- 19 Oct 2022
- Tony Kioussis
- BizAv Market Insight
New month, same market trends! The used aircraft inventory increased for a seventh consecutive month during October, while the average Ask Price posted a 12-month high figure. Which models were affected the most? Tony Kioussis explores…
With a 10.4% increase (92 aircraft), Asset Insight’s tracked 134-model fleet posted its seventh consecutive monthly inventory rise, with all four groups reflecting the availability increase.
Year-to-Date (YTD), October’s listings were 10.1% higher (89 units), but remained 42.1% lower than the June 2020 peak. The active fleet’s overall availability has now risen to 4.3%, compared to the October 2021 figure of 5.7%.
At 5.323, the Quality Rating posted its best (highest) figure since April’s 5.347 12-month high, and represented a 0.4% improvement over September’s 5.303, on Asset Insight’s scale of -2.5 (low) to 10 (high).
The Rating pushed listed aircraft further into the ‘Excellent’ range, was 2.4% better/higher YoY, and signaled fewer maintenance events due in the near-term.
October’s Pre-Owned Aircraft Value Trends
The tracked fleet’s average Ask Price increased for the sixth consecutive month, and the 11.5% increase was also the sixth consecutive 12-month high figure. In fact, it was just $11k shy of the all-time high figure. October’s increase equated to a rise of 57.9% Year-over-Year (YoY), and 79% YTD.
It appears the pandemic-related aircraft buying hysteria has morphed into the annual Q4 purchasing frenzy, with bonus depreciation providing a very able assist to US-based taxpayers’ logic. By category, the Ask Price changes for tracked models were as follows…
October’s Fleet for Sale Trends
The mind-bending, if not irrational relationship between rising Ask Prices while supply continues to increase is due to two factors: continued strong buyer demand and sellers hoping to capitalize on it. One possible impediment to either side achieving its goal may well be supply chain issues – specifically, access to a service facility capable of completing required technical work by December 31st.
Entities wishing to secure the enhanced bonus depreciation available under US tax law should, at this juncture, be well on their way to finalizing a transaction. If not, the window to establish the necessary team of experienced professionals, even if they have identified their preferred aircraft, is rapidly closing.
While we do not anticipate as many transactions to close this year (and the quarter) as in 2021, we do expect Q4 2022 volume to be very high.
October’s Maintenance Exposure Trends
While improving/decreasing by 0.3% in October, thereby signaling the cost of embedded/accrued maintenance for the currently listed fleet will be a bit less expensive to complete, those costs are still 4.6% higher YoY. By group, the Maintenance Exposure figures were as follows…
October’s ETP Ratio Trend
The listed fleet’s ETP Ratio has improved/decreased for six consecutive months and has also set a 12-month best/low figure over the past five months. In October, it improved/decreased to 50.7% from September’s 52.7%, which was not a surprise based on the slight decrease in Maintenance Exposure and the 12-month high average Ask Price.
As many readers know, the ETP Ratio is 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%.
Assets whose ETP Ratio was 40% or higher during Q3 were listed for sale nearly 89% longer (on average) than aircraft whose Ratio was below 40% (331 versus 175 Days on Market). In October, nearly 35% of the tracked models, and 38% of the listed fleet, posted an ETP Ratio above the 40%-mark Asset Insight considers to be ‘excessive.’ Each group fared 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 October 2022.
Most Improved Models
All six ‘Most Improved’ models recorded a Maintenance Exposure decrease, and while the Cessna Citation III experienced no Ask Price change, the remaining five models registered the following increases:
Hawker Beechjet 400
The Hawker Beechjet 400 has appeared on our reports a total of 16 times, two-thirds of those listings being on the ‘Most Improved’ section. The model captured October’s top spot through of a Maintenance Exposure decrease exceeding $143k and an Ask Price increase of $115k.
One October transaction was recorded and, with no other inventory changes, the three remaining listings represented 12.5% of the active fleet. While the 76% ETP Ratio could be favorably adjusted through engine enrollment on an Hourly Cost Maintenance Program (HCMP), at least one of these sellers will find it challenging to secure value-based pricing.
Bombardier Learjet 55
In taking second place on October’s ‘Most Improved’ list, the Bombardier Learjet 55 improved on third place in September. Of the model’s 17 appearances in one of our reports, eight have been on this side of the ledger.
One sale was recorded in October, from an aircraft that had not been listed for sale, leaving inventory at 8.8% of the active fleet (eight units).
The seller for one aircraft lowered their Ask Price, and another seller increased theirs. The net effect was an average Ask Price increase equating to $33k.
Paired with a Maintenance Exposure decrease exceeding $61k, the combination lowered the model’s ETP Ratio to 136.4%. This second consecutive monthly ETP Ratio improvement is a positive development, but still unlikely to dramatically improve sellers’ fortunes.
Cessna Citation III
Moving from first place on September’s ‘Most Deteriorated’ list to third spot on October’s ‘Most Improved’ list is no minor accomplishment, and the Cessna Citation III achieved it through a Maintenance Exposure reduction exceeding $115k and no change to the model’s Ask Price.
The single transaction last month left ten units listed for sale (6.1% of the active fleet). Nevertheless, an ETP Ratio improvement to just over 127% left little room for sellers to be dramatically more optimistic.
Bombardier Learjet 60
The Bombardier Learjet 60’s fourteenth appearance on a monthly report came with an improvement from fifth position on September’s ‘Most Deteriorated’ list.
Two transactions were recorded for October, one aircraft was withdrawn from the listed fleet, and (…wait for it…) seven assets were added to the model’s inventory, creating a pool of 22 assets (8% of the active fleet).
