“It’s tough to make predictions, especially about the future.”—Yogi Berra
As published in BusinessAir Magazine Issue #12.
Before we move on to 2022 predictions, I always like to make a few comments about how we did last year. Despite the pandemic we actually did get a few things right and a few close.
We predicted the economy would continue at a positive rate. We predicted that the OEM deliveries would be close to 2019 levels. We said older aircraft would continue in the late 2020 trend as an inexpensive option for new buyers to get into aviation. We questioned if the first time buyers would stick with ownership when the maintenance bills started to come, so far they are not bailing out. We forecast that our industry has a lot to offer young people and we feel it is getting more exciting every year with the new projects being discussed. Good quality aircraft are in high demand and we advised if you found one, not to be timid because the next one might take months to find. The frenzy of the last quarter made this a reality with many transactions taking place prior to the aircraft hitting the open market. We projected large corporations would open up their aircraft to lower tier management people. This one is still up for debate. It appears that is a mixed bag. All in all, we did fairly well, although we ended up being more conservative on the inventory levels and demand.
Now for 2022
We feel the economy will continue along at a slightly positive rate. Largely due in many areas of pent up demand. Inflation is a concern but as long as it does not get up to early 70’s levels it will be manageable.
The pandemic has introduced a new group of private aviation flyers, either due to lack of airline schedules or safety of flying in your own cocoon or both. Many of these people had the financial means to fly private but were thrifty and just did not see the value proposition. Perhaps there is a sense of “you can not take it with you” mentality and why expose yourself, your family members and employees to unnecessary health issues. As anyone who has enjoyed private flying can attest, once you get acquainted with flying private, it is really hard to go back to the airlines. We think demand for private aviation will be here for several more years at all segments of the spectrum.
We predict new aircraft deliveries being very close to 2019 levels. This one is not hard, as new aircraft deliveries with the exception of 2020 have been plus or minus one standard deviation for the past decade. We do think we will see the OEM’s start to cautiously increase production rates. However, they also will want to get their margins back to normal levels before they increase production by many units. Most OEM’s are sold out until 2023 with their popular models.
Older aircraft and less expensive aircraft will continue with their 2021 trend as an inexpensive way to get into the private ownership. We still have concerns about new owners being surprised at the cost of ownership and perhaps reverting back to the next level like a fractional program or card program.
For young people, there are going to be even more exciting ways to be part of aviation with the evolution of urban mobility machines, drones delivering packages and the search for more sustainable power sources. Very exciting times to be a young engineer involved in aviation. We also think that these new ventures will attract some young talent into the aviation market as these areas are considered the next frontier. In addition, some very smart people are working on attracting pilots and mechanics into aviation. Knowing there is a long-term career path is going to be vital for attracting this talent pool.
Good quality aircraft of all ages will remain in demand. We think the older aircraft will continue to find homes, however as good quality aircraft disappear we do see buyers moving into later model aircraft. As corporations begin getting back to normal we see them planning for the future and upgrading or at least making plans to upgrade their fleets. This will provide badly needed late model inventory. See next paragraph for background on another reason inventory will remain low for many years to come.
Every year we get past the 2008/2009 financial crisis is a reminder that starting shortly after that, the OEM’s cut production levels. And for the past decade new aircraft deliveries have remained stagnant. There just are not as many 10 year and newer aircraft to choose from and that will be the case for several more years to come.
We do not believe we have gotten to bubble pricing. We think 2022 will remain higher than 2019 levels. However, as we wrote a few months back, if the prices revert back to historical baseline prices, many aircraft are not in bubble territory. We believe we will have normal historic year over year depreciation but the starting point will be higher due to less OEM discounting and the market values catching up to that historic baseline.
2022 should be a good year and hopefully we will see some inventory start to loosen up. It will be a chain reaction as when someone can find a plane to move up to, and then there is another one in an older or smaller class available. This should accelerate once the corporations and HNWI start taking delivery of planes that have been ordered in 2021.
Mike McCracken
President
Hawkeye Aircraft Acquisitions
