IN THIS REPORT Gulfstream Quarterly Market Update · 2016-07-06 · Gulfstream® Q2 2016 Market...

Gulfstream® Q2 2016 Market Update

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A G550 Owner’s Replacement Dilemma

Prior to 2008, it was common for a Gulfstream to retain nearly 100% of its value or better. Global demand was so strong that the backlog for a G550 was greater than 4-years. Therefore, 0wners became accustomed to replacing their aircraft every few years and actually making sizeable profits when selling their used ones. This made a compelling argument to always have the newest airplane ordered for purchase.

Today, residual values are declining at historic rates and its affecting how and when aircraft owners are replacing their business jets. 10-years ago, a G550 buyer could sell a position for a 10% profit. Today, they’re losing 10% at delivery and arguably another 10% within the first year of ownership.

In 2008, Gulfstream was very successful securing orders for new G650’s from G550 owners who saw the G650 as the ultimate business jet. But for those who did not take advantage of introductory pricing, it’s difficult to justify the additional investment when G550 residual values have been hit so hard.

Owners and operators love the G550. It’s a safe, reliable, efficient and proven aircraft with incredible range: up to 6,750nm at Mach 0.80. Gulfstream has delivered over 540 copies since 2003, and apart from the continually improving interiors and systems, the airplane is virtually the same product today as it was 13-years ago.

The true cost to upgrade: Assume a G550 owner bought his airplane new in 2010 for $50M. That same airplane is now worth around $30M, or approximately 40% less than they paid 6-years ago. The owner is happy with the G550, but they typically buy new planes every 5-7 years.

Gulfstream would happily sell them a new G650ER that delivers in 2019 for around $70M (with options and escalation). By the time it delivers, the used G550 will be worth $25M or less. Therefore, the net replacement cost to upgrade to a new G650ER is nearly $45M.

Many G550 owners struggle to justify how the improvements of a new G650ER can really be worth $45M, to fly the same trips that their G550 already covers safely and reliably.

IN THIS REPORT

G650 Market .................. 3G550 Market ................. 4G450 Market .................. 5GV Market ..................... 6GIVSP Market ................ 7G280 Market .................. 8G200 Market...................9G150 Market...................10Recent Transactions.... 11Aircraft for Sale..............12

1130 Habersham Street - Savannah, Georgia 31401 - +1.912.236.8500 - - THE GULFSTREAM® EXPERTS

http://www.hagertyjetgroup.com

Moving forward, G550 owners will also consider the new G500/G600 models as viable choices. The technological improvements and design philosophy of the G500 and G600 are going to set new operating and performance standards in the industry. We just can’t say enough good things about the airplanes and the mission profile they offer to potential buyers.

However, when the next available G500 delivers in 2019, the cost of replacing a nine-year-old G550 with a new G500 will be at least $25M. The G500 offers a slightly wider cabin than a G550 by adding 7 inches, but is virtually the same overall cabin volume. The G500 flies faster at high-speed cruise, but offers significantly less range at 5,000nm. For buyers with longer range requirements the solution is to spend $10M more and get the 6,200nm range of the G600 which is 550nm less range than the G550.

This leaves G550 owners wondering why they should spend twice as much as their current airplane’s value to upgrade to a newer model that doesn’t fly as far as their G550, and offers only a marginally improved cabin experience. Is it worth doubling the price for a plane that flies at a higher speed simply because the new avionics make the pilot’s job easier? Yes, it’s nice to get there faster, but is the marginal time savings worth $35M.

So what does the loyal Gulfstream owner do? They either keep the G550 longer or turn to the pre-owned G650 market where prices have dropped by $10M in just the past few months. Once the prices for a pre-owned G650 drop to $50M and below, the delta between the G550 and G650 is closer to $20M makes a compelling argument to choose a pre-owned G650 as an upgrade. With 180 copies now in service and 19 pre-owned airplanes for sale, it’s time for G550 owners to start planning a G650 upgrade sooner than later.



Current Supply of G650’s in the market:

As of June 27.2016

0

5

10

15

20

25

$56

$58

$60

$62

$64

$66

$68

$70

Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

G650 On Market G650 Transactions G650 Fleet Average Value - VREF

Airc

raft

For

Sal

e

X $1

M U

SD

G650 year over year Depreciation was -13% between Q2 2015 -Q2 2016

G650 Market Summary

Gulfstream G650 Value/Transaction History

In production181

Deals Pending1

Net For Sale18

% Of Fleet For Sale10.4

Available For Sale 24 MO High21 - Q1 2016

Available For Sale 24 MO Low4 - Q1 2015

Transactions YTD6

Transactions Same period 20152

Advertised Price Reductions8

Average Price Reduction-3.8%

Current G650 Ask Price Range $56.5M - $68.5M USD (Incl. ER)

Avg. YTD Sales Price $62.3

Current G650 Avg. Ask Price$63.3M USD

% Available w/Fwd Galley84

% Equipped w/ Crew Rest Area78

G650 Withdrawn Q2 20162

19

There are 19 used G650/ERs on the market with 1 deal pending, representing 10.4% of the fleet. 4 of the 19 aircraft for sale are G650ERs, representing 7.5% of the ER fleet.