With ten changes to the fleet mix, the model’s Maintenance Exposure dropped/improved by nearly $90k while Ask Price increased more than $283k, lowering the ETP Ratio to 56.7% in October. Sellers whose aircraft are under HCMP coverage will likely see their asset’s HCMP-adjusted ETP Ratio drop below the 40% demarcation point, making their aircraft quite marketable.
Embraer Phenom 100
Making its first appearance on a report is a model whose 27.5% ETP Ratio speaks to the strong opportunity sellers have to achieve value-based pricing. While 16 Embraer Phenom 100 units were listed for sale when October closed, that equated to only 5.5% of the active fleet.
Three October transactions, one addition, and one withdrawal lowered Maintenance Exposure by more than $132k, while increasing the Embraer Phenom 100’s Ask Price by nearly $196k, thereby creating the favorable ETP Ratio decrease.
Dassault Falcon 50
Occupying the final position on this month’s ‘Most Improved’ list is the Dassault Falcon 50, which has appeared on a report three times during the past 12 months – all of them on this side of the ledger.
The model captured this position through a Maintenance Exposure decrease exceeding $121k and an Ask Price increase of $238k.
Only one transaction was recorded for October, but five aircraft joined the ‘for sale’ inventory, and the 13-unit availability equated to 7.2% of the active fleet. The most important item to note is that the model’s ETP Ratio, at 41%, should provide ample opportunities for sellers, while buyers should have a decent selection pool.
Most Deteriorated Models
All six ‘Most Deteriorated’ models experienced a Maintenance Exposure increase. The Piaggio Avanti P-180 posted a $42,500 Ask Price increase, while the remaining five models experienced the following Ask Price decreases:
The last time the Gulfstream GV appeared on a report was in March 2020. The model heads off October’s ‘Most Deteriorated’ list with its fifth overall appearance, and its third on this side of the ledger. No transactions were noted in October, but two assets joined inventory to increase Maintenance Exposure by nearly $216k, while lowering the Ask Price by $1.65m.
The ten listings (5.3% of the active fleet) posted an ETP Ratio of 44.6%. While slightly over the 40% optimum marketability demarcation point, the HCMP-adjusted ETP Ratio for assets whose engines are enrolled on a program should create virtually no issues for those sellers.
Cessna Citation ISP
To achieve its twenty-third appearance on a report, the Cessna Citation ISP posted five transactions in October, along with three additions to the ‘for sale’ list. The changes in the fleet mix increased Maintenance Exposure nearly $38k, reduced Ask Price by over $9k, and increased the ETP Ratio to 125.5%.
Buyers have their pick of 27 units (10.3% of the active fleet), while sellers need to carefully consider any offer they receive, as even in the current market their pricing power is likely to be limited.
Dassault Falcon 20-5
This is the sixth appearance on a report during the past 12 months for the Dassault Falcon 20-5, all of them on the ‘Most Deteriorated’ list. No transactions or other changes to the listed fleet were recorded for October. However, when there are only two units listed for sale (2.5% of the active fleet) and the unpriced unit posts an Ask Price, it is not difficult to create a large change to the ETP Ratio.
The $47.5k Ask Price decrease was ably assisted by a $36.5k Maintenance Exposure increase (due to monthly maintenance changes) for the ETP Ratio to approach 160%. Finding a buyer at an Ask Price averaging over $1m is likely to pose a serious challenge for sellers, who should carefully consider any offers received.
Piaggio Avanti P-180
Another model with no changes to the listed fleet was the Piaggio Avanti P-180. One transaction that was registered after we closed out September helped the model tumble from sixth position on September’s ‘Most Improved’ list to here.
The five listed assets (6.3% of the active fleet) saw Maintenance Exposure increase nearly $223k raising the ETP Ratio to 64%, even though the model’s Ask Price increased $42.5k.
The model has appeared on a report 14 times, with four of those appearances during the last 12 months. We anticipate its continued visibility on one-or-other of these lists as the differential between the low and high Ask Prices is currently over 176%.
Beechcraft Premier 1
The third ‘Most Deteriorated’ model to post no transactions in October is the Beechcraft Premier 1, a model making its fourth appearance on our report during the past 12 months, but only the first on this side of the ledger, after occupying the fifth spot on September’s ‘Most Improved’ list.
Here, it managed to capture the penultimate spot through the addition of two units to the listed fleet, along with one closed transaction that posted after we closed out September. The fleet mix change increased Maintenance Exposure by more than $246k and decreased Ask Price by nearly $21k.
The ten listings (8.7% of the active fleet) now average an ETP Ratio of 56.4%. Sellers whose assets are enrolled on engine HCMP will post a lower, HCMP-adjusted Ratio. Assets not enrolled on HCMP may require sellers to consider a difficult-to-swallow offer price.
Cessna Citation Bravo
Earning the dubious honor of occupying the ‘Most Deteriorated’ spot for October is the Cessna Citation Bravo, a model that held the top position among the ‘Most Improved’ models in September (after holding the ‘Most Deteriorated’ slot back in August). In fact, the Citation Bravo has alternated between lists on each of the past five months.
There is no question that sales have been brisk, with four transactions in October (as was the case in September). Three aircraft also joined the inventory group in October, but the 11 listed assets only equate to 3.6% of the active fleet.
Maintenance Exposure increased more than $378k, while Ask Price decreased over $251k in October to raise the ETP Ratio to 99.3%. Whether the model’s sales steak will continue is anyone’s guess, but we would not bet against it given the industry is amid its annual Q4 purchasing frenzy.
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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