Used Aircraft Maintenance Analysis (February)

The total number of used aircraft listed ‘For Sale’ continued to decline during the month of February, with Large jets and Turboprops leading the way. Medium jet inventory remained steady and Small jet figures posted a surprisingly high 5.9% increase.

Buyers continued to focus primarily on higher quality assets, driving the remaining inventory aircrafts’ Maintenance Exposure higher in all four categories. Data collected during the February 28, 2018 market analysis covered 92 fixed-wing aircraft models and 1,687 units listed ‘For Sale’.

These revealed a nominal 0.3% enhancement in the Quality Rating, with Large and Medium jets improving and Small jets and Turboprops deteriorating. All four groups registered a Maintenance Exposure increase, as many inventory aircraft are facing expensive events.

Ask Prices decreased 1.3% to register another record low figure, as Large jet prices dropped 0.8%, Small jets dropped 2.3% (to a record low), and Turboprops dropped 1.2% (to a 12-month low). The lone winner were the Medium jets, whose average Ask Price increased 2.2% in February.

Those familiar with these factors will have little trouble understanding why the Maintenance Exposure to Price (ETP) Ratio was negatively impacted. It rose 4.5% to a 12-month worst figure, and 52.5% of tracked models continued to register an ETP Ratio in excess of 40%, adversely impacting their marketability.

ETP Explained

For those new to these analytics, let’s review the ETP Ratio and its 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 Q4 2017 were listed ‘For Sale’ an average 42% longer than aircraft whose Ratio was below 40% (199 days versus 284 days on the market, respectively).

Accordingly, as the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). Our tracked fleet ETP Ratio worsened since January’s 64% to 66.9%. By aircraft group:

• Turboprops continued to post the lowest (best) ETP Ratio at 49.2%;
• Large jets followed at 59.2%, a record high (worst) figure for this group;
• Medium jets worsened slightly, increasing to 68.4%, a record high figure for this group too; and
• Small jets worsened to 81.5%, the group’s worst 12-month figure.

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

Most Improved Models

All six ‘Most Improved Models’ shown in Table A (Below) experienced a Maintenance Exposure reduction (improvement). The Learjet 31, Challenger 601-3A, and Citation VI registered no change in Ask Price, while the Citation II saw an insignificant change (+$55).

 TABLE A: February's 'Most Improved' Used Jet and Turboprop Models

Two models posted a more substantial Ask Price increase, and one of the two provides some interesting analytics (see below). The Piaggio P-180 price increased $15,511 while the Learjet 45XR saw an increased Ask Price of $840,000.

Learjet 31: The Learjet 31 topped the Most Improved list in February by virtue of one sale and one aircraft entering the market due to a lease termination. Although the Ask Price did not change, a significant drop in Maintenance Exposure (-$157,830) improved the ETP Ratio for the model.

Challenger 601-3A: This model saw a surprising amount of movement in February, with two sales transactions, one lease, and one asset written-off. Four replacement assets entered the inventory fleet. All of these changes amounted to a $218,779 decrease in Maintenance Exposure.

With none of these changes impacting the Ask Price, the ETP Ratio improved 12.3% vaulting the model from January’s second worst performer to February’s second best performer.

Piaggio P-180:The appearance of the P-180 on the ‘Most Improved’ list is due to a single sale that reduced the model’s Maintenance Exposure by $138,488 and increased Ask Price by $15,511. It’s 84.5% ETP Ratio is unlikely to dramatically improve its marketability, but its 11.7% reduction reflects movement in a positive direction.

Citation II:This model saw quite a bit of activity in February with three sales, one lease, one aircraft eliminated from the active fleet, and one withdrawn from the listings. At the same time, seven aircraft entered the ‘For Sale’ fleet.

All this movement decreased Maintenance Exposure by $35,979 for the 76 inventory units while increasing Ask Price a nominal $55. That moved the ETP Ratio down 5.6% and earned the model a spot on this ‘Most Improved’ list.

