- 02 Jun 2021
- Brian Foley
- Market Insight
North America has been stealing all the headlines lately regarding pre-owned sales activity. The rest of the world were largely by-standers as North America gobbled up 82% of all recorded pre-owned jet transactions in 2020, according to AMSTAT data. Not anymore, says Brian Foley...
While there’s been a good run, with momentum expected to continue throughout 2021, there’s now good reason to believe that markets in the rest of the world will begin to make a comeback, becoming more of a force. One point does not make a trend, but 2021 year-todate (YTD) transaction data indicates the pendulum has begun to swing the other way, with North America accounting for 77% of transactions thus far, down a full five percentage points from 2020.
The decrease could actually be greater, since registrations are picked up and recorded faster in North America than from some of the far-flung emerging markets.
A Short-Term Trend?
There are factors that could support why this is happening, and why they may not just be short-term influences, but rather could be with us for the foreseeable future.
Emerging markets, which had previously been clobbered by declining commodity prices, are now seeing a resurgence. The economies of these countries often depend on natural resources including oil, metals, and agricultural products.
These commodities have been more in demand as the world re-opens, causing prices to rise and resulting in local prosperity, allowing private jet purchases. There’s certainly pent-up demand in these regions who have waited patiently for things to improve, while North America has already had a couple of years to satisfy the insatiable appetite for pre-owned jets.
The crazy levels of stimulus piped into the US economy has likely already enabled and emboldened customers to buy, meaning those with the need and desire for an aircraft may have already done so.
Further, the US Dollar has been falling steadily since the pandemic took hold.
Since March 2020 the dollar has fallen close to 15% against foreign currencies, and is at its weakest levels since early 2018. This makes buying a pre-owned jet in foreign markets less expensive since many assets are priced in dollars.
Global Covid Impact: Whereas the US is blessed to have largely turned the corner on the Covid-19 pandemic, there are other areas of the world that are at, or have yet to reach, their peak. At least in the short-term, first-time buyers seeking to avoid public air travel in these regions could stoke demand, similar to that seen in the US in 2020.
Historical Precedent: Then there’s the matter of common sense and historical precedent. First, it’s not reasonable to expect the North American region, where ‘just’ 66% of the worldwide business jet fleet is based, to continue to account for 82% of all global preowned transactions; there’s just too big of a disconnect there.
Secondly, 82% is outside the range of normalcy, which has averaged 76% over the past 15 years. Then there’s the mid-2000’s when many of the overseas markets, such as China, were just discovering Business Aviation and decreased North America’s share of pre-owned transactions to 63%, almost a full 20% below 2020’s peak.
Don’t Discount North America Yet…
Despite this shift, one should not discount the North American market since it’s still expected to be robust for the foreseeable future – just not as strong as in 2020.
Rather, consideration should be given to positioning oneself in expectation of a pickup in non-North
American sales, whether that’s a region you already have a presence in, or where a presence needs to be developed.
There are good tools to boost offshore presence, such as AvBuyer; Business Aviation conventions; an expanded salesforce; partnering with local agents; or other market-extension methods. Whatever the case, now is a good time to strategically plan for a market shift towards more international sales volume.
Global Flight Activity – May 2021
May was a strong recovery month for global aviation activity, according to WINGX, with total fixed wing activity up by 166% Year on Year (YoY), but down by 37% compared to May 2019. Business Aviation activity in May 2021 was less than 1% off May 2019.
For the year so far, almost 2.5 million business jet and turboprop sectors accounted for 23% of all fixed-wing activity, with fixed-wing Business Aviation activity trailing the comparable five-month period of 2019 by less than 5%. In contrast, global airline sectors were still almost 50% down compared to 2019.
Memorial Day weekend saw a substantial increase in Business Aviation flight activity, with 32,000 flights in the Friday to Monday period (compared to just 17,000 in 2020). This year’s holiday even racked up 4,000 more departures than 2019’s Memorial weekend.
The most popular destinations were Nantucket; Martha’s Vineyard; Las Vegas; Saint Simons; Albuquerque; Miami-Opa Locka; and Westhampton Beach.
At the regional level, the US continued to see a very strong recovery in the Southeast, with Florida the busiest global hub. Florida saw almost 50,000 more Business Aviation departures in May than Texas, the next busiest state.
The European Business Aviation recovery was proving slower, but in May was starting to pick up pace. Flights were up by 30% in May compared to 2020 levels, but were still 17% below 2019.
• Spain was the biggest market to see May 2021 levels surpass 2019.
• The bigger markets of France and Germany lagged 2019 activity by 20%.
