We expect supply-demand issues to carry through the end of the year before inventory improves.
AAF saw Aircraft financing demand for Q2 and Q3 as a bit choppy. In May activity was down 10.1% (vs. prior month), in June it bounced back up 6.9% and towards the end of June things began to fade again. This trend continued into July, with some improvements in early August.
Single-engine aircraft listings doubled in the last week of May, peaked in the third week of June, and then dropped drastically (50 percent) in the final week of June. At the end of July and early August we saw a brief bump in the weekly number of new single engine aircraft listings, which subsequently dropped. This seemingly coincided with a weak July, an improving August, and a slowing later in August.
The lack of used aircraft inventory means fewer customers who are approved for a loan are closing on the sale. Approval-to-funding ratios remained at historic lows due to the lack inventory which in turn has caused finance buyers to lose out to cash buyers. Additionally, because of the lack of inventory we are seeing more and more aircraft with issues discovered during the prebuy process, causing buyers to back out.
Most in the industry are preparing for a busy fourth quarter, assuming they can find quality aircraft. It seems folks are no longer as nervous about when the music is going to stop and when the impact of inflation and higher interest rates will cool demand. Our estimation is we will continue to see slight increases in the prices of aircraft but only for a little while.
Our primary indicators (financing leads and aircraft listings) have been pointing to strong demand and very little supply. However, in early November we are starting to see the number of new weekly single engine piston listings increase to pre summer levels. In the turboprop and owner flown light jet segments though, listings are still at near term lows. As stated previously, what we are seeing is that what’s available is the less desirable aircraft.
We have an additional incentive in place keeping folks interested in buying and that is 100-percent bonus depreciation from the 2017 Tax Cuts and Jobs Act. Given this will be the last year at 100 percent (in 2023 it will step lower to 80 percent, tapering down by 20 percent every year to 0 in 2027), we anticipate a push to get deals done through the fourth quarter. As far as the forecast goes, the pendulum won’t likely swing and cause things to slow (triggering inventories to improve) until sometime in 2023.