- 14 Oct 2020
- Tony Kioussis
- BizAv Market Insight
October’s transaction level showed the industry’s traditionally strong Q4 trading volume, while Ask Prices climbed for the third consecutive month to post a 12-month high figure. Which models were impacted the most? Tony Kioussis explores…
Asset Insight’s October 31, 2020 market analysis of 134 fixed-wing models, and 2,174 aircraft listed for sale, revealed strong sales figures during October, leading to a 3.2% decrease of the tracked inventory (the fourth consecutive monthly reduction). Here are the aircraft that were most impacted...
Curiously, buyer preference for lower-quality assets improved the tracked fleet’s Quality Rating and Maintenance Exposure. October’s fleet ‘for sale’ Quality Rating (5.353) reflected a 12-month best, continuing to maintain the tracked fleet’s ‘Excellent’ standing for all of 2020 on Asset Insight’s scale of -2.5 to 10.
October’s Aircraft Value Trends
Average Ask Price increased 3.3% in October to set a 12-month high, while concurrently changing 2020’s downward trend to a Year-to-Date (YTD) increase of 1.7%. By aircraft group:
October’s Fleet for Sale Trends
Asset Insight’s tracked fleet posted its fourth consecutive monthly inventory decrease, down 3.2% (73 units), which led to a 0.4% YTD inventory decrease (-8 units).
October’s Maintenance Exposure Trends
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) improved/decreased 2.1% to $1.433m, signifying that upcoming maintenance events for available assets will be less expensive. The Maintenance Exposure figure by group was as follows:
• Large Jets: Improved 3.1% for October to a figure bettering the 12-month average.
• Mid-Size Jets: Worsened a nominal 0.2%, but Exposure was better/lower than the 12-month average.
• Light Jets: Improved 2.0% for the second consecutive month to a figure only marginally better than the group’s 12-month worst value.
• Turboprops: Improved 2.4% to a 12-month low/best figure.
October’s ETP Ratio Trend
The tracked inventory’s ETP Ratio improved/decreased to about the 12-month average figure at 69.8%, compared to September’s 73.7%. [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 Q3 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale 50% longer than assets with an ETP Ratio below 40% (269 days versus 404 days). How did each group fare during October?
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 October 2020.
Most Improved Models
All six of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement) in October, with two airframe OEMs sharing the ‘Most Improved’ slots. The Bombardier Challenger 601-3R registered a price decrease of $225,000 while the remaining five models experienced the following price increases:
Bombardier Challenger 601-3R
October’s top spot on the Most Improved list goes to the Bombardier Challenger 601-3R, a model whose Ask Price decreased by $225k, but whose Maintenance Exposure decrease of >$691k was more than sufficient to earn its status.
Our research uncovered one aircraft transaction for October, along with one inventory withdrawal. That leaves five assets listed for sale (8.9% of the active fleet). Ordinarily, a fleet for sale percentage below 10% would signal a seller’s market, but with an ETP Ratio nearing 123%, that would be supremely wishful thinking in this case.
Cessna Citation CJ1
The first of three Citations on this list was the Cessna Citation CJ1. Three CJ1s traded in October, but four joined the available pool. The resulting 21 assets equate to 10.8% of the active fleet for sale. October’s 14.8-point ETP Ratio improvement resulted from a Maintenance Exposure decrease that exceeded $172k, along with an Ask Price increase approaching $51k.
With an overall ETP Ratio hovering around the 43% mark, many sellers should have ample opportunity to close on a sale by year’s end, especially those whose aircraft are enrolled on an Hourly Cost Maintenance Program (HCMP).
Cessna Citation V 560
The Cessna Citation V experienced plenty of activity in October, with three aircraft trading, one being withdrawn from the ‘for sale’ pool, and two joining the inventory. When the dust settled, the 24 units listed for sale represented 9.5% of the active fleet.
Maintenance Exposure decreased nearly $47k, and the average Ask Price increased more than $116k, allowing the Citation V 560 to make the Most Improved list.
While availability appears to be appropriate for both buyers and sellers to find common ground, the model’s 75.6% ETP Ratio is likely to make it difficult for sellers to be satisfied by the actual transaction value if their aircraft lacks engine HCMP coverage.
Bombardier Challenger 601-3A
The next model in the Bombardier ‘Most Improved’ triad is the Bombardier Challenger 601-3A, which secured its place on the list via a Maintenance Exposure decrease approaching $7k, and an Ask Price increase approaching $91k. That’s the good news…
The bad news was the ETP Ratio for the Challenger 601-3A stood at 183% as October closed. Worse still, even though one aircraft traded and another was withdrawn from inventory, October saw two assets join the pool.
The 19 inventory units equate to 16% of the active fleet, which translates into an additional obstacle that sellers must overcome.
