In light of the financial situation at Hawker Beechcraft I often get asked what is the real value of the Hawker jet products and what will their price be moving forward. Tough questions in any market. Much more tough with the current events.
Lets look at this from both an owner’s and a future owner’s perspective.
In my opinion the market place started to factor the financial situation of HBC into used prices starting in 2010. By the middle of 2011 the signs of a desperate company were more obvious and the market place reacted with even lower valuations. The Hawker once led the mid size market in resale value. As the company fortunes continued to sink the Hawker values sank with it, mostly driven by deep discounting by HBC to generate cash.
There is a maxim in the industry that the used aircraft market responds to the actual selling prices of the new/similar aircraft model in production. In other words, the method of basing used prices on a percentage of original list is not valid when new planes are already selling at the same percentage of list as a five year old aircraft. I have applied various market conditions to come up with an economic model that reflects the common knowledge of our industry. In it’s most simple terms, used prices reflect aircraft values based on assumptions of market conditions, manufacturer stability, new models entering the market segment and what the model most similar to the used plane is actually selling for new in the marketplace.
Based on this scenario HBC, by lowering prices to sell potential white tails for cash, has continued to place downward pressure on used values. Eventually, they will reach a price point where it does not make any economic sense to discount. This will be the low point. Once this happens we should see market stability. I think we have reached the point where it doesn’t make any sense to continue to sell a product at the potential for a loss just to generate cash. The last few 400XP’s are examples of reaching a point that it just doesn’t make sense to continue. The 900XP and the 4000 market are probably at that point now.
Scenario #1 Hawker Beechcraft continues to navigate chapter 11 filing and emerges later in the year a much financially stronger and healthier company. New prices will still be depressed with uncertainty in the market place and a demand to generate cash flow while the details on the emerging company are worked out with the new owners. I do not see any upside in resale values until the end result of the company's future is established and definitely not until the new prices reach a point where they are able to increase sales prices.
Scenario #2. Hawker Beechcraft is liquidated or parts of the company are sold. Complete liquidation of the whole company is a very long shot. Parts of the company being sold off is a very likely possibility. The comfort for both a current owner and a future owner of Hawker 900XP's and earlier Hawker models is that whoever ends up with the Hawker line will have bought a strong installed base of customers and a good brand with a potential of producing a strong cash flow from parts and support.
Owners of King Airs and traditional Hawkers have safety in numbers. Most of the parts are accessible through alternate venues and for new aircraft the warranty will be honored by the various venders. The new products like the 4000 and the Premier 1A represent more risk. Like a risky stock or bet in Las Vegas, it could pay off big, you just need to understand that it is a risky bet.
If you are a current owner, don’t panic. You have an aircraft that you can maintain through alternate sources if need be and the news barring a complete liquidation is as bad as it will get. If you are considering a used Hawker Beechcraft product the market place is factoring the risk and the market is at or near the bottom. If you are considering a new aircraft, the purchase should factor the risk of lower resale values and the risks of the unknown. You might need to administer your own warranty and some items normally warrantied by HBC might end up being on your nickel. Their current sales prices reflect some of that risk.
As in all market values it is about buying below the line. Whether new or used there are opportunities for those who understand purchasing right.
Hawkeye Aircraft Acquisitions is there to help you understand the risks and the potential values. Having worked for Hawker Beechcraft for over 28 years and 26 years as a salesman I don’t have all the answers, however I can help you better understand the risk/reward.
Mike McCracken
President
Hawkeye Aircraft Acquisitions