A flurry of opportunistic buyers and desperate sellers generated five deals in the second quarter with new prices approximately $8-10M below comparable trades a year ago when supply was one-third of today’s offerings. The recent transactions included 3 ferry time only aircraft selling in the low $60’s.

Most G650 Sellers are struggling to understand this quickly chaning market. The current ask prices appear to be 5-10% higher than they should be. The lowest published ask price for a G650 is $56.5M for a 2013 model that’s been publicly advertised for 4 months. We expect that more sellers will re-adjust their pricing strategies before the fourth quarter because the average days on market for a G650 is now approaching 180 days and one airplane has been chasing the market down for over a year.

© 2016 Hagerty Jet Group




2016 transaction levels are down by 25% compared to this time last year and are down 18% over the previous quarter. Pricing remains soft. There were 13 price reductions in the last quarter for an average price reduction of almost -10%. The G550 market is still trading actively with an average of 3 deals per month. 9 aircraft have gone under contract and closed or are expected to close imminently. Inventory levels have remained stable but values have dropped nearly 20% in the past 12 months.

The G550 market continues to have a healthy balance of supply vs transactions but values continue to drop at a very fast pace similar to all other large cabin aircraft markets.

We witnessed the first sub $20M transactions for used G550’s enrolled on an engine program during the second quarter. We also saw ask prices for 2013 model aircraft drop below $40M for the first time.

As of June 27, 2016

0

5

10

15

20

25

30

35

40

45

50

$20

$25

$30

$35

$40

Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

G550 For Sale G550 Transactions G550 Fleet Avg Value

x$1M

USD

A irc

raft

For

Sal

e

G550 year over year depreciation is -19% between Q2 2015 and Q2 2016

G550 Market Summary


In production536

Deals Pending4

Net For Sale31


Available For Sale 24 MO High35 - Q1&Q2 2016

Available For Sale 24 MO Low23 - March 2015

Transactions YTD18


Advertised Price Reductions 13

Avg Price Reduction-9.77%

Current G550 Ask Price Range $18.995M - $48M USD


Avg Sale Price Q1 2016$27.5M USD

Q1 2016 Sale Price Range$18M - $41.75M USD

G550 Withdrawn Q2 20167

% Equipped with Crew Rest Area54

35





The G450 inventory has shrunk by 12% over the previous quarter and net supply is at its lowest point in a year. Currently there are 29 aircraft advertised on the market with 4 aircraft under contract. 9 Aircraft have gone under contract and/or closed this Quarter.

The G450 market witnessed a major correction in market values towards the end of Q2 2016 when a large US Corporation listed two aircraft for sale with ask pricess arguably $2M below the rest of the competitors to generate an immediate sale. Competing Sellers were forced to lower their ask prices in response. As a result, we witnessed 21 advertised price reductions for an average of 10%.

Although G450 “Book” Values say values dropped -6% over the previous quarter and 25% over this time last year, we expect to see a larger correction in the next quarter as a result of new pricing. The older G450’s with engine programs are finding buyers in the $9-11M range while aircraft less than 3 years old are selling between $22-25M range.

0

5

10

15

20

25

30

35

40

$0

$5

$10

$15

$20

$25

$30

Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

G450 For Sale G450 Transactions G450 Fleet Avg Value

G450 year over year depreciation is -25 % between Q2 2015-Q2 2016

Airc

raft

For S

ale

x$1M

USD

G450 Market Summary

In production335

Deals Pending4

Net For Sale25




Transactions YTD19



Avg Price Reduction-9.9%

Current G450 Ask Price Range$11.75M - $29.95M USD



Q2 2016 Sale Price Range$9.5M - $25.5M USD

G450s Withrdawn Q2 20166

% Enrolled on RRCC83

29


5

As of June 27, 2016Gulfstream G450 Value/Transaction History



Current Supply of GV’s in the market:

GV inventory is currently at a 36 month low with only 11 aircraft for sale. Two Aicraft are under contract and an additional 2 are for Lease Only which reduces the net supply to 7 aicraft for sale. Ask prices currently range from $10.75M for a 2001 vintage with over 13,500 hours and Rolls Royce Corporate Care to $13.995M for a 2002 vintage with 7,000 hours and Rolls Royce Corporate Care.

