Used Aircraft Maintenance Analysis - April 2018

Why did the average Ask Price of Asset Insight’s tracked fleet ‘For Sale’ decrease 1.6%? Which used jet and turboprop models were the most improved and most deteriorated models in terms of their marketability in April? Find out here…

Tony Kioussis  |  11th May 2018
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Tony Kioussis
Tony Kioussis

As President, Asset Insight, LLC, Tony provides valuations, audits, analytics and consulting services,...

Beechcraft King Air C90 Turboprop

Why did the average Ask Price of Asset Insight’s tracked fleet ‘For Sale’ decrease 1.6%? Which used jet and turboprop models were the most improved and most deteriorated models in terms of their marketability in April? Find out from Tony Kioussis here…

The total number of used aircraft listed ‘For Sale’ declined 41 units in April, with inventory decreases in all four aircraft groups.

  • Large Jets led the way with a decrease of 6.3% (22 units);
  • Medium Jets were next with 2.7% (15 units);
  • Small Jets followed at 0.6% (three units); and
  • Turboprops decreased 0.3% (one unit).

As opposed to traditional buyer focus on low-time, high quality aircraft during the past few months, April’s transactions were mixed relative to asset quality.

Data collected during Asset Insight’s April 30, 2018 market analysis covering 92 fixed-wing aircraft models and 1,616 units listed ‘For Sale’ revealed the average Ask Price decreased 1.6% to register its third consecutive record low monthly figure, and a total decrease of 3% Year-to-Date.

The news is not all bad, though. Large jet prices improved 4.9% to achieve the highest Ask Price since September 2017. Regrettably, elsewhere, the following was recorded:

  • Medium jet pricing fell 6.0% (posting a new record low);
  • Small jets pricing dropped 1.1% (posting a new record low);
  • Turboprop average prices decreased 0.4% (posting a 12-month low).

Counter to last month’s results, average Quality Rating for Small jets and Turboprops experienced an improvement in April, while Large and Medium jets posted a Quality Rating decrease.

Average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) improved another 0.8% to $1.379m, the lowest (best) figure since July 2017. Large jet Maintenance Exposure was the only group to experience an increase, while Medium jets posted a 12-month low figure.

All of these changes resulted in a slight Maintenance Exposure to Price (ETP) Ratio increase to 63.5%, and half of the tracked models posted an ETP Ratio in excess of 40%.

ETP Explained

For those not familiar with the ETP Ratio, let’s review its derivation and relevance. The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

The ETP Ratio is a useful indicator of an aircraft’s marketability. ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%).

So, for example, aircraft whose ETP Ratio exceeded 40% during Q1 2018 were listed ‘For Sale’ an average 61% longer than aircraft whose Ratio was below 40% (189 days versus 303 days on the market, respectively).

Accordingly, as the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). By aircraft group:

  • Turboprops posted the lowest (best) ETP Ratio at 50.8%, an improvement over last month’s 52.2%;
  • Large jets followed at 58.0%, worsening from last month’s 56.3%;
  • Medium jets also worsened to 65.3% (from 63.3%);
  • Small jets improved to 72.5% (from 73.8%).

Excluding models who’s ETP Ratio has remained over 200% during the previous two months (such aircraft are considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in March 2018.

Most Improved Models

All six ‘Most Improved Models’ shown in Table A experienced a Maintenance Exposure reduction (improvement). As regards pricing within the group, the Citation V 560 and the Citation Bravo registered price decreases of $3,173 and $ 37,806, respectively. Pricing for the Hawker 1000A remained unchaged. The remaining three models posted the following price increases:

  • Citation ISP +$33,293
  • Global 5000 +$5,766,667
  • KingAir C90 +$11,048

Cessna Citation ISP:
Two sales in April plus one during the previous month (after Asset Insight closed out March’s figures) led to a Maintenance Exposure reduction on nearly $83k that, along with the model’s average price increase, allowed this model to head April’s ‘Most Improved’ list.

Regrettably, with 41 units still listed ‘For Sale’ the pricing outlook for sellers does not appear favorable.

Bombardier Global 5000: There were two ‘For Sale’ aircraft acquired by Dealers during April while two more entered inventory. Though the changes didn’t alter the inventory level, they did lead to a Maintenance Exposure decrease of nearly $158k, and a price strengthening of more than $5.7m. Thus, the model’s ETP Ratio benefited.

The reality of the price increase can be traced to one listing that is twice the average price of all other listed aircraft. As much as we would like to offer encouragement to sellers, this model is likely to find a spot on the ‘Most Deteriorated’ list when the outlier’s Ask Price is adjusted to match reality (assuming the seller is truly seeking to sell this aircraft).

Cessna Citation V 560:Four aircraft transacted in April, decreasing the inventory to 22 units. Maintenance Exposure decreased (improved) $112k due to below average quality assets trading which was more than sufficient to counter an Ask Price drop of over $3k.

This model is particularly interesting as one seller actually increased their Ask Price by $80k during the past month.

