Welcome to my video presentation for February 11. The accompanying article is a condensed transcript. For a “deeper dive” into this topic, which includes charts, watch my video.
Despite the resurgence of international scheduled services, there remains robust demand for specialized business/VIP aircraft, driven by discerning clientele seeking exclusivity and comfort in their travels.
That said, there are considerations regarding corporate Environmental, Social, and Governance (ESG) requirements that cast a shadow on the use of such aircraft. Additionally, the trend towards chartering rather than ownership, especially with aircraft lying idle for extended periods annually, threatens future demand.
Both Airbus and Boeing are grappling with the challenge of ramping up production while facing constraints in slot availability for their airliner business jets. The onset of the COVID pandemic provided an unexpected boost to dedicated VIP aircraft, as affluent individuals sought refuge in the safety and seclusion they offered. Even with the reopening of borders, the market has expanded to encompass a wider array of destinations accessible by such aircraft.
The global business/VIP jet market is enjoying multi-year growth, with unit sales expected to grow from $28.64 billion in 2023 to $36.94 billion in 2028.
Initially dampened by geopolitical tensions, notably the Russia-Ukraine war, the business/VIP aircraft sector has rebounded, leveraging the easing of COVID-related restrictions and a broader aviation market recovery. The bull stock market of 2023 is extending into 2024, creating a general “wealth affect” that stimulates demand for such aircraft.
Though conversions remain relatively scarce, inflationary pressures have driven up the cost of such endeavors. Despite this, the value of airliner-type business jets continues to decline, a sharp contrast to the soaring values witnessed in the dedicated business jet market, where some have doubled in value within the span of a year.
The resurgence of the global economy is a boon for the business jet market. The International Monetary Fund projected in February that the global economy would grow on a year-over-year basis by 3.1% in 2024 and 3.2% by 2025. At the same time, interest rates and inflation are declining around the world.
Recent analysis of industry data by Airbus Corporate Jets (ACJ) shows there are 14,632 private jets in the U.S., about 62.5% of the world’s fleet.
Among private jets in the U.S., 37.5% are categorized as heavy or long-range, 36.5% as light, 20.5% as midsize, and 5.5% as very light jets.
Then there’s VVIP (Very, Very Important Person) jets, which are the largest corporate jets available to buy, and also the most expensive. VVIP jets use the same airframes as commercial aircraft, but the key difference between a commercial aircraft and a VVIP jet is the opulent interior.
Assessing the worth of a VVIP aircraft proves to be a subjective endeavor, far removed from a mere calculation of conversion costs or hull value sans interior. The bespoke interior styling of most VVIP aircraft renders them less appealing to subsequent buyers, despite common features like conference rooms, bedrooms, and lounges.
These realities necessitate adjustments in valuation methodologies, particularly considering the need for overhauls in layout and color schemes over time. While some accounting firms adopt a stringent stance, assigning minimal value to interiors, especially post-five years since refurbishment, such a blanket approach may not align with the unique characteristics of certain aircraft.
Furthermore, VVIP aircraft typically boast lower airframe and engine usage, with some airliner types never undergoing engine overhauls even after two decades of service.
For widebody aircraft, the cost of outfitting a VVIP interior can soar into the hundreds of millions of dollars, yet an average large twin VVIP aircraft may command a price tag under $100 million.
Another downside for the VVIP customer is that they may pay a significant amount for fitting out the aircraft but when it comes to a sale, a subsequent buyer may wish to make major changes which effectively negates much of the original expense and reduces the value. Some accounting firms do not even attribute any value to the interior after a few years and instead value the aircraft as an empty hull.
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