Buyers in the market for new private jet aircraft and hoping for immediate delivery are out of luck. Most manufacturers (OEM’s) and especially those who produce the ‘high-end’ of the market aircraft such as Gulfstream, Bombardier and Falcon will be informed by the salesmen that the wait time will be in excess of twelve months and sometimes more than twenty-four months. These backlogs were even in evidence during the 2008 financial meltdown, albeit with a shorter wait time.
Those new-jet buyers that don’t want to wait their turn at the aircraft manufacturers’ delivery door can instead explore the new-aircraft “position” market. The first piece of valuable information that we can offer is that the manufacturer will never offer a position opening (if an OEM becomes aware of a canceled order) to a buyer who walks in ‘off-the-street’. Gulfstream, for example, will simply approach another position-owner elsewhere in the delivery schedule and offer a “move-up”. Hence, there is often a shuffling of positions within the OEM that never becomes public knowledge.
POSITION BUYING OPPORTUNITY
On the other hand, there are position owners who are not willing, or at least are reluctant, to negotiate with the OEM when a position becomes surplus to requirements. The reasons can be related to deposit/progress payment issues or market conditions that may indicate a possible profit (premium) from a position sale.
In either instance, the position-holder will search out possible buyers using either a readily available peer-to-peer network or they will turn to companies like Aviatrade to quietly source a buyer. These off-market opportunities are generally kept confidential and are transacted expeditiously so as to avoid exposure and attendant unwanted attention. The OEM’s frown upon this position-sale practice because of course it dilutes the OEM pool of captive and potential buyers and there will often be veiled references to ‘consequences’ for the position holder, if a sale is ‘outed’ before completion.
There are some owners who simply prefer to cast a wider net and approve some sort of listing or advertising for their position sale, however, this approach almost certainly risks involving a ‘daisy-chain’ of brokers who will all want a ‘piece of the commission pie’……with associated and unnecessary costs to a buyer and/or seller.
As may be evident, any premium that may result from a position sale by giving a buyer a jump on OEM deliveries will depend upon a number of factors.
- The immediate desirability of a particular model (think Gulfstream G550 or Global XRS/6000)
- The current OEM-stated “next available delivery” slot.
- The length of the wait time before the position delivery.
- The particular contracted options package.
POSITION SALE TIMING
The optimum timing for a position sale is in the months just prior to the outfitting deadline as stated in the OEM Purchase Contract. For example; Aviatrade knows of a G550 position that will deliver in December 2012. The position seller had a window until the end of March to select the floorplan/custom interior appointments and select the options package.
This is clearly the most advantageous time to both sell and buy a position because seller can offer a “fresh canvas” on which to “paint” and a buyer can personalize the aircraft. Obviously, this sort of timing generally generates the biggest premium for the seller.
Of course, timing is everything and a position–seller must balance the timing of the sale …if left too late, the OEM will require a commitment to the customization schedule and thereafter changes may be impossible (for example, galley configuration forward or aft) or there will be change penalties (cost).
However, it doesn’t necessarily follow that a position sale price will be impacted if interior cosmetic and outfitting selections have been committed to. The price negotiation will be dictated by the respective priorities of both buyer and seller. For example, a seller may be financially ‘squeezed’ in terms of having to sell, thereby more amenable to discounting, or a buyer may be anxious to secure a new-aircraft position at any cost, thereby more amenable to paying a premium. It is therefore advantageous to use the services of a company such as Aviatrade because we can provide access to non-public information that may give a position-buyer an advantage when negotiating with a seller…….knowledge is power !
THE LEGAL ASPECTS
The business and technical evaluations must be considered in concert with the legal requirements pertaining to the existing sale contract and transfer thereof. Most OEM contracts provide for transfer or sale prior to delivery…..or, at least, they do not expressly forbid the practice. In fact Aviatrade has knowledge of these positions being transferred even when progress payments have been delinquent. Of course, under this scenario, there is rarely a premium being paid because the position seller is generally only too happy to be relieved of the financial burden. In some instances, a buyer may be fortunate enough to extract a greater discount that will result in the position seller contributing additional payments at the closing…..this occurs when a position is ‘under water’ and a seller must sell before an upcoming sizable progress payment.
A word about payment schedules because as can be seen from the above example, these payments can figure significantly in the position-sale rationale; After a purchase contract is signed, an initial deposit is placed with the OEM, followed by progress payments at various points in the pre-delivery period and a final delivery payment upon acceptance of the aircraft. At a certain point (fairly early on) in the pre-delivery, the deposit will become non-refundable. Under certain extenuating circumstances, the deposit may be returned to the position-holder (not surprisingly perhaps, most often when the OEM knows that it can immediately fill the vacant slot). At other times, the OEM may retain all or part of the deposit, depending upon such factors as the particular relationship with the position holder and any such deposit refund negotiation is usually handled by the aviation attorney.
The services of an aviation attorney are not only absolutely necessary when performing these sometimes risky transactions, it is also advantageous when notifying the OEM that a position sale is about to (or is) take place. The reason is that most of the top end aviation attorneys already have good relationships with the various OEM legal/contracts departments and so oftentimes the attorney can resolve what might be otherwise contentious issues between the position seller, the OEM and the position buyer. A good aviation attorney will also protect the position-buyer’s interests in the interim period leading up to the actual delivery. Aviatrade can recommend one of the most experienced international aviation attorneys for this sort of oversight.
THE G650 POSITIONS
In years past, major corporations and wealthy individuals would quite often place orders for multiple aircraft, then sell (say) two out of three positions at a profit. The profit would then be used against the cost of outfitting the remaining aircraft order……and ‘voila’, a free interior !
Gulfstream Aerospace, in an effort to strictly control the flow of its G650 positions and to prevent speculation has inserted language into the G650 purchase contract that specifically bars any form of position sale.
This has, of course, thrown down the gauntlet at the feet of the legal community who have, not surprisingly, responded by developing and drafting legal solutions that will enable a quasi-position sale to be effected….or at least provide a mechanism whereby a position buyer can be assured of a G650 prior to the current late 2017 OEM G650 delivery availability. Needless to say, Aviatrade is active in this G650 market with an appropriate aviation attorney-sponsored template for such a transaction and we are aware of G650 positions that are available for sale.
SPEED IS OF THE ESSENCE
In closing, we would be remiss if we did not point out that these position sales in the ultra-long-range category aircraft do not sit around for long before being snagged by buyers. Unfortunately, our experience in China has revealed a lack of appreciation of this key factor. Consequently, a number of Aviatrade’s clients have unfortunately lost out on what have subsequently proved to be extremely good deals in the position market, therefore perhaps a worthwhile reminder of the old adage……the early bird catches the worm !