Welcome to Julian’s Q1 2024 business jet market update!
It’s hard to believe we’re already wrapping up the first quarter of 2024. As we look at the private aviation market, global business jet transactions have remained steady, with continued demand for newer, in-production aircraft.
Popular models such as the Bombardier Challenger 300/350/3500, Embraer Phenom 300E, and Pilatus PC-12 NGX remain in relatively short supply, helping support their residual values.
We’re also continuing to see new consumers entering private aviation. Many of the buyers who first discovered the benefits of business aviation following the COVID-19 pandemic have continued purchasing private aviation services and aircraft.
I’ll admit, I expected a little more of a slowdown following the exceptionally active fourth quarter of 2023 and the extraordinary market conditions of 2021 and 2022.
Instead, transaction activity during the first quarter has been stronger than I anticipated, particularly when compared with many pre-pandemic years.
Looking ahead, I see two important market forces that could continue supporting residual values for desirable business jets and turboprops throughout 2024: ongoing aircraft production challenges and the potential return of 100% bonus depreciation.
Let’s take a closer look at both.
Market Driver #1: Aircraft Production and Parts Backlog
Four years post-COVID, aircraft original equipment manufacturers (OEMs) continue to struggle with long and complex supply chain delays. Major components such as engines and avionics continue to delay new aircraft deliveries and have kept the OEMs from significantly increasing production levels. With long and complex aircraft certification processes, increasing or changing parts vendors is costly, complex, and sometimes not possible. Aircraft experiencing both unscheduled and scheduled maintenance are being delayed due to parts availability. This is most prevalent in aging and out-of-production aircraft such as Learjets and Hawkers. All this leads to long wait times when ordering a new aircraft and increased prices as the cost to produce aircraft increases. Continued demand creates an opportunity for manufacturers to raise prices. One- to five-year-old aircraft are more affected by the cost of new replacement equipment versus the cost of earlier serial number aircraft.
Market Driver #1: Aircraft Production and Parts Backlog
I seem to be speaking with Clients daily about the possibility of 100% bonus depreciation returning (current law only allows for 60% depreciation in the first year of ownership of a new or used business aircraft). House bill “H.R. 7024 – Tax Relief for American Families and Workers Act of 2024” is working its way through Congress. The bill moved out of committee and through the House in late January and is currently under consideration by the Senate (https://www.congress.gov/bill/118th-congress/house-bill/7024).
Should we see the return of 100% bonus depreciation this year, we will certainly see an increase in transactions, especially in Q3 and Q4. What I’m finding interesting is the potential of “100%” returning seems to be encouraging activity NOW. I’m working with both first-time and long-time jet owners who see upside in buying and selling now, with the potential to take 100%, or in trying to avoid what they believe will be another heated year-end as used aircraft prices increase with more tax-motivated buyers. While I don’t see us going back to the frenzied markets of late 2021 and 2022, when even older and out-of-production aircraft hull values were appreciating, I do expect 2024 to be a brisk year for both Buyers and Sellers!
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