- 04 May 2020
- Rolland Vincent
- Market Insight
What are the latest developments in the Business Aviation market? Are there any signs for hope amid the COVID-19 fall-out? Rollie Vincent, editor, Market Indicators explores the industry’s landscape…Back to Articles
How does the COVID-19-hit business aircraft market compare to the recession-impacted market of 2008? Are there signs for hope? Find out in this compilation of the latest BizAv market trends, analyses and observations...
As an industry, Business Aviation has its fair share of optimists; people who can see both the forest and the trees and recognize that this might be a good place to carve out a runway, build an FBO or MRO facility, and hammer an ‘Open for Business’ sign into the newly planted lawn.
Enter the COVID-19 crisis, which has slammed all forms of air transport and travel in a way that challenges even the most optimistic people to reach out for an ice-cold beer (or something a little stronger).
With the first waves of the pandemic now passing, the impacts on commercial air transport are particularly staggering. Two of Europe and the world’s largest hubs, at London Heathrow (LHR) and Frankfurt (FRA), reported that May 2020 passenger traffic was down 97% Year-over-Year (YoY).
The only good thing about that level of disruption is that it can only get about 3% worse. Looking for some good news amongst the destruction, air cargo tonnage at FRA was down only 21% YoY in April 2020, mostly due to the dramatic reduction in belly freight capacity on all passenger airliners.
Businesses and individuals with a need to ship goods continue to rely on air transport as a vital lifeline to sustain their operations and move time-sensitive equipment and materials.
What’s Good on This Spacecraft?
Fifty years ago, when hope was at a low point and the status of the Apollo 13 moonshot mission was at extreme risk of catastrophic failure, Flight Director Gene Kranz said, “What do we got on the spacecraft that’s good?” He was, of course, referring to the cacophony of divergent indicators and opinions on the status of a crippled spaceship that had suffered an explosion and was venting life-sustaining oxygen into the vacuum of space.
While the COVID-19 crisis is not as life-threatening to many, and pales (at least so far) in comparison to the impact to the Spanish flu pandemic of 1918-19, it is the most alarming health – and now economic crisis that modern society has faced.
So, what’s good on this spacecraft? What resources and indicators do we have access to that provide some light to navigate by?
We have access to the internet, desktop computing, and mobile devices that enable us to be connected, share experiences, data, and insights, and stay informed. Even if we can’t immediately collaborate and conduct work as we did before, we can at least develop workarounds to stay connected and do as much business as we can.
While pre-buy inspections, face-to-face sales meetings, and aircraft delivery acceptances have become next to impossible, there is evidence that at least some elements of the market are rebounding, if only slowly.
Near real-time data on business aircraft flight activity, while down sharply in April 2020 YoY, actually began to show signs of an increase after a disastrous period from mid-March through mid-April (see ARGUS and WingX Advance reports below).
With many international borders in clamp-down mode, domestic traffic and Turboprop/Light Jet flight activity have been holding up the best, in what is some much-needed good news for segments of the market that were not as buoyant in the industry’s long recovery from the 2007-2008 downturn and global financial crisis.
No Rush for the Exit
So far in 2020, there’s no evidence of aircraft owners rushing for the exits, with the ‘for-sale’ business aircraft up only modestly so far to ~10.3% of the fleet, according to AMSTAT (see Brian Foley’s report below).
Aircraft transaction activity for both new and pre-owned aircraft has been stymied, of course, as sellers and buyers can no longer easily meet. Demonstration flights are contributing near-zero emissions (and burning little fuel), and many parties simply have more important priorities to manage, including balancing demand and supply in their businesses, keeping people employed, and ensuring that the lights stay on to the best extent possible.
Impressive levels of government intervention across vast stretches of the world are providing many businesses and their employees with lifelines to navigate the darkest days of this pandemic (and the lockdown/social distancing policies necessary to curb its most lethal impacts).
Pre-owned business jet inventory climbed from 11.1% of the in-service fleet at the end of October 2007 to 14.9% one year later (at the end of September and in the immediate aftermath of the failure of Lehman Brothers), according to JETNET databases. Inventory then peaked six months later near 18.6%, staying at this elevated level through mid-2009 before beginning a long, slow decline over the next nine years.
Pre-owned jet inventory climbed 2%, from 14.3% to 16.3%, over a 60-day period from the end of August 2008 through the end of October.
