- 15 Sep 2022
- Tony Kioussis
- BizAv Market Insight
Demand remains strong in the pre-owned aircraft sales market. The average Ask Price continues to rise, as does the overall inventory (six consecutive months). Which models were affected the most during September’s market activity? Tony Kioussis explores…
Posting its sixth consecutive monthly increase, Asset Insight’s tracked 134-model fleet inventory rose 2.3% in September, although the 20-unit increase was lower than any one of the previous five months and did not affect all four groups equally.
Year-to-Date (YTD) listings are now down only 0.3% (-3 units), but remain 47.6% lower than the June 2020 peak. The figures brought the active fleet’s overall availability up to 4.0%, compared to last September’s 5.5%.
Meanwhile, the listed fleet’s Quality Rating improved 1.0% to 5.303 from August’s 5.250, on Asset Insight’s scale of -2.5 (low) to 10 (high). The Rating pushed the available aircraft further into the ‘Excellent’ range, and remained virtually unchanged for Q3, and 1.1% better/higher Year-over-Year (YoY). The latest Rating signals fewer maintenance events will be due in the near future.
September’s Pre-Owned Aircraft Value Trends
Irrational as it might appear to be, the tracked fleet’s average Ask Price increased for the fifth consecutive month, and the 10% increase equated to the fifth consecutive 12-month high figure. September’s rise reflected increases of 8.9% for Q3, 53.8% YoY, and 75% YTD.
We believe value stabilization is continuing as the higher Ask Price figures correlate with the inventory fleet’s improving asset Quality Rating. By category, the Ask Price changes for tracked models were as follows…
September’s Fleet for Sale Trends
Third quarter sales decreased 22.7% YoY (419 versus 542). While Q3 sales in 2021 were slightly higher than Q2 2021 sales (542 vs. 539), transactions for this year’s Q3 were substantially lower than Q2 (419 vs. 523).
Year-to-Date, sales for Asset Insight’s tracked models are running significantly lower than 2021 figures (1,358 vs. 1,504), meaning that, for 2022 to match 2021 sales figures, 733 transactions will need to close during Q4. That’s a high hurdle for all concerned.
On a slightly brighter note, the average Days on Market figure has decreased steadily during the past three quarters, with the 24.6% drop in Q3 (227 vs. 301 during Q2) – nearly a 50% decrease YTD.
As we have previously stated, any prospective purchaser wishing to secure the enhanced bonus depreciation available under US tax law should already be active in the market, having secured the help of an experienced aircraft broker.
September’s Maintenance Exposure Trends
The cost of embedded/accrued maintenance for the listed fleet improved/decreased 2.3% during September, and remained unchanged in Q3, but increased/worsened 3.4% YoY. Compared to one year ago, upcoming maintenance for listed assets will be more costly to complete. By group, the Maintenance Exposure figures were as follows…
September’s ETP Ratio Trend
The ETP Ratio has now set a 12-month best/low figure during each of the past four months, and in September it decreased to 52.7% (from August’s 54.6%). The improvement was the result of continuing Ask Price increases for three of the four groups, as well as Maintenance Exposure decreases for all but the Large Jets.
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 Days on Market versus 175). In September, over 34% of Asset Insight’s tracked models, and more than 39% of the listed fleet, posted an ETP Ratio above the 40% excessive mark. 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 September 2022.
Most Improved Models
All six ‘Most Improved’ models recorded a Maintenance Exposure decrease, and while the Bombardier Learjet 55 and the Beechcraft Premier 1 experienced no Ask Price change, the remaining four models registered the following increases:
Cessna Citation Bravo
Capturing top spot in September’s ‘Most Improved’ grouping is a model that occupied last place on August’s ‘Most Deteriorated’ list. This represents the fourth time in as many months that the Cessna Citation Bravo has appeared in one of our reports alternating between the ‘Most Deteriorated’ and ‘Most Improved’ model each time.
The model’s fourth dramatic change in fortune came after four September transactions, one withdrawal from inventory, and three additions. That left 10 aircraft populating the ‘for sale’ pool, equating to 3.2% of the active fleet.
The substantial changes to a limited inventory lowered Maintenance Exposure by $1.47m, increased Ask Price by more than $266k, and lowered the ETP Ratio from 139% to about 79%.
All of this should allow some sellers whose aircraft engines are enrolled on an Hourly Cost Maintenance Program (HCMP) to post an adjusted ETP Ratio very close to, if not below, the 40% ‘excessive’ point, making their aircraft quite marketable.
Bombardier Challenger 601-1A
The model capturing second place began September with a single listing, and, while no transactions were recorded, two aircraft were added to inventory. The three-unit pool (representing 10.7% of the active fleet) improved the Bombardier Challenger 601-1A’s ETP Ratio from 164% to 126%.
While not exactly a great opportunity booster for sellers, the group’s Maintenance Exposure did decrease by more than $633k, while Ask Price increased $300k. Although this may sound encouraging, with one of the three aircraft priced approximately one-third higher than the average of the other two units, it remains to be seen whether the model’s position on this list is due to reality, or is a statistical anomaly.
Bombardier Learjet 55
The ‘frequent flyer’ capturing third place on this month’s ‘Most Improved’ grouping has been on one of our reports 16 times, with nine coming in the past 12 months. The Bombardier Learjet 55 made September’s ‘Most Improved’ list after holding third place on August’s ‘Most Deteriorated’ table. And it did so without a single transaction…
The removal from inventory of one aircraft was sufficient to improve/lower the Maintenance Exposure by nearly $262k to earn the model its position, even without a change to its Ask Price. Alas, while the ETP Ratio might have improved from 182%, the current 150% is unlikely to dramatically improve the fortunes of sellers.
