Creating an Aircraft Price Index to Track how Expensive Aviation has Become
July 13, 2022
Plane prices soared in the last few years - but how can we quantify that climb? To do that, we need to establish an aircraft price index. In this post, we describe an approach for quantifying just how expensive aircraft acquisition has become by analyzing 1,997 aircraft that were listed at two different points in time over the last four years.
Measuring the price change in aviation is difficult. As we all know, every plane is unique when taking into account pedigree, avionics, maintenance history, SMOH, and so forth. We can't simply generate a price index for, say, a common aircraft like the Piper Cherokee 180 and use that as a measure of the industry's health - because very often, comparing two Cherokee 180's may make no sense when one is worth twice as much as the other. Simply said, there's no stability in measuring at the Make/Model level, since every aircraft that comprises the market is such a unique sale.
This uniqueness problem has plagued me for years - how can we track aviation at the macro level when individual aircraft sales are all so idiosyncratic? Beyond that, the *economy* is also changing underneath our industry - a $60k aircraft in 2015 is different than one today. So, beyond the problem of unique aircraft, the ground on which we're standing in the first place is *also* constantly shifting.
Two things happened recently that shifted my thinking about this problem. First, I realized that at TAP deals, we now have ≈41,000 aircraft listings - and that's over a long enough time that we're actually starting to see a fair number of aircraft being re-listed by different owners over time. Second, with all the added attention on inflation these days, I started thinking about how we could "stablize" the ground by using historical inflation calculations. In short - could we look at the same aircraft being sold to new owners to solve the uniqueness problem, and could we use inflation indices to control for larger economic trends?
The chart above is the TAP Deals Aircraft Consumer Price Index. Across the 41,000 listings we have stored, we observed 1,997 instances where an aircraft was listed with a price at one point in time, and then again at a later point in time (to avoid capturing attempts to change the price *during* a sale, we only look at aircraft listed at least six months later). For each pair, we took the original list price, and then applied an inflation calculator from the Bureau of Labor and Statistics to calculate what the inflation-adjusted value of the aircraft would be at the second time it was listed.
For example, if an aircraft was listed at $60,000 in November 2018, in August 2021, we would expect it to be valued at $65,125 if inflation was the sole factor in establishing price. Of course, some aircraft get worse, some get better, and all depreciate with age. For simplicities sake, we assume that the number of aircraft that get better and worse roughly cancel each other out. Observationally, we've seen that aircraft depreciate around 2-5% depending on how new the aircraft is, but we aren't factoring this in as we assume that some amount of depreciation at the individual aircraft level is canceled out with whether they are upgraded or neglected during the inter-sale period. If anything, we'd assume that the price index we're establishing in this post tends to be conservative because of a general bias more towards depreciation, neglect, and added airframe / engine hours than a bias towards improvement.
Regardless of the conservative bias of our model, we see quite the opposite - from 2018 to mid 2021, we see relative stability in our metric - aircraft sales track fairly evenly against inflation. Only in mid 2021 do we see a departure. Even at a time where inflation was rapidly increasing in the US market, aircraft are actually *outpacing* their expected list values. Take for example a 2008 Cirrus SR-22 that listed at $329k in May 2020 - when it re-listed in December 2021, inflation alone would put it at $358k - it was listed instead at $465k. In April 2021, a buyer could expect that an aircraft would be listed at 2.6% above an inflation adjusted value. In April 2022, that soared to 26% above an inflation adjusted value.
Since April, prices have started a cool-off - we're down from the all-time index high of 26% above inflation expectations to just 13% in June 2022. The next few months will be crucial to prove or disprove our assessment that we may have finally hit peak aircraft prices. In the coming weeks, if folks are interested, we'll be building out a specific feature that reports our index on an ongoing basis. Also, to get some of these insights immediately - please sign up for daily or weekly emails today - it's free and you'll start getting analysis of every aircraft listing you're already looking at to help you make the best informed decision for your mission.Back to blog