• The UK still trailed 2019 activity by 46%, and was down by 14% compared to 2020, YTD.
Rest of the World
Outside the US and Western Europe, the ‘stand-out’ growth in Business Aviation in Turkey and Russia continued during May, with trends gaining 16% and 32% on 2019, respectively. Russian domestic flights accounted for 40% of the country’s departures, and these doubled in May 2021 (compared with May 2019). There were even larger increases in connections between Russia and UAE, Kazakhstan, Greece and Serbia.
The UAE has seen consistent growth in activity this year, with May’s activity up 80% on May 2019. The busiest connections from UAE were with India, Russia, Saudi and Bahrain.
Elsewhere, business jet travel was still far behind 2019 levels in Mexico and Canada, although flights from Mexico to the US were up 20% on 2019. And, notably, business jet activity in Saudi Arabia had fully recovered in May, while China’s domestic activity had doubled compared to May 2019.
“The tide is turning as vaccination programs start to release restrictions on all aviation activity, with an emphasis on leisure and domestic trips,” Richard Koe, Managing Director of WINGX, said. “This was demonstrated during Memorial Day in the US.
“[In Europe] Business Aviation flight activity during the recent Monaco Grand Prix and UEFA Champions League Final was still pretty modest compared to pre-pandemic, and this underlines the recovery lag in Europe. Elsewhere there were much stronger rebounds, with the Middle East standing out.”
In-Service Aircraft Values & Maintenance Condition
For the eleventh consecutive month, strong sales activity and limited new listings helped to decrease the availability of pre-owned business aircraft, with Asset Insight’s tracked inventory fleet contracting another 4.6%.
Asset Insight’s May 28, 2021 market analysis covering 134 fixed-wing models revealed 1,546 aircraft listed for sale, equating to a year-to-date (YTD) decrease of 19.1% for the tracked fleet. Availability for all four groups decreased, with Large Jets dropping 5.9%, Mid-Size Jets 6.9%, Light Jets 1.8%, and Turboprops 4.4%.
The Average Ask Price for the tracked fleet increased 4.1% during May, equating to a 2.5% rise YTD, and a 4.2% gain year-over-year (YoY). All three jet groups posted an increase in May.
Inventory Fleet Maintenance Condition
Steady sales and limited new listings worsened the maintenance quality of aircraft comprising the seriously picked-over inventory. Not surprisingly, the listed fleet’s Quality Rating and Maintenance Exposure posted the worst figures for the last twelve months. Specifically:
Quality Rating decreased another 0.5% to 5.271. The figure kept the fleet within the ‘Excellent’ range on Asset Insight’s scale of - 2.5 to 10. However, this lower Quality figure signifies that assets now available will have to complete more near-term maintenance events.
Maintenance Exposure, defined as the aircraft’s accumulated/embedded maintenance expense, worsened (increased) by 2.0% to $1.515m during May. Therefore, in addition to more near-term maintenance events requiring completion, the events are, on average, anticipated to cost more.
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 Q1 2021, assets whose ETP Ratio was 40% or higher were listed for sale 69% longer (on average) than aircraft whose Ratio was below 40% (285 versus 482 Days on Market). May’s market review revealed that 50% of our tracked models, and over 61% of our tracked fleet, posted an ETP Ratio greater than 40%.
While Ask Prices were up as we closed out May, Maintenance Exposure increased sufficiently to raise the inventory fleet’s ETP Ratio to 76.3%, a record high (worst) figure.
A rise in Ask Prices while the Quality Rating, Maintenance Exposure, and the ETP Ratio all worsen can only be attributed to a serious lack of inventory. Furthermore, considering the average age of aircraft listed for sale, existing owners of younger, lower-time aircraft not seeking to sell their asset should not be surprised to receive unsolicited offers.
With the possible exception of Mid-Size Jets, sellers are the ones dictating transaction terms at the moment, with our tracked fleet’s inventory sitting at around 8.0% of the active fleet.
Large Jets: Inventory is 14.6% lower YTD equating to a 63-unit decrease. Although still in ‘Outstanding’ territory, the group’s Quality Rating decreased to a 12-month low 5.572 in May, while Maintenance Exposure rose 2.2% to a 12-month high (worst) figure, equating to a 4.9% increase in embedded maintenance expense YoY.
Average Ask Price did rise, exemplifying the lack of availability, but only time will tell if the increase will be realized, whether buyers are even willing to purchase what is listed for sale, or if they will elect to pursue unlisted assets that could, potentially, generate even higher values.
