Used Aircraft Maintenance Analysis – April 2020

The COVID-19 Pandemic resulted in a significant transaction volume decrease in April and, while higher quality assets expanded the ‘for sale’ inventory, Ask Prices decreased 1.6%. Which models were impacted the most? Tony Kioussis explores…

Tony Kioussis  |  20th May 2020
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    Tony Kioussis
    Tony Kioussis

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

    Bombardier Global Express Private Jet

    During April, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,308 aircraft listed for sale equated to a 4.1% inventory fleet increase over March’s figure, and a year-to-date (YTD) increase of 5.8%.

    The inventory’s maintenance status posted a 12-month best (highest) Quality Rating for the second consecutive month, keeping the fleet within the ‘Excellent’ range, by increasing from March’s 5.297 to 5.311 on Asset Insight’s scale of -2.500 to 10.000.

    April’s Aircraft Value Trends

    Average Ask Price for the tracked fleet fell 1.6% in April but remained only slightly below the 12-month high posted in February. Specific group figures varied as follows:

    • Large Jets: Ask Prices fell 3.8%, but that still resulted in a figure virtually equidistant between the 12-month high and the average.
    • Medium Jets: Ask Prices increased 5.1%, just below the 12-month high figure posted in February.
    • Small Jets: Ask Prices increased 3.3% (on top of March’s 3.0%), setting a 12-month high figure.
    • Turboprops: Lost 2.5% from March’s Ask Price, but, just like Large Jets the figure was virtually equidistant between the 12-month high and the 12-month average.

    April’s Fleet for Sale Trends

    The tracked fleet’s total number of aircraft listed for sale increased 4.1% in April (5.8% YTD), translating into a tracked inventory increase of 90 units in April and 126 units YTD. Individual group figures broke down as follows.

    • Large Jet Inventory: Increased 4.1% in April (+19 units) and 12.3% YTD (+53 units).
    • Medium Jet Inventory: Rose 5.9% (+37 units) for the month, but only 0.8% YTD (five units).
    • Small Jet Inventory: Increased 1.7% (+12 units) in April for a total of 9.3% (+60 units) YTD.
    • Turboprop Inventory: Jumped 5.0% (+22 units) for the month, but only 1.8% YTD (eight units).

    April’s Maintenance Exposure Trends

    Following last month’s spike, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) 1.5% to $1.378m, meaning upcoming maintenance for the current fleet mix would be a bit less expensive to complete.

    April’s figure was lower (better) than the $1.390m 12-month average. Individual results were as follows:

    • Large Jets: Improved (decreased) by 3.8% for the month.
    • Medium Jets: Worsened (increased) by a nominal 0.2%.
    • Small Jets: Worsened (increased) a mere 0.1%, but that resulted in a 12-month worst (highest) figure.
    • Turboprops: Worsened (increased) another 1.6%.

    April’s ETP Ratio Trend

    The fleet’s ETP Ratio improved (decreased) in April, but at 69.8% was still above average and is not a dramatic improvement on March’s 71.1%.

    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.

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increases, in many cases by more than 30%.

    During Q1 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 68% longer than assets with an ETP Ratio below 40% (245 days versus 413 days). How did each group fare during April?

    • Turboprops: Maintained their top (best) spot by posting the lowest ETP Ratio at 43.2%, although the figure was higher (worse) than the group’s 42.3% recorded in March.
    • Large Jets: Held on to second place at 64.4%, marginally better than March’s 64.7%.
    • Medium Jets: Maintained third position through a 12-month low (best) figure of 72.3%.
    • Small Jets: Improved from last month’s 90.2% to 87.8%, but that still left the group with too many ‘marginally-marketable’ assets.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during April 2020.

