Values After The Crisis
By Stephen J. Coonan, ATP, Accredited Senior Appraiser, American Society of Appraisers
Although all the Coronavirus information published by the Centers for Disease Control (CDC) and Academia are sobering yet fascinating for me. No matter how many souls this tragedy takes around the country, the effect will be staggering. Between 160 million and 214 million people in the United States could be infected over the course of the epidemic, according to CDC projections. As of this writing, the they predict “that as many as 200,000 to 1.7 million Americans could die….For the coronavirus, there will be between two and six times as many infections, and between four and 40 times as many deaths, in the absence of social distancing or as-yet-nonexistent pharmaceutical interventions.”
We will know soon enough, depending on the length and quality of the quarantine. Even if we have not been affected through positive test results, hospitalization or God forbid, the passing of a loved one, what we will find is that a new paradigm in our world exists.
We will find that the value of almost everything produced will be less. We will find that those things that we have produced will never return to its former value. We will find that the economy is artificial and dependent largely on the government’s ability to subsidize business.
The situation rings home especially in the aviation business and since those of us who read this article are experts in the supply and demand of aircraft will know this to be true: The value of all aircraft will definitely be less.
Every crisis in the aviation industry has been preceded by some sort of stock market crisis. In recent history it was the 1990 Savings and Loan crisis propagated by the infamous Charles Keating of Lincoln Savings and loan. In 2002 it was the Dot.com failure of Silicon Valley when the NASDAQ dropped almost 80% from 5,132 to 1108. In 2008 it was the big institutional Wall Street banks that were so heavily invested in worthless mortgage paper. Finally, now in 2020, the Coronavirus crisis has done the same.
The value of aircraft diminishing in value follows the decreasing stock market, but aircraft value does not follow in the increasing stock market. Using the source data from the Aircraft BB Historical Reference Guide, see the following 1995 Lear 60 graph:
What we will find in the following months, is a decreasing value in all aircraft, no matter which direction the stock market goes: If the Caronavirus crisis continues to drag the stock values down, I predict that we will see at least a 10% to 30% decrease in aircraft values. However, if the stock market can find a way to stabilize and return close to its prior high, I predict that aircraft values will, at best, still decrease from 5% to 10% over the next twelve months.
Onward & upward,
SC
About the author:
Stephen Coonan has been appraising aircraft of all types for over twenty years and has been through five major stock market reversals. His $20 billion valuation portfolio spans clients such as NetJets, Goldman Sachs, Morgan Stanley, Citibank, and Deutsche Bank. Please feel free to contact him with your comments at 877-266-7791 or sr@planesworth.com.