Aircraft Sales & Acquisitions: Catching The Falling Knife In A Falling Market

February 2020

Catch the Falling Knife

Viewing an aircraft transaction from the eyes of both buyer and seller is one of many benefits of working with an agent that performs both aircraft acquisitions and aircraft consignments. Having experience managing all sides of the transaction results in better advice and, therefore, better decisions for clients.

Regardless of market conditions, as an acquisition consultant, I am challenged to keep a deal on track. When representing a buyer in a falling market, I advise my clients that we are catching a falling knife. In other words, our goal is to purchase below the downward trend-line to avoid investing my client's time and money into buying an aircraft that will be overpriced by the time the transaction closes; this is the definition of catching the falling knife. Watching the trend line and knowing when to make an offer takes time. Some argue this behavior drives prices down. Not so. If no alternative aircraft are available to compete at that price level, buyers will not seek a better deal elsewhere.

When I am wearing my aircraft consignment agent hat, it is my responsibility to get the most the market will bear for my client's aircraft. In a falling market, an early prospect that offers a fair price should be taken seriously. It is critical to convert that prospect into a buyer, and then close quickly. Otherwise, if the deal comes apart, the falling market will ensure the next buyer will offer less money. This often results in chasing the market down. It is the most significant risk a seller faces in these market conditions. When the aircraft lingers on the market, it becomes more overpriced with each passing day. Eventually, the plane will sell, but for less than if sold to the first buyer who made a reasonable, albeit slightly low “catch the knife” offer.

Again, if inventory is tight, prices will not be driven downwards. Instead, the buyer is taking the risk that the seller may seek a higher offer from someone else resulting in rising prices.

As a consignment agent in a falling market, receiving an abnormally high offer from a suspect buyer can be just as destructive. This suspect buyer may be well qualified or a current aircraft owner. However, they may not be well-educated on the current market. Once they realize the initial offer was too high, the deal falls apart leaving the client with a false sense of their aircraft's value. When this happens, it is imperative that I provide my client with a fact-based assessment of the market. Otherwise, it will result in them not accepting the next reasonable offer.

All of these scenarios make one thing clear, the invaluable benefit of working with a professional.

Offers from the best aircraft acquisition consultants are founded on sound data and analysis. Consignment agents know and understand the target market price for the aircraft they represent and what direction the market is trending into the immediate future.

Aircraft Sales & Acquisitions is a small industry where all the top brokers know each other. When working with a colleague, we receive straight-forward information regarding who has a signed acquisition agreement, where a prospective buyer is in the purchasing process, and what will trigger a client to move to close. In transactions where both the aircraft buyer and seller are well-represented, don't be afraid to catch the falling knife. It benefits everyone involved in a falling market.