The Refurb Aircraft Market: It's Bigger Than You Think
Stratospheric new aircraft prices have opened new markets for capable, older airframes. The trend appears to be gaining traction.
Owning an airplane requires a certain suspension of the economic rules that govern normal people, but on the whole, the airplane industry operates under an even more perverse logic: As sales soften, it raises unit prices, perhaps chasing away those buyers on the margins who might have been toying with pulling the trigger to buy a new airplane.
The result? Nearly everyone in aviation recognizes that the rise in new aircraft prices is all but dooming the industry and while they’re waiting for the nebulous solution to this problem, something curious and not unexpected has happened. A lively industry in refurbishing older airplanes to like-new standards has sprung up and it appears to be gaining market traction. The trend finds action in everything from modest piston singles, to turboprop twins to small business jets. Even the banks are beginning to notice.
While there is a move afoot to reign in new aircraft prices by streamlining FAR Part 23, those economies are several years in the future. Meanwhile, buyers who don’t want tattered airframes but either can’t afford or refuse to buy new, increasingly have a third choice: refurbished to like new.
The accompanying chart from the General Aviation Manufacturers Association shows the troublesome trend that would-be buyers sense and aircraft sellers confront every day. The relevant portion of the graph lies to the right of 2008. Unit production of general aviation aircraft in the U.S. plummeted from 3079 in 2008, to a little over half that in 2012. The bottom of the market was in 2010. Piston production dropped from 945 in 2008 to 415 in 2010 and it hasn’t recovered much since.
Yet just before 2008, as the orange line shows, billings continued to rise as production dropped and although billings declined too, they’ve since flattened out and may be rising again, even as demand remains stunted.
The detailed data behind the graph tells the story. Aircraft prices have risen briskly with falling demand as manufacturers have struggled to stay afloat. Some examples: In 2008, the venerable Cessna 172 retailed for $283,500; a 2014 model will sell for $360,000, an increase of 27 percent and almost a tripling of price since the model was reintroduced in 1997. The popular 182 has increased less, but still rose 8 percent during the same period. The 206 escalated by 11 percent.
Not to pick on Cessna, other manufacturers—Diamond, Piper and Cirrus—have posted similar price increases that, in some cases, far outstrip the underlying rate of inflation on other goods and services. A Diamond DA40, for example, sells for more than $400,000, up from $358,800 in 2008.
To be fair, some of these price increases account for incremental improvements, mostly related to avionics. And although it can be argued that these improve capability, they don’t really improve the airplane’s basic function or performance. Cruise speeds haven’t changed and most still use leaded avgas. Buyers are noticing and failing to see value in new aircraft. A certain psychological price barrier may have been passed.
“So at the higher prices, buyers are saying ‘I could do that. I get it.’ But they won’t buy. It’s not that they can’t, they won’t. They can’t justify it,” says Premier Aircraft’s Jeff Owen. Fort Lauderdale-based Premier specializes in late-model used Diamond, Mooney and Piper aircraft. Owen has years in the industry selling Cessnas, Diamonds and everything else and lately, he and Premier have launched their own response to escalating new aircraft prices: a refurb program of their own for Diamond’s popular DA42 twin.
What’s Out There
There’s nothing typical about the emerging refurb/remanufacture industry, other than that sellers and buyers are finding exceptional value in upgraded airframes brought to near new standards and selling for 50 to 60 percent of the price of new. The refurb industry sorts itself into two broad categories: Companies that offer remanufactured airframes with substantial upgrades such as engines or avionics and those that sell or customize old models with repairs, rework and sprucing up of the existing airframe.
In Premier’s case, the company’s refurb efforts grew out of frustration in trying to spark movement in the used DA42 market. Those aircraft were equipped with Thielert’s Centurion 1.7, the launch diesel powerplant that tarnished the airplane’s reputation when it ran into maintenance and warranty issues in 2007.
Premier primed the used DA42 market by buying up used airframes, gutting them and upgrading the engines to the Centurion 2.0. The airplanes get new interiors and paint, as necessary, and sell for half the price of a new DA42.
“The buyers are seeing good value in that they’re buying a near new airplane with 2.0 engines. That’s compelling,” Owen says. Premier has completed eight of the refurbs and Owen believes the market for used diesel twins will sustain.
Jack Pelton, Cessna’s former CEO and now EAA Chairman, is involved with a twin remanufacture project of his own (through Aviation Alliance LLC) in the Excalibur 421, a ground-up re-do of the Cessna 421. The Golden Eagle is a unique piston twin that remains in strong demand on the used market. Except when the Excalibur conversion is done, it’s no longer a piston airplane but a turboprop, converted to Pratt & Whitney PT6A-135s from the stock—and finicky--Continental GTSIO-520s.