Beechcraft King Air C90:
This model’s inventory increased to 65 units in April, as one aircraft transacted, one was withdrawn from the ‘For Sale’ pool, and four new assets joined the available fleet. Supply does not appear to favor sellers, but the model actually saw an Ask Price increase along with a Maintenance Expense reduction of over $38k, thereby improving the King Air C90’s ETP Ratio.

At least two sellers lowered their Ask Price in April, however, though one of those adjustments will not change that asset’s ‘pricing outlier’ status. A third seller increased their Ask Price by over 12%.

Hawker 1000:Transaction inaction placed this aircraft on the ‘Most Improved’ list. With no sales recorded during April, two aircraft were withdrawn from the ‘For Sale’ pool and one was added, thereby lowering Maintenance Exposure by nearly $138k.

Thus, even without an Ask Price change, the model’s six units listed ‘For Sale’ captured a position on this list.

Cessna Citation Bravo:This model experienced a few inventory changes last month, including the sale of one unlisted aircraft, and one withdrawal from the ‘For Sale’ pool. With four aircraft joining the inventory, the fleet stood at 53 units as April closed (not exactly a seller’s market).

Nevertheless, Maintenance Exposure posted a decrease of $145k, and that was sufficient to overcome an Ask Price decrease caused by a new listing at below the average price and one ask price reduction.

Most Deteriorated Models

Except for the Hawker 800A, all aircraft in April’s ‘Most Deteriorated’ category experienced a Maintenance Exposure increase, and all models incurred Ask Price decreases, including the following:

  • Learjet 35A  -$106,300
  • Beech B-1900C -$375,000
  • Gulfstream GV -$157,411
  • CL-601-3R  -$200,000
  • Hawker 800A  -$52,780
  • Citation VI  -$37,500

Bombardier Learjet 35A:
Two aircraft traded last month (one of them not listed ‘For Sale’), while another entered the inventory leaving 34 available units. Maintenance Exposure increased by nearly $42k due to these changes, while Ask Price also decreased, setting the stage for this model to lead our Most Deteriorated list.

Seller Note: Although the exact transaction price is unknown, sellers should find it interesting that the Ask Price for the listed aircraft sale in April was substantially above average.

Beechcraft 1900C:
This model’s presence on the list may be unexpected since there were no transactions in April and the listed fleet totals only two units. However, that is what happens when Maintenance Exposure increases by $23k due to utilization and one owner elects to reduce the price of their aircraft.

Gulfstream GV:Four higher quality aircraft transacted in April, leaving 13 units listed ‘For Sale’. The remaining inventory’s Maintenance Exposure sky-rocketed by nearly $1.3m and, considering the model’s Ask Price drop, we are surprised the GV didn’t earn top spot on this list.

Bombardier Challenger 601-3R:The model earned its spot on this list without a single transaction. A slight Maintenance Exposure increase ($21k) along with an Ask Price reduction for one unit was the cause.

While only eight units are listed ‘For Sale’, the figure represents over 13% of the fleet. With large aircraft buyers focusing primarily on higher quality, lower time aircraft, and with the model’s ETP Ratio at 166.4%, sellers may need to ponder whether selling their asset makes sense, considering the cost of replacing their aircraft’s cabin size.

Hawker 800A:With 13.6% of the fleet listed ‘For Sale’ (31 units) sellers are no doubt facing challenges. Accordingly, we found it surprising that at least four entities increased their Ask Price in April, even though the overall Ask Price decreased a little.

There were several transactions in April of mixed asset quality, leading to a slight $4k decrease in Maintenance Exposure, while three aircraft were also withdrawn from inventory. To say that good values are available might be a stretch, unless the buyer is willing to accept they could well be the aircraft’s final owner.

Cessna Citation VI:
This model is another case of how information can be misleading when change occurs within a small asset pool. There were only seven aircraft listed ‘For Sale’ in April, but that represents 19.3% of the fleet.

Accordingly, when one seller elected to list their aircraft at a defined price versus their previous ‘Make Offer’, the average Ask Price decreased $37.5k. With Maintenance Exposure increasing $14k due to nothing more than utilization, the two figures combined to earn the Citation VI the final place on our list.

In Summary…

The overall number of available units continues to decrease, yet prices do not appear to be following traditional supply and demand logic. The reason is that while transaction values for newer, lower-time assets have stabilized and even (in some cases) increased, there are far more older aircraft whose values have not.

In fact, many sellers of older models continue to reduce their Ask Price without success relative to ‘acceptable’ offers.

While every aircraft has a price at which it will trade, many sellers simply do not know how their aircraft compares to competitive models and are thus unable to place offers into market context.

For such sellers, the cost is likely to manifest as more Days on Market along with an additional pricing penalty as maintenance comes due. Knowing such facts is the only way one can justify an Ask Price and know if an offer received is the best likely to be achieved in any sales environment.

It’s important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s Ask Price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on HCMP.

Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft ‘For Sale’ as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.

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