Sales transactions put a serious dent in the business aircraft inventory fleet during the last month of 2018. Which models were the big movers and shakers in December’s used aircraft marketplace? Tony Kioussis explores…
Asset Insight’s market analysis of December 31, 2018, covering 94 fixed-wing models and 1,591 aircraft listed for sale, revealed an Ask Price decrease of 1.4%.
- Large Jet values fell 1.9%, but prices increased 5.1% overall during Q4, and 11.8% since December 2017;
- Medium Jet values gained only 0.1% in December, 0.7% during Q4, and lost 14.6%, overall, during 2018;
- Small Jet values lost another 2.0%, but they did gain a slight 0.3% in Q4, and 0.7% throughout the year;
- Turboprops lost 1.1%, but gained 1.7% during Q4 to end 2018 with a 0.6% annual loss.
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet decreased 4.3% during December (71 units), which is almost identical to November’s increase (73 units). All four groups contributed. Small Jets led the way during December with an 6.0% decrease (30 units), Medium Jet inventory decreased 5.1% (26 units), Large Jet inventory fell 2.8% (10 units), and Turboprop inventory decreased 1.7% (five units).
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for the December inventory fleet mix remained virtually unchanged since November, and at $1.415m was slightly better (lower) than the 12-month average.
- Large Jets improved 1.4% following November’s 12-month highest (worst) figure;
- With higher quality assets trading during December, Medium Jet Maintenance Exposure increased (worsened) 0.3%;
- Small Jet transactions involved only higher quality assets last month, thus leading to Maintenance Exposure increasing (worsening) 2.3%;
- Curiously, Turboprop sales involved assets with lower Maintenance Exposure, thereby increasing (worsening) December’s figure by 1.5%.
In view of the higher asset quality aircraft departing inventory, we were surprised to see the ETP Ratio rise to only 65.6% from November’s 65.1%, both figures being slightly better than the 12-month average and only 0.9% above December 2017’s figure. Why is this information important…?
ETP Ratios Explained
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 Market increase (in many cases by more than 30%).
So, for example, aircraft whose ETP Ratio exceeded 40% during Q3 2018 were listed for sale an average 34% longer than aircraft whose Ratio was below 40% (280 days versus 374 days on the market, respectively), while during Q4 2018 aircraft whose ETP Ratio exceeded 40% took over 57% longer to sell (246 versus 386 Days on Market).
- Turboprops yet again posted the lowest (best) ETP Ratio at 51.1%, reflecting an increase of 2.0% during Q4, and 1.0% during 2018;
- Large Jets followed at 58.8% - an 8.8% improvement during Q4 but a 3.7% degradation for the year;
- Small Jets recovered well during 2018, and the 66.4% posted to end the year was a 2.8% improvement during Q4, and a 17.0% improvement for 2018;
- Medium Jets worsened to 77.8% (after improving for three consecutive months, and 0.3% during 4Q), and the group’s ETP Ratio increased (worsened) 19.5% across 2018.
Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual business jet and turboprop models fared the best and which fared the worst in December 2018.
Most Improved Models
Among the list for December’s ‘Most Improved Models’, the GIV-SP posted a Maintenance Exposure increase, while the other five aircraft on the list experienced a Maintenance Exposure reduction (improvement). The Gulfstream G100 registered no change in Ask Price, the Hawker 800A posted a loss of $20,588, and the remaining four models experienced the following price increases:
- Gulfstream GIV-SP +$1,300,000
- Bombardier Global Express +$550,000
- Gulfstream GIV +$112,833
- Citation Excel 560XL +$294,286
The Gulfstream G100 topped the ‘Most Improved’ list by virtue of a $427,572 Maintenance Exposure reduction from the addition of one unit to the for-sale inventory, which now totals five aircraft (22.7% of the active fleet).
As we have stated in the past, when a fleet is this small, a single unit can heavily influence the model’s figures, and this is yet another example of how data, as opposed to information, may not paint an accurate picture.
Seller Advice: With an ETP Ratio of 137.2%, G100 sellers will have a very small pool of buyers seeking these assets and would be wise to consider all offers.
One aircraft transacted in December, but three more were listed for sale, raising inventory to 16 units (8.7% of the active fleet). The model attained its position in the rankings through a $1.3m average Ask Price increase that overtook a Maintenance Exposure increase of nearly $202k.
With the resulting ETP Ratio in the mid-sixties, any aircraft enrolled on Hourly Cost Maintenance Programs (HCMP) should lower that figure below the 40% range, making them more marketable than their age may lead some believe.
Bombardier Global Express
Two units transacted in December, decreasing inventory to 11.8% of the active fleet (17 units). The model earned its position within the Most Improved list through a Maintenance Exposure decrease exceeding $1.0m and an Ask Price increase.
Similar to the GIV-SP, marketability can be significantly improved for any aircraft covered by an engine HCMP, so the ETP Ratio improvement to 79.8% could be more valuable to some sellers than the figure might suggest.
The 14 Gulfstream GIVs listed for sale is due to three aircraft transacting in December, two listed aircraft being withdrawn, and one new addition to the fleet.
The model joined the Most Improved list courtesy of a $190k Maintenance Exposure decrease and an Ask Price increase nearing $113k.
