In this month’s Jets Comparison, Mike Chase provides information on a pair of business jets, including the Embraer Legacy 450 and Legacy 500. Where is the point at which an operator chooses an Embraer Legacy 500 over a Legacy 450?
Over the following paragraphs we will consider the productivity parameters (payload, range, speed and cabin size) and cover current market values for the Embraer Legacy 450 and Legacy 500.
The Legacy 500 was certified on August 12, 2014, becoming the first mid-size business jet with digital flight controls with full fly-by-wire. A year later, the Legacy 450 was certified, and is positioned as a ‘light-medium jet’, filling the gap between Embraer’s smaller Phenom jets, and the larger Legacy 500 and 650 jets.
Embraer increased the range of its Legacy 450 shortly after the first delivery, with a retrofit kit now available for the early build aircraft.
New Models Introduction
Embraer recently introduced improved variants of its Legacy 450 and 500 jets. Named the Praetor 500 and 600 and offering 3,250nm and 3,900nm range, respectively, the Praetor 600 should be certified in Q2 2019 and the 500 in Q3 2019.
The $17m Praetor 500 boosts the fuel capacity of the Legacy 450 from 12,108lbs to 13,058lbs to match the Legacy 500. The $21m Praetor 600 is based on the Legacy 500 with two tanks on the fuselage belly for 2,928lbs more fuel (giving a 15,986lb) capacity, and more powerful 7,528lbst Honeywell HTF7500E engines.
As a result of the new model introduction, Embraer has presented an opportunity to current Legacy 450s owners to upgrade to the Praetor 500 configuration for $500k.
The total number of Legacy 450 aircraft built as of this writing was 50. Forty-one are in operation globally, 24 are wholly-owned, one is in shared ownership and 16 are in fractional ownership. Nine are at the factory awaiting delivery.
Of the Legacy 450 aircraft in operation by continent, North America has the largest percentage (79%), followed by Europe (17%) accounting for a combined total of 96% of the fleet. Sixty percent of the Legacy 450 jets in operation today are in fleet ownership with the largest fleet operator (Flexjet) owning 16 aircraft. Twenty percent of the Legacy 450s built are leased.
As of October 2018, the Embraer Legacy 450 market is comprised of 88% owned since new, versus 12% used. The fleet percentage for sale is 2.5% and the average days a Legacy 450 is on the market is currently 95 days.
Meanwhile, the total number of Legacy 500 aircraft built as of this writing was 79. Sixty-seven are in operation globally, 64 are wholly-owned, none are in shared ownership and three are in fractional ownership. Twelve are at the factory awaiting delivery.
Embraer Legacy 500
Of the Legacy 500 aircraft in operation by continent, North America has the largest percentage (63%), followed by Europe (14%) and South America (11%), accounting for a combined total of 88% of the fleet. Fifteen percent of the Legacy 500 jets in operation today are in fleet ownership with the largest fleet operator (Flexjet) owning four. Five of the Legacy 500s built to date are leased.
As of October 2018, the Embraer Legacy 500 market is comprised of 88% that are owned since new versus 12% used. The fleet percentage for sale is 8.8% and the average days a Legacy 500 is on the market is currently 51 days.
Payload & Range
As we have mentioned in past articles, a potential operator should focus on payload capability as a key factor. The Legacy 450’s ‘Available Payload with Maximum Fuel’ (611lbs) is considerably less than that offered by the Legacy 500 (1,628lbs), as shown in Table A.
TABLE A: Embraer Legacy 450 vs Legacy 500 Payload & Range Comparisons
Chart A shows a cabin cross-section comparison with the Legacy 450 and Legacy 500 offering the same width (6.83ft) and same height (6ft), per Upcast Jetbook.
However, the Legacy 450 has a shorter cabin length (24ft) compared to the Legacy 500 (27.5ft). The Legacy 500 has the larger overall cabin volume (823cu.ft.) compared to the Legacy 450 (705cu.ft.).
Overall, the Legacy 450 offers greater baggage space. The Legacy 450 offers 27cu.ft. of internal and 150cu.ft. of external baggage space, while the Legacy 500 has 29cu.ft. of internal baggage space and 126cu.ft. external baggage space.
The typical seating configuration for the Legacy 450 business jet offers seven executive passenger seats, and the Legacy 500 offers eight executive passenger seats. Both business jets require two crew members.
