IN THIS REPORT Gulfstream Quarterly Market Update · Thanks for downloading the Q4 2016 Gulfstream...

Gulfstream® Q4 2016 Market Update

Gulfstream Quarterly Market UpdateThanks for downloading the Q4 2016 Gulfstream Quarterly Market Update. If you are not currently subscribed, please click on the link at the bottom of the report to sign up to receive future editions.

Large Gaps in Gulfstream’s Product Line Leaves Opportunity for Cessna and Embraer

In October this year, Gulfstream announced production would soon end for the venerable G450. Weeks earlier, the same end was announced for the G150. While the incoming G500 is today’s segment mix replacement for the G450, no immediate replacement is planned for the G150. The changes reinforce Gulfstream’s dedication to serve its core client base with large-cabin, long-range aircraft, but the new mix also exposes sizable price and performance gaps that the G450 and G150 once filled.

The very capable G150 was Gulfstream’s way to introduce mid-cabin buyers to the company’s product portfolio. Only 121 G150’s are in service since the airplane was introduced in 2006. The majority were delivered between 2008 and 2009; in line with entire industry trends at the time. Following the peak, Gulfstream struggled to deliver more than 6 airplanes in any given year. The plane’s lack of success was less about performance or product support, and more about price competition. Competing manufacturers often discounted prices, while IAI’s inflexible pricing model made it difficult for Gulfstream to make a reasonable profit to sustain production.

The G450 is the final derivative of the GIV. The type design began production in the mid 1980’s as the IV and later became the IV-SP, G400 and eventually the G450. Over 870 aircraft were delivered making it one of the most successful business jets ever. However, despite continuous improvements, the GIV lineage is now perceived by many as dated and due for retirement. Gulfstream’s newest model, the G500 is expected to begin delivering ahead of schedule in late 2017. It’s an amazing aircraft by all measures with a Clean-Sheet design and cutting-edge technology. The G500 will fly 600nm farther than the G450 at faster speeds and with more cabin space However, with a price tag around $45M, not including options and/or escalation, the G500 is in a different price/performance category than the G450 was historically positioned. Ideally, the G500 will compete directly with Bombardier’s Global 5000 and Dassault’s Falcon 5X which is expected to begin deliveries in 2020.

IN THIS REPORT

Newsletter......................1-3G650 Market .................. 4G550 Market ................. 5G450 Market .................. 6GV Market ..................... 7GIVSP Market ................ 8G280 Market .................. 9G200 Market...................10G150 Market...................11Recent Transactions.... 12Aircraft for Sale..............13

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

http://www.hagertyjetgroup.com

When Gulfstream acquired the Galaxy (G200) and Astra (G100) programs in 2001, the justification for the acquisition was to introduce small and mid-size business jets to current and potential Gulfstream owners early in the product upgrade cycle; i.e. build customer loyalty and grow the relationship up the product line. Many of Gulfstream’s top management at the time had come from Cessna where the brand loyalty and a diverse and sequential product line offered practical move-up solutions. Prior to the IAI deal, Gulfstream offered only the GIV-SP for around $30M and the GV at $40M. The strategy behind the acquisition proved to be a success as many G200 and G150 owners eventually upgraded to long range, large cabin legacy Gulfstream aircraft.

Today with the end of the G150, Gulfstream’s entry-level aircraft is the super mid-size G280 with a price tag around $20M. The G280 has a 2-zone cabin with seating for up to 10 passengers and a range of 3,600nm. The G280 competes head-to-head with the Challenger 350. Gulfstream’s lack of product choices below $20M makes it unlikely that a first-time buyer will consider a Gulfstream. Leaving Cessna and Embraer with the most to gain in this market segment.

The competition is loaded with new products such as the Citation Latitude and Longitude that are priced in the mid to upper teens. Embraer has already delivered over 50 Legacy 450 and 500 models that sell in the mid to upper teens with ranges of 3,000nm +/- featuring a 6-foot-tall cabin. Embraer will likely generate future Legacy sales from the smaller Phenom 100 and 300 series just as Cessna has been doing for years.

The increased rate of growth for ultra-long range business jets coincided with the expansion of global trade in emerging markets between 2008 and 2012. Gulfstream developed the G500 and G600 based on new demand in the ultra-long segment and to meet and exceed design performance from other OEMs. With long lead times to design, build and certify a new product, it’s no surprise that demand for the ultra-long range aircraft has shifted along with the global economy.

