percent. (Often, the variance is greater.)
Then theres inflation. We dont think of inflation as being a significant factor in the current economy but government and investment sources peg it as being between 2 and 3 percent per year for the five-year period between 1996 and 2001. In real numbers, that means an airplane bought in 1996 for $100,000 should have been worth nearly $115,000 in 2002, just to hold its own against inflation. If it appreciated by a modest 5 percent per year during that period, it would be worth about $127,000.
All this means that aircraft appreciation can be somewhat illusory, since appreciation of 3 percent or so merely keeps up with inflation. To come out ahead of the game-something that occasionally happens for owners buying and selling airplanes-youd need to see reliable appreciation in the 5 percent or higher range.
Some models actually have risen in value by that much or more. But not since 2001. In short, all models have declined in value since 2001, some significantly, some less so. Remember, when inflation is considered, a 3 percent gain is really breaking even and a 5 percent price decline represents notable loss.
That said, we wouldnt describe prices as being in free fall by any stretch of the imagination. Frankly, when we embarked upon this research project, we expected to see much worse. But for sellers, we couldnt find many bright spots, either. On the used market, inventory remains fat and that does nothing to prop up prices.
Tossing out the major losers that we see as aberrations, our estimate is owners can expect to sell their airplanes for between 3 and 10 percent less than they could have two years ago. For those in a hurry to sell, the hit is more significant.
Winners and Losers
In years past, weve reported that when times get tough, the aircraft market reacts in concert with the general economy. But as in the overall economy, certain sectors suffer more than others. For example, since the early 1990s, light and medium twin prices have remained soft while certain retractables-Mooneys, Bonanzas and Arrows-have been hot, as have some cabin class twins.
Were not sure thats the case this time. Even some popular models have taken hard declines in value. For instance, during our last survey, one of the top appreciators was the venerable Cessna 182, which increased in value by 97 percent between 1988 and 1998. Between 1996 and 2001, it enjoyed a price increase of some 27 percent, according to our research.
Yet since 2001, it has fallen in value by about 5 percent. That doesnt put an owner who bought right under water but, in our view, its a significant decline. The Cessna 172, another all-purpose model, also showed healthy price gains during the 1988-1998 period, keeping just ahead of inflation. It declined in price by about the same percentage as the 182 did during the past 18 months.
At the far reaches of any price survey spectrum, there are always big winners and losers. This time around, one of the biggest losers is-no surprise-the Piper Mirage. Troubled by a reputation for engine unreliability and further damaged by Lycomings massive crank recall, Mirage prices have tumbled precipitously during the past five years.
We used a 1989 model, the first year Piper used the Lycoming engine in the Malibu airframe, and note that prices on this model have plummeted 17 percent since 1996 at a time when most other models were appreciating, some at double digits. In the period from 2001 to 2003, the Mirage lost 13 percent in value. Owners who bought a later model Mirage, say from 1994 forward, have done worse in lost value.
The Continental-powered Mirage, on the other hand, did better overall because a 1986 model actually appreciated 9 percent between 1996 and 2001. But, as did every other model, it lost value post-9/11. But overall, it fared better than the Mirage.
At the far opposite end of the spectrum, we find another surprising loser: The Diamond Katana A-1 model, with the original Rotax engine. We looked at the 1995 model, the first year this aircraft was available. According to the spring 2003 Blue Book, the Katanas average retail is $48,000, down from $65,000 during the summer of 2001, for a decline of 26 percent.
What happened here? We think a confluence of events. Normally, according to our research, new aircraft depreciate sharply for the first six years after they leave the factory, then resume a slow climb up the appreciation curve. In the summer of 2001, the Katana A1 was six years old and should have been expected to level off in price. The fact that it experienced a decline suggests to us that theres both softness in the trainer market and that Diamonds shift in market focus impacted prices.
To stoke the market, Diamond initially offered attractive lease options for its aircraft in place of outright sales. As the market matured, so did those leases and in 2001, the market found itself with a glut of Katanas. Many were sold in Europe but some were held for the U.S. market. Given weak demand, it doesnt take much over supply to depress prices.
On the other side of the ledger sheet, there are top performers in our survey group. Top performer means a price slide of less than 5 percent during the previous 24 months. In no particular order, these included pre-201 Mooneys, Pipers Arrow, the Beech V35 singles and 58 Barons and Cessnas 185 and 206, both working airplanes. Grumman Tigers and Piper Archers also held up well.
Prices are generally related to sales activity and thats currently flirting with a 13-year low, according to Bluebooks Marketline, a supplemental publication that tracks market trends on a quarterly basis. There just arent any buyers, says Bill Hemmel, of AeroPrice, which does its own periodic e-letter on market trends. Even before the 9/11 attacks, sales activity of piston singles was headed south to a level matching the last deep valley in 1995. It was, in fact, on the rebound during the first quarters of 2001, only to hit the skids later that year.
Whether sales activity is about to resume its cyclical climb is anybodys guess. Our guess is that we wont see much change between now and the end of 2003. Without rising demand, we think prices will remain soft, although our research and that of Bluebooks Marketline suggests that prices have reached a depressed plateau.
The value of this should be obvious: if youre thinking about buying another airplane, market conditions couldnt be much better. Interest rates are in the basement and not likely to rise soon, by our estimation. But if they do rise, watch for a spurt in sales activity if buyers get spooked to move right away, fearing higher interest rates later.
On the downside, what the market giveth, it also taketh away. If the price on that nice Baron you have your eye has tanked, so has the value of the Bonanza you have to sell to pay for it. (See the sidebar on selling in a down market.)
The best buys are the airplanes which have lost the most value. If youre a devil-may-care type, may we suggest an early 1990s Mirage? Theres never been a better time to buy one, as long as you have a strategy to deal with the airplanes nagging engine problems. A newly overhauled Lycoming isnt the solution, in our view, but a Magnum conversion (see Aviation Consumer, December 2002), a Continental TSIO-550 refit or a JetProp turbine conversion might be. With a reliable engine, Mirages are terrific airplanes.
Other under valued or at least fairly valued airplanes, in our view, include the Cessna 177RG and the 340 or 421 if (a) you have money to burn and/or (b) your grip on sanity is tenuous and you really want a twin. Other twins that have been hit hard include the Beechcraft Duchess and the Piper Aztec.
Among singles, you can pick up a Katana cheap and the Beechcraft A36 has also declined in value, something were confident in predicting it will recover-and then some-when the market turns around, as it inevitably will. The same advice applies to an early 1980s Piper Saratoga, whose prices may have been dragged down with the Lycoming crank fiasco. (One owner told us hes selling his Saratoga and wont own either a Piper airplane or a Lycoming engine again.)
If youre a buyer whos both gutsy and optimistic, we think the time is right to turn that kind of disgust into a bargain buy.
Price Guide Contacts
93 Rogers Road
Belmont, NH 03220
Bluebook Price Digest
P.O. Box 12901
Overland Park, KS 66282
Vref Price Guides
P.O. Box 23321
Shawnee Mission, KS 66283