Latest / VREF | The Truth About the Aviation Market / When Markets Don’t Break… They Slow: Why Aviation Risk Is Now Showing Up in Time, Not Price | EP 32
Transcript
- Jason Zilberbrand: Let's talk about the role of time. Because markets are not just price driven. They are time driven. And time is where the real cost lives. You can see it clearly in data. Days on market have moved. And they've moved substantially. And that's nearly 40 additional days to complete the same transaction. In some cases it's 60 or 70 depending on the model. That change doesn't show up in the headlines, but it does show up everywhere else folks. Because every additional day carries cost. It means you pay more interest. Welcome back to the truth about the market. I'm glad you're here. This is the show where we cut through the noise and focus on what's actually happening in aviation. Not the hype, not the headlines, just the truth. I'm your host, Jason Zilberbrand and I'm the president of VREF. I've appraised nearly every type of aircraft out there for clients ranging from the FAA all the way to private owners. I've owned, operated, bought and sold my own aircraft. So when I talk about this stuff, it's not theory, it's experience. It means more time exposed to the market conditions that are changing, more time dealing with inspections, negotiations, and uncertainty that wasn't there at the beginning of the process. And for a private owner, that's really frustrating. For leveraged capital, it's a big problem because leverage doesn't just care about price. It does care about the timing because returns are built on velocity. The assumption is that capital moves, assets turn, and exits happen within a defined window. And here's something worth saying upfront. This podcast is sponsor free, which means there's no advertisers. There's no companies to appease, which means no incentive to soften the truth. What you hear is unfiltered because aviation demands the truth and the market punishes misinformation every time. And this episode isn't about headlines. It's about what happens after them. If you recall in episode 28, When that window stretches, the math changes. Holding periods extend. Carrying costs increase and risk, it compounds. And even if the final sale price doesn't collapse, the return still deteriorates. That's what makes the environment different. It's not a pricing shock, it's a timing shift. Timing shifts are harder to see, but far more damaging once they take hold, because once velocity slows and the market slows down, everything downstream begins to adjust. We broke down the immediate impact of the Iran conflict, including fuel rates and escalating interest rates and the stacking risk across the system. That was the first wave, the visible shock, the part everybody reacts to because fuel moved and rates stayed higher and geopolitical issues introduced uncertainty and everybody saw it and everybody's adjusted. But markets don't actually change the moment of impact. They change in how participants respond to it. and right now the adjustments are already underway. And what we're seeing now is that response, the second wave, it's not panic, it's not going to be a total collapse. But I am seeing a change in behavior because when uncertainty enters the system, the first thing that disappears isn't demand, it's conviction. Buyers don't vanish. They start to hesitate. And sellers don't capitulate, they hold. And lenders don't shut down completely, they just tighten quietly. So the deals, don't necessarily fall apart. If you're looking at an aircraft and wondering what it's actually worth, don't guess. VREF it. VREF online gives you real-time data, quarterly updates, and coverage across more than 900 aircraft models, built on how the market actually behaves, not how it's advertised. This is the platform lenders, insurance companies, and serious operators rely on when the number has to hold up. Go to VREF.com and VREF it before you make a decision. but they certainly start to stretch out. And that distinction, a deal stretching rather than collapsing, signals slowed conviction, not demand. When transactions stretch, the market signals distress through time, not volume. Things take longer. Decisions slow. Negotiations extend. Confidence erodes at the margins. Not all at once. And that's far more dangerous, because slow markets don't announce themselves. They reveal themselves gradually through friction. So let's shift the conversation because this is no longer just an aviation market story. It's a capital structure story. Private equity entered the aviation industry under very specific assumptions. Those assets would be liquid, that exits would occur within a predictable timeframe, that capital costs would remain manageable, that operating conditions would stay stable. Those assumptions supported the entire model. We are here now, not in a collapsing market, but in a slowing one. And slow markets are a risk hides. So let's talk about what the data actually says. Let's step out of opinion and into the numbers. When you compare Q1 