CHART A: Embraer Legacy 450 vs Legacy 500 Cabin Cross-Section Comparison
As depicted by Chart B using Melbourne, Florida as the origin point, the Legacy 450 (2,844nm) shows less range coverage than the Legacy 500 (3,095nm).
CHART B: Embraer Legacy 450 vs Legacy 500 Range Comparison
The Legacy 450 and Legacy 500 are both powered by a pair of Honeywell HTF7500E engines, each offering 6,540lbst and 7,026lbst, respectively.
Total Variable Cost
The ‘Total Variable Cost’ illustrated in Chart C, sourced from B&CA, is defined as the Cost of Fuel Expense, Maintenance Labor Expense, Scheduled Parts Expense and Miscellaneous Trip Expense. The Total Variable Cost for the Legacy 450 computes at $1,778/hour, which is slightly less than the Legacy 500 at $1,781/hour.
CHART C: Embraer Legacy 450 vs Legacy 500 Variable Cost Comparison
Aircraft Comparison Table
Table B contains the new prices from Vref for each aircraft. The average speeds and ranges are from Conklin & de Decker, while the number of aircraft in-operation, percentage ‘For Sale’ and average sold are as reported by JETNET.
The Legacy 450 fleet had 2.5% of its fleet for sale at the end of October 2018, while the Legacy 500 had 8.8% on the market. The average number of new and used transactions (sold) per month is two for the Legacy 450 and two for the Legacy 500 over the past 12 months.
TABLE B: Embraer Legacy 450 vs Legacy 500 Comparison Table
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 can use accelerated 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 are 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 charter 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 any given year.
The US enacted the 2017 Tax Cuts & Jobs Act into law on December 22, 2017. Under the new Act, taxpayers may in the first year be able to deduct up to 100% of the cost of a new or pre-owned aircraft purchased after September 27, 2017 and placed in service before January 1, 2023. This 100% expensing provision is a huge bonus for aircraft owners and operators. After December 31, 2022 the Act decreases the percentage available each year by 20% to depreciate qualified business jets until December 31, 2026.
TABLE C: Part 91 & 135 MACRS Schedule
Table D and Table E depict an example of using the MACRS schedule for a 2018 model Legacy 450s and Legacy 500s in private (Part 91) and charter (Part 135) operations over five- and seven-year periods. The tables assume a 2018 list price of $16.57m for the Legacy 450 and $19.995m for the Legacy 500, per Vref Pricing Guide.
TABLE D: Embraer Legacy 450 MACRS Depreciation Schedule
TABLE E: Embraer Legacy 500 MACRS Depreciation Schedule
Asking Prices & Quantity
The current used market for the Legacy 450 aircraft shows a total of one aircraft for sale with an invitation for buyers to ‘make offer’. The same is true of the six Legacy 500 aircraft for sale at the time of writing.
While each serial number is unique, the Airframe (AFTT) hours and age/condition will cause great variations in price. Of course, the final negotiated price remains to be decided between the seller and buyer beforethe sale of an aircraft is completed.
The points in Chart D are centered on the same aircraft. Pricing used in the vertical axis is as published in the Vref Pricing Guide. 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:
- Four Passenger Range (nm) with available fuel;
- The long-range cruise speed flown to achieve that range;
- The gross cabin volume available for passengers and amenities.
Others may choose different parameters, but serious business aircraft buyers are usually impressed with price, range, speed and cabin size.
CHART D: Embraer Legacy 450 vs Legacy 500 Productivity Comparison
Unsurprisingly, the Legacy 500 demonstrates a higher level of productivity – however, it is priced at $3.425m more than the Legacy 450. For that higher purchase price, operators will own a jet offering substantially more ‘Available Payload with Maximum Fuel’ capability, a larger cabin with an extra executive seat, and 200nm additional range.
However, the owner of a Legacy 450 will appreciate the greater baggage volume and a lower hourly variable operating cost. Operators should weigh up their mission requirements precisely when picking which option is the best for them.
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 that might factor in a buying decision.
The Legacy 450 and Legacy 500 are both popular jets today, though we will watch with interest how the Praetor 500 and Praetor 600 impact their value on the used market after 2019. It will be especially interesting to note how many Legacy 450 owners decide to upgrade their aircraft to the Praetor 500 configuration.
Operators in the market should find the preceding comparison useful.