Why not just buy a nice Conquest for a lot less money than the $2.5 million Excalibur will ask for its remanufactured 421? Maybe because the Conquest won’t cruise at 300 knots, the Excal’s claimed performance. Moreover, the Excalibur will be pitched as an essentially new airplane, with Garmin avionics, a state-of-the-art interior and improved brakes and de-icing. “This is really a new airplane,” Pelton told us, and given its range and speed, it fits into a market niche where the 421 cabin and payload finds little competition. Pelton concedes the price is the same as a new Mustang jet, but operational costs and pilot qualification and training will be substantially less.
And speaking of jets, Nextant Aerospace has had what can reasonably be called spectacular success in remanufacturing the Beechcraft 400X/XP into what it markets as the Nextant XT. Thus far, it has completed 32 aircraft with $175 million in orders still on the books. Nextant has been so successful, in fact, that it has achieved an important marketing milestone in every refurber’s ideal business plan: A line listing in Aircraft Bluebook Price Digest. That’s valuable because it gives appraisers and banks a hook on which to hang loan values.
Nextant’s Jay Hublein says the company wasn’t launched with a single remanufacture project in mind and although he declined to name specifics, he told us the company is exploring more aircraft types to roll into its business model. Heublein says Nextant is convinced that new aircraft prices will remain too high for many buyers for the foreseeable future, meaning there’s plenty of headroom for companies mining the value in older airframes that can be brought to new standards.
There’s room for organized remanufacture at the lower end of the market, too. We’ve recently reported on Redbird’s Redhawk project, which converts an older Cessna 172 to a Centurion 2.0 diesel and adds Aspen glass, new paint and upholstery for a package that they hope to sell at the $200,000 mark. The Redhawk is aimed specifically at a narrow niche: the training market. But if the Redhawk idea soars, it’s easy to see how it can be applied to other airframes.
And at least one business is already doing that and has been for 10 years. Matt Kozub’s Pristine Planes—doing business under the Aircraft Sales, Inc. banner—refurbs airplanes of all kinds, from singles to light twins. Kozub told us Pristine Planes approaches the market in two ways: It restores popular models on a spec basis or will take on custom remanufacture under a program it calls Plan-a-Plane, which allows a customer to specify any level of upgrade or mod. While other refurb houses seem to specialize in specific models or types, Kozub does not.
“You box yourself in if you specialize too much. I’ve found over the years that certain models will get hot and cold,” Kozub says. Right now, six-place airplanes—Bonanza 36 series and Saratogas—are in demand and despite high avgas prices, Kozub thinks twins are coming back. Although lots of smaller shops are producing one-off refurbs, Pristine Planes isn’t one of them. The shop turned out 30 aircraft last year and expects more growth in the immediate future, especially if new aircraft prices remain high.
Can This Sustain?
While the size of the new aircraft market has diminished in both dollars and units, we couldn’t find any reliable sources to confirm the size of the refurb/remanufacture market, although there’s good evidence that it’s growing, perhaps briskly. And companies in the industry know it. Both Garmin International and Aspen Avionics told us the legacy fleet—and that’s what the refurb market is, after all—will continue to be a major business driver for them. Indeed, Aspen’s products are tailored for retrofit. Banks, too, are noting the trend and finding profitable business in loans for aircraft selling at four times their non-improved market value.
Says Jack Pelton: “If we open the discussion without getting specific about types of airplanes, I do think it’s a growing trend. It’s currently the only counter to deal with the exorbitant price of the new products that are out there today.”
This may represent a definite challenge for manufacturers trying to survive, much less prosper, in the new aircraft business. But will it dent OEM sales for the short term?
“I can’t tell right now,” says Pete Bunce, head of the General Aviation Manufacturers Association. “I don’t think anybody has that good a crystal ball,” he adds. Still, he sees a trend toward refurbing older airframes as a net positive. “There’s value to be added to the chain no matter where you are in it. Money will go to the OEMs for parts and services and that business comes at a lower acquisition cost. The OEMs will make money,” Bunce says. He’s been forthright in explaining that the escalating cost curves for new aircraft have to be curbed if the industry is to prosper. GAMA thinks the proposed revision of FAR Part 23 will do that, once the final rules are promulgated and put in place by 2015. In theory, these will simplify certification programs and reduce time to market, thus reducing cert costs and, hopefully, new airplane prices.
“I don’t think there’s any question that this will help,” says Pelton. But the effects may a few years off, leaving high-value niches in the market for companies—and some individual owners—to bring aging airframes up to near-new standards.
“Unless somebody has a new airplane that’s providing performance, technology—say getting away 100LL or something truly unique--the value proposition is pretty tough to beat in going to a refurbished product versus a new,” says Pelton.