A Sense of Where We Are

Activity

Here at AirFleet, we can attest to an increase in activity in prospects shopping for aircraft. During the past four weeks we visited over 55 airports around the country, and the feedback we received universally from aircraft sales professionals was that activity has started increasing, and in some cases above 2008 activity levels year-to-date.

But don't just take our word for it, here are some comments from well-respected sources in our industry to support what we've been seeing and hearing recently. According to Vref (the Aircraft Value Reference) in their most recent quarterly newsletter, "activity us up almost across the board". In addition to this, Controller Magazine reflects a 3.4% decrease in for-sale inventory over the past 60 days. Perhaps the most pertinent comments came from UBS in their Business Jet Monthly report published last week - noting that their "straight up measure of absolute business conditions increased for the first time in over a year". In their survey of customer interest, USB reported a "42% increase in customer interest" in the past month.

Aircraft Values

According to UBS in their Business Jet Monthly report, inventories remain at record high levels but "finally look to be stabilizing". With respect to values, "despite stabilizing inventory levels, used pricing continues to fall, with average asking prices for most young aircraft models 30-40% below peak levels and off another 3-4% over the past month". However, on the lighter aircraft side, Vref reports in their June newsletter that there was "no change in the Vref Light Single Index" - reflecting that "most light piston singles have stabilized" in value.

Interest Rates

Overall, underlying rates have stopped their downward slide and have actually crept up a good bit in the past 3 months (they bottomed-out around mid-March). As of June 30th, 3-year treasury rates had crept up a half-point since March 18th, while 7-year treasury rates had crept up over a full point over the same period (although they have both dropped from higher peaks earlier in June). Consider this when evaluating an aircraft loan - according to Bankrate.com, interest rates for a new car, unaided by a manufacturer- or dealer-sponsored rate buydown, were at 7.29% for 4 years last week (a similar used car loan was at 7.89% for 4 years). Aircraft loan interest rates comparatively start in the low- to mid- 6's today and can be fixed for up to 20 years.

Financing Appetite

Bank appetite varies on a number of items, not the least of which includes current default activity. If a lender is engaged in recovering assets from current note-holders, their focus may not concern ongoing expansion of their loan portfolio. From a practical standpoint, if the Titanic is sinking, the Captain isn't thinking about how to design a better boat, he's focused on preserving the ship and the people in it. With a decrease in the current level of defaults, and a growing desire in the banking community to start booking loans again, the lending system is starting to repair itself. As the market starts to heal and the banks start to heal, appetite will continue to return.

Reflective of this, UBS reported "improved financing availability" compared with conditions in March in their Business Jet Monthly. This month financing availability (worldwide) moved into the positive territory for the first time this year, a clear sign that appetite is returning to the finance market.

Although the dust hasn't completely cleared, we are seeing things start to shift and are optimistic that with increased confidence and buyer's realizing the great market they find themselves in today, conditions are starting to improve.