How to Lose your VREF Subscription in One Easy Step

Every Gulfstream 600 and PC-24 sales rep who has not already done so, should print and laminate the predictive residual value curves released this week by VREF. Bringing them to every sales meeting will surely boost the likelihood of a close.

 As AINonline pointed out in an article last week at NBAA, VREF believes these two aircraft will retain between 88 and 89 percent of the value they are being sold for today in 15 years time.  



If this forecast is realized this would make the G600 one of the best transportation asset investments one can make.  Any potential buyer would be amiss not to purchase one ASAP and then sell it in 2033, having used a G600 for 15 years for total depreciation of only $6.12M, not accounting for inflation. That’s $408,000 a year, or only $27,200 a month, which beats by far any imaginable ownership cost for a new long range business jet.  That’s without the caveat that VREF’s value retention predictions are in constant (i.e., non-inflated) dollars.  Therefore, if inflation were to average 2% per annum, VREF’s year 15 value predictions are 118% and 120% of original cost (respectively) in inflation-adjusted dollar terms. What could possibly make this a feasible reality?


To be fair, a business jet aircraft retaining value over extended periods is not without precedent. In 1987 you could have bought a new GIV for about $17.8 million (about $43 million in today’s dollars).  You could have flown that jet about 400 hours a year (typical utilization) for the next 15 years and then sold it in 2002 for about what you bought it for.  The same value retention scenario during that span generally held true for a 1988 Falcon 900.

That said, there are many reasons it is highly unlikely we will see an aircraft that is produced today like the G600 retain its value in its first 15 years like an early GIV did.  Two main reasons are:

Competition - When the GIV was launched in 1987 it had no viable competition for nearly10 years until Bombardier launched the Global Express.  The G600 is being launched into what could be considered a crowded space with buyers having multiple choices now for long range aircraft both new and used.

Mature Market – Over the last 30 years the landscape of business aviation has gone from a growing to a mature market.  The number of business jets in operation over the last 30 years has grown from about 6,000 in operation to over 22,000, which is a growth rate 9 times that of the number of billionaires over the same span.


Any aviation asset that preserves 89% of its value over a 15 year period in the face of uncertainty and normal mechanical wear and tear creates a bubble of excitement. As an aircraft model grows in popularity, it sells out the OEM’s available inventory and creates lengthy backlogs, prompting speculative orders and “flip sales” (often even before the aircraft is delivered). The OEM immediately realizes it is missing out on the potential upside and ramps up production while simultaneously increasing ticket prices on newer slightly improved variants.

We’ve seen this movie before:  enabled by higher OEM new aircraft prices and high demand, the banks financing the acquisitions view the higher aircraft values as the “new normal” and adjust their values accordingly to compete with other financiers.  They increase the size of the loans to remain in line with the higher purchase prices.  Anticipating asset values to remain stable in the future allows banks to lend money “knowing” that  repossessions will have minimal downside risk.  These expectations conspire to drive more banks to enter the market offering better economics and repayment terms, thereby providing a “feedback loop” that further fuels demand and still higher jet prices.  Certainly, this “mania” played a role in the pre-crisis run-up in new aircraft values, which in turn lifted used values as well.  The result was a pre-crisis worldview that used aircraft depreciate slowly – if at all.

We should never underestimate the short memories of bankers and “the mania of crowds.”  But to believe VREF’s value forecasts for the G600 and the PC-24 is to also believe that we are on the threshold of a new mania, and that none of us have lived through 2008. It’s to assume that the downturn that right-sized our industry simply did not happen, and that we are all living in the mid-80s about to learn the harsh lessons of an irrational exuberance surrounding aircraft values.

I think most in our industry would agree that the conditions that prevailed in the pre-2008 era were not realistic or sustainable to begin with, and that the way aircraft enjoyed such low depreciation rates before the downturn was a sign of irrational exuberance.


So will VREF’s forecasts prove true?  Will the G600 retain nearly 90% of its value over the next 15 years (before giving effect to any inflation)?  It is highly unlikely, and if I could place a bet that its depreciation will be significantly higher than VRef forecasts, I would mortgage my house and liquidate my retirement account to place that bet.  Until we know for sure, unlike VREF, we’ll be depreciating the G600 at about 10-12% a year, which is about the same as what the GIV depreciated, on average, over its life.

Chris Miller - Managing Partner

Chris Miller - Managing Partner

Katerina Barilov - Managing Director

Katerina Barilov - Managing Director