GV transactions slowed in the second quarter with only 3 aircraft to go under contract in comparison to 9 deals in the first quarter. Demand remains strong for GV’s and pricing has stabilized to a degree but there are few turn-key GV’s currently on the market that are priced attractively.

The GV pre-owned market is arguably the most stable large cabin Gulfstream market. With only 6% of the fleet for sale, it can be difficult to find an aircraft that meets the buyers demands. The current quarter had only 3 published price reductions accounting for an average reduction of -6.42%.

As of June 27,2016

0

5

10

15

20

25

$0

$5

$10

$15

$20

$25

Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

GV On Market GV Transactions GV Fleet Avg Value

Airc

raft

For

Sal

e

x$1M

USD

GV year over year Depreciation is -20% between Q2 2015-Q2 2016

Gulfstream GV Value/Transaction History

In production191

Deals Pending2

Net For Sale7


Available For Sale 24 MO High23-Q2 2015

Available For Sale 36 MO Low11- Q2 2016

Transactions YTD12



Avg Price Reduction -6.42%

Current GV Ask Price Range$13.995-10.75M USD

Current GV Avg. Ask Price$12.5M USD

Avg Sale Price Q2 2016 $13.75M USD

GV Withdrawn Q2 20162

% Enrolled on Engine Program63

% Equipped With Forward Galley36

11


6

GV Market Summary



Current Supply of GIV-SP’s in the market:

As of June 27, 2016

0

5

10

15

20

25

30

35

40

45

50

$3

$4

$5

$6

$7

$8

$9

$10

$11

$12

Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

GIV-SP For Sale GIV-SP Transactions GIV-SP Transactions GIV-SP Fleet Avg Value

x$1M

USD

Airc

raft

For S

ale

GIVSP year over year Depreciationis -14% between Q2 2015-Q2 2016

There are currently 36 Gulfstream IV-SP, G300 and G400s for sale on the pre-owned market. Supply dropped in Q2 2016 because 14 aircraft were removed from the market via a sale or permanently withdrawn.. There were 9 new aircraft introduced to the market in Q2.

While “Book Value” indicates the GIV-SP market only lost 3% of its value over the last quarter we believe this number will be sharply revised in the next quarter. There were 21 advertised price reductions for GIV-SP’s in the past 120 days. The average price reduction was 9% which indicates that sellers are highly motivated.

Transaction volume has maintained strength in 2016 with nearly 20 aircraft selling or under contract since January. Late model G400’s are feeling the pressure from the G450 market where the price delta between the 2 models continues to narrow. The older GIV-SP’s are feeling the pressure from the straight GIV’s which are selling between $1.5M to $3.5M.

GIV-SP Market Summary

Gulfstream GIV-SP Value/Transaction History

In production335

Deals Pending3

Net For Sale33




Transactions YTD20



Average Price Reduction9.87%

Current GIV-SP Ask Price Range$3.995M - $9.95M USD

Current GIV-SP Avg. Ask Price$5.68M USD



% Enrolled on Engine Program47

% With High Speed Data38

36





As of June 27, 2016

We finally have some news in the G280 market. The first pre-owned G280 sold in the second quarter. A 2015 ferry time airplane with average options sold in the mid $17’s. Almost immediately after, two more G280’s went under contract. Prices are to be determined.

Currently there are 4 aicraft for sale with 2 deals pending and 1 aircraft for lease only reducing net pre-owned supply to 1 aircraft. The supply of G280’s for sale had previously peaked at 7 back in mid Q1 2016.

Ask prices for the G280 range between $14.75M and $21M. The pre-owned market has been competing directly with the manufacturer where a new G280 will deliver in Spring 2017 to customer specification.

HJG expects the pre-owned G280 pricing to stabilize in the short term with a lack of supply as long as the manufacturer doesn’t cut prices further.


In production91

Under Contract2

Net For Sale1


Available For Sale 24 MO High6-Q4 2015

Available For Sale 24 MO Low0-Q3, 2014

Transactions YTD3


Number of Price Reductions2




# With High Speed Data2/4

#Enrolled on Engine Program3/4

# Based in US2/4

Average Days On Market131**

04


G280

8

G280 Market Summary

0

1

2

3

4

5

6

7

8

9

10

$0

$5

$10

$15

$20

$25

Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

G280 For Sale G280Transactions G280 Fleet Avg Value

G280 year over year Depreciation is -15.3% between Q2 2015 -Q2 2016

Airc

raft

For S

ale

x$1M

USD




As of June 27, 2016

There are 38 G200s for sale on the pre-owned market with at least 6 aircraft currently under contract. Current pre-owned inventory remains close to record highs and shows little sign of reducing in the near future because more airplanes are being added than sold.

