VREF's Private Aviation Predictions For Q4 2022
The past few years have been a whirlwind for aviation, but private aviation predictions are still trending up despite the economic jitters and higher interest rates. There are still issues, such as the nationwide labor shortage and manufacturing and supply chain delays. But, buyers worldwide continue to show interest in pursuing aircraft acquisitions, and more importantly, they seem to be shrugging off issues other asset classes are starting to face.
The general public may not think much about private aviation, but the industry's success and slowdowns speak volumes about the state of the economy. In many ways, it reflects decisions being made, economic trends, fluctuations in company revenue, and much more.
As businesses gear up to hit the books and crunch their numbers before closing out Q4 and 2022, VREF is offering its predictions for the future of private aviation.
Private Aviation Predictions For 2022 & Beyond
Learn more about the good, the bad, and everything else expected of the aviation industry.
Many hope to suddenly see aircraft manufacturers pump out enough aircraft to meet public demand. However, there is not much change when it comes to production. And if you weren't among the many to buy new aircraft during the pandemic's peak, you will have to join the line like everyone else to get your hands on any new plane.
We expect a few events, like an increase in loan defaults, which may mean you can slip in and find an aircraft regardless of inventory. But similar to the auto and housing industry, you might be hard-pressed to find an aircraft owner looking to liquidate; after all, unlike in 2008, just about every loan on an aircraft requires a substantial downpayment. That "skin in the game" should prevent a massive number of defaults. It's a waiting game, but if you want a new plane, get ready to wait even longer.
It's equally important to keep in mind that most aircraft backlogs are out until 2025, and that's just general aviation; business jet demand has backlogs out to as far as 2027 in some cases, with most interim positions restricted from resale again, unlike 2008, speculators do not control the order book. With a lack of inventory, there is no immediate gratification, and potential buyers' quick-close mentality is fading away.
Bonus Depreciation Expiration
If your business bought an aircraft after September 27, 2017, you might be eligible for bonus depreciation. Only suitable business aircraft will receive a 100% bonus depreciation in the same year as the purchase, according to the 2017 Tax Cuts and Jobs Act (TCJA).
The goal is to encourage small businesses to make investments that will stimulate the economy. It works by allowing companies to write off the depreciation of purchases all in one year. By taking the write-off now, businesses can free up cash flow instead of having to write off smaller amounts over the next few years.
The bonus depreciation plan will begin to phase down on January 1, 2023. But it won't be a complete surprise if the deadline is extended. This is good news for businesses planning to close their aircraft purchase next year. Take advantage of the opportunity to write off your aircraft 100% while it lasts if you haven't already.
Higher Aircraft Prices
Aircraft manufacturers have suffered tremendous losses these past few years. So, while their books may be packed with buyers, they aren't exactly able to rebound as quickly as they would like. The labor and materials shortage is still a significant issue, which causes delays and increased spending on raw materials and other parts.
The question is…how will they recoup their losses?
You can expect future aircraft to have a price tag that is likely much higher than anticipated. All those bells, whistles, and upgraded technology will demand top dollar as production picks up. For example, Cirrus' 2022 SR22T has a base price of $827,900, assuming you ordered one years ago; if not, be prepared to pay an additional premium of 20%. However, we can expect that number to reach the millions with newer models easily. As many OEMs held 2021 pricing for 2022, inflation and escalating manufacturing costs will require many to raise prices to keep up.
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More Luxury Spending & Lending
Mortgage rates are reaching their highest point since the housing and financial crisis of 2008. Once again, predatory private mortgage lending and unregulated markets are to blame. Despite the pandemic, 2020 produced over 5 million new millionaires. And with individual wealth on the rise, these same individuals are itching for something to spend their money on.
For some, this includes private aircraft purchases. However, cash flow and liquidity will be a concern as the amounts lent are substantial. Our prediction? So far, nothing seems to be putting the brakes on consumer spending, as the demographic that can afford private aircraft is somewhat isolated from the issues many faces today. The truth is when interest rates go up, the wealthy pay cash. But even with interest rates on the rise, the adjustment to the total payment is relatively small. Indeed, it won't cause a buyer of million-dollar aircraft to think twice about affordability.
Push For Environmental Changes
Concern for the environment is nothing new. But it is gaining more attention in the aviation community. For example, celebrities like Taylor Swift, who use and consume private aircraft for their lavish lifestyles, will continue to be held accountable by the general public. For manufacturers, many of these celebrities will be pushed to the front line for their aircraft purchases. But stars aren't to blame for the state of our environment, and they are a drop in the bucket of a much larger problem.
What we expect from these concerns may mean a push for larger aviation corporations to develop innovative technology that negatively impacts the environment. If only it were that easy! Doing this will take a severe amount of time and focus from those manufacturers. In addition, lowering the effects of air travel will depend on whether it's even a goal for manufacturers moving forward. There's a bit of uncertainty, but some aviation companies are striving to find new solutions to age-old problems.
Stay Up To Date On Private Aviation Predictions With VREF
As a potential buyer, especially if you're part of a business, don't wait to buy an aircraft. Prices will go up, and it's not a question of if anymore but when. If you're on the fence about your purchase and know you need or want one shortly, get your name on the list now because we don't expect the hype around private aircraft to diminish soon.