Gulfstream’s large-cabin segment leader for the past 30 years has been the G450. It achieves a commonly accepted mission: 4,400nm range, seats up to 16 passengers and a $30M price tag. The G500 offers notable improvements in range and size, but is disproportionally priced compared to the G450. The gap between a $20M G280 and a $45M G500 is too large for both Gulfstream and the competition to ignore. It’s here, we believe, the competition fills the void with new and existing aircraft.

Historically, Gulfstream, Dassault and Bombardier compete fiercely for the ultra-long range segment. Once a growth market with healthy book-to-build ratios, it is now saturated with excess capacity and waning demand. Now, Cessna is filling the void with a new, fully capable clean sheet designs such as the Hemisphere.

With an anticipated price tag of $35M, Cessna plans to certify the Hemisphere by 2020. It boasts a cabin 6 inches wider than the G500/G600 and only 1 inch narrower than the G650. For the first time, Cessna will adopt a 3-cabin zone interior that accommodates up to 19 passengers. The Hemisphere will have fly by wire technology, next gen avionics and fuel efficient Silvercrest engines. With a range of 4,500nm, and a max speed of Mach 0.90, this airplane achieves Gulfstream’s missing G450 mission with a modern and cost-efficient platform.



When Hemispheres deliveries start in 2021 or 2022, operators of a G450, Falcon 900LX or even Challenger 650 will look to Cessna as an alternative to spending $10M more for a G500 with a smaller cabin and slightly more range. Moreover, Cessna continues to demonstrate its ability to successfully deliver clean sheet designed aircraft on-time and within performance paramaters. They have a large and loyal customer base and a well-developed support network. Left unchallenged, we expect the Hemisphere and Cessna to gain significant market share in a segment that has been effectively abandoned by the competition.

How can Gulfstream fill the gap between a $20M, 3,600nm G280 and a $45M, 5,000nm G500? Traditionally, the OEM’s would shorten the fuselage or reduce fuel capacity like Bombardier did with the Global 5000 or Gulfstream did with the short-lived G500 Classic. The manufacturers learned a painful lesson that the cost to build these modified airplanes was essentially the same as the full-size versions and the profit margins are much less.

Rather than investing in the larger and more expensive G600, perhaps Gulfstream should have dedicated research and development capital in the $30-35M segment rather than extend G450 production and sales indefinitely. At a time when manufacturers have excess capacity and foreseeable soft demand, we agree that a second clean-sheet R&D investment is difficult to justify. However, in the meantime, Cessna is well under way in bringing the Hemisphere to market first, leaving Gulfstream, Bombardier and Dassault in a defensive position.

3

3

Citation Hemisphere



Current Supply of G650/ER’s in the market:

As of December 30, 2016

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G650 For Sale G650 Transactions G650 Fleet Average Value - VREF

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G650 year over year Depreciation was -16% between Q4 2015 -Q4 2016

G650 Market Summary

Gulfstream G650 Value/Transaction History

In production220

Deals Pending1

Net For Sale12

% Of Fleet For Sale5.4

Available For Sale 24 MO High21 - Q1 2016

Available For Sale 24 MO Low4 - Q1 2015

Q4 2016 Transactions 4

Q4 2015 Transactions2

Advertised Price Reductions5

Average Price ReductionNA

Current G650 Ask Price Range$50M - $69M USD(Incl. ER)

Avg. YTD Sales Price $60.6M

Current G650 Avg. Ask Price$60.3M USD

% Available w/Fwd Galley85

% Equipped w/ Crew Rest Area85

Average Days On Market314

13

The supply of G650/ER’s has been steadily decreasing over the past 6 months since the supply peaked at 21 aircraft for sale in Q1 2016. Over the past 2 quarters, supply has decreased to only 12 net aircraft for sale or 5.4% of the fleet. There’s at least one deal pending in this market with activity on a few other aircraft both on and off the market.

What’s interesting to note is the lack of like-new or ferry time aircraft for sale. During the peak supply in Q1, there were at least 8 G650’s for sale with ferry time compared with only 2 today.

