- 21 Apr 2022
- Tony Kioussis
- BizAv Market Insight
After 21 consecutive monthly decreases, business aircraft inventory increased during April while Ask Prices were nearly one-third higher compared to December. Which models were affected the most? Tony Kioussis explores…
Listings for Asset Insight’s tracked 134-model fleet are still down nearly 18% Year-to-Date (YTD), but the 726 listed aircraft at the end of April represented a 4.0% rise – a monthly increase of 28 units. Total inventory is still nearly 57% lower than the June 2020 peak, but no group posted an availability decrease in April, suggesting aircraft demand and availability may be close to, if not at, equilibrium.
Asset Insight’s traked fleet Quality Rating recorded a fourth consecutive monthly improvement in April, thereby setting another 12-month high figure. At 5.347 on the scale of -2.5 (low) to 10 (high), inventory assets moved deeper into the ‘Excellent’ range, signifying fewer near-term maintenance events. The figure also represents about a 1% improvement Year-over-Year (YoY).
April’s Pre-Owned Aircraft Value Trends
The Average Ask Price for the tracked models decreased 4.2% during April, but is still 32.9% higher YTD, and 9.4% higher YoY. Actual transaction values for young, low-time aircraft continue to be higher, but that’s to be expected, given that many of these assets are transacting without a ‘for sale’ listing.
By category, the Ask Price changes for tracked models were as follows…
April’s Fleet for Sale Trends
The ‘off-market’ aircraft sales phenomenon continues to impact statistical clarity. But do not confuse the slight uptick in availability as a decrease in demand. Buyer interest continues to be impressive, leaving overall availability at only 3.2% of the active fleet, compared to 7.7% one year ago.
With traditional corporate buyers beginning to make moves towards fleet replacements, more pre-owned aircraft will enter inventory – at some point. Limited new production increases are likely to extend that occurrence further than pre-owned buyers might like, but the industry is likely to benefit from OEM cautionary production increases that should help overall pricing stability.
April’s Maintenance Exposure Trends
The trend is not a positive one with respect to Maintenance Exposure (the cost of embedded/accrued maintenance), as that figure increased/worsened another 1.2% during April, and 5.1% YoY.
The significance here is that upcoming maintenance events, while fewer in number, will be more expensive to complete. By group, the Maintenance Exposure figures were as follows…
April’s ETP Ratio Trend
April’s Maintenance Exposure increase and Ask Price decrease raised (worsened) the average ETP Ratio to 68% from March’s 12-month low 65.3%. Not all groups were negatively impacted, though.
The ETP Ratio continues to be a useful indicator of an aircraft’s marketability. It is computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price. ‘Days on Market’ (DoM) analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time on the market increases, usually by more than 30%.
During Q1 2021, assets whose ETP Ratio was 40% or higher were listed for sale more than 62% longer (on average) than aircraft whose Ratio was below 40% (500 versus 308 DoM). For April, nearly 41% of the tracked models, and over 54% of all listed aircraft, posted an ETP Ratio above the 40% excessive mark, with each group faring as follows:
Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the pre-owned business jet and turboprop models that fared the best and worst during April 2022.
Most Improved Models
All six ‘Most Improved’ models experienced a Maintenance Exposure decrease. Two Bombardier models – the Challenger 601-3A and Learjet 35A – posted Ask Price decreases of $25,833 and $16,293, respectively. The remaining four models registered the following price increases:
Hawker Beechjet 400
Without posting a single transaction during April, the Hawker Beechjet 400 earned top honors for the month, thanks to a 33% increase in the number of listings (four units versus three in March).
The latest inventory fleet mix lowered Maintenance Exposure by more than $12k, increased Ask Price by $202.5k, and lowered the ETP Ratio to 84.1%. Perhaps not the stuff of legend, considering the four listings equate to 16.7% of the active fleet, but April’s ETP Ratio does represent a 31-point improvement over the previous month’s marketability Ratio.
Cessna Citation V
Earning second place in April is a model that was in third position on the ‘Most Deteriorated’ list in March. This is the third time during the past twelve months that the Cessna Citation V has been on this side of the equation, this time achieving the feat through a Maintenance Exposure decrease approaching $9k, and an Ask Price increase of $452.5k.
We recorded three sales in April, and three additions to the listed pool that left 11 assets available for sale (4.4% of the active fleet). With limited selection and a listed fleet ETP Ratio averaging 45%, sellers whose aircraft is enrolled on an engine Hourly Cost Maintenance Program (HCMP) clearly hold pricing leverage over prospective buyers.
Improving one position on this list since March, the Hawker 800XP climbed that step following the sale of eight aircraft in April (no, not a misprint!) and four new listings, leaving 12 aircraft on the market (just 3.1% of the active fleet).
Maintenance Exposure dipped by over $80k, while Ask Price rose over $442k, and the resulting ETP Ratio of 47.9% will likely place most, if not all, listed assets below the 40% ‘excessive exposure’ point on an HCMP-adjusted ETP Ratio basis. That’s because over 80% of the fleet is enrolled on an engine program.
Bombardier Challenger 601-3A
While it did make this list from its second position on March’s ‘Most Deteriorated’ grouping, the news is not as good for the Bombardier Challenger 601-3A. One asset traded in April, and the three listings equate to only 2.7% of the active fleet…
However, while Maintenance Exposure decreased over $309k, the model’s Ask Price also decreased nearly $26k. And while the ETP Ratio decreased, to say that a figure of 121.2% is an improvement is technically correct, but will be of little practical help to sellers.
