Used Aircraft Maintenance Analysis – May 2020

The number of aircraft transactions continued to be fewer than normal in May, primarily owing to uncertainty over the COVID-19 pandemic. Assets listed for sale continued to increase at a slower pace, but which models were impacted most? Tony Kioussis explores…

Tony Kioussis  |  19th June 2020
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Tony Kioussis
Tony Kioussis

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

Cessna Caravan 208 Turboprop in Flight

During May 2020, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,324 aircraft listed for sale equated to a 0.7% inventory fleet increase over April, and a year-to-date (YTD) increase of 6.5%.

While the fleet remained within the ‘Excellent’ range, posting a figure of 5.301 in May, the Quality Rating was lower than in April (5.311) on Asset Insight’s scale of -2.5 to 10.

A more detailed examination of May’s inventory fleet mix revealed fewer near-term maintenance events, but individual event costs are anticipated to run slightly above the 12-month average.

May’s Aircraft Value Trends

Average Ask Price for the tracked fleet decreased another 4.4%, following April’s 1.6% reduction, with May’s pricing approximately half-way between the 12-month average and high figures. All four groups contributed to the decrease:

  • Large Jets: Ask Prices fell 6.4%, leaving them at their 12-month average.
  • Medium Jets: Ask Prices decreased 3.9%, virtually equidistant between the group’s 12-month high and average figures.
  • Small Jets: Ask Prices decreased 1.3% to only slightly lower than their 12-month high posted in April.
  • Turboprops: Lost 2.3%, but prices remained above the group’s 12-month average.

May’s Fleet for Sale Trends

The tracked fleet’s total number of aircraft listed for sale increased 0.7% in May (5.8% YTD). That’s a month-over-month increase of 16 units in May, and 142 units YTD.

  • Large Jet Inventory: Increased 1.0% (five units), and 13.5% YTD (+58 units).
  • Medium Jet Inventory: Rose another 0.3% (two units) for May, and 1.1% YTD (seven units).
  • Small Jet Inventory: Decreased 0.3% (two units) in May, but the total YTD increase is 9.0% (+58 units).
  • Turboprop Inventory: Increased another 2.4% (+11 units) during May, and is now up 4.2% (+19 units), YTD.

May’s Maintenance Exposure Trends

Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (worsened) 0.9% to $1.39m, meaning upcoming maintenance for the current fleet mix would be a bit more expensive to complete.

The figure was slightly worse than the $1.385m 12-month average, and individual results were as follows:

  • Large Jets: Worsened (increased) 1.7% for the month, but remained better than their 12-month average.
  • Medium Jets: Worsened (increased) by 0.6%, but also managed to maintain a better (lower) figure than their 12-month average.
  • Small Jets: Worsened (increased) 1.1% to post the group’s second consecutive 12-month worst (highest) figure.
  • Turboprops: Improved (decreased) 1.8% to a Maintenance Exposure only slightly worse than the group’s lowest (best) 12-month figure.

May’s ETP Ratio Trend

The fleet’s ETP Ratio was unchanged during May 2020 at 69.8%, a figure half-way between the 12-month high and the 12-month average Ratio.

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 May?

  • Turboprops: At 43.5%, the group maintained the top (best) spot by posting the lowest ETP Ratio – a figure only slightly worse than April’s 43.2%.
  • Large Jets: Worsened from April’s 64.4% to 66.0% in May, but remained in second place.
  • Medium Jets: Remained in third position by posting a second consecutive 12-month low (best) figure of 71.2%, following April’s 72.3%.
  • Small Jets: Deteriorated from April’s 87.8% to 88.5%, slightly increasing the selling challenge for most 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 May 2020.

Most Improved Models

Five of the six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Two models, the Bombardier Learjet 36A and Challenger 601-3R saw no price change, while the remaining four models experienced the following price increases:

  • Bombardier Learjet 31A +$39,956
  • Hawker 800A +49,400
  • Cessna Citation V Ultra +170,375
  • Bombardier Learjet 45 $94,536

Bombardier Learjet 31A

Leading the ‘Most Improved’ list, the Learjet 31A posted two transactions in May, and the new fleet mix registered a Maintenance Exposure decrease exceeding $34k, along with a substantive Ask Price reduction.

With 18% of the active fleet being listed for sale, however, buyers have their pick of the litter among the 35 available aircraft. While selection might be good for buyers, sellers are facing an average ETP Ratio approaching 120%. This is not exactly an optimum sales environment.

Bombardier Learjet 36A

Capturing second place in May was another Learjet, thanks to one addition to the for-sale fleet (the model posted no transactions for the month). The five units listed for sale represent 13.5% of the active fleet, and most sellers will have to find ways to hurdle an ETP Ratio approaching 144%.

The model obtained its place on this list through a Maintenance Exposure decrease that exceeded $81k, so at least one owner may have a realistic opportunity to sell.

Beechcraft Hawker 800A

Following its appearance on April’s Most Deteriorated list, the Hawker 800A found its way onto this list after posting four transactions during May, along with one addition to the inventory fleet. The 23 assets now listed saw a reduced Maintenance Exposure of $6,944, while the model’s Ask Price increased by $49,400.