The majority of G650’s for sale are older models with higher time and there seems to be a lack of demand in the pre-owned segment. Among the 13 G650/ER transactions in 2016, 10 aircraft were ferry-time only.

As a result of the lack of demand for the pre-owned G650 market, aircraft are sitting on the market for much longer - 314 days compared with 209 in our last market update. Sellers for older models have been reducing ask prices to attract attention but without much success. Buyers for this segment of the market have been turning back to the OEM where pricing is more attractive than ever for new aircraft with shorter delivery times.

There were only 5 price reductions in the past quarter but one Seller dropped their ask price by as much as 12% over a 60 day period without success of attracting a buyer. We believe pricing for the older aircraft will be dipping into the mid to upper $40’s within the next 120 days.

© 2016 Hagerty Jet Group



Current Supply of G550’s in the market:

There are 40 pre-owned G550s on the market with 6 deals pending. The current supply represents 8% of the entire fleet of approximately 540 aircraft built between 2003 and 2016. Net supply is technically at 37 aircraft. Supply increased sharply over the past 90 days. Current inventory levels represent a 36 month high.

Year to date, there have been 31 G550 transactions (not including aircraft currently under contract), which is up slightly from the 27 transactions in 2015.

Sale prices have ranged between $17.5M for a 2006 Fwd Galley with 2,500 hours and no engine program to $38M for a 2014 Forward Galley with 250 hours.

Buyers have been finding good deals at all different levels of the market. Recent transactions haven’t been focused on any particular segment.

Supply of aircraft less than 5 years old is down significantly with only 6 aircraft offered for sale that were built in 2011 or newer. Also notable is the lack of supply of G550’s configured with a Forward Galley and Crew Rest Area which is the most preferred.

Although transactions have remained fairly steady for the G550, the recent increase in supply coupled with an average price reduction of nearly -6% indicates we could see additional softening in prices over the next quarter.


G550 Market Summary


In production540

Deals Pending6

Net For Sale37

% Of Fleet For Sale7.4



Transactions YTD31

Transactions Same period 201527

Advertised Price Reductions 9

Avg Price Reduction-5.7%

Current G550 Ask Price Range$14.9M - $39.9M USD


Avg Sale Price Q4 2016$25.2M USD

Q4 2016 Sale Price Range$17.5M - $38M USD


% Equipped with Crew Rest Area55

5

40





The G450 market is showing signs of stabilization following a major pricing correction at the end of Q2, 2016 which stimulated a record number of transactions in Q3. Inventory has remained fairly consistent with 27-30 aircraft advertised over the past 9 months and is expected to remain mostly flat.

36 pre-owned G450’s closed in 2016 which is nearly 20 more than the previous year. It’s notable that activity picked up just when the OEM announced they will no longer manufacture the G450. The end of production was coupled with heavy discounts from the OEM which in turn pushed down on pre-owned values. As a result, the G450 stood out as a better value in comparison to it’s piers: the CL605 and Falcon 2000EXy and won most of the market share in this large cabin, long-range segment.

It’s expected that Gulfstream will sell it’s remaining G450 very soon, if it hasn’t happened already. With a lack of strong supply for late-model, low time aircraft for sale, we expect prices to begin to flatten. In fact, the Book Value only went down by -1.2% in Q4. The G450 took it’s biggest valuation hit in 1Q when it went down -9%.

Early serial number G450’s appear to be priced a bit high with low ask prices around $11.75M. Buyers are finding resistance when looking at G450’s on engine programs below $10M.

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G450 For Sale G450 Transactions G450 Fleet Avg Value

G450 year over year depreciation is -19% between Q4 2015-Q4 2016

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G450 Market Summary

In production343

Deals Pending5

Net For Sale22

% Of Fleet For Sale8



Transactions YTD36



Avg Price Reduction-8.5%



Avg Sale Price Q4 2016$16.5M US

Q4 2016 Sale Price Range$9M - $14M USD


% Enrolled on RRCC72

6

As of December 30, 2016Gulfstream G450 Value/Transaction History

27




Current Supply of GV’s in the market:

The GV market continues to be the most stable of all large cabin pre-owned Gulfsteam markets. There are currently 9 GV’s listed for sale, with 1 deal pending and 1 plane for “Lease Only” reducing net supply to 8 aircraft for sale.