Bombardier Learjet 35A
The story is even less rosy for owners of the other Bombardier model on this list, when considering that its ETP Ratio stood at 168.9% at the end of April. One Bombardier Learjet 35A was sold during the month, but four more joined the inventory to create a 26-member congress equating to 7.0% of the active fleet.
The fleet mix change lowered Maintenance Exposure by $116k and, even with an Ask Price decrease of more than $16k, the model was able to make this list. Whether or not the improvement to the model’s ETP Ratio will have any real effect on its marketability, you decide…
Cessna Citation II
A third aircraft whose ETP Ratio exceeds the average asset’s Ask Price rounds out our list of ‘Most Improved’ models for April, which is not what we would expect. However, the market is presently anything but normal.
The Cessna Citation II arrived here having registered five sales and seen one addition to the listed fleet. Considering the inventory ended April with 38 units (8.1% of the active fleet), we’re still trying to figure out if the strong sales figure is a statistical anomaly or some kind of trend.
Maintenance Exposure dropped nearly $65k following the inventory mix changes, while Ask Price increased nearly $16.5k. That’s quite a showing for an aircraft introduced 44 years ago.
Most Deteriorated Models
Four of the six ‘Most Deteriorated’ models posted a Maintenance Exposure increase, while the Cessna Citation I/SP and the Gulfstream GIV-SP registered a decrease. However, from an Ask Price perspective, all six models posted the following decreases:
Cessna Citation I/SP
The first of four models on April’s ‘Most Deteriorated’ list whose Maintenance Exposure is greater than the aircraft’s average Ask Price is the Cessna Citation I/SP. The model’s Maintenance Exposure actually decreased over $24k during April, but an Ask Price decrease approaching $55k was sufficient to set the stage for the Cessna Citation I/SP to make its twentieth appearance on a monthly report, and its eleventh on this list.
With an ETP Ratio approaching 127%, we would not expect sellers to be particularly happy, but two assets did trade in April. Unfortunately, five more joined the inventory, raising availability to 32 units. And when availability for most models is in the low-single-digits, selling an aircraft when 12% of its active fleet is listed for sale is highly unlikely to generate a high-value transaction.
Next in line is a model making its fourth appearance on this list during the past twelve months. The Gulfstream GIV-SP arrived here through a listed fleet mix change that included one sale, one addition, and two withdrawals from inventory. The eight available aircraft equate to only 3.9% of the active fleet.
An Ask Price decrease approaching $592k trampled a Maintenance Exposure decrease exceeding $36k to raise the ETP Ratio to 78.6%.
Sellers whose aircraft engines are enrolled on HCMP are likely to be in a decent negotiating position. Owners marketing aircraft not on a Program need to be realistic as to the price their asset is likely to attain – even in the current environment.
Bombardier Challenger 604
Making only its fourth appearance on one of these reports, but its third on this side of the ledger, is the Bombardier Challenger 604, a model with only four listings following five sales and one withdrawal in April. That leaves only 1.1% of the active fleet listed for sale.
The Maintenance Exposure increased nearly $323k and the average Ask Price decreased by more than $1.4m (due to the sale of higher priced units), raising the model’s ETP Ratio to 34%. But, based on the Challenger 604’s following, and its limited supply, sellers are unlikely to be negatively impacted by any of these figures.
Beechcraft King Air C90
Fueled by a Maintenance Exposure increase exceeding $43k and an Ask Price decrease approaching $14k, the Beechcraft King Air C90 had no problem navigating its way onto the ‘Most Deteriorated’ list for a second consecutive month. Unlike its March showing, it didn’t capture last place, rising two places in April.
No aircraft transactions were recorded by the month’s closing, and while the total listings remained at 18 (5.2% of the active fleet), one withdrawal and one addition to the inventory was sufficient to raise the ETP Ratio to more than 136%.
Engine HCMP coverage is not a differentiator as it is not common among the Beechcraft King Air C90 fleet. Sellers are, therefore, encouraged to carefully consider all offers.
The Hawker 800A posted no transactions in April, but one unit was added to the fleet, thereby increasing Maintenance Exposure by more than $60k, Ask Price by $100k, and the ETP Ratio to 108%.
Only 4.3% of the active fleet is listed for sale (seven aircraft), so one might conclude that sellers hold the better hand. However, while the Hawker 800A has a strong following, its capabilities are eclipsed by the Hawker 800XP, and that model’s sales were brisk in April (see ‘Most Improved’ grouping).
Lastly, while engine HCMP enrollment is quite common for the model, that’s a double-edged sword here, since it does not generally provide a differentiator for sellers.
Dassault Falcon 20-5
Our ‘Most Deteriorated’ model in April was also the one posting the grouping’s highest ETP Ratio. The Dassault Falcon 20-5 achieved this dubious recognition complements of a Maintenance Exposure that rose nearly $91.5k and an Ask Price that decreased $145k. Combined, the two figures increased the ETP Ratio to 152.7%, meaning the average aircraft’s embedded maintenance is more than 1.5 times the model’s average price.
Only three aircraft were listed for sale (3.8% of the active fleet). However, for a transaction figure to make sense to both sides, either some form of new math, or financial gymnastics is likely to be required.
The Seller’s Challenge
It is important to understand that an aircraft’s 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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