- 18 Oct 2019
- Tony Kioussis
- BizAv Market Insight
Used Aircraft Maintenance Analysis – October 2019
Asset Insight's Tony Kioussis analyses the data for October 2019 to provide a list of the six most improved and most deteriorated aircraft in terms of maintenance condition change in relation to ask prices...
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Tony Kioussis
As President, Asset Insight, LLC, Tony provides valuations, audits, analytics and consulting services,...
The average Ask Price for Asset Insight’s tracked business aircraft fleet for sale increased 2.6% in October, with all four groups contributing. Three of the four groups are still below their December 2018 figure. Which models were impacted the most? Tony Kioussis explores…
On October 31st, 2019, Asset Insight’s monthly market analysis examined 96 fixed-wing models, comprising 1,769 aircraft listed for sale, and revealed an inventory increase of 17 units to the tracked fleet (the fifth consecutive month of availability growth). At the same time, fleet asset quality remained virtually unchanged, while Maintenance Exposure increased (worsened) 6.1%.
October’s Aircraft Value Trends
Following September’s 3% decrease, the average Ask Price for Asset Insight’s tracked fleet rose 2.6% in October. Group performance varied as follows:
- Large Jet values increased 1.4%, with the figure remaining below the group’s 12-month average;
- Medium Jets rose 2.5%, to a figure only $10k below the group’s 12-month high;
- Small Jet values increased 1%, although the figure was still lower than the group’s 12-month average; and
- Turboprop values increased 1.2% after six consecutive monthly decreases, but that placed the group only $20k higher than its 12-month low figure.
October’s Fleet for Sale Trends
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased for a fifth consecutive month, raising total availability by 1% (17 units) during October and 11.2% (178 units) year-to-date.
- Large Jet inventory increased 2.1% (eight units);
- Medium Jet inventory increased another 1.1% (six units), the group’s fifth consecutive monthly increase;
- Small Jets posted a 0.9% inventory increase (five units); and
- Turboprops posted their second consecutive monthly decrease, this time 0.7% (two units).
October’s Maintenance Exposure Trends
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (worsened) 6.1% for the month, closing October just shy of the 12-month high (worst) figure. Individual results were as follows:
- Large Jet maintenance exposure increased (worsened) 3.7%;
- Medium Jet exposure worsened 2.3% to post the group’s 12-month high figure;
- Small Jets rose (worsened) by a substantial 19.3%, reflecting the group’s worst 12-month figure;
- Turboprop maintenance exposure decreased (improved) 3.1%.
October’s ETP Ratio Trend
The change in fleet mix increased (worsened) the average ETP Ratio figure to 70.9% from September’s 64.9%, posting the highest (worst) 12-month figure. But individual group ETP Ratios varied.
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 Q3, aircraft whose ETP Ratio was 40% or greater were listed for sale 76% longer than assets with an ETP Ratio below 40% (218 versus 385 Days on Market). How did each group fare during October?
- Turboprops moved back into the top position with a Ratio of 55.8%, compared to September’s 58.4% (September’s was the group’s worst 12-month figure);
- Large Jets dropped to second with an ETP Ratio of 57.1%, compared to September’s 51.5%;
- Medium Jets followed, unchanged at 74.2%;
- Small Jets came last posting the group’s 12-month high (worst) figure of 83.6%, compared to September’s 67.3%. This was an unprecedented monthly increase directly linked to the spike in Maintenance Exposure associated with the latest inventory fleet composition.
Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during October 2019.
Most Improved Models
In contrast to the last two months, October’s ‘Most Improved’ group posted a respectable number of trades. All six models revealed a Maintenance Exposure decrease (improvement), and while the Hawker Beechjet 400 saw no change in valuation, the remaining five models posted the following price increases:
- Beechcraft King Air C90 $5,437
- Gulfstream G100 $85,000
- Bombardier Learjet 60XR $177,500
- Beechcraft King Air 350 (Post-2000) $90,505
- Cessna Citation VI $25,167
Following its September appearance on the ‘Most Deteriorated’ list, the C90 leads October’s ‘Most Improved’ models thanks to a nearly $50k decrease in Maintenance Exposure and a price increase. Five assets transacted last month, but new units joined the for-sale group, and the 49-inventory aircraft represent 12.2% of the active fleet.
