Friday, April 15, 2016

G650 Outlook Troubling

Gulfstream G650 (c/n 6194) N694GA arrives at Long Beach Airport (LGB/KGB) from the factory at Savannah-Hilton Head International Airport (SAV/KSAV) on March 9, 2016.
(Photo by Michael Carter) 

No business jet manufacturer has been spared the impact of currency fluctuations and a weak economy in key general aviation markets outside the U.S., but the cause-and-effect relationship seems to have been particularly onerous for the G650, the flagship of Gulfstream Aerospace.

“The G650 is unique because of how it was brought to market when demand was very strong—a lottery system,” said James Haggerty, President and CEO of Haggerty Jet Group, an aircraft brokerage firm dedicated mainly to Gulfstream jets.

Most G650 buyers expect to put their aircraft into service when they place an order, but just prior to the recession of 2008 many of the first 20-30 customers were speculators whose real intent was to re-sell them for premiums of as much as $10 million.

The price for the G650 started in the high $60-million range and rose as high as the mid-$70s in early 2015. Position holders who no longer needed or wanted their G650s when prices peaked proceeded with their contractual obligations, expecting to turn a large profit, according to Haggerty. Then the supply started to increase in mid-2015, and now speculators are struggling to sell the aircraft, having lost nearly 50% of their value in the last five years.

Meanwhile, the market for large-cabin business jets in general has softened due mainly to weak foreign demand, exacerbating the problem of an oversupply of used G650s even as Gulfstream continues to build new ones. “With increased market weakness, there’s a good chance that Gulfstream will begin to see a trend of cancelled orders for new G650s, based on the increased market weakness.”

The used G650 inventory has “skyrocketed” in the last 12 months, observed Andrew Steward, market analyst for Haggerty Jet Group. As of today, 20 used G650s or about 13% of the current fleet—including four ER models—are for sale. Since 2013, there have been about 36 G650 resale transactions. “We’re talking about a used-airplane inventory that will take the market nearly  two years to absorb.”

Haggergy foresees the potential for used G650 prices to drop below $50 million before the G500 goes into service in 2018—with ominous implications for the next generation aircraft now in development. “The G5oo and G600 have more technology, which will appeal to some buyers, but a used G650 will still offer greater range and speed, even for a used aircraft,” he said. “It’s possible that potential G500 and G600 buyers will be cannibalized by pre-owned G650s that will sell for less and offer greater cabin size and capability.”

(Tony Velocci - BusinessAviation / Forbes)

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