- 03 Mar 2021
- Brian Foley
- Market Insight
Brian Foley seeks to put December’s ‘blow-out’ pre-owned aircraft sales month into perspective, suggesting while many sense it was a good month, some may not realize just how good…Back to Articles
Those involved in the pre-owned jet sales business know from their own experience that December 2020 was a banner month for closings. Before we delve into the present, it’s worth taking an objective look back to see just how phenomenal a month it really was.
If 535 transactions [in December 2020] sounds like a high number, it’s because it was a record for any single month in the last 20 years - and very likely ever. The next highest number of transactions in any given month over the past two decades was a distant 307 units logged a year earlier in December 2019 (a full 43% fewer). Even that was considered a pretty good month at the time.
Further poring over the AMSTAT pre-owned transaction data shows that last December also set a record for the most used jet sales as a percentage of the active worldwide business jet fleet. Put another way, 2.22% of the entire world’s business jets transacted, handily beating the next highest figure of 1.48% set back in December 2003, when there were 182 transactions due to the much smaller fleet size of 12,300 aircraft at the time.
As an aside, an interesting statistical paradox developed in 2020 that’s contrary to popular wisdom...
“Days on Market” (the number of days an aircraft is listed on the market before it sells) generally indicates how sleepy or active the used market is at any given time. Normally the average number of days increase when there are relatively few sales and decrease as more buyers appear. A good analogy is the real estate market which also publishes the average time to sell a house.
Over the past year, however, that rule of thumb has been thrown out the window: Days on market actually increased as buyer activity set records.
The best explanation could be that pre-owned inventory had been drawn down to such a low ebb that only the least desirable airplanes were left — those that have largely sat in hangars for years without so much as a buyer inquiry.
Fast-Forwarding to 2021
January and February set some records of their own by having the fewest number of preowned jets for sale as a percentage of the fleet (5.5% and 5.8%, respectively). Interestingly, the next lowest inventory levels this millennium were in November and December of last year when levels were 6.6% and 7% of the fleet for sale, respectively.
This would suggest what’s already obvious to those in the field, that demand currently exceeds supply, surely to the consternation of brokers.
In response, it is believed that pre-owned pricing should finally stabilize its freefall and consistently increase over the year until a more traditional figure of around 10% of the fleet is again for sale, as supply again equals demand.
While January’s worldwide pre-owned transactions started out just as robust in January 2019, February was notably slower.
At the time of writing, the numbers were still trickling in, but closed deals registered 141 for February, compared to 156 in February 2019. That’s just a 15 unit (10%) drop, and still with time to catch-up as final transactions for February continue to be tallied.
It is possible that some deals didn’t close in time in December, but buyers decided to still go forward despite the possibility that favorable US tax incentives could vanish under the new administration. This, in turn, may have caused January sales to be higher than they normally would have been.
Regardless, with the virus getting under control and a favorable economic outlook for the year, it is still believed 2021 will be a good year for pre-owned sales, albeit not another record year like 2020.
This temporary lull is a bit of a hangover from last year’s all-night party in the pre-owned market, which will make a more normal year pale in comparison.
Flight Activity – Worldwide
Business Aviation activity flagged somewhat in February, trending towards 85% of normal, globally, according to WINGX. Geographically, North America was seeing a much stronger recovery, with Business Aviation activity within 10% of where it was pre-pandemic in 2020.
Overall, Europe suffered its heaviest declines in airline activity, which was down over 70% Year-over-Year (YoY). Business Aviation there proved relatively more robust, but was still down by approximately 25%, compared to January and February in 2020.
United States Activity
With a large domestic market and lighter travel restrictions than in Europe, the US saw some solid trends in
Business Aviation traffic, with only 7% fewer sectors flown YoY. The charter market was particularly strong, with only 1% fewer YoY departures, and an increase of 4% more flight hours.
Private flight activity – encompassing owner and corporate flight departments – was still proving weak, with flying 13% below normal. Fractional operations, meanwhile, seemed to have recovered to within 5% of normal, and Aircraft Management operators were flat YoY.