There were a few GV’s introduced to the market in Q4 but pricing appears to be slightly higher. In our last market update, we predicted GV prices would begin to flatten which was demonstrated by only -1.2% drop in Book Values this past quarter.

There were no ask price reductions in Q4 which indicates most sellers are firm on pricing and see no need to drop further.

There’s a lack of turn-key GV’s for sale on the market which will translate to fewer transactions in the coming months. Most deals in the GV market that closed in Q4 were actually contracted in Q3. Only one airplane has gone under contract in the past 90 days.


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GV For Sale GV Transactions GV Fleet Avg Value

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GV year over year Depreciation is -13.5% between Q4 2015-Q4 2016

Gulfstream GV Value/Transaction History

In production191

Deals Pending1

Net For Sale8




Transactions YTD16



Avg Price ReductionNA

Current GV Ask Price Range$10.9 - $13M USD

Current GV Avg. Ask Price$11.9M USD

Avg Sale Price Q4 2016 $9.7M USD

GV Average Days on Market314

% with Fwd Galley55

% With Engine Program77


7

GV Market Summary

9



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


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Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16GIV-SP For Sale GIV-SP Transactions GIV-SP Transactions GIV-SP Fleet Avg Value

x$1M

USD

Airc

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GIV-SP/G400 Year Over Year Depreciation is -14% between Q4 2015-Q4 2016

There are 42 pre-owned GIV-SP, G400 and G300 aircraft on the market with 2 deals pending representing 12% of the entire fleet of 335 aircraft built between 1993 and 2003. 4 aircraft are currently advertised as “Lease Only”. Net supply is technically at 36 aircraft. Ask prices currently range from $3.4M to $6.95M. Supply has remained fairly flat over the past 6 months but still considerably higher than the low in Q1 2015.

Pricing seems to have stabilized as well. We only witnessed 2 published ask price reductions in Q4 which is significantly lower than past quarters where 8-10 price reductions are normal. The Book Value on the IV-SP only dropped by -1.7% this past quarter although the YOY depreciation is closer to -14%.

Eight of the last ten GIV-SP transactions have been older models built between 1993 and 1999 with an average sale price of just over $4M. This would indicate that buyers are finding more value in the lower end of the market rather than spending $2-3M more for a 2000 model or newer with less time.

With so many variables for buyers to take into consideration when purchasing a GIV-SP, it’s inevitable that a Buyer will have to compromise in this market. Buyers have been more focused on interior condition and configuration that they will overlook higher time or engine inspections coming due. Many of the aircraft selling are going into the charter market.

GIV-SP Market Summary

Gulfstream GIV-SP Value/Transaction History

In production335 Incl. G300/G400

Deals Pending2

Net For Sale40




Transactions YTD33

Transactions Q4 20168


Average Price Reduction-8.5%

Current GIV-SP Ask Price Range$3.4M - $7M USD

Current GIV-SP Avg. Ask Price$5.6M USD


Q3 2016 Sale Price Range$3.2M - $5.4M USD


% Enrolled on Engine Program45


8

42





The first pre-owned G280 sold in the second quarter of 2016, causing many market insiders to believe this would act as a catalyst to generate further G280 pre-owned activity which did not happen. The second pre-owned G280 finally sold in October which added one more transaction to the G280’s short transaction history.

Currently there are 6 aicraft for sale with no deals pending. The supply of G280’s has fluctuated between 3-6 aircraft for sale representing about 3-6% of the fleet in service which is a very healthy level in comparison to other current production models.

Ask prices for the G280 range between $13.3M and $18.5M. Most G280’s for sale are not publishing the ask prices but simply Make Offer which indicates that the brokerage community is unsure of what the values of the G280 should be. Most pricing in the pre-owned market is based off the price for a new one from the OEM.

Another interesting note about the G280 market is the lack of North American pedigreed aircraft on the market, with only 50% aircraft avaialble for sale currently listed on the market are based in the US.

G280 book values dropped slightly in Q4 by -1.7%. YOY depreciation was -14% but with so few transactions to report, it’s hard to justify any numbers just yet.