Unfortunately, that still leaves 12.9% of the active fleet for sale on the market, and with an average ETP Ratio exceeding 150%, this is unquestionably a buyer’s market.

Cessna Citation V Ultra

Four aircraft were withdrawn from the inventory in May, and while five others joined the listings, the 24 assets ‘for sale’ equate to only 8.9% of the active fleet. The Citation V Ultra found its way onto this list even though its average Maintenance Exposure increased slightly ($1,796), thanks to a significant Ask Price increase exceeding $170k.

Whether the Ask Price increase is sustainable will be for the buyers to decide, but the current fleet’s ETP Ratio of 63% should offer a fighting chance to obtain rational pricing for at least some sellers.

Bombardier Challenger 601-3R

Keeping in mind that we are dealing with a model aged 24 to 27 years, its 120.7% ETP Ratio should not be a surprise. What might be surprising is that the model’s average Ask Price was unchanged in May at nearly $2.7m. A Maintenance Exposure decrease exceeding $215k got the CL601-3R on May’s ‘Most Improved’ list.

No transactions were registered in May, but one asset was withdrawn from inventory leaving seven aircraft listed for sale, or 12.5% of the active fleet.

Bombardier Learjet 45

The final member of May’s ‘Most Improved’ list is an aircraft whose one transaction, one withdrawal from inventory, and one addition to the fleet resulted in 18 listed assets (11.8% of the active fleet). The model’s 81.2% ETP Ratio came from a Maintenance Exposure decrease exceeding $20k, and an Ask Price increase approaching $95k.

Owners who have enrolled their aircraft on an Hourly Cost Maintenance Program (HCMP) may find value in that decision in the offers they receive.

Most Deteriorated Models

All six models on May’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. What surprised us, for the second consecutive month, was that two models, the Cessna Citation ISP and the Dassault Falcon 2000, posted Ask Price increases of $33,390 and $65,069, respectively… The remaining models experienced the following decreases:

  • Bombardier Learjet 40XR -$16,667
  • Cessna Citation CJ1 -$6,282
  • Cessna Caravan 208 -$549,524
  • Bombardier Global Express -$504,500

Bombardier Learjet 40XR

The best among the ‘Most Deteriorated’ assets attained its place on this list through a Maintenance Exposure increase approaching $97k and an Ask Price decrease approaching $17k. The model achieved this feat despite no transactions through one addition to the inventory, and one owner lowering their Ask Price in the hopes of creating some buyer interest.

With 11 assets now listed for sale (12% of the active fleet) and an ETP Ratio of just over 68%, some sellers should find room to structure an acceptable price, especially those whose engines are enrolled on HCMP.

Cessna Citation CJ1

No aircraft transactions were identified in May, and the 23 aircraft listed for sale equate to 11.8% of the active fleet. That’s good news for buyers, less so for sellers… The CJ1 posted a Maintenance Exposure increase approaching $87k and an Ask Price decrease exceeding $6k to earn a spot on this list.

However, the 67.5% ETP Ratio those figures helped create can be overcome by aircraft enrolled on an engine maintenance program, and an owner with a clear understanding of where their aircraft sits among its peers.

Cessna Citation ISP

The second of three Cessna models to occupy the Most Deteriorated list posted one transaction in May. Unfortunately for sellers, the 50 aircraft listed for sale equate to 18.1% of the active, and aged, fleet.

Keeping in mind the model’s ETP Ratio of 136.6%, thanks primarily of a Maintenance Exposure increase exceeding $86k, it is difficult to believe May’s Ask Price increase exceeding $33k will be realized.

Dassault Falcon 2000

The second model on this list to post an Ask Price increase has a better chance of sustaining it, thanks to its much lower ETP Ratio, which stood at 81.1% in May. Two aircraft transacted during the month, and the 23 listed for sale equate to 11.5% of the active fleet. While the figure is above the 10% excessive inventory level, one needs to keep in mind the model’s strong following.

Buyers are advised to carefully research aircraft Maintenance Exposure, as May’s near $382k increase means that at least some listed assets are facing expensive maintenance events.

Cessna Caravan 208

For the second consecutive month a turboprop finds itself in second worst position on the Most Deteriorated list. This month it’s the Caravan 208, courtesy of a minor Maintenance Exposure increase exceeding $4k, and a major Ask Price drop approaching $550k.

While that might look bad for sellers, it is not. No transactions were posted in May, and only nine aircraft are listed for sale (4.1% of the active fleet). Add to that, the model’s ETP Ratio is 38.4%, and most sellers should have no problem negotiating a decent sale price.

Bombardier Global Express

After attaining top honor as the ‘Most Improved’ model in April, the Global Express managed to earn the ‘Most Deteriorated’ moniker in May through a Maintenance Exposure increase approaching $1.4m, and an Ask Price decrease approaching $505k (with the addition of an asset posting an Ask Price 30% below the previous month’s average).

There were 17 assets listed for sale as May closed (11.7% of the active fleet). With an ETP Ratio approaching 77%, any owner whose engines are not enrolled on HCMP is likely to find offers they receive difficult to swallow.

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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