Keeping in mind that we are discussing aircraft aged 37 to 48 years, the following these assets continue to garner is quite remarkable – particularly when considering the fleet’s nearly 125% ETP Ratio.
The model posted no trades in October, but the three aircraft joining the inventory raised the listings to five units, equating to 22.7% of the active fleet. While unit availability is high, the latest inventory mix helped improve (lower) Maintenance Exposure by more than $111k. That, along with an Ask Price increase, earned the G100 second place on this list.
The problem many sellers will unquestionably be dealing with concerns price, and the model’s 131.2% ETP Ratio is unlikely to help even if the aircraft’s engines are enrolled on an Hourly Cost Maintenance Program.
Hawker Beechjet 400
Next on the ‘Most Improved’ list is the Beechjet 400, a model that experienced no trades in October, but the one aircraft joining the inventory lowered Maintenance Exposure by over $48k.
There are only three aircraft listed for sale, representing 7.9% of the active fleet. Sellers of these assets are facing two problems. The first is age, as these units are between 30 and 33 years old. The second is the ETP Ratio of 111.5%. During Q3 that meant an average 643 Days on the Market to close a sale.
The model posted one retail sale from a Dealer in October, but a new entrant to the inventory kept availability at 18 units (15.2% of the active fleet). Nevertheless, the Learjet 60XR’s 40.3% ETP Ratio places many sellers in a decent enough position, although Days on the Market averaged 284 during Q3.
With Maintenance Exposure decreasing nearly $180k, aircraft enrolled on an engine Hourly Cost Maintenance Program should have decent sales opportunities, but availability is high and demand is presently below average for this aircraft.
Beechcraft King Air 350 (Post-2000)
The 16 units listed for sale (approximately 4.7% of the active fleet) and model’s 21% ETP Ratio, place sellers of these workhorses in a strong bargaining position. Four King Air 350s transacted in October, and three were added to lower (improve) Maintenance Exposure by over $200k - and increase average Ask Price by more than $90k.
Considering this model’s strong following, we anticipate numerous transactions will close before year-end.
Cessna Citation VI
This model earned the last spot on October’s ‘Most Improved’ list though a $25k Maintenance Exposure decrease and a similar price increase. There were only seven units listed for sale as we closed October, following one retail transaction during the month.
However, that availability represents 20% of the active fleet, and with the ages ranging from 24 to 28 years, sellers need to consider carefully before passing up any offers they receive.
Most Deteriorated Models
The ‘Most Deteriorated’ list was quite active for a second consecutive month. All member aircraft posted a Maintenance Exposure increase, two models, the Bombardier Learjet 31 and Cessna Citation II, posted Ask Price increases of $12,500 and $11,291, respectively, while the remaining four models registered the following decreases:
- Cessna Citation ISP -$76,538
- Gulfstream GIV -$1,627,500
- Cessna Citation Bravo -$269,231
- Hawker 800A -$447,500
Bombardier Learjet 31
Capturing the dubious honor of lead position among this month’s ‘Most Deteriorated’ aircraft is the Learjet 31, thanks to a Maintenance Exposure increase exceeding $297k that trampled a $12.5k Ask Price increase. No transactions we recorded during October, but one aircraft was withdrawn from inventory leaving only three listings. However, these represent 10.3% of a fleet whose ETP Ratio exceeded 166%.
During Q3, these aircraft averaged 415 Days on the Market. Considering their age ranges (between 24 and 31 years), the time required to sell such aircraft is unlikely to experience a vast improvement.