of 24 to Q1 of 25 to Q1 of 26, at first glance, there's a little change. Closing numbers for the most part remains steady. Inventory is increasing, but not significantly. But our data shows that one of them is starting to break. Liquidity is no longer predictable. Not because transactions have stopped. Closings are still happening. But the time required to complete those transactions is expanding. And because of this, that's change. That change matters. Private equity doesn't just underwrite price. It is underwriting time. It needs internal rates of return. and discounts don't necessarily indicate distress. So it kind of looks stable. But that's only if you're looking at the surface. The real signal isn't in the volume. It is in the timing. In Q1 of 24, average days on market stood at about 370 days. This timeframe was consistent and within an expected market range. In Q1 of 25 though, those days increased to 400. It's noticeable, but many dismissed it by just some temporary fluctuation. built on a specific duration. The timing of the exit is just as important as the exit price itself. And if an asset takes longer to sell, even at the same value, the return goes down. And when that delay compounds across a portfolio, it becomes more than just insignificant, it's material. And now layer in higher fuel costs, elevated interest rates and increasing operational uncertainty. And you no longer have a clean business model, do you? And then of course in 26, things are off to a slow start and way higher than 420 days. And that's already way higher than previous years. And that's not noise. That's an increase in nearly 60 days for the same transaction comparing to Q1 of 24 and Q1 of 25. And that increased time on the market is now the real risk. It indicates the most urgent issue to watch because time is where uncertainty lives. It's where financing stretches. You have friction entering every assumption that you make. This is not a collapse in value. It's a compression of returns. And that's how stress enters the system. It does it quietly through time before it ever shows up in price. So I want to bring this conversation back now to the macro environment, to the Iran conflict, because it didn't shut down the aviation market. didn't trigger a visible collapse in demand. Aircraft, as I said, are still selling. where inspections create friction, where buyers pause and reassess. You can maintain deal volume for a while, even in a weakening market, but you can't hide the slowdown in execution. That's what this data shows. Not a collapse in demand, not a surge in supply, but a loss of efficiency. And when a market loses efficiency, it doesn't announce a turning point. It changes its character through erosion of trust and efficiency. This is the warning sign right now. This isn't a demand problem. It's an execution problem. Deals are still getting done, but that's not the point of this. What it did was introduce uncertainty into a system that depends on confidence to function efficiently. Ask anybody. And when confidence weakens, the behavior changes. Fuel volatility is that first layer. It directly affects operating cost assumptions, which feed into underwriting, budgeting, and long-term ownership decisions. What used to be a stable input becomes a moving target. And then comes geopolitical risk. and execution is slowing. So let's talk about the price illusion because now is here where things get really interesting because if you isolate pricing, you could argue the exact opposite story. In Q1 of 24, the average discount to asking price was almost 9 % and buyers were negotiating assertively and sellers were conceding to closing deals. In Q1, that discount shrank. It was 3 % and at first that gives the impression of a strong alignment between buyers and sellers. That doesn't just impact routes or regions. It shortens planning horizons. It makes buyers less certain about future conditions and uncertainty slows commitment. Lenders respond next, not with dramatic pullbacks, but they do it subtly with tightening. They ask more questions. There's more structure. It takes longer to get a yes. Buyers follow the same pattern. They don't disappear. But they do become more selective. sit on the sidelines more deliberately and they're less willing to move quickly without clarity. And none of this shows up in the headline. It doesn't register as a drop in transactions. It shows up as a hesitation and hesitation expresses itself through time, longer decision cycles, extended negotiations, additional due diligence, which is exactly what our data shows. The days on market is going up significantly. The conflict didn't break the market. and the data might suggest confidence. But for early data for Q1, it surged again and it's way above 6%, which aligns with longer term historical norms. So if you only look at the discount to asking price, the conclusion is simple. But that's not what's happening because discounts don't measure the market. They might measure the subset of transactions that actually closed. And look, the data confirms