Flipping G650s: Speculating on business jets
Although it attracts headlines, very few Gulfstream G650 buyers are speculators looking to flip their aircraft. And the ones that are need to be very careful to wait until their aircraft is delivered.
Since the sale of the first Gulfstream G650 by Bernie Eccleston’s wife (which netted him $10 million), there have been several articles on owners making money by flipping their aircraft. But it is important not to get carried away. Although speculative buyers were common at the top of the business jet market, it rarely happens now – particularly at Gulfstream, which is keen to stop this happening.
When Gulfstream started selling the G650 in 2008, it added strong anti-speculation clauses designed to discourage people from placing orders for aircraft that they do not wish to own (or flipping G650s). These now apply to all Gulfstream aircraft.
Gulfstream contracts state that if a customer who has ordered an aircraft is found to be trying to sell it before delivery, the manufacturer has the right to withdraw warranties from the aircraft. This would reduce the value of an aircraft by millions.
Once an aircraft is delivered, the owner is welcome to sell it. But Gulfstream does not want owners selling aircraft whilst they are still being built. The OEM watches its backlog carefully (and the pre-owned business jet market is a small one) so marketing an aircraft before delivery is extremely risky. This also means that the original buyer needs to decide on the aircraft’s interior and other options which affect the aircraft’s resale value.
Gulfstream also does not allow customers to swap delivery slots. The order of deliveries are based on deposit wire transfer times and if a customer pulls out all of the order book moves up by one. It does not sell earlier spots for a premium.
But the main thing that discourages speculators is the size of the non-refundable deposit. If you wish to order a $64.5 million G650 you need to put down more than $5 million. As well as the deposit buyers also need to make construction or pre-delivery payments before the aircraft is delivered. It is a significant commitment in a cyclical market. Whilst Ecclestone made a profit (and he paid less than $64.5 million) there is no knowing how the market will look in four years’ time.
Speculators also need to allow for inflation as aircraft prices depend on escalation. The 2013 list price for a G650 is $64.5million. But by 2017, when the aircraft delivers it will cost you closer to $72 million – similar to the amount that the first aircraft traded for.
Although flipping aircraft was common in the years running up to 2008 it rarely happens now. There are companies that place speculative orders – including Chinese lessors Minsheng Financial Leasing, which has orders with several OEMs (including Gulfstream), CDB Leasing, CIB Leasing or Australia’s AvWest which works with Bombardier – but these are different to the individual buyers who operated in 2007.
“Market place flipping today is muted compared to days gone by,” says one sales director at an OEM. The years 2005 -2007 were anomalies commensurate with the overheated financial markets. Those days are, at best, at the opposite end of the curve. Not to be seen again in my lifetime.”