This month we are reviewing the Citation II/IISP compared to the Beechjet 400/400A and the Learjet 31/31A in terms of payload/range, speed and cabin size, current and future market values.
This month we provide information on a selection of pre-owned business jets in the $0.8-1/0 million range for the purpose of valuing the pre-owned Citation II and Citation IISP. We'll consider the productivity parameters (payload/range, speed and cabin size), and cover current and future market values. The field in this study includes the Citation II/IISP, the Beechjet 400/400A and the Learjet 31/31A.
The Cessna Citation II’s first flight was made on January 31, 1977 and a few months later certification was received for two-pilot operations. Following the Citation II, Cessna started looking to better align its jet products to compete with the predominantly single-pilot turboprop market of the time, and re-certified the Citation II as the Citation IISP – ‘SP’ representing its Single Pilot capability. Both of these aircraft were a follow-on to the Citation I and I/SP models, and the Citation II was developed because Cessna believed demand existed for a larger business jet in its portfolio.
As history shows, Cessna was right - there were a total of 608 Citation IIs delivered between 1977 and 1994 and 82 Citation IISPs delivered between 1978 and 1990. The Cessna Citation II saw the largest number of aircraft delivered for a single model of all of Cessna’s products developed to date. In developing its Citation II, Cessna increased the seating capacity to 10 (compared to 8 seats on the Citation I), while more powerful Pratt & Whitney powerplants increased the engine thrust to 2,500 pounds resulting in a faster aircraft with greater range of 1,600nm.
Payload & Range
The data contained in Table A is sourced from Conklin & de Decker and B&CA, May 2014 issue. A potential operator should focus on payload capability. The Citation II/IISP’s ‘Available payload with Maximum Fuel’ at 680 pounds is greater than the Beechjet 400 and Beechjet 400A (550 pounds), however, the Learjet 31/31A offers nearly three times the available payload with maximum fuel (1,873 pounds) than the Citation II/IISP.
According to Conklin & de Decker, the cabin volume of the Citation II/IISP (292 cubic feet) is virtually same as that of the Beechjet 400/400A (293 cubic feet) while the Learjet 31/31A (281 cubic feet) offers slightly less volume.
The differences can essentially be found in the cabin length: the Citation II/IISP has the greatest length of the study group at 15.75 feet, the Beechjet 400/400A cabin measures 14.4 feet and the Learjet 31/31A measures 12.9 feet in length. The respective cabin cross-sections are represented, courtesy of UPCAST JETBOOK in Chart A.
As depicted by Chart B, using Wichita as a starting destination for the business jets in our field of study, the Citation II/IISP shows slightly more range coverage than the Beechjet 400a and Learjet 31A at 1,190 nm, according to Aircraft Cost Calculator (ACC).
Note: For jets and turboprops, ‘Seats-Full Range’ represents the maximum IFR range of the aircraft at Long-Range Cruise with all passenger seats occupied. ACC assumes NBAA IFR fuel reserve calculation for a 200nm alternate. The lines depicted do not include winds aloft or any other weather-related obstacles.
The Citation II/IISP aircraft is powered by two P&WC JT15D-4 engines each offering 2,500 pounds of thrust (lbst). The Beechjet 400/400A has a pair of JT15D-5 powerplants with 2,900 lbst each. Meanwhile, the Learjet 31/31A is powered by two Honeywell TFE731-2 engines - each offering 3,500 lbst.
Cost Per Mile
Using data published in the May 2014 B&CA Planning and Purchasing Handbook and the August 2014 B&CA Operations Planning Guide we will compare our aircraft. The nationwide average Jet-A fuel cost used from the August 2014 edition was $6.18 per gallon at press time, so for the sake of comparison we’ll chart the numbers as published.
Note: Fuel price used from this source does not represent an average price for the year.
Chart C details “Cost per Mile” and compares the Citation II/IISP to its competition factoring direct costs and with all aircraft flying a 1,000nm mission with an 800 pound (four passengers) payload.
The Citation II/IISP shows the cost per nautical mile of $4.92, which is more than either the Learjet 31/31A ($3.84) or the Beechjet 400/400A ($3.61). It should be pointed out that the Citation II/IISP aircraft was developed in the 1970s whereas the Learjet 31 and Beechjet 400 were both produced in the 1980s when engine technology was becoming more advanced.
Total Variable Cost
The ‘Total Variable Cost’ illustrated in Chart D is defined as the Cost of Fuel Expense, Maintenance Labor Expense, Scheduled Parts Expense, and Miscellaneous Trip Expense. The Total Variable Cost for the Citation II/IISP is $1,688 per hour – lower than the Learjet, but higher than the Beechjet.
Aircraft Comparison Table
Table B contains the average retail prices from Vref for each aircraft (1994-built models). The average speed, cabin volume and maximum payload values are from Conklin & de Decker, while the number of aircraft in-operation and percentage ‘For Sale’ are as reported by JETNET.
The Citation II/IISP has the largest in operation fleet (639 aircraft), but all three models’ percentage ‘For Sale’ are in the 18-19% range, representing a traditional buyer’s market. Of the 626 wholly-owned Citation II/IISPs in operation (excluding eleven Citation II/IISP aircraft that are in a shared ownership arrangement and two in fractional ownership programs), North America is home to 70%, South America 12%, and Europe 11% of the fleet (combined 93%).