    Most Improved Models

    All of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). However, as proof that the COVID-19 pandemic is placing downward pressure on pricing, only one of the models experienced an Ask Price increase – the Citation III ($30,100). The G100, meanwhile, posted no Ask Price change. The remaining four models experienced the following price decreases:

    • Bombardier Global Express -$428,333
    • Beech King Air 300 -$5,462
    • Bombardier Learjet 55 -$10,089
    • Cessna Citation II -$12,792

    Bombardier Global Express

    Although no aircraft trades were recorded as April closed, an inventory withdrawal and two additions to the ‘for sale’ fleet allowed this model to capture the top spot on the Most Improved list. The latest fleet mix reduced their Maintenance Exposure by nearly $2.4m, which was more than sufficient to counter the model’s Ask Price reduction in excess of $428k.

    The 16 units on the market equated to 11% of the active Global Express fleet. However, an ETP Ratio of 56.1% for an aircraft with this model’s following, should not create major challenges for sellers, especially since aircraft whose engines are enrolled on an Hourly Cost Maintenance Program (HCMP) are likely to generate ETP Ratios below the 40% ‘excessive’ demarcation point.

    Gulfstream G100

    Second place on this list was captured by another model that recorded no sales in April, although one more aircraft did enter inventory to bring the total to three units, a figure equating to 13.6% of the active G100 fleet.

    With an ETP Ratio approaching 130%, the model’s near-$420k reduction in Maintenance Exposure, coupled with no price change, is unlikely to open the floodgates of buyer interest.

    Beechcraft King Air 300

    Three aircraft transacted last month, but three more entered inventory, thereby keeping availability at 18 units (9.3% of the active fleet). This asset earned its place on this list thanks to a Maintenance Exposure decrease nearing $183k, overcoming an Ask Price reduction exceeding $5k.

    Although few King Air 300 aircraft are enrolled on engine HCMPs, the model’s 54.6% ETP Ratio should provide reasonable opportunities for both Buyers and Sellers to reach an acceptable transaction figure.

    Cessna Citation III

    Next on the ‘Most Improved’ list is the Citation III. But if the model’s 32-asset inventory selection (18.5% of the active fleet) and its 180.9% ETP Ratio does not tell you all you need to know, the asset’s zero transactions during the month of April should.

    The aircraft did rightfully earn its spot on this list courtesy of a Maintenance Exposure decrease approaching $35k and an Ask Price increase exceeding $30k. But, we are discussing an aircraft aged between 30 and 37 years when it comes to the Citation III. Buyers willing to risk ‘final owner’ status are the ones most likely to be interested in this model.

    Bombardier Learjet 55

    The Learjet 55 is no stranger to this report, and found its way onto this month’s ‘Most Improved’ list through no sales occurring, one withdrawal, and three additions to the inventory. The net result was a Maintenance Exposure decrease exceeding $108k which compensated an Ask Price decrease exceeding $10k.

    This model’s 16 aircraft inventory equated to 16.3% of the active fleet. The Learjet 55 has provided much lift to those offering charter services over the years, but the asset’s 33- to 39-year old airframes may be approaching their operational and financial acceptability limit.

    Cessna Citation II

    Occupying the final position on April’s ‘Most Improved’ list is the Citation II, an aircraft whose 29- to 37-year old airframes surprised us. The 83 inventory units (16.4% of the active fleet) came about after three transactions in April, along with the withdrawal of five listings and three new additions to the fleet.

    Considering that the model occupied sixth place on March’s ‘Most Deteriorated’ list, its improvement is commendable, as is its Maintenance Exposure decrease that exceeds $87k. The decrease in Maintenance Exposure overcame an Ask Price decrease of almost $13k.

    Regrettably, the model’s ETP Ratio of nearly 136% will continue to present challenges for sellers of an asset with limited room for price adjustment.