In production97

Under Contract0

Net For Sale6


Available For Sale 24 MO High6 - Q4 2015 & Q4 2016


Transactions YTD2


Number of Price Reductions0

Average Price ReductionNA



N Registered on Market2/6

#Enrolled on Engine Program3/6

# Based in US3/6


G280

9

G280 Market Summary

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G280 For Sale G280Transactions G280 Fleet Avg Value

G280 year over year Depreciation is -15% between Q4 2015 - Q4 2016

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6






The G200 market has been very active in 2016 with a total of 45 transactions. This means that 18% of the fleet traded in the past 12 months. Transactions were up 25% from the two previous years.

One of the strongest influences in the G200 market this year was a large fractional fleet that was traded to a competing OEM towards new aircraft. The market was flooded with approximately 12 high time G200’s that competed heavily on price and helped drive the low end of the market lower which eventually attracted more buyers. The supply of the fractional airplanes is now gone which means there may be more stability in the G200 market.

The average sale price for G200’s that sold in 4Q was $3.7M. This is partially caused by the sales of the high time, fractional airplanes. G200’s are finding homes in the $3M +/- $500K range on the lower end. Newer models built in 2008 only accounted for 3 of the 11 transactions this past quarter and the remaining trades were all built between 1999 and 2003. There were no trades for models between 2003 and 2008 which indicates a correction in this segment of the market is coming.

Ask Prices currently range from $2.95M to $7M. There were only 4 price reductions in the past 90 days with average price drop of -9% compared with 13 price reductions in Q3 with an average -8% reduction which indicates a stabilization.

The Book Value dropped by -20% in 2016 - an average of -5% per quarter.


In production246

Deals Pending2

Net For Sale28



Available For Sale 24 MO Low30 - Q1 2015 & Q4 2016

Transactions YTD45



Average Price Reduction9%

Current G200 Ask Price Range$2.995M - $7M USD



Q3 2016 Sale Price Range$4.25M - $4.9M USD

% Based in US63



G200

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G200 Market Summary

30



Current Supply of G150s in the market:

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G150 For Sale G150 Transactions G150 Fleet Average Value

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Despite the announcement in September from Gulfstream that they would stop producing the G150, the pre-owned market picked up some momentum in the second half of the year with 11 transactions. There were twice as many G150 transactions in 2016 than the previous year.

Like many other markets, transactions increased as prices came down significantly. The book value of the G150 dropped -14% in 2016 which is not as bad as many other Gulfstream markets.

Ask prices currently range between $4.5M and as high as $7M. Sale prices have not dipped below $4M. The highest sale price for a G150 this year was $7.5M.

There are no aircraft for sale that are less than 5 years old.

The supply of G150’s has been fairly stable for the past 6 months with 8 or fewer for sale.

G150 Market Summary


Active Fleet121

Under Contract1

Net For Sale7

% Of Fleet For Sale6.5%


Available For Sale 24 MO Low7 in Q2 Q3 2016

Transactions in 201617

Transactions Same Period 20159


Average Price Reduction -5%

Current Ask Price Range$4.45 to $6.99 $ USD

Average Ask Price$6.2M

For Sale w/ High Speed Data25% (2 of 8)

For Sale w/ Engine Program100%


For Sale w/ U.S. Registration 50% (4 of 8 )


G150

11

8



Recent Transactions

12

2008 Gulfstream 150SN: 254

Acquired Acquired

2001 Falcon 2000SN: 152

Sold

2002 Citation ExcelSN: 5284

2008 Gulfstream G450 SN: 4141

Sold Acquired

1995 Gulfstream IVSPSN: 1294

Sold

2002 Piaggio P-180 AvantiSN: 1050

2009 Gulfstream G550SN: 5230

Sold Sold

2000 Gulfstream IVSP SN: 1411

Sold



Sold Sold


2008 Gulfstream 150SN: 250

SOLD



Recent Transactions


Acquired Acquired


Acquired



Sold Sold

2004 Legacy 600SN: 145770

Sold

2002 Gulfstream VSN: 665

Acquired




Currently Available

14

“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 with a satellite office in Orange County, California.

Gulfstream® Sales and acquisition experts

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2010 Gulfstream G550SN: TBA

1994 Gulfstream GIVSPSN: 1242

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IN THIS REPORT Gulfstream Quarterly Market Update · Thanks for downloading the Q4 2016 Gulfstream...

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Transcript of IN THIS REPORT Gulfstream Quarterly Market Update · Thanks for downloading the Q4 2016 Gulfstream...