Europe’s long road to recovery in business jet usage was marred by prolonged lockdown, complicating any cross-border travel. And as the economy slid into a double-dip recession the prospects look bleak for at least H1 2021. The last week of February saw a 34% dip in YoY business jet activity, with Government activity one of the few resilient sectors. Regionally speaking:
Rest of the World Flight Activity
“The US is starting to see an accelerated recovery from the winter pandemic, with both scheduled and Business Aviation activity opening up, and charter activity setting some new records, especially in Florida,” summarized Richard Koe, Managing Director of WINGX.
“It’s a different story in Europe; there’s a long road to run there, and international leisure trips are all-but-illegal. This slowdown is very clear in Western Europe, contrasting with activity in the East, where business jets are being used more than ever within Russia and Turkey.”
In-Service Aircraft Values & Maintenance Condition
Asset Insight’s tracked inventory fleet posted another reduction based on market analysis on February 28, 2021, although the decrease was substantially smaller than what we’ve seen in recent months.
Research covering 134 fixed-wing models, and 1,737 aircraft listed for sale revealed a 0.5% inventory fleet decrease during the month of February, but group results were mixed. The Large Jet inventory increased 0.5%, while Mid-Size Jets decreased 0.2%, Light Jet availability fell 2.2%, and Turboprop inventory increased 9.5%.
The tracked fleet’s average Ask Price rose 1.4%, the first increase during the past four months. Again, results varied by group. The average Large Jet Ask Price fell 1.4% to set the group’s second consecutive 12-month low, Mid-Size Jet pricing rose 1.8%, Light Jets decreased 2.2% (to post a 12-mnth low), while Turboprops were up 1.6%.
Inventory Fleet Maintenance Condition
February’s activity had a nominal effect on the fleet Quality Rating and Maintenance Exposure figures. Specifically, available aircraft recorded the following:
Maintenance Exposure to Ask Price (ETP) Ratio
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%. During Q4 2020, assets whose ETP Ratio was 40% or higher were listed for sale 64% longer, on average, than aircraft whose Ratio was below 40% (277 versus 454 Days on Market).
February’s market review revealed that nearly 49% of our tracked models, and almost 45% of our tracked fleet, posted an ETP Ratio greater than 40%.
With the tracked fleet’s average Ask price increasing, and Maintenance Exposure decreasing, one would naturally expect to see an improvement in the average ETP Ratio.
However, because Asset Insight analytics are conducted at a serial number level, and then rolled up through weighted averaging, February’s average ETP Ratio actually posted an increase to 73.5% from January’s 71.6%, thereby demonstrating the fallacy of using averages to assume anything about a specific aircraft.
January’s Ratio was slightly better (below) the 12-month high (worst) figure.
The percentage of aircraft listed for sale ended the month unchanged at 8.3% of the active fleet.
As these statistics have started favoring sellers, in our analysis of January’s data we postulated that it might result in higher Ask Prices during Q1. February demonstrated just such a trend.
Large Jets: An inventory mix that raised availability by just two units improved the Large Jets’ Quality Rating by 0.3% to 5.656 (keeping it well within the ‘Outstanding’ range) while concurrently improving (lowering) Maintenance Exposure by 1.3%.
Regrettably, a dip in Ask Price pushed the ETP Ratio higher. While that might appear to pose new challenges for older aircraft sellers, it is important to note that inventory is down 7.7% from December’s figure, and that availability – at 7.1% of the active fleet – clearly favors those that own the asset. That’s true as long as they remain realistic as to its market value.
Mid-Size Jets: In view of the group’s 66.6% ETP Ratio, opportunities for sellers may seem limited, but let’s have a closer look… The Quality Rating, at 5.402, improved more than 0.8% in February, stood at a 12-month high, and was well within the ‘Excellent’ range.
Maintenance Exposure, meanwhile, decreased (improved) 1.2% to post a 12-month best (low) figure, while availability was down by 49 units since December, equating to 10% of the active fleet.
