I think this old saying sums up what’s been going on over the last few months of 2023, and what we may very well see into 2024.
The first half of 2023 was rather quiet, with many buyers taking a “wait and see” attitude after a wild couple of years for our industry in terms of activity. The huge surge in private turbine aircraft transaction in 2021 and 2022 had to slow down, and it did. As soon as 100% bonus depreciation evaporated and became 80% on January 1, 2023, sit and wait was the sentiment. Sit and wait turned into a more normal pace of business, a slow decline in market prices and a gradual increase in supply. Transactions began to appear at a more normal pace in mid 2023.
Please take a look at the inventory tracker here that we have been using here at LEAS since March of 2022. Why March of 2022? We could feel that there was so little supply that we better start keeping weekly tabs on it. It went from a low of 1.7% of the 30 or so models we track to what is now 6.9%. The historical average is somewhere around 8-9%. Look at the slow and steady increase in supply week by week over the course of 2023.
We are enjoying some healthy year end activity at the moment, but not nearly at the pace of 2022. As bonus depreciation moves once again this year on January 1, 2024 from 80% to 60%, we believe the “wait and see” approach will kick in again. However, we are of the thinking that it will be a bit different in early 2024 than 2023 because we will be dealing with nearly 7% of the fleet for sale at the start of the year as opposed to 4% last year.
Unless there is a world event that causes people to change their behavior, we think that 2024 will be a year of slow decline in values and a slow increase in supply. Much like what the Federal Reserve is trying to do with interest rates – cool this whole thing down and cause us all to “hold our horses.” It is working in our industry. Lest we not lose sight of the fact that aircraft prices are still above 2019 levels however the aircraft are 4 years older. The market typically acts in a perfect manner over time, and we think over time, the market will continue to normalize over the course of 2024 and not change abruptly as it did the last time values went up……2008 (2008 is like a four letter word).
Please take a look at the IADA market report here from the end of 2022. In addition to the numbers, read the sentiment and commentary from some members. They were calling for a slowdown in 2023, and they were indeed right. When we are all polled again about 2024, I think it will be the same message but a bit louder. We will see in a few months. The Barclay’s Bizjet Survey which can be found here just came out and speaks the truth. When we read it here we collectively said “that’s exactly what we are seeing and what will likely happen”. A shocking moment when you realize your peers are as smart as you think you are!
Aircraft, used cars, pre-owned construction equipment and other things of the like, have historically depreciated as they age. We will be back to that thinking in a few more months is the way we see it here at Leading Edge. There will be buyers sitting on the fence in 2024, and at some point, the fence will get too crowded and buyers will hop off of it.
In a few months we will come out with another blog and let you know how crowded the fence is, or isn’t.
We want to thank our associates & clients for a successful 2023 and wish a happy holidays and best wishes for 2024.