- 02 May 2018
- Rolland Vincent
- Market Insight
What are the recent trends, observations, analyses and forecasts for the Business Aviation industry? Aviation analyst Rollie Vincent presents an overview of all the important market indicators heading into June 2018...Back to Articles
With the EBACE gathering in Geneva showcasing the importance of Business Aviation within Europe, Rollie Vincent exhibits the trends within this key region of the world.
As we went to press, EBACE2018 was upon us. As a global center of diplomacy and business (and one of the most important centers of business jet flight activity in Europe) Geneva makes an ideal host to bring together business aircraft buyers and sellers.
Europe was early to embrace aspring aviators and their incredible flying machines. But what exactly defines 'Europe'? There are almost as many definitions as there are countries that comprise it.
The European Union consists of 28 countries and 516m people, speaking 24 official languages, and generating $20tn in GDP in 2017. The Euro Area, EA19, or ‘Eurozone’ is a collection of 19 countries that share the euro currency.
Some definitions of Europe even include Russia (at least the area to the west of the Ural Mountains), some of its former republics bordering Eastern Europe and Turkey.
However it’s defined, it is clear that Europe has a large and highly advanced economy and is one of the main centers of international trade.
With 1,900 airports with paved runways and an estimated population of 39,000+ ultra-high net worth individuals (people with net assets of >$30m), Europe is today one of the largest and most promising growth markets for Business Aviation.
Q1 2018 marked the seventeenth consecutive quarter of Year-over-Year (YoY) GDP expansion in the Euro Area. Annualized growth in the Euro Area reached an impressive 2.7% YoY in both Q4 2017 and Q1 2018, and recent forecasts from The Economist suggest that the EA19 economy will expand by another 2.4% in 2018.
The outlook for Germany, the well-oiled, highly-tuned motor of much of the European economy, is for GDP growth of 2.5% in 2018, similar to 2017.
Across Europe, all-important business and consumer confidence indices have been steadily rising in concert with gradual improvements in the employment situation.
Unemployment has been steadily declining across the Euro Area, and was hovering near a low of 4% in both Germany and the UK at the end of Q1 2018.
Despite Europe’s impressive share of both the world’s economy and the world’s wealth, only 12% of all business jets and just 8% of all business turboprops are based in the region, collectively representing about 4,000 aircraft.
For comparative purposes, the US had about 5.3 business jets for every one based in Europe at the end of Q1 2018, according to JETNET records.
The European business jet fleet is relatively young – about four years younger on average than that in the US - and highly spec’d, as any seasoned aircraft broker worth their salt would attest.
More than half of the 2,600 business jets based in Europe were delivered new in the past 10 years. From 2008-2017, the European-based business jet fleet grew at a remarkable 6.5% Compound Annual Growth Rate (CAGR), representing an 8.25-to-1 multiple to GDP growth, a rate unsurpassed by any other world region.
To put this into perspective, the world average fleet-to-GDP growth ratio was 1.44-to-1 over the same time period, or almost six times lower.
With growth of this magnitude, it is fair to say that Europe – and European-based owners and operators – have truly begun to embrace Business Aviation.
The utilization of the European fleet has continued to trend upwards, as ably detailed on these pages by WingX Advance (below).
We note that, at just over 529,000 takeoffs and landings (or cycles), European business jet flight cycles were up 3.5% on a YoY trailing twelve month (TTM) basis in March 2018.
Turboprop flight operations in Europe exceeded 165,000 cycles for the 12-month period through the end of March 2018, up a respectable 3.0% YoY TTM.
Meanwhile, across the English Channel the UK’s on-again-off-again love affair with Europe seems to be mostly “off again”.
Following the surprising outcome of the UK’s Brexit vote, there are no shortage of concerns in Whitehall and Brussels that the implications of a divorce are serious and far-reaching.
Most economists now expect the UK economy to slow down to less than 2% real GDP growth in 2019, largely due to Brexit. Despite these near-term economic challenges, indications are that Europe has only just begun to embrace Business Aviation as a vital, business-building industry.
Based on JETNET iQ quarterly surveys, European-based aircraft owners and operators are leading the world in optimism. While such optimism doesn’t always translate directly into aircraft purchases, it certainly sets the stage for a solid year for new and used aircraft sales in 2018.