Yet over the 60-day period from the end of February to the end of April 2020, there is no evidence of such a sharp market reaction to COVID-19, with overall pre-owned jet inventory climbing just 0.4%.
Perhaps most importantly, the amount of young inventory – aircraft delivered within the past 10 years – has remained virtually unchanged. Although these are still early days in the COVID-19 battle – and we remain vigilant – this is indeed some good news from the market!
Flight Activity – North America
COVID-19 “crushed” North American Business Aviation activity in April, according to ARGUS TRAQPak’s latest report. Activity for the entire month fell short of the single worst day for all of 2019.
TRAQPak’s review of Year-over-Year (YoY) flight activity (April 2020 vs. April 2019) indicates that April 2020 recorded a historic decline of 71.5%. By operational category, unsurprisingly all were red with Fractional activity posting the largest yearly decrease, compared to April 2019.
Part 91 activity saw a monthly drop more in line with the industry average, while Part 135 flight activity recorded the smallest (but still substantial) decline. The aircraft categories were also red for the month, with large jets recording the largest yearly drop.
April’s Business Aviation flight activity also posted a substantial Month-over-Month decrease to finish down 59% compared to March 2020. Results by operational category were all negative for the month, with Fractional flight activity posting the largest monthly decrease.
The aircraft categories were also red for the month, with large jets posting the largest monthly decline.
Looking ahead, TRAQPak analysts estimate there will be a 43.9% decrease in overall flight activity YoY in May 2020.
Flight Activity – Worldwide
According to WingX Advance, global BizAv activity was down by 68% for the period April 1 through May 5. The key North American and European markets declined by 69% and 70% respectively, compared to the same dates in 2019. Here’s the bigger picture...
The picture was slightly better for Asia, which WingX notes was 67% below normal for the period, while flight activity out of South America was 64% down. Flights to, from and within the Oceania region were at 48% of normal activity.
The moving seven-day average activity has steadily improved on a global basis since mid-April, from a low point of 3,600 flights per day to 5,200 flights a day in May (or a more than 40% improvement). This recovery in Business Aviation activity is far more perceptible than in scheduled airline activity.
Whereas Business Aviation activity comprised about 15% of scheduled sectors at the start of March, it now represents around 33%. The North America region is contributing most to the recovery trend in Business Aviation, but Europe is still very flat.
Business Aviation Flight Activity – Busiest Countries
After the US and Canada, the third busiest country is Australia, where flight activity, mainly turboprop, is only 37% below normal. Germany is the busiest European market, with flights down by 63% (by comparison France and the UK are down by ~75%). Other than flights between the US and Canada, almost all activity is domestic.
“Continued improvement in the seven-day moving average activity since mid-April is encouraging, even if activity trends are still running at least 60% below normal in May so far,” summarized WingX’s managing director, Richard Koe. “It’s also clear that the current momentum in traffic is being operated by the Turboprop market, with some increment in Light Jet flying but with most of the Large Cabin fleet inactive.
“With Tromsø ranking as the third busiest airport for Business Aviation in Europe, we are clearly a long way from being a normal market at present.”
Brian Foley: Why Owners Aren’t Dumping Their Jets
So far, you can’t pry private jets from owners’ hands despite crazy economic gyrations that would normally spook them into selling, says aviation analyst Brian Foley. The bizjet fleet has essentially been sitting idle, awaiting lockdown orders to be lifted…
What we’re seeing today is in stunning contrast to the financial crisis of 2007-2008 when business aircraft owners “stampeded for the exits”, notes Foley. Before that, 10-12% of the fleet was typically for sale at any given time.
As the floor of the financial markets fell out, it quickly ballooned to 18%, meaning that nearly 1 in 5 of all the world’s business jets was ‘for sale’. Not so this time around. “Thus far, despite stock markets again plunging due to the worldwide pandemic, the number of business jets on the used market has remained remarkably steady,” Foley notes.
According to AMSTAT, roughly 9.8% of the world fleet was for sale pre-virus. “Today, after more than a month of economic whipsawing and uncertainty, that number has blipped up to just 10.3% - effectively unchanged and still on the low end of used aircraft supply even in normal times,” he adds.
This stark contrast comes with a few plausible explanations, Foley says.
This time, the situation is markedly different. “The economy was going strong prior to the pandemic; lending standards were stricter; the stock market hasn’t been in continual freefall; and there isn’t the fear of a banking collapse,” Foley says.
“This has given owners the fortitude to stand pat and look beyond the current environment to a presumably brighter financial future, