The Challenger 604 was first produced by Bombardier in 1995 as a derivative of the successful Challenger 601-3A, and offers an unprecedented blend of range, speed, sophistication and style. These factors are what contribute to the aircraft being a viable option for any buyer considering the large cabin business jet category.
Over the next ten years Bombardier would go on to produce 347 Challenger 604s. Similar to its predecessor, the 604 comes equipped with a Rockwell Collins Pro Line 4 avionics cockpit. This avionics suite comes standard with many pilot friendly features, including: Flight Director / Autopilot systems, HF-9000 radios, and digital Air Data Computers. In 2001 Rockwell Collins developed an upgrade that provided enhanced capabilities for the 604. It was coined the “PrecisionPlus Upgrade.” The main advantages to the upgrade included Flight Management System (FMS), engine thrust management and increased Engine Indication and Crew Altering System (EICAS) functionality. Additional features included 3-D Flight Plan, Search Patterns, and Expanded Flight Data Recorder (FDR). This upgrade increased operational efficiency and provided added crew situational awareness.
The Challenger 604 comes equipped with Two (2) General Electric CF34-3B engines that produce 8,729 lbs. of thrust at takeoff. This means that with eight passengers, the 604 can fly 3,850 miles at .74 Mach, making it one of the best ranges per cabin volume in the class.
The avionics features for pilots make the 604 one of the most capable aircraft in the class, but its true value, as mentioned above, is in the cabin. The cabin measures 28.3 feet in length, with just under 17 feet of that making up the available cabin space. The standard configuration is for 10-12 passengers and can feature a double club or the forward club / half club / divan configuration which is preferred for buyers who constantly fly and like to work on the longer hauls.
This aircraft has certainly shown its value in the super-mid-size segment due to its outstanding performance and cabin. With inventory levels rising, and the aircraft getting older, we have seen asking prices drop. In turn we have seen a whole new market for this once $10 million-dollar aircraft, as it is now affordable for a new type of business jet buyer.
The Challenger 604 has not been immune to the struggles of the rest of the industry, but we have started to see a spike in trades starting in Q4 of 2016 and continuing through Q1 of 2017. Due to downward pressure from the rapid decline in the large cabin aircraft we have seen supply increase and pricing fall. These struggles can also be attributed to an oversupply of new aircraft being produced by the OEM, as well as the age of the aircraft. Now that these aircraft are all over 10 years old we are starting to see the average cost of Maintenance for major inspections sky rocket. This leads to a decreased price that OEMs are willing to take for trade-in aircrafts, which in turn leads to downward pressure on the pre-owned aircraft that enter the market. This has increased opportunities for Buyers and we have seen activity increase over the last quarter of 2016 and through the first quarter of 2017.
With increased supply, we tend to also see a decrease in pricing levels. The price range for the available aircraft is between $3,750,000 to $7,000,000.
In 2015 and 2016, we saw 40 and 37 transactions, respectively. This market has seen an increase in trades in 2017 and is currently at 14 transaction year to date. The main driver of this is the large decrease in price, versus the value and range that this aircraft provides. Key factors that affect sale price for this aircraft are engine programs (GE On Point), and avionics upgrades such as Precision Plus Upgrade, WAAS / LPV, and ADSB-Out. Other factors affecting value of the aircraft are the condition of paint and interior, and maintenance status.
Notable Recent Transactions
Below are three of the recent transactions from this market. This will be used to compare recent Vref trends in the graph below.
Vref Trends for the Aircraft
Above is the comparison for the Challenger 604, comparing the retail values from Q1 of 2016 and 2017. This graph shows the drop we have seen over the past year in retail values for this aircraft. For the early models, we have seen almost a 20% drop from last year, in the later models it is just above an 11% drop. As I mentioned above, this can be accredited to an oversupply of this aircraft entering the market, as well as several economic factors affecting sales for the new aircraft in this segment, including the recession that most emerging markets are experiencing, as well as the competition in the large cabin and mid-sized markets where you can get competitive aircraft for a similar price. The four data points represented show an interesting trend in this market. All the data points are trading well below full retail, with the four averaging at 77.75% of full retail value, this can be attributed to a lag that we typically see in book values. This lag is typically a quarter behind what is happening in the market.
Like we have been seeing with most of pre-owned aircraft, this market represents a buyers’ market, and can potentially offer unprecedented value for an aircraft owner / operator looking to move into a larger aircraft that has tremendous performance and a larger cabin. On the sell side, the keys to selling these aircraft in a timely manner will be remaining realistic on pricing, recognizing the trend that we continue to see, accepting the reality that if the aircraft is not priced correctly they will most likely chase this market down, as well as having all maintenance up-to-date.
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