Bombardier Learjet 60
Four Bombardier Learjet 60 jets transacted in October, three joined the available inventory, and the 34 units currently available equate to 11.9% of the active fleet. The model’s 10.4% ETP Ratio improvement was achieved through a Maintenance Exposure decrease exceeding $138k, and an Ask Price increase approaching $40k.
Unfortunately, the figures still result in an ETP Ratio approaching 99%, meaning the average aircraft’s Maintenance Exposure is about the same as the average Ask Price.
Result: Buyers hold the better hand.
Cessna Citation II
From next to last place on September’s ‘Most Deteriorated’ list to October’s ‘Most Improved’ list, the Cessna Citation II earned its place through a Maintenance Exposure decrease approaching $23k, along with an Ask Price increase nearing $25k. The fact that its ETP Ratio is 146.2% is another matter.
There was substantial jockeying during October to create the final 80-unit fleet mix, including two sales, but when over 16% of the active fleet is available for a model aged 32-42 years, the opportunities for sellers become thin, while buyers have a bountiful selection should they seek a disposable asset.
Most Deteriorated Models
All six models on October’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Beechcraft Premier 1 posted an Ask Price increase of $31,583, while the remaining models experienced the following decreases:
Cessna Caravan 208
The sale of one aircraft and the re-pricing of another created the change in average Ask Price that – along with a Maintenance Exposure increase approaching $22k – earned the Cessna Caravan 208 a place on October’s ‘Most Deteriorated’ list.
With only five aircraft listed for sale (2.1% of the active fleet), sellers definitely hold the upper hand, even with the model sporting an ETP Ratio of 45.8%.
Beechcraft King Air C90
From August’s ‘Most Deteriorated’ list, to September’s ‘Most Improved’, the Beechcraft King Air C90 makes a repeat appearance on the ‘Most Deteriorated’ list complements of a Maintenance Exposure increase exceeding $42k and an Ask Price decrease approaching $4k.
Four aircraft transacted during the month, but that still left 36 available assets, equating to 9.6% of the active fleet. On the surface, that looks good for both buyers and sellers.
Unfortunately for sellers, the statistics also equate to an ETP Ratio exceeding 124%. Some should have decent opportunities to structure sales at reasonable prices. But, unlike buyers, who can afford to make aggressive offers, sellers need to be realistic on the definition of a ‘reasonable price’ in the current environment.
Beechcraft Premier I
From the top of September’s ‘Most Improved’ list, the Beechcraft Premier 1 landed here in October, thanks to a change in the model’s fleet mix that increased Maintenance Exposure by more than $195k. The latest fleet also increased its Ask Price by nearly $32k, but that was insufficient to change the model’s fate.
Asset Insight registered two Premier I sales in October that, along with other changes to inventory, left 21 assets on the market (17.7% of the active fleet).
Since the majority of Premier I aircraft are enrolled on an engine HCMP, that’s unlikely to be an impactful differentiator. With an ETP Ratio exceeding 97%, sellers are advised to seriously consider any offers they receive.
The Gulfstream GIV-SP is no stranger to either of these lists, and earned its position in October through an Ask Price decrease approaching $489k, along with a virtually insignificant Maintenance Exposure increase.
As we have previously mentioned, the model has a substantial following which was proven again with four October trades. Two more units joined the inventory, and the 15 assets listed for sale equate to only 7.3% of the active fleet.
The challenge for sellers hoping to obtain high value is the model’s ETP Ratio that, as October ended, stood at 118.5%.
Bombardier Learjet 40XR
Another model yo-yoing between the two lists is the Bombardier Learjet 40XR. It found its place on October’s ‘Most Deteriorated’ list through an Ask Price decrease approaching $155k, and a serious increase in Maintenance Exposure of more than $209k.
Four aircraft sold in October, so interest in the asset exists. However, the 75.3% ETP Ratio will challenge any of the 11 sellers whose aircraft’s engines are not enrolled on HCMP, even though availability accounted for 12% of the active fleet.
Not to be outdone by the GIV-SP, the Gulfstream GIV rightfully secured October’s ‘Most Deteriorated’ spot through a Maintenance Exposure increase approaching $137k, and an Ask Price decrease approaching $132k.
One aircraft sold in October, two were withdrawn from inventory, and the 17 remaining assets represented only 10.3% of the active fleet. The bad news for sellers is the aircraft’s ETP Ratio, which – at 190.1% -- is telling buyers that they may be acquiring an aircraft whose embedded maintenance expense could be more than twice the asset’s price.
That is not necessarily bad for the buyer, so long as they are aware of their transaction’s actual cost, as opposed to simply focusing on its purchase price.
Hourly Cost Maintenance Programs (HCMP)
It has been some time since we covered the value of Hourly Cost Maintenance Programs. For those contemplating their first aircraft purchase – as well as those who might want a short refresher – we recommend viewing the section entitled 'A Word on HMCPs' in the August 2018 Used Aircraft Maintenance Analysis.
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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