Used Aircraft Maintenance Analysis – January 2020

Which business aircraft showed the most improvement and deterioration in terms of their maintenance exposure to ask price ratio during January 2020, and what were the market factors impacting those models? Asset Insight's Tony Kioussis explores...

Tony Kioussis  |  17th February 2020
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    Tony Kioussis
    Tony Kioussis

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

    Hawker 1000A Parked on Airport Ramp

    During January 2020, the average Ask Price for aircraft in Asset Insight’s revised, and substantially expanded, tracked fleet increased 16.8%. Which models were impacted the most? Tony Kioussis explores…
    In January, Asset Insight expanded the number of aircraft in its tracked fleet of 134 fixed-wing models, and the new inventory mix posted a 1.6% unit decrease to 2,147 aircraft for sale, compared to the 2,182 assets comprising the same make/model list in December.
    Asset quality improved 1.3% during the month, from December’s 5.206 to 5.272, a 12-month best figure that moved the Quality Rating from ‘Very Good’ into the ‘Excellent’ range on our scale of -2.5 to 10.
    Additionally, at $1.332m, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the lowest (best) 12-month figure for the second consecutive month.
    January’s Aircraft Value Trends
    During January, the average Ask Price for aircraft in the expanded fleet increased 16.8%, with all four groups contributing.
    • Medium Jets led the way through an increase of 22.7%
    • Large Jets were a close second rising 22.4%
    • Turboprop Ask Prices increased 10.2%
    • Small Jets increased 1.6%.
    January’s Fleet for Sale Trends
    The total number of used aircraft listed for sale decreased 1.6%, although this comprised a larger overall fleet size by virtue of the increase in tracked models. Total tracked inventory decreased 35 units with individual group figures breaking down as follows:
    • Large Jet inventory: Increased 0.9% (+4 units since December 2019)
    • Medium Jet inventory:Decreased 7.0% (+46)
    • Small Jet Inventory: Increased 5.9% (+38) and
    • Turboprop inventory: Decreased 6.9% (+31)
    January’s Maintenance Exposure Trends
    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased 1% to post a 12-month low figure in January. Individual results were as follows:
    • Large Jets: Increased (worsened) by 2%, based on January’s expanded fleet mix;
    • Medium Jets:Maintenance Exposure improved (decreased) 1.7%;
    • Small Jets:Worsened by increasing 6.5% due, in part, to the new fleet mix;
    • Turboprops: Improved by 10.5% as a result of the new models added in January.
    January’s ETP Ratio Trend
    The latest fleet mix increased (worsened) the average ETP Ratio to 72%, from December’s 64.8%, but Turboprops posted a respectable improvement (decrease).
    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) increase, in many cases by more than 30%.
    During Q4 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (215 versus 395 DoM). How did each group fare during January?
    • Turboprops held the top (best) spot by a wide margin posting the lowest ETP Ratio, 42.6% (a 12-month low/best figure for this group and a substantive improvement on December’s 52.1%);
    • Large Jets held on to second place, but the 70.7% Ratio represented the group’s record high (worst) figure;
    • Small Jets captured third position but worsened from December’s 67.3% to 76.8%;
    • Medium Jets took last place while posting the group’s record low (worst) figure of 87.4% compared to December’s 75.5%.
    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 January 2020.
    Most Improved Models
    Four of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement), while the Hawker 1000A and the Falcon 900 experienced a Maintenance Exposure increase. Excepting the Citation VI, which had no Ask Price change, the remaining five models experienced price increases as follows:
    • Hawker 1000A $264,250
    • Beech King Air C90 $17,714
    • Cessna Citation ISP $14,409
    • Gulfstream GIV $189,141
    • Dassault Falcon 900 $1,700,000
    Hawker 1000A

    The Hawker 1000A captured top spot on the ‘Most Improved’ list, following its third place showing on December’s list after occupying the ‘Most Deteriorated’ slot in November. No transactions were posted for January, but two transactions were confirmed for December after we closed out that month.
    There were nine assets listed for sale at the end of January, equating to 22.5% of the active fleet. The model earned its top spot via a 17.6% ETP Ratio improvement thanks to a Maintenance Exposure decrease approaching $13k, along with a substantial Ask Price ‘increase’, but only because the two least expensive aircraft were the ones that changed ownership.
    Seller Advice:With current listings averaging an Ask Price 53% higher than December’s average trading value, along with an average ETP Ratio of 91.4%, sellers should carefully consider offers that, on first blush, may appear to be low.
    Cessna Citation VI

    The Citation VI took second place on January’s ‘Most Improved’ list thanks to a Maintenance Exposure decrease exceeding $170k that played well with no change in the model’s Ask Price.
    One aircraft transacted in January, and the seven inventory units amount to 20% of the active fleet for sale. With an ETP Ratio exceeding 115%, sellers need to be sure before turning down any offers. Buyers are likely to be few and far between.
    Beechcraft King Air C90

