Asset Insight's market analysis on September 28, 2017 covering 92 fixed-wing aircraft models, and 1,818 aircraft listed ‘For Sale’ revealed a limited number of sales transactions during the past month along with continued downward pressure on values. Tony Kioussis explains…
The Exposure to Ask Price Ratio (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.
The ETP Ratio is a useful indicator of an aircraft’s marketability. ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increases (in many cases by more than 30%). So, for example, aircraft whose ETP Ratio exceeded 40% during Q3 2017 were listed ‘For Sale’ an average 31% longer than aircraft whose Ratio was below 40% (229 versus 300 Days on the Market respectively).
Accordingly, as the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price).
At the end of September, Turboprops registered the lowest (best) ETP figure at 49.1%, followed by Large Jets at 52.8%. Small Jets were next at 63.5%, while Medium Jets posted the highest/worst figure at 61.7%. The figure for each group represented its highest/worst ETP Ratio over the past twelve months.
Most Improved Models
All ‘Most Improved Models’ shown in the table below experienced a Maintenance Exposure reduction/improvement and four models also posted an Ask Price increase – including the Bombardier Challenger 601-1A (+$140,250); Hawker 1000A (+$50,000); post-2000 model Beechcraft King Air B200 (+$43,125); and Bombardier Learjet 45 (+$64,653).
We have seen much of the Dassault Falcon 20-5 over the past few months. It was the worst performer in June; just about remained among the ‘most-deteriorated’ list in July; was back to being the worst performer in August. Now it’s the ‘most-improved’ model for September (thanks to a $211,292 decrease in Maintenance Exposure).
Nevertheless, with an ETP Ratio that is generated by a Maintenance Exposure figure more than twice the aircraft’s value, sellers are likely to locate few, if any buyers.
The Dassault Falcon 900EX EASy has also found its way onto the list of most-improved models, thanks to a $319,892 decrease in Maintenance Exposure. Asset Insight rates market demand for this model at below average, but believes it unlikely to venture onto the ‘most deteriorated’ list any time soon.
Most Deteriorated Models
All six aircraft in the ‘Most Deteriorated’ category experienced a Maintenance Exposure increase, while four were also negatively impacted by an Ask Price decrease. Those four include the Bombardier Learjet 35A (-$4,400); Bombardier Global Express (-$450,000); Hawker Beechjet 400 (-$102,400); and Cessna Citation VI (-$220,833).
The Global Express, a model that appeared on this list for the first time last month worsened further this month thanks to an ETP Ratio that increased over 92%, fueled by inventory changes that increased Maintenance Exposure in excess of $2.87m and decreased Ask Price $1.63m.
The Cessna Citation ISP was second from the top of the Most Improved list last month but changes to the inventory fleet increased Maintenance Exposure by over $245k, and a ~$44k increase in average Ask Price could not offset this.
One particular model – the Bombardier Learjet 31, demonstrates why prospective buyers need to run detailed analytics before making an offer for any asset...
This model moved from top slot in the Most Improved group last month to the bottom of the Most Deteriorated list by virtue of one aircraft joining the inventory fleet.
Because only six aircraft had been listed ‘For Sale’ last month, the addition of one more unit equated to an inventory fleet increase of nearly 17%. As a result of that aircraft’s maintenance status, Maintenance Exposure increased $128k with no commensurate Ask Price adjustment.
Sellers who do not understand how such statistical changes of fortune can impact how buyers might view their aircraft are unable to act opportunistically – the key to optimizing their asset’s value.
A Word to the Wise Seller…
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.
The wise seller will carefully weigh the offer of a buyer against the loss in value of their aircraft ‘For Sale’ as the asset spends more days on the market awaiting a better offer and simultaneously accruing a higher maintenance figure.
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