Seller Advice: While only 7.6% of the active fleet is listed for sale, the GIV’s current >145% ETP Ratio will require sellers to entertain some offers that, upon first viewing, may seem illogically low.
Citation Excel 560XL
Five aircraft traded in December, one was withdrawn from the listed pool, and three were added to the Citation Excel inventory, leaving 19 jets on the market. The model attained its spot through a substantive Ask Price increase and a Maintenance Exposure decrease approaching $162k.
This aircraft truly belongs on the ‘Most Improved’ list, as its ETP Ratio is now below 34% and, while 19 listings may seem high, that figure represents less than 6% of the active fleet.
Buyer/Seller Advice: Sellers have some real opportunities, while buyers can still identify good values – assuming they do their research.
Two aircraft transacted in December, and the 43 units currently listed for sale equate to over 16.5% of the active fleet. This model joined the Most Improved list by virtue of a Maintenance Exposure decrease nearing $81k that overshadowed a near $21k Ask Price increase.
However, with an ETP Ratio exceeding 153%, most of these aircraft cannot sufficiently improve their marketability to aid many sellers. If a seller’s engines are not enrolled on an Hourly Cost Maintenance Program, the ability to close a sale will likely depend on the owner’s willingness to accept pricing near salvage value.
Most Deteriorated Models
All of the ‘Most Deteriorated Models’ in December experienced a Maintenance Exposure increase. Only the Cessna Citation ISP experienced a price increase ($42,068) while Ask Prices for the remaining five models were down as follows:
- Bombardier Challenger 601-3A -$59,233
- Dassault Falcon 900B -$191,167
- Cessna Citation VI -$4,500
- Bombardier Learjet 60 -$8,636
- Cessna Citation CJ3 -$501,619
Bombardier Challenger 601-3A
No Bombardier Challenger 601-3As traded in December, but one was withdrawn from inventory while two were added, bringing the available total to 25 units. That equates to over 19% of the active fleet.
Seller’s Advice: With an ETP Ratio approaching 181% due to a near $268k rise in Maintenance Exposure and a $59k reduction in average Ask Price, buyers (few as they might be) are definitely in the driver’s seat, and sellers should think carefully about rejecting any offer.
Dassault Falcon 900B
The model made this list due to a $303k increase in Maintenance Exposure and a drop in ask price exceeding $191k. One aircraft transacted in December, but two joined the pool and inventory now stands at 13 units, about 8.6% of the active fleet.
While its position on the Most Deteriorated list was well-earned, sellers should be able to attract decent pricing on their Falcon 900Bs since the aircraft’s ETP Ratio (45.8%) can be addressed through appropriate pricing if the aircraft’s engines are not covered by HCMP.
Cessna Citation VI
One aircraft traded in December leaving eight units for sale. Unfortunately, that equates to 15.4% of the active fleet and, with average Maintenance Exposure (which increased over $88k last month) now exceeding the average ask price (which decreased $4.5k last month), sellers of this model are in a heap of trouble.
Considering that the youngest aircraft is 24 years old, many owners are aware they might be their unit’s final operator, but there are sellers hoping that at least one ‘disposable aircraft’ buyer is still out there…somewhere…
Bombardier Learjet 60
The model finds itself on the Most Deteriorated list for the second consecutive month complements of a Maintenance Exposure increase exceeding $110k and an $8.6k Ask Price decrease. While three units traded in December, two more joined the inventory pool and the 32 units now listed for sale equate to 10.4% of the active fleet.
As with the Citation VI, the Lear 60’s Maintenance Exposure exceeds the model’s average Ask Price, and if a seller’s engines do not have HCMP coverage, sales opportunities will be limited while offers are unlikely to be generous.
Cessna Citation ISP
This model is also gracing the Most Deteriorated list for the second straight month and, while its ETP Ratio may be better than that of the Lear 60, it is not sufficiently lower to make a ‘marketing difference.’ Eight units transacted last month but three more joined the for sale group, and the 49 assets in inventory equate to 17.8% of the active fleet.
None of this is surprising given that the model’s age ranges between 34 and 42 years, yet this workhorse still seems to find more than its share of willing buyers each month.
Cessna Citation CJ3
The final model to make this list was truly unexpected, but a Maintenance Exposure increase exceeding $147k, along with an Ask Price reduction nearing $502k, sealed the deal for the CJ3. Five aircraft transacted last month, three joined the inventory, and three were withdrawn from availability. All that jockeying left 30 aircraft in the for sale pool that, while not a small number, represents only 7.5% of the active fleet.
Buyer/Seller Advice: With the CJ3’s ETP Ratio averaging only 25%, sellers should be able to secure good pricing, and buyers should be able to structure transactions offering good value, assuming each party’s desire to close includes proper research.
A Word About NextGen Equipage
As we advised last time, buyers are focusing on the difficulty surrounding ADS-B and FANS installation due to service center capacity constraints. Sellers whose aircraft are not yet NextGen equipped are discovering that buyers are reducing their offer price to account for the ‘pain and suffering’ they are likely to experience. Installation slots have become difficult to find, while some NextGen equipment manufacturers are having trouble meeting demand.
We now anticipate many aircraft to be effectively grounded this time next year and, while some assets may not be worth upgrading, we advise owners to ensure their aircraft does not join this group by default.
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 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.