Mid-Size Jets: Remaining within the ‘Excellent’ range by improving 0.3%, the group raised its Quality Rating to 5.346, a figure that was also better than the group’s 12-month average. Maintenance Exposure dropped 1.0% to post the second consecutive 12-month low (best) figure, as well as a 2.55% decrease YoY.
Inventory is favoring neither buyer nor seller by hovering at around 10.3%, although sales have been strong with inventory decreasing by 120 assets YTD, or 23.0%. Asset Insight continues to believe that the statistics provide buyers and sellers with sufficient room to structure mutually-beneficial transaction values.
Light Jets: While the average Light Jet Ask Price once again managed to rise above that of Turboprops, the group’s Price is about half way between the 12-month average and low figures.
Additionally, the Quality Rating fell 1.5% to post a 12-month low, but maintained the group within the ‘Very Good’ range at 5.078. Maintenance Exposure increased 7.8% to post the group’s 12-month highest (worst) figure, which was also 22.4% worse YoY.
With all these negative statistical changes, Asset Insight was unsurprised to see the group post its seventh consecutive ETP Ratio increase that, at 118.4%, also represented another record high (worst) figure.
Surprisingly, sales continue to close with inventory decreasing by 10 more units in May to lower YTD availability by 119 units (21.5%).
Turboprops: Inventory decreased by 4.4% in May (18 units) following April’s six-unit increase. That brings total inventory down by 15.7% YTD and 29.1% since the June 2020 peak. The Quality Rating improved 1.0% to 5.101, moving Turboprops further into ‘Very Good’ territory, but Maintenance Exposure rose (worsened) 0.5% during May and 1.8% YoY.
With only 5.8% of the active fleet listed for sale, Asset Insight believes sellers will continue to hold the upper hand, and the group’s ETP Ratio decrease (improvement) should help create additional opportunities for value-based transactions.
GAMA Q1 2021 New Airplane Shipment Analysis
The General Aviation Manufacturers Association released its Q1 shipment report in May and it appears that things are starting to get better in the business aircraft market. Mike Potts reports…
Total airplane deliveries were 432 units, up 6.9% from the 404 reported in Q1 2020. Billings totaled $3.93bn, up 18.1% from the $3.33bn recorded in 2020. The gain in billings, which far outpaced the increase in unit deliveries, reflected growing strength in the upper end of the jet market.
Total jet deliveries were flat at 113 units (versus 114 in Q1 2020). Turboprops showed the strongest improvement, with GAMA reporting 84 units in Q1 2021, versus 71 a year ago (+18.3%). In addition, turboprops also featured a surprise new market leader along with the demise of one very long-time product. Piston deliveries improved 7.3% at 235 units, up from 219 in Q1 2020.
GAMA President & CEO Pete Bunce said it was “encouraging to see manufacturers begin to bounce back from the impacts of the pandemic,” but noted “we are not yet in the clear,” citing supply chain issues and pandemic-related restrictions as continuing impediments.
Jet Market Specifics
Looking at the specifics of the jet market, we see the usual suspects vying for the lead, but with positions shifting from this year to last. Among the ten jet OEMs that report to GAMA, four enjoyed improved results over Q1 2020, four were down, one was even, and one (Dassault) doesn’t report in Q1 or Q3.
Gulfstream and Textron’s Cessna unit tied for the lead in Q1 2021, each with 28 units. A year ago both made 23 deliveries, so each is up by 21.74%, although the market distribution of their gains was quite different…
All of Gulfstream’s increase came in its Large Jet models. By contrast, the Cessna jet model with the biggest gain over the past year was the Citation M2 Light Jet, which was up 75% from four units to seven. All of the other Cessna models were within a unit or two of their Q1 2020 total; some were up, some down.
Bombardier captured third place in the jet market with 26 units, narrowly behind the two leaders and matching its Q1 2020 result. The difference was that in Q1 2020, Bombardier’s total was enough to put it in first place.
Like Gulfstream, the bulk of Bombardier’s deliveries were in its high-end products with 16 Global deliveries compared to nine Challenger shipments, and just one from its Learjet line. A year ago the highest percentage of Bombardier deliveries was in its Challenger series.
Collective jet deliveries among the three leaders, Gulfstream, Textron Cessna and Bombardier totaled 82 units (72.5% of the total business jet market). The preponderance of Large Jet sales at Gulfstream and Bombardier was mostly responsible for the 18.1% gain in billings in Q1 2021 versus Q1 2020.