Q1 2018 Used Airplane Market Data
JETNET released its March 2018 and Q1 2018 results for the used Business Jet, Business Turboprop, Helicopter and Commercial Airliner markets, and inventories are down across the board (except for Piston Helicopters)…
Business Jets showed the largest decrease in numbers ‘For Sale’, with 350 fewer jets at the end of Q1 2018 versus 2017. Piston helicopters were the only segment to show an increase in inventory ‘For Sale’, with an increase from 541 in March 2017 to 554 in March 2018.
Across all aircraft sectors, there was a total of 5,675 (10.7% fewer) aircraft ‘For Sale’ in the quarterly comparison, with business jets accounting for 51% of the reduction of 680 aircraft ‘For Sale’.
Accordingly, Fleet 'For Sale' Percentages for Business Jets and Business Turboprops are showing the largest decreases of all market sectors in the quarterly comparison, at 9.3% (down 1.9%), and 6.9% (down 0.9%), respectively.
Business Jet full sale transactions showed a 3.8% decrease, and are taking less time (-16 days) to sell than last year. However, Turboprops showed a decrease of -0.7% in sale transactions, and are taking more time (13 days) to sell.
Turbine Helicopters saw increases in sale transactions in Q1 2018, at 4.7%, and these took eight fewer days to sell. However, Piston Helicopters are taking 104 fewer days, with a decline of 1.7% in sale transactions.
Commercial Airliners include the numbers for sale for both Commercial Jets (including airliners converted to VIP) and Commercial Turboprop aircraft. Interestingly, Business Jets (605) and Commercial Jets (516) accounted for 53% of the total full sale transactions (2,128) in Q1 2018.
The total full sale transactions were up 2.5%, with Commercial Airliners showing the highest percentage increases.
Used Aircraft Sale Transactions Summary
In total, there were 24 fewer business jet transactions (-3.8%) in Q1 2018 than Q1 2017. The results were mixed by weight class when comparing Q1 2018 and 2017.
While the Light jet weight class accounts for 33% (200 out of 605) of the total sale transactions, its change in the quarterly comparison showed a difference of 52 fewer transactions, and it was the only weight class to show a decline.
The Heavy jet segment (>35,000lbs) showed the largest increase in full retail sale transactions, up by 13 units (5.9%). At 233 total sales, this segment accounted for 38% of all used jet retail transactions in Q1 2018.
Flight Activity – North America
TRAQPak’s review of Year-over-Year (YoY) ﬂight acvity indicates an increase in April 2018 versus April 2017. An expected Month-over-Month (MoM) decrease was realized in April versus March, however…
YoY, the results by operational category were all positive, with Part 91 activity leading the way. The aircraft categories were all positive, too, with large jets posting the largest gain from 2017.
By operational category, MoM results were all negative for the month, with the Part 135 segment posting the largest monthly decrease. Aircraft categories were all red as well, with Large jets posting the largest drop.
May Activity Forecast
Looking ahead to May, TRAQPak analysts estimate there will be a 2.3% increase in overall ﬂight activity YoY in North America.
Flight Activity - Europe
Business Aviation traffic bounced back in April with a 5% YoY increase, according to WingX Advance, after a slowdown in March activity...
Traffic improved in France, the UK, Switzerland and Germany (the latter seeing activity jump 11% in April) and is up 4.8% through the first four months of the year. Overall, charter flights saw a 6% increase, and private flights a 4% increase in April.
Turboprop flights enjoyed the greatest gains during April, up 7% YoY, while the business jet segment was up by 4%. Super-Midsize business jets marked the strongest growth (up 20% YoY), reflecting the rejuvenation of fractional fleets according to WingX. Ultra-Long-Range (mostly private) flights were up 11%.
Small jet flights climbed by more than 10% in France, Germany and Switzerland, offsetting declines in Italy and Spain.
“The negative effect of the Easter holiday on March trends was positive for April, reflected in robust year-over-year growth in flights,” said WingX Advance Managing Director Richard Koe. While owner activity is fairly flat and fractional operations have been boosted by fleet rejuvenation, charter activity has turned up in the top markets. Koe forecasts another strong summer in this area.
JSSI: Utilization Reaches Decade-Long High
JSSI's Q1 2018 Business Aviation Index found that Business Aviation average flight hours were up 2.9% YoY. The index tracks utilization of 2,000 business jets, turboprops, and helicopters worldwide.
“The end of 2017 saw the highest flight hour activity since the peaks of 2008,” observed Neil Book, President & CEO, JSSI. “While the first three months of the year often sees a material drop in [quarter-over-quarter] flight hours, this Q1 dropped by only 0.3%.”