    This model posted four transactions in January and 43 units remained for sale (10.8% of the active fleet). The King Air C90 joined the Most Improved list due to a 14.5% ETP Ratio improvement, and this was thanks to a Maintenance Exposure reduction approaching $53k and an Ask Price increase.
    Although the C90 fleet is between 38 and 49 years of age, this aircraft continues to enjoy a decent following. Its current ETP Ratio of 113.2% will create difficult decisions for some sellers, but there is sufficient market interest for most owners to find buyers, assuming they are realistic about the market’s view of their asset’s value.
    Cessna Citation ISP
    The Citation ISP found itself in this same position in November, and was on the ‘Most Deteriorated’ list in December. The 13.1% ETP Ratio improvement resulted from a near $66k decrease in Maintenance Exposure, along with an Ask Price increase exceeding $14k.
    Four transactions were posted in January, but 55 units were listed for sale at the end of the month (19.6% of the active fleet). The model’s current 94.3% ETP Ratio places buyers squarely in the driving seat.
    Gulfstream GIV
    Two aircraft joined the ‘for sale’ fleet in January, and with no transactions being posted, inventory rose to 25 units (14.3% of the active fleet). The model has demonstrated resilience over the past few years and earned its place on this list by virtue of an $18k Maintenance Exposure decrease along with an Ask Price increase exceeding $189k.
    However, at 27 to 34 years of age, and carrying an ETP Ratio of 131.5%, one wonders how much longer GIV aircraft that are not covered by an engine Hourly Cost Maintenance Program will be truly marketable.
    Dassault Falcon 900
    The final model joined this month’s ‘Most Improved’ list on technical grounds and proved, yet again, why small fleets can create misleading statistics. No Falcon 900s transacted in January, the lone December inventory aircraft was withdrawn, and two other units entered the for-sale fleet.
    These changes led to a $338k Maintenance Exposure increase, but a whopping $1.7m Ask Price increase helped secure a place for the Falcon 900 on the list. The problem is, the latest listings are priced over 60% higher than the withdrawn aircraft, making the Ask Pricing difficult to achieve while also artificially enhancing the group’s ETP Ratio.
    Hope is never a well-founded strategy.
    Most Deteriorated Models
    All six models on January’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Cessna Citation II and the Gulfstream GV posted an Ask Price increase of $5,504 and $249,167, respectively. The remaining models registered the following decreases:
    • Hawker 800A   -$64,968
    • Bombardier Global Express -$426,250
    • Piaggio P-180   -$58,696
    • Dassault Falcon 900B -$367,500
    Hawker 800A

    January’s ‘Most Deteriorated’ model posted no transactions during the month, and the 33 units listed for sale accounted for 14.3% of the active fleet. To achieve its position on this list, the Hawker 800A posted a Maintenance Exposure increase approaching $149k, and an Ask Price reduction approaching $65k.
    With a listed fleet ETP Ratio of 191%, any seller whose aircraft engines are not enrolled on an Hourly Cost Maintenance Program is likely to keep flying their aircraft until it reaches the salvage yard.
    Cessna Citation II
    The Citation II was second-best on the ‘Most Improved’ list in December, so how did it get here one month on? A Maintenance Exposure increase exceeding $93k was the primary culprit, but its problems do not stop there.
    Two units transacted in January, one was withdrawn from inventory, and five more aircraft joined the fleet to offer buyers a selection of 95 assets (18.5% of the active fleet) sporting an ETP Ratio of 108.8%.
    Seller Advice:If an offer comes your way, consider it a gift no matter how small!
    Bombardier Global Express
    This model occupied top spot on our ‘Most Improved’ list last month, but inventory changes through additions and withdrawals increased Maintenance Exposure over $1.1m, and an Ask Price reduction exceeding $426k certainly didn’t help.
    On a positive note, the model’s 13 listings equate to only 9% of the active fleet, and its ETP Ratio of 68.8% will make many of these aircraft quite marketable, especially if they are enrolled on an engine Hourly Cost Maintenance Program.
    Note:As we pointed out last month, the Bombardier Global Express still has plenty of financial and operating life remaining, along with a strong following. For this reason, many current and potential owners are considering upgrading their asset utilizing the JANUS Modernization Program, a decision that could add substantial value to the aircraft while making it virtually indistinguishable from a new production unit, particularly with respect to passenger amenities.
    Piaggio P-180

    The market has not been kind to this model, which is unfortunate considering its cabin size, low interior noise level, and speed for a turboprop. No transactions were reported in January, while the three additions to inventory increased buyer selection to 14 units, or 16.7% of the active fleet.
    The aircraft’s 115.9% ETP Ratio, created through a Maintenance Exposure increase approaching $75k and an Ask Price drop of nearly $59k, is undoubtedly challenging sellers. Buyers are firmly in the driving seat here as well.
    Dassault Falcon 900B

    One aircraft transacted in January and two were withdrawn from inventory, leaving 12 units listed for sale (8% of the active fleet). Unfortunately, those inventory changes increased Maintenance Exposure by nearly $247k, while Ask Price fell approximately $368k, landing the model on this list.
    With an ETP Ratio of 45%, most of these aircraft are infinitely marketable, especially if their engines are enrolled on HCMP.
    Gulfstream GV

    Even though the GV posted an Ask Price increase in January, the model could not overcome a Maintenance Exposure increase approaching $1.1m, created through the withdrawal from inventory of two assets and no sales transactions. The GV thereby found its way to this list after occupying sixth place on the ‘Most Improved’ group in December.
    With only 12 units listed for sale (6.3% of the active fleet), an ETP Ratio averaging 41.4%, the aircraft’s superb operating capabilities, and the market following for this model, most sellers should have the ability to extract good value from the sale of their asset.
    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 Hourly Cost Maintenance Program 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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