Depreciation Schedule For Business Aircraft
Aircraft that are owned and operated by businesses are often depreciable for income tax purposes under the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, taxpayers are allowed to accelerate the depreciation of assets by taking a greater percentage of the deductions during the first few years of the applicable recovery period (see Table C).
In certain cases, aircraft may not qualify under the MACRS system and must be depreciated under the less favorable Alternative Depreciation System (ADS) where depreciation is based on a straight-line method meaning that equal deductions are taken during each year of the applicable recovery period. In most cases, recovery periods under ADS are longer than recovery periods available under MACRS.
There a variety of factors that taxpayers must consider in determining if an aircraft may be depreciated, and if so, the correct depreciation method and recovery period that should be utilized. For example, aircraft used in commercial service (i.e. Part 135) are normally depreciated under MACRS over a seven year recovery period or under ADS using a twelve year recovery period.
Aircraft used for qualified business purposes, such as Part 91 business use flights, are generally depreciated under MACRS over a period of five years or by using ADS with a six year recovery period. There are certain uses of the aircraft, such as non-business flights, that may have an impact on the allowable depreciation deduction available in a given year.
Table D depicts an example of using the MACRS schedule for a 1994 model Citation II/IISP aircraft in private (Part 91) and charter (Part 135) operations over five and seven-year periods, assuming a Vref retail value of $0.95m.
Asking Prices Vs AFTT, AgeE & Engine Thrust
Chart E, sourced from the Multi-dimensional Economic Evaluators Inc. (www.meevaluators.com), shows a Value and Demand chart for the pre-owned Citation II/IISP, Beechjet 400/400A, and Learjet 31/31A. The current pre-owned market for these aircraft shows a total of 235 aircraft ‘For Sale’ with 128 displaying an asking price, thus we have plotted those 128. The equation that we derived from these asking prices and other criteria used should enable sellers and buyers to compare, and perhaps adjust their offerings if necessary. Demand and Value are on opposite sides of the same Price axis.
The Demand Equation for these vehicles is Price $M = 3.678 *Qty-0.368. The flat slope (exponent > -1.0) indicates that there is more revenue in the lower portion of the market than there is in the upper. This equation is very well correlated, with an adjusted R2 of 99.5%, a Pearson’s2 of 99.6% a P-Value of 0.01% and a Standard Error of $46,600.
The Value Equation is Price =-5,922,304 - 26710 * Years – 32.6 * Air Frame Total Time + 122.1 * Max Altitude (in feet) + 1307 * Range in Nautical Miles. We find that the Value Equation for these aircraft is poorly correlated, with an Adjusted R2 of 38.2%, a Pearson’s2 of 40.3% and a Standard Error of $340,440 (with P-Values of 0.02%, 1.61%, 0.01% and 0.10% for Years, Air Frame Total Time, Maximum Altitude and Range, respectively). This means that the market subtracts $26,700 for each year of age, and $32.60 for each added hour, but adds $122 for each foot of Maximum Altitude and $1,307 for each mile of range in nautical miles. The poor correlation warns us that the data is scattered.
Thus, the market for used Citation II/SP, Beechjet 400/400A and Learjet 31/31A responds to at least the six features depicted here: Years, Total Time, Range, Altitude, Price and Quantity.
The points in Chart F center on the same group of aircraft. Pricing used in the vertical axis is as published in the B&CA 2014 Purchase Planning Handbook and Vref.
The productivity index requires further discussion in that the factors used can be somewhat arbitrary.
Productivity can be defined (and it is here) as the multiple of three factors:
1. Range with full payload and available fuel;
2. The long range cruise speed flown to achieve that range;
3. The cabin volume available for passengers and amenities.
The result is a very large number so for the purpose of charting, each result is divided by one billion. The examples plotted are confined to the aircraft in this study. A computed curve fit on this plot would not be very tight, but when all business jets are considered the “r” squared factor would equal a number above 0.9. Others may choose different parameters, but serious business aircraft buyers are usually impressed with Price, Range, Speed and Cabin Size.
After consideration of the Price, Range, Speed and Cabin Size, we can conclude that the Citation II/IISP as shown on the productivity index is well positioned among the other aircraft shown. The leading cause of the Citation II/IISP lower index number compared to the other aircraft listed is primarily due to its slower speed. The early Citation line was known as a well-handling but slower aircraft.
Within the preceding paragraphs we have touched upon several of the attributes that business aircraft operators value. There are other qualities such as airport performance, terminal area performance, and time to climb performance that might factor in a buying decision, too, however.
The Citation II/IISP continues to be very popular in the pre-owned market today. In fact, the Citation II/IISP continues to lead all jet models – before, during, and after the great recession – for the largest number of pre-owned business jets sold. Table E offers a snap shot:
Those operators in the market should find the preceding comparison of value. Our expectations are that the Citation II/IISP aircraft, which started delivering in 1977, will continue to do very well in the pre-owned market for the foreseeable future.
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