The G200 market is one of the most competitive and active pre-owned markets. There have been 10 transactions, 12 price reductions and 9 new aircraft listed for sale since the beginning of the quarter.

A large portion of the recent transactions have involved Net Jets aircraft that have been traded to Bombardier that tend to sell in their own segment due to the uniquely higher time.

Ask prices for models older than 2002 are generally below $4M and G200’s built in 2008 are asking as much as $7M.


In production246

Deals Pending6

Net For Sale32




Transactions YTD19








% Based in US57

Average Days On Market305

38


G200

9

G200 Market Summary

0

5

10

15

20

25

30

35

40

$2

$3

$4

$5

$6

$7

$8

$9

$10

Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

G200 For Sale G200 Transactions G200 Fleet Avg ValueAi

rcra

ft F

or S

ale

x$1M

USD

G200 year over year Depreciation is -17% between Q2 2015-Q2 2016



Current Supply of G150s in the market:

0

2

4

6

8

10

12

14

$6.0

$6.5

$7.0

$7.5

$8.0

$8.5

$9.0

Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 G150 For Sale G150 Transactions G150 Fleet Average Value

Airc

raft

For

Sal

e

X $1

M U

SD

G150 - Q22016

G150 year over year Depreciation is -11% between Q2 2015-Q2 2016

As of June 27, 2016

There are currently 12 Gulfstream G150s advertised for sale - the highest levels this market has seen in nearly 2 years. There are currently 2 aircraft under contract reducing net supply to 10 aicraft for sale.

Over the past 6 months, pre-owned inventory has doubled from 6 to 12. Although transactions have picked up with 3 deals in the second quarter, Demand has increased over the previous 2 quarters, yet not at the levels the G150 market witnessed last summer when five G150s sold in Q3 2015.

Current “Book” values have remained relatively stable in 2016 with Quarterly depreciation of -2.69% over Q1 2016, however values have dropped 11% between Q2 2015 and Q2 2016.

Despite increased deliveries for smaller aircraft at the competitors Embraer and Textron, delivered only 5 new G150’s in 2015 which makes us wonder how much longer the OEM can justify producing their smallest model.

G150 Market Summary


Active Fleet115

Under Contract2

Net For Sale8

% Of Fleet For Sale6.9%

Available For Sale 24 MO High9 -Q1 2015 &Q1 2016

Available For Sale 24 MO Low7 in Q2 & Q4 2015

Transactions Q2 20163

Transactions Same Period 20152


Average Price Reduction 9%

Current Ask Price Range$4.18 to $7.2M USD

Current Mean/Median Ask Price$6.01M / $6.29M

For Sale w/ High Speed Data30% (4 of 12)

For Sale w/ Engine Program91% (11of 12)

For Sale w/ DFDR8% (1 of 12)

For Sale w/ U.S. Registration 66% (8 of 12)

12


G150



Recent Transactions

2002 Gulfstream VSN: 665

Sold February 2, 2015 Sold March 9, 2015 Sold May 6, 2015

2004 Legacy 600SN: 145770

2015 Gulfstream G650 SN: 6117

Acquired April, 2015

2007 Gulfstream G550SN: 5154

Acquired May, 2015


Acquired June, 2015


Acquired July, 2015


Sold August, 2015

1995 Gulfstream IVSPSN: 1265

Sold September, 2015


Sold September, 2015


Sold January, 2016


Sold January, 2016




Currently Available


1994 Gulfstream GIVSPSN: 1242


12

“In founding Hagerty Jet Group, we set out to build an independent

firm that excelled beyond traditional aircraft brokerage.”

- James Hagerty

Hagerty Jet Group is a business aircraft brokerage firm providing aircraft sales, marketing and acquisition services to large corporations and high-net-worth individuals. Founded by veteran Gulfstream Specialist James Hagerty, the firm is located in Savannah, Georgia conveniently near Gulfstream’s headquarters.

Gulfstream® Sales and acquisition experts

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IN THIS REPORT Gulfstream Quarterly Market Update · 2016-07-06 · Gulfstream® Q2 2016 Market...

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Transcript of IN THIS REPORT Gulfstream Quarterly Market Update · 2016-07-06 · Gulfstream® Q2 2016 Market...