Learjet 45XR: This model demonstrates how averages can be misleading, and the reason why buyers and sellers need detailed information in order to make informed decisions. There were no Learjet 45XR sales in February, but since one more unit did enter the inventory fleet, and since Maintenance Exposure decreased by $27,648, one could conclude that the $840k increase in Ask Price was due to the latest seller seeking too much for their aircraft.

In fact, the Ask Price ‘increase’ resulted from a lower priced aircraft revising their listing and posting no Ask Price in February, which left a single Learjet 45XR that currently shows an Ask Price to misrepresent the ‘average’. Normally, Asset Insight would view this model as an ‘outlier’ and eliminate it from our list, but we found the example too informative not to include.

Citation VI: The Citation VI registered no sales during the month of February and the inventory had no new entrants or changes in Ask Price. However, the inventory units did incur a Maintenance Exposure reduction averaging $37,356. That was sufficient to lower the ETP Ratio by four percentage points and land this asset on our ‘Most Improved’ list.

Most Deteriorated Models

All aircraft in the ‘Most Deteriorated’ category experienced a Maintenance Exposure increase in February. While the Challenger 601-3R and the Premier I registered an Ask Price increase, the other four models incurred Ask Price decreases, including:

• Learjet 55 (-$15,408)
• Gulfstream GIV-SP maintained under MSG3 (-$1,103,333)
• Hawker Beechjet 400 (-$33,333)
• Global 5000 (-$4,350,000).

 TABLE B: February's 'Most Deteriorated' Used Jet and Turboprop Models

Learjet 55: Topping February’s ‘Most Deteriorated’ list, the Learjet 55 had two sales and one new addition to the ‘For Sale’ fleet. The inventory mix changes increased Maintenance Exposure by $141,804 while lowering Ask price by $15,408. Even when it comes to older aircraft, higher quality assets are the ones trading, as the Lear 55’s figures demonstrate.

Challenger 601-3R: There were two retail transactions in January, while two other aircraft joined the inventory fleet. The aircraft sold were of higher Asset Quality than the replacement listing ‘For Sale’, increasing the average Maintenance Exposure by over $337k while reducing the average Ask Price by nearly $82k. The resulting 13.7% ETP Ratio increase was unavoidable.

Gulfstream GIV-SP (maintained under MSG3): Our January 30 market snapshot did not capture an aircraft sale that closed late in the month. There was also a sale during February, and the departure of two higher asset quality units from inventory increased average Maintenance Exposure by $29,653 while decreasing Ask Price in excess of $1.1m. Not surprisingly, the model’s ETP Ratio increased 21.7%, earning a spot on this list.

Hawker Beechjet 400: With no transactions in February, and no additions to the ‘For Sale’ fleet, the Beechjet 400 managed to earn a spot on this list through a $37,799 Maintenance Exposure increase (created by normal aircraft operations) and by virtue of a $100k Ask Price decrease for one listed aircraft.

Global 5000:Inventory decreased by two aircraft during February, and that increased Maintenance Exposure by $473,704. However, the Global 5000’s presence on this list is really undeserved.

While the aircraft’s ETP Ratio has entered the ‘Excessive’ range, the main cause is a dramatic drop in Ask Price created by the sale of a single unit that left only one, dramatically lower priced aircraft displaying an Ask Price.

We believe this model’s marketability is more robust than the numbers would indicate.

Premier I: In a single month, this model moved from the Most Improved list to the last spot within the ‘Most Deteriorated’. No sales were uncovered last month, but two new assets entered the ‘For Sale’ pool to raise the average Ask Price $5,000.

Regrettably, these two assets, and normal maintenance requirements on the existing inventory fleet, raised the Maintenance Exposure figure by $199,883 resulting in the ETP Ratio increasing 14.2%.

In Summary…

Whether examining the Most Improved or Most Deteriorated aircraft, the facts evidence that higher asset quality units are the one trading. For sellers that do not know the position of their aircraft relative to assets of the same model ‘For Sale’ or a competitive model, the cost will likely be more Days on Market, and perhaps an excessive loss of value.

Knowing such facts is the only way one can justify their aircraft’s Ask Price and know if an offer they receive is the best they are likely to achieve in any sales environment.

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.

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