full price visibility dropped. it slowed it down and in this environment slowing is enough to change everything. There's only 29 such transactions in Q21 compared to 11 in Q125 to just one so far in 26. That's not a tightening market. That's a filtering market. The aircraft that are priced correctly, well positioned and easy to finance are the ones that transact. And I preach this all the time and they're going to do so without large concessions. Everything else doesn't show up in the pricing data. It remains. It waits. It becomes part of the inventory that never converts. The aging fleet, let's talk about it because there is more than meets the eye and there's one more layer to this and it sits beneath everything else. It's the fleet itself. We all know it. It's getting older. It's accumulating more total time every year. Those older aircraft are getting older and older because aging aircraft don't just carry hours. They do carry a lot of complexity, maintenance exposure, finding technicians who are familiar with them. So when you see narrowing discounts and in first stability, remember this, you're missing the bigger story, the unseen, the unsold inventory is the real message here. The real signal isn't what's sold, it's what hasn't. And there is inventory resistance. You cannot understand this market unless you separate inventory from demand. Inventory is not proof of value. It's not proof of activity. And it is definitely not proof of strength. inspection outcomes become less predictable, records matter more, not less, program status becomes so important, people have no idea what they're dealing with, with engines not on programs, with these aging aircraft, financing requires more scrutiny, insurance becomes super selective. So even as inventory grows, with these aircraft being listed, the quality of that inventory is not improving at all. That reinforces everything else you're seeing. But inventory is what the market has not accepted. It's the collection of aircraft that have been exposed to buyers and for the most part, they've been passed over. And our data makes that point crystal clear because in Q1 of 2024, 28 % of the listed aircraft have been on the market more than 365 days. By Q1 of 25, this jumped to 32%. And guess what folks, so far for Q126, it's up to 35%. That means Because guess what? The divide is widening. Well maintained, properly supported and clearly positioned aircraft continue to attract attention from buyers and they are selling. Everything else becomes harder to place, not because it's unsellable, but because it requires more explanation and more negotiation and more confidence in the market is willing to extend. Which brings us to what this market actually is. It's not a traditional seller's market. It's not a clean buyer's market either. It's what I like to call a selective market. more than one out of every three aircraft listed for sale has been sitting for over a year. That's not balance. That's buildup. And at the same time, average days on the market have stretched, reinforcing the same signal from yet a different angle. Aircraft are not only sitting longer, they are accumulating in the system, and accumulation tells you something very specific. It tells you the market is not clearly efficiently. And if things don't clear efficiently, it's because A market where pricing has to be right, conditions have to be defensible, program coverage matters and transparency is expected. And when those elements aren't there, the market doesn't negotiate its way to a deal, it moves on. If you're buying, selling, financing or valuing an aircraft right now, understand this price is the easiest number to see in the market. It's visible. It's quoted, it's shared, it's repeated, but it's not the number that defines risk. Time is time is what tells you how the market actually is behaving. It's what reveals hesitation, friction and uncertainty long before price ever adjusts in a meaningful way. And right now time is stretching aircraft are taking longer to sell. The inventory is not turning. It moves through the system at a predictable pace usually. It doesn't stack usually. That's what we call a healthy market. But when inventory ages, it creates resistance. Buyers see more options, sellers holding price and transactions start to slow. So when you see rising inventory, the question isn't how much is available. The question is how much of it the market has already rejected. Decisions are taking longer to make. Deals are taking longer to close. And that's where the real exposure lives. Because when time expands, everything else follows. Carrying costs increase. Risk compounds, assumptions that once held start to break quietly in the background. So if you're evaluating an aircraft today, don't just ask what it's worth. Ask how long it will take to sell. Because in this market, velocity matters as much as value. And I hope you found this episode valuable. And if you did, This episode is powered by VREF, the standard in aircraft valuations. If you're buying, selling, financing, or just trying