    Most Deteriorated Models

    Five of the six models on April’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase, with the lone decrease posted by the Gulfstream GIV. What surprised us more was that two models, the Gulfstream GIV-SP (MSG3) and Hawker 800A, posted Ask Price increases of $905,000 and $24,156, respectively… The remaining models experienced the following decreases:

    • Hawker 800XP -$90,286
    • Cessna Citation V 560 -$34,045
    • Piaggio P-180 -$137,286
    • Gulfstream GIV -$523,194

    Gulfstream GIV-SP (MSG3)

    The least deteriorated asset to make this list was the GIV-SP (when operated under MSG3 maintenance rules). The story here is not bad at all, and the aircraft’s presence on this list is due – mostly – to technical reasons. A lower-priced inventory unit was replaced with a more expensive addition to the fleet, creating the $905k Ask Price increase, coupled with a Maintenance Exposure increase approaching $956k.

    No transactions were recorded last month, but with only four units listed, equating to only 4.5% of the active fleet, along with an ETP Ratio just under 60%, sellers of assets enrolled on an engine HCMP should be able to locate interested buyers.

    Hawker 800A

    Two aircraft were withdrawn from inventory in April, but no sales were registered, and an addition to the ‘for sale’ fleet brought availability up to 30 aircraft, or 13.5% of the active fleet.

    This model has had a strong following, but with a Maintenance Exposure increase helping create an ETP Ratio in excess of 160%, the Ask Price increase exceeding $24k is unlikely to prove sustainable.

    Hawker 800XP

    Unlike its older brother, the Hawker 800XP did post a transaction in April, but that is where the positive news ends. Eight more assets entered inventory last month, raising availability to 60 units (15% of the active fleet). Maintenance Exposure increased by more than $73k, and an Ask Price reduction exceeding $90k led to the ETP Ratio reaching 89.4%.

    Since most 800XP aircraft are enrolled on an engine HCMP, that factor provides nominal differentiation for most sellers. Those not enrolled on an HCMP will find it virtually impossible to attract ‘acceptable’ offers for this model.

    Cessna Citation V 560

    There were no April transactions, but three inventory withdrawals and two additions that landed the Citation V on this list, through a Maintenance Exposure increase exceeding $129k and an Ask Price decrease of over $34k.

    The 32 listed assets equate to 12.7% of the active fleet. With an ETP Ratio of 91.6%, sellers are strongly advised to carefully consider any offers that come their way.

    Piaggio P-180

    The P-180 finds itself in next to the worst possible position on this list thanks to a Maintenance Exposure increase exceeding $131k and an Ask Price decrease of more than $137k – both excessively high figures for a turboprop.

    One sale was registered in April, but two assets joined the inventory raising availability to 13 units (15.9% of the active fleet). With an ETP Ratio of 125%, owners of these assets must locate buyers interested in the speed and cabin volume of this turboprop – both of which are impressive.

    Gulfstream GIV

    From sixth place on March’s ‘Most Deteriorated’ list to the worst position this month, the GIV is beginning to find its traditional following is faltering lately, as reflected by an Ask Price decrease exceeding $523k. Combined with a $93k Maintenance Exposure increase, the model’s ETP Ratio grew to 183.7%.

    While one unit did trade in April, the 19 units now listed for sale equate to 11.1% of the active fleet. While not horrific, in the current sales environment it will be very challenging for sellers to obtain anything like a high price offer.

    The Seller’s Challenge

    It is 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 its enrollment on an HCMP where more than half of their model’s in-service fleet is enrolled on one.

    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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    Tony Kioussis

    Tony Kioussis

    Editor, Aircraft Value & Maintenance Analysis

    As President, Asset Insight, Tony provides valuations, audits, analytics and consulting services, and a uniform methodology for grading an aircraft’s maintenance condition.

    Asset Insight is owned by JETNET LLC, and has devised a uniform methodology for grading an aircraft’s maintenance condition allowing it to provide timely current and residual aircraft values, projected maintenance costs, and future marketability information.

    Previously Tony worked with GE Capital’s Corporate Aircraft Finance group; Jet Aviation; and JSSI, developing the ‘Tip-to-Tail’ airframe maintenance program.



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