Finishing a distant fourth in jet deliveries was Embraer with 13 units, up from nine in Q1 2020; a gain of 44.44%. Nine of Embraer’s 13 deliveries were Phenom 300E models.
Softness at the lighter end of the jet market conspired to hold Cirrus in fifth place, delivering seven units in Q1 2021, down from 18 in Q1 2020. Sixth place went to Honda with five units, down from seven last year. And Pilatus was seventh, delivering just three units in Q1 2021, down from seven a year ago.
Dassault builds larger jets which appear to be the sweet part of the current jet market - so it is likely that the overall market is actually a little bigger than current figures suggest…
Finally in the jet market we have the airliner-based products of Airbus and Boeing. Both are up over last year with Airbus reporting two deliveries and Boeing one for Q1 2021, each one unit ahead of the year before.
With economies improving and Covid-19 apparently largely behind us in most of the regions that are big consumers of business jets, we may well see jet sales begin to accelerate as we move further into 2021.
Turboprop Market Specifics
The Turboprop market was up 18.3% as listed in GAMA’s latest report, far exceeding the jet or piston results. As it has for a number of years, GAMA continues to include agricultural aircraft with the business turboprops. In fact, the largest maker of turboprops in this GAMA report is Air Tractor, with 37 units.
With agricultural airplanes deleted, then, the total of business turboprops delivered in Q1 2021 was 40 aircraft, including 33 single-engine turboprops and seven twins. This compared with 35 traditional business turboprops in Q1 2020, so the actual business turboprop market is, in fact, up by 14.29%, still ahead of the other segments.
Unfortunately, not all the business turboprop manufacturers are sharing in the prosperity. Of the nine that typically report, only six had any deliveries in Q1 2021. Of these, three reported gains, two lost ground, and one was even. So, while the market was up, only one-third of the companies had any gains at all. Of the companies that did have gains, though, some were spectacular.
First of all, there was a new leader – and one we haven’t seen in top place before. Daher didn’t just slip into the lead. It reported 12 deliveries, which put it almost 71.43% ahead of the companies (there were actually three) that vied for second place.
Daher’s 12 Q1 2021 deliveries represented a gain of fully 200% over its Q1 2020 total of four. Seven units were from its traditional TBM line, while the remaining five were Kodiaks. Daher reported no Q1 2020 Kodiaks deliveries.
The French OEM has enjoyed an interesting climb through the turboprop ranks. A year ago it occupied fourth place in turboprop sales. By the end of 2020 it had climbed into third – but was nine units or about 14.62% behind second place Textron Beechcraft. And now, Daher has climbed past Textron Beechcraft as well as last year’s market leader Pilatus.
Second place in the turboprop race was crowded: Pilatus, Textron Beechcraft and Textron Cessna all reported seven deliveries each. In Q1 2020, Pilatus and Beechcraft had been tied for first place with eleven deliveries. Cessna had been third with five, one ahead of Daher.
Piper reported six deliveries, trailing the second place trio by just a single unit on the strength of a 100% gain over the three deliveries it reported in Q1 2020. It hardly seems fair that such a strong performance should only be good for fifth place, but that’s the way it is. Sixth place went to Epic with a single delivery, matching its Q1 2020 total.
Several companies were notably absent, including Avic, Pacific Aerospace, and Piaggio which have consistently reported turboprops in prior years but none in Q1 2021.
A Sad Milestone
The oldest turboprop model is no more. Without fanfare, Textron Beechcraft discontinued production of its King Air C90GTx at the end of 2020.
The C90GTx was the lineal descendant of the first 90- series King Air which was initially delivered by then Beech Aircraft Corporation in 1964, beginning with serial number LJ-1. The final unit bears serial number LJ-2179, ending almost 57 years of continuous production, one of the longest manufacturing runs in the history of Business Aviation.
A Note on Piston Sales
Of the 17 companies that are currently reporting single-engine piston deliveries, nine reported better results than a year ago while four were even and only four were behind last year’s totals. This suggests a market that is healthier than either the jet or turboprop segments.
Historically, gains in the piston segment have foreshadowed improvement in the other two segments, particularly in jets, so this could be a very positive sign. In recent years piston twin production has exceeded the rest of the market but not this year. 28 piston twins were delivered in Q1 2021, compared with 31 a year ago, a drop of 9.68%.
2021 Forecast: As we move away from the pandemic and economies pick up speed again, I would anticipate that business aircraft sales will pick up steadily throughout the coming year.
Based on the signals we’re seeing from the piston single market, I think jet sales should start to gain traction and by this time next year we could reasonably expect the Business Aviation manufacturing industry to be booming on all cylinders.
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