to understand what your aircraft is really worth, VREF it. VREF online gives you the data that actually drives decisions, not opinions, not listings, not guesswork. Go to VREF.com and VREF it before you make the call. So there's another shift happening. It's the disappearing middle. It's not subtle, but I think it's critical. You know, the middle market has been disappearing for a long time. Please share it with someone who's making an aviation decision today because aviation doesn't reward opinions, it rewards understanding and remember when you need accurate, defensible and data-driven aircraft values. There's only one name in the industry to trust, that's VREF. Visit VREF.com to get started today. I wanna thank you for listening. I'm Jason Zilberbrand and this is the truth about the market. Until next time. And it's not about averages, it's about distribution. Did you know in Q1 of 2024, 28 % of the aircraft were sold in under 90 days? By Q1 2025, the under 90 day group, it dropped to 24%. And at the same time, the 365 day plus group increased to 32%. And in Q1 26, around 25 % still move quickly in that 90 day or less range. Fly safe and stay smart. but 34.5 % remain on the market over a year. That's crazy. Aircraft are no longer progressing through the market stages. They are absolutely splitting. They either align with the market and they move quickly or they miss it and they stall and don't sell. That tells you something important. There is a lot less tolerance for uncertainty. There's less patience for marginal conditions, less willingness to negotiate through unclear positioning. Buyers are making faster decisions on the aircraft they want. and ignoring the ones they don't. Only certain deals close quickly, the rest now stagnate. And when the middle disappears, pricing becomes less forgiving, outcomes become more binary, and execution becomes more difficult. This is no longer a market that adjusts. The market hasn't slowed evenly. It has split. So at this point, you're not looking at a single market, you're looking at two. And the data doesn't just show slowing. it does show complete separation because on one side you have aircraft that align with the market because they are maintained and they are still supported and presented in a way that instills confidence in buyers and their price with discipline. They transact with the active window often among the 25 % of listings that move in under 90 days and they don't need large concessions because they meet expectations before the negotiation begins. And then on the flip side, You have everything else. These are aircraft that fall out of alignment. 75 % of the fleet. They may be older. They may not be on programs anymore. They may be carrying uncertainty that isn't fully addressed. They may be price based on expectations rather than reality. They enter the market, but they don't ever sell. And trust me, they remain visible because they accumulate time on the market. And currently 34 and a half percent of those aircraft listings fall in that range. Illustrating the prevalence. of long duration inventory. And once an aircraft crosses that threshold, that dynamic changes, it is no longer competing on equal footing. It carries history. It signals hesitation. Buyers assume there's a reason it hasn't sold. Whether that reason is visible or not, at that point, it is no longer just inventory. It's resistance in the market. So this is not a broad slowdown. And understanding which side of that divide an aircraft falls on is now the difference between execution and stagnation. So why don't the discounts look stable? Because this is where most people get it wrong. They look at a discount to ask and conclude that pricing is holding. On the surface, it's an easy argument to make. Q124 showed an average discount of about 9%, as I said. And then, as I said again, in Q126, it's around 7%, right in line with the long-term norms. But that's not really what's happening because those numbers only reflect what closed, not what was available in the total fleet. And that matters because the aircraft that failed to attract buyers were never included in this data. So they don't transact. So they don't contribute to the discount metrics. They simply remained in the inventory aging into the expanding 34 and a half percent of listing beyond 365 days. I tell people all the time, remove it. Don't even look at that stuff anymore. You're looking at skewed data. What remains is a filtered sample. The aircraft that are well positioned properly maintain a realistically priced still sell and they do so without very much negotiation at all. They define the discount range you see. Everything else disappears from the pricing narrative. So the tightening spread is not evidence of strength, it's evidence of selectivity. It reflects which aircraft make it through the process, not the condition of the market as a whole. That's not stability. That's not how selectivity defines outcomes now. recognize this shift folks as the current reality that is called selection bias that's what we're seeing