Stabilizing Prices for Used Jets
Research from Colibri Aircraft reveals stabilizing prices and sharply reduced depreciation across six diverse types of popular private jet.
The average asking price across these six models (which included the Cessna Citation CJ2, Cessna Citation Excel, Gulfstream G550, Bombardier Global XRS, Cessna Citation Mustang and Bombardier Learjet 45) rose 1.56% over 2016, and in 2017.
The Learjet 45 saw its average used asking price decrease by 4.77% between 2016 and 2017 (compared to 17.14% the previous year), while the Bombardier Global XRS saw its average used asking price fall by 5.08% (compared to previous annual depreciations of 17.10%, 14.41% and 9.25%).
These highlight the wider trend in private jet markets of stabilizing prices and much more muted price declines when compared to recent history.
However, the larger Gulfstream G550 saw a rise of 8.63% (from $22.378m to $24.308m), following a surge in demand where transactions increased by 46% Year-over-Year. This is a notable difference from the previous year, where prices declined by 25.96%.
“After years of falling prices for pre-owned private jets, we are finally seeing them begin to stabilize,” summarized Oliver Stone, Managing Director, Colibri Aircraft. “This is being driven by a fall in the supply of new and pre-owned jets coming on to the market, and an improving global economy, which tends to increase demand for business aircraft and helps to stabilize pricing.”
Large Used Bizjet Sales Improve in Q1 2018
Used heavy business jet sales flourished in Q1, according to AMSTAT, with increased transactions and shrinking inventories.
Q1 2018 brought increases in sales for Heavy jets (>40,000lbs) with 1.9% of the newer fleets (10 years or younger) exchanging hands. This compares with 1.1% a year earlier.
Sales of newer Mid-size jets (20,000-40,000lbs) slowed however. 2.2% turned-over in Q1 2017 versus 1.5% in Q1 2018. Newer Light jets also slowed slightly, with 2% percent turning over in the quarter, down from 2.1% in Q1 2017.
Fewer active aircraft are available ‘For Sale’ in all market segments, and only 4.9% of the newer Heavy jet segment is ‘For Sale’, compared with 8% a year ago. Inventory of newer Mid-size jets shrunk from 6.9% a year ago to 5.6%, and Light jets contracted from 8.6% to 5.8%.
Though pricing strengthened for Heavy jets (up by 9.1 percent for newer models), AMSTAT notes they’re still sliding in many Mid-size and Light jet models.
Used Business Jet Market Finds Balance
The decline in preowned business jet inventory has brought an end to the buyer’s market, suggests Jay Mesinger, CEO Mesinger Jet Sales. “but it’s not quite a seller’s market, yet—it’s more of a balanced market.”
Speaking at the recent NBAA Business Aircraft Finance, Registration, and Legal Conference, he added, “It’s becoming hard to find good pre-owned airplanes.”
“While business jets are still depreciating assets, preowned selling prices have firmed,” Mesinger explained. “Even if it turns back to a seller’s market, I hope we don’t get to the point again where aircraft go up in value. That’s unsustainable.”
Q1 2018 Avionics Sales Up 13 Percent
According to AEA, during Q1 2018, total worldwide Business and General Aviation avionics sales amounted to ~$639.8m representing a 13% increase in total sales versus Q1 2017...
Of the more than $639.8m in Q1 2018 sales, 56.8% came from the retrofit market, while forward-fit sales accounted for the remaining 43.2% sales.
According to the companies that separated their total sales figures between North America (US and Canada) and elsewhere, 76.1% of the Q1 2018 sales volume occurred in North America while 23.9% took place in international markets.
"The report shows that industry saw a significant increase in sales in both the retrofit and forward-fit markets to begin the year, a positive indicator for the overall health of the industry," summarized AEA President Paula Derks.
Following a 2017 Year-End report showing the retrofit market was up 20% over the previous year, avionics sales growth has clearly continued into the first three months of 2018.
Global Jet Capital: China is Second-Largest Market
Speaking during ABACE2018, Global Jet Capital’s Vivek Kaushal said China has overtaken Europe as the second most important Business Aviation region, with activity increasing over the course of the past 12 months.
A recent shift in attitudes has seen Chinese buyers not only accepting used aircraft but also beginning to look at smaller aircraft, and Mr Kaushal sees two types of Chinese buyers.
