Welcome to the Q1 Business Jet Update. Aviators and aviation aficionados it’s hard to believe we are already at the end of the 1st quarter of 2024! Global business jet transactions remain steady. In-production and high demand newer models like the Challenger 300/350/3500, Phenom 300E, and Pilatus PC12NGX continue to be in short supply bolstering residual values. We continue to see new consumers in the private jet space and the large number who first came to private aviation after COVID, are (so far) continuing to purchase private aviation services and assets. I honestly expected a bit of a slowdown in transaction volume following a frantic Q4 2023 and the boom years of 2021 and 2022. Historically presidential election years have fewer biz jet transactions, but the first quarter has been brisker than many years pre-COVID. There are two major market forces I believe will continuing to keep aircraft residual values high for in-demand business jets and turbo-props through this year.
Market Driver #1: Aircraft Production and Parts Backlog
Four years post-COVID and 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 Lear Jets 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 Manufactures to raise prices. One- to five-year-old aircraft are more affected by cost of new replacement equipment verses 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 it’s 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 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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