Add to that a 1.8% Ask Price increase, and we believe there is parity in terms of buyer and seller opportunity. The entity that best understands how any asset compares to other listings is the one likely to negotiate a value-based transaction.
Light Jets: Not every Light Jet listed for sale falls within the antique age group (those older than 25 years), but a sufficiently high percentage of well-aged inventory assets boosted February’s ETP Ratio to a level we haven’t seen before, 108.0%.
A 12-month low Ask Price, complements of a 2.2% decrease, certainly spearheaded the creation of this record-high Ratio, while a Maintenance Exposure value challenging the group’s 12-month high (worst) figure played a big supporting role.
Light Jet availability is down by 57 units since December, and only 8.7% of the active fleet is listed for sale. Asset Quality was 5.167 in February, keeping the group within the ‘Very Good’ range. But only detailed analytics can identify a low-priced aircraft versus those offering good value.
Turboprops: This group continues to offer buyers a good mix of asset quality and value. February’s Quality Rating, while decreasing 0.2%, remained within the ‘Very Good’ range at 5.207, and Maintenance Exposure dropped 0.3% to post a 12-month low (best) figure.
Inventory has decreased 8.8% since December, and only 6.3% of the active fleet is listed for sale. Sellers should be pleased with an average ETP Ratio that was unchanged at 39.8%.
It represented the third consecutive month the group posted a Ratio below 40%, making February’s 1.6% Ask Price increase rational, and one that sellers are likely to realize.
2020 Year-End GAMA Report
Total business aircraft shipments and billings for the year 2020 were released by GAMA in February, and while the numbers were depressed due to the worldwide pandemic, the good news is things do appear to be getting better. Mike Potts analyses…
Business aircraft deliveries totaled 2,399 units which was down 9.7% from the 2019 total. But improvements can be seen, especially, when we compare the totals at mid-year (when deliveries lagged by 21.5%, and after Q3 (when they were behind by 12.65%). Viewed in that context, the year-end result looks like a victory…
Billings also improved as the year progressed, and we finished 2020 at $20bn, down 14.8% from the $23.5bn recorded in 2019. Again, billings improved as the year went along.
Jet Market Specifics
Turning to the specifics of the jet market we see that of 10 OEMs reporting to GAMA, only one – Pilatus – was able to report improved deliveries in 2020, compared with 2019. The other nine were all down. Looking at just Q4, however, things were a little better with two OEMs reporting improved results, and one was even.
The lead in jet sales was hotly contested, with perennial market leader Cessna finishing narrowly ahead of Gulfstream. Cessna reported 132 jet deliveries in 2020, including 61 in Q4 (more than 46% of the total sales for the year). Gulfstream had 127, including 40 in Q4 2020 (31.5% of total annual deliveries).
It should be noted here that it is typical for aircraft OEMs to experience a sales surge in Q4 of a given year, driven partly by tax incentives in the United States. This has been true for decades. Lately, the trend toward increased Q4 deliveries has been growing, and many aircraft companies are now seeing 40% or more of their annual shipments coming in Q4.
One possible explanation in 2020 would be the build-up of excess inventory at the OEMs, caused by Covid-19 (and the accompanying reduction in sales). Back to jet market specifics, Bombardier claimed third place, with 114 deliveries for 2020, and 44 in Q4 (a Q4 surge of 38.6%). Bombardier’s totals compared with 142 deliveries in 2019, including 52 in Q4.
Fourth place was closely contested between Embraer and Cirrus. Embraer finished the year with 86 deliveries including 43 in Q4, a massive surge of 50%. The company trailed its 2019 results when it had 109 shipments, and 46 in Q4.
The Brazilian OEM edged out Cirrus, which recorded 73 deliveries by year-end – including a more-industry-typical 35.62% surge totaling 26 units. This compares with 81 units in 2019, and 29 in the Q4 2019.
The next three positions were also quite tight. Pilatus gained sixth position with 41 deliveries on the strength of a 41.46% Q4 surge that totaled 17 units. This compares with 40 and 13, respectively, in 2019.