The first is a group whose members’ business interests are truly global and who need to globe-hop all of the time. For this group, a long-range, large-cabin business jet makes sense, as its true capability is used often.
The second group, consists of members whose business interests are largely regional, with just the occasional long-range flight.
Members of this group are becoming more educated on Business Aviation. They are starting to realise that for 90% of their usual flights a Large-Cabin business jet is not needed.
As the Chinese market has begun to mature, more owners and potential owners are beginning to understand that they could purchase an aircraft based on their usual mission profile, and use commercial first-class flights for long-range travel.
The shift towards smaller aircraft won’t be happening overnight, but Mr Kaushal predicts that we will see what he calls a “reality check” happening over the course of the next few years.
“As the market matures and people start looking more closely at operating costs and what they really need, I think we will see more purpose-built aircraft specific for that region,” he projected.
In-Service Aircraft Values and Maintenance Condition
Asset Insight’s market analysis of April 30, covering 92 fixed-wing models and 1,616 aircraft listed ‘For Sale’ revealed a 2.5% reduction to the tracked fleet, across all four aircraft groups…
Large Jets led the way with a decrease of 6.3%, Medium Jets followed (-2.7%), then Small Jets (-0.6%) and Turboprops (-0.3%).
Average Ask Price decreased 1.6% to register its third consecutive record low monthly figure (total decrease is 3% YTD). Large jet pricing increased 4%, however, achieving the highest Ask Price since September 2017. Nevertheless, Medium and Small jet prices fell 6% and 1.1%, respectively, to post new record low figures, and Turboprop prices receded 0.4% for a 12-month low.
Inventory Fleet Maintenance Condition
Large and Medium jet asset quality dropped in April, while Small jet and Turboprop asset quality improved (Small jets reached a 12-month high figure). Maintenance Exposure fell (improved) for all but Large Jets, with Medium Jets achieving a 12-month low (best).
The tracked fleet Quality Rating rose to 5.257 (‘Excellent’) in April from March’s 5.219, on our scale of -2.5 to 10. The tracked inventory’s average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) improved another 0.8% to $1.379m, the lowest (best) figure since July 2017.
Maintenance Exposure to Ask Price (ETP) Ratio
The ETP Ratio 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’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time on the market increases.
Market analysis in Q1 reveals that over 51% of all models and 62% of all units listed ‘For Sale’ posted an ETP Ratio above 40%, and the average Days on Market were 61% greater for those aircraft (189 versus 303 days).
Our tracked fleet’s ETP Ratio worsened slightly to 63.5% in April. As has been the case for some time, Turboprops posted the lowest (best) ETP Ratio (50.8%), Large jets followed (58.0%), then Medium jets (65.3%), and Small jets (72.5%).
Large Jets:Units listed ‘For Sale’ decreased by 22 in April, while the asset quality of traded aircraft was mixed. The tracked fleet retained its ‘Excellent’ Quality Rating, even though it was a little lower than March at 5.333, and the group’s Financial Exposure worsened 2.9%.
Ask Prices have risen 7% since December, but they’re only marginally above the group’s 12-month average, so good values are still available.
Medium Jets:Though Medium Jets offer some good values, the problem for sellers is the group’s Ask Price which posted a record low figure in April, and the large number of assets listed ‘for sale’, even though the tracked fleet’s inventory decreased by 15 units in April.
The groups’ Quality Rating recorded a negligible 0.33% decrease, but that was superseded by a 0.8% Financial Rating improvement. A 'Very Good' rating has been retained for the past twelve months and April’s figure is the best since August 2017, excepting last month’s rating.
Small Jets:Inventory decreased by three units in April. Jets leaving inventory were mostly of below average asset quality, while those entering it were above average. Consequently, April’s Quality Rating vaulted to a 12-month high, and near the top end of the ‘Excellent’ range, while Maintenance Exposure improved to the best figure since August 2017.
Ask Price dropped another 1.1% to a new record low, but the improvement in Maintenance Exposure helped decrease the ETP Ratio 1.8%. If there was ever a time to identify good values within this group, that time has arrived.
Turboprops:This group’s statistics have been on a wild ride during the past twelve months but, at 5.038, Turboprops maintained their ‘Very Good’ quality in April while posting a slight improvement.
Maintenance Exposure also improved 0.9%, but Ask Price did not follow that trend, falling 0.4% to post a 12-month low. With the group’s ETP Ratio improving 2.7%, the message here is that good values are readily available, especially considering that inventory only dropped by one unit last month.