Six aircraft transacted in October, and an equal number joined inventory keeping the total at 96 (no, that is not a typo). That equates to 18.4% of the active Citation II fleet (566 aircraft) currently for sale. The model’s latest ETP Ratio (139%) was created through a Maintenance Exposure increase approaching $205k (the Ask Price increase hardly made a dent). This was thanks to the revised fleet mix. Most of the aircraft trading were of ‘higher asset quality’.
To be fair, the fact that some of these assets continue to transact is a testament to their build status, owner following, and an average Ask Price that exceeded $610k last month. Value is in the eye of the current owner and prospective buyer...
The second of three Citations on this month’s ‘Most Deteriorated’ list owes to a Maintenance Exposure increase approaching $174k, and an Ask Price decrease exceeding $12k that, combined, escalated the model’s ETP Ratio to 118.8%.
No Citation ISP transactions were recorded during October, three aircraft were withdrawn from inventory, one was added, and the current 53 aircraft for sale represent 18.2% of the active fleet. That’s not exactly what sellers want to read. Again, we are discussing aging aircraft. However, in this case, we’re speaking of assets aged 34 to 42 years. At some point, every antique loses its charm.
After headlining September’s ‘Most Improved’ list, the GIV fell into the middle of this pack in October, having experienced a Maintenance Exposure increase exceeding $455k, and an Ask Price decrease approaching $68k. Two aircraft transacted during the month, but six more joined the pool, and the 21 assets now available represent 12% of the active fleet.
With an ETP Ratio of 141.5%, it will be difficult for most sellers to generate a respectable price, even if their aircraft is enrolled on an engine Hourly Cost Maintenance Program. However, as we have previously pointed out, these aircraft have a strong following, so don’t be surprised if, as a buyer, you find yourself competing for one of the higher quality assets.
Three aircraft transacted in October, three more entered inventory, and the 39 assets available continued to represent 12.2% of the active fleet. The model’s Maintenance Exposure increased nearly $216k, while Ask Price lost nearly $47k. Combined, the figures pushed the Bravo’s ETP Ratio to 51.2%, earning it a place on this list.
While its ETP Ratio is above the 40% level that we consider to be excessive, one would think that many owners would be in a decent re-marketing position (particularly those whose aircraft’s engines are enrolled on HCMP). However, during Q3, this model averaged 567 Days on the Market before a transaction could be completed.
Hawker 800A
Rounding out our ‘Most Deteriorated’ list for October, and with an ETP Ratio of 160%, is the Hawker 800A. Once a highly sought-after aircraft, this 24 to 36-year-old workhorse is today averaging 495 Days on the Market for buyers and sellers to structure a transaction.
The 800A experienced an Ask Price decrease exceeding $38k in October, along with a Maintenance Exposure increase at slightly more than $81k, solidly earning its place on this list. Any Hawker 800A seller whose aircraft’s engines are not enrolled on an Hourly Cost Maintenance Program has little chance of securing an offer much above liquidation value.
Asset Value Optimization
We are constantly being asked if mismatched engine serial numbers, or engines other than those delivered with the aircraft will negatively affect its appraised value. For planes over 20 years of age, the answer is “absolutely not”, providing the operator has correctly detailed the reason for the engine change in the aircraft’s logbook.
If your existing aircraft is meeting your mission requirements, its engines are not enrolled on an Hourly Cost Maintenance Program, and you are not pleased with the offers you are receiving, your optimum financial strategy may be to operate the aircraft until its engines run out of time, replace them with used engines, and continue flying.
More and more relatively inexpensive, used engines, with ample time remaining prior to overhaul, are becoming available, and operators need to consider this alternative path to continued aircraft ownership.
Acquiring a replacement aircraft may be desirable, but if you are seeking value optimization, do not underestimate the additional value you can extract from your current airframe by marrying it with used powerplants.
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 an 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.
More information from www.assetinsight.com
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Tony Kioussis
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.