Dassault was seventh with 34 units shipped, down from 40 in 2019; and Honda was eighth with 31 deliveries (including 14 in Q4 for a surge of 45.16%). That compared with 36 deliveries in 2019, including 11 in Q4 2019.
As they almost always do, Airbus and Boeing occupied the final two positions in business jet sales. Airbus was ninth with five deliveries (including two during Q4), while Boeing had one, which happened to come in Q4.
There seems little doubt that the surges seen in Q4 2020 were reflective of a market in recovery from the impact of Covid-19, and are not an emerging trend in sales patterns. When the virus finally passes, expect to see Q4 surges return to the more traditional 30-35% range. The strong surges last year drove the market well beyond the 565 to 575 range predicted, but, at 644 units, this was still the worst year for jet deliveries since 2005.
Turboprop Market Specifics
GAMA suggests that the turboprop market took less of a hit than the jet segment in 2020. Down from 525 shipments in 2019 to 443 in 2020, that’s a reduction of 15.6%. Unfortunately, if you look at just the traditional business turboprops, excluding the agricultural airplanes, the picture gets worse…
The agricultural turboprop market was almost unaffected by the pandemic, with totals down by just two units. The rest of the downturn – fully 80 units – came entirely from the ranks of the business aircraft. Business turboprops totaled 300 units for the year, down from 380 a year ago. This included 144 shipments in Q4, representing a collective market surge of 48%.
Of seven business turboprop OEMs that reported to GAMA in both 2019 and 2020, all had reduced numbers. An eighth, Epic Aircraft, was new to the list.
While the full-year numbers were down, however, four of the seven OEMs had better Q4 totals than in 2019, and one was even, providing evidence and hope that the market is starting to pick up again for 2021.
The big news is that we now officially have a new turboprop market leader: Pilatus made 82 deliveries during 2020, climbing to the top of the turboprop segment on the strength of a 41.46% Q4 surge totaling 34 units.
Pilatus displaced the long-time turboprop leader, Textron Aviation’s Beechcraft unit. Beechcraft has led the turboprop market with only a few exceptions since the 1960s but it seems possible that their reign as the dominant producer is over, at least for the foreseeable future. Could we see be set to see more frequent changes in leader in this segment? Time will tell…
Pilatus was among the turboprop OEMs that had a positive Q4; its 34 unit total exceeded its Q4 2019 total by three units. In fact, Pilatus was just one unit shy of matching its 2019 total of 83 deliveries.
Despite a strong 46.77% surge in Q4 2020, Beechcraft was unable to close the gap at the top, and finished with 62 deliveries, down from 93 the year before.
The 29-unit Q4 surge was below the 32 unit surge Beechcraft experienced in 2019. Daher moved into third place for 2020 with 42 single engine TBM models delivered – plus 11 Kodiaks – giving an overall total of 53. That was down from the 68 collective it had in 2019, but Daher’s Q4 2020 total was one unit ahead of Q4 2019’s.
Textron’s Cessna unit, which had challenged Beechcraft for the turboprop lead in years past, slipped to fourth place with 51 units, but enjoyed a very strong Q4 surge of 62.75%, accounting for 32 shipments of its annual total. This compares with 83 deliveries from Cessna in 2019, including a more typical Q4 32.53% surge amounting to 27 units.
Next, with a total of 43 units, Piper came fifth, registering 20 shipments in Q4 alone – a surge that amounted to 46.51%. Piper came very close to matching its 44-unit 2019 total. And sixth place went to industry newcomer, Epic, which had seven deliveries in 2020.
Seventh place went to Pacific Aerospace (two deliveries, down from six in 2019), and eighth place was occupied by Piaggio (with no deliveries reported, down from three in 2019). The turboprop market vastly exceeded my prediction for 230-240 business turboprops, largely on the strength of the Q4 surge, ranging from a low of 41.5% to a high of 62.75%. It is always satisfying to be proven wrong in a prediction when the market outperforms expectations!