Asset Insight recorded three transactions during the month for the Gulfstream GIV-SP that, along with four additions to inventory, created a pool of 11 aircraft listed for sale (5.5% of the active fleet).
The model’s Maintenance Exposure decreased over $48k, while Ask Price increased by nearly $2m to earn this spot. The fleet mix change also lowered the model’s ETP Ratio from 83% to 59%, allowing virtually any seller whose engines are enrolled on HCMP to achieve an HCMP-adjusted ETP Ratio below the 40% ‘excessive’ mark.
While the statistics appear to be positive, it should be noted that the Ask Price increase is due to a new inventory arrival priced about 80% higher than the only other priced inventory unit. This model continues to have a strong industry following, but its actual marketability may not be as high for some units as the numbers seem to indicate.
Beechcraft Premier 1
Two transactions, two withdrawals, and two additions during the month created the necessary ETP Ratio changes for the Beechcraft Premier 1 to join this list.
Maintenance Exposure decreased by more than $354k that, even without an Ask Price change, allowed the model to secure a spot on one of our reports for the eleventh time – its seventh on this side of the ledger.
The inventory mix change lowered the ETP Ratio to 40%, making virtually all nine of these aircraft (7.8% of the active fleet) quite marketable, as most of this fleet has its engines enrolled on an Hourly Cost Maintenance Program.
Occupying the last position on this month’s ‘Most Improved’ list is the Piaggio P-180, an aircraft that has been in one of our 45 reports 13 times, eight of those appearances within this group.
No transactions were recorded for September, but one aircraft left the inventory and another replaced it to lower Maintenance Exposure by more than $164k. Ask Price, meanwhile, increased by nearly $269k.
The six current listings equate to 7.5% of the active fleet, and the inventory now sports an ETP Ratio of 53.4%. This very capable model has had more than its share of marketability issues, but the current figure should create some decent opportunities for sellers.
Most Deteriorated Models
Two of September’s six ‘Most Deteriorated’ models, the Cessna Citation III and the Bombardier Learjet 60, experienced a Maintenance Exposure decrease, while all six models experienced the following Ask Price decreases:
Cessna Citation III
The addition of a single unit to inventory, along with the sale of one aircraft in late August (recorded after we closed out the month), earned the Cessna Citation III its place on this list.
Though the eight assets ‘for sale’ (6.2% of the active fleet) registered a Maintenance Exposure decrease approaching $46k, an Ask Price decrease nearing $88k was sufficient to increase the ETP Ratio to 139.2%, as if August’s 132% Ratio did not already pose a sufficient marketing hurdle for sellers.
Bombardier Learjet 31A
The Bombardier Learjet 31A placed fifth on August’ ‘Most Improved’ list, but a Maintenance Exposure increase exceeding $54k, along with an Ask Price decrease of more than $34k ensured the model changed sides in September.
Two aircraft transacted in September, one was withdrawn from inventory, and another was added. The new fleet mix led to the ETP Ratio increasing to 94.8% from August’s 86.9%. Considering the first Learjet 31A was manufactured in 1991, these figures come as little surprise.
Among the 45 reports published to date, the Gulfstream GIV has appeared 25 times, making the model our most ‘frequent flyer.’ It managed to capture a thirteenth appearance on the ‘Most Deteriorated’ list through a Maintenance Exposure increase approaching $69k that was ably assisted by a $695k Ask Price decrease.
Three transactions were recorded in September, and with one addition to inventory the total stood at 11, equating to 7.2% of the active fleet. The 64.5% ETP Ratio is certainly not a positive development, but many sellers have enrolled their engines on HCMP, creating an HCMP-adjusted figure that can easily be under the 40% ‘excessive’ mark.
We continue to see ample opportunity for sellers, although the model’s marketability may significantly decrease for any buyers planning to resell one of these assets five years hence.
Socata TBM 700A
This model has appeared in our reports five times in the past eight months. This is the fourth time the Socata TBM 700A has appeared on the ‘Most Deteriorated’ list. There were no changes to September’s inventory, but one aircraft did trade after we’d closed out August, leaving seven aircraft listed for sale and equating to 7.3% of the active fleet.
The change in the composition of the model’s inventory increased Maintenance Exposure by nearly $94k, while Ask Price dipped a little over $68k. That was sufficient to increase the ETP Ratio to 57.8% and, while this model has a great industry following, the average seller will likely find negotiating a value-based sale to be more challenging.
Lastly, while engine HCMP coverage might statistically help a seller, very few of these assets are enrolled on a Program.
Bombardier Learjet 60
Numerous inventory changes took place over the past two months for the Bombardier Learjet 60, including four sales in September and one addition to the listed fleet.
The revised fleet mix lowered Maintenance Exposure more than $77k, but also decreased the average Ask Price in excess of $768k to earn the model its place on this list.
The 17 aircraft listed for sale (6.2% of the active fleet) averaged an ETP Ratio of 66.2%. For sellers whose engines are enrolled on HCMP, their aircraft’s adjusted marketability Ratio could well make their aircraft quite marketable – statistically speaking.
Cessna Citation CJ1
Rounding out this month’s report, occupying the ‘Most Deteriorated’ position is the Cessna Citation CJ1. The model posted three transactions in September, while three other aircraft joined inventory. The eight listings equate to 4.1% of the active fleet.
To raise the ETP Ratio from 39% to 56.4% for an aircraft manufactured as far back as the turn of this century, it took the combined efforts of a Maintenance Exposure increase nearing $279k, and an Ask Price decrease of $152.5k. Considering that a seller whose engines are enrolled on HCMP might be able to reduce their aircraft’s HCMP-adjusted ETP Ratio below the 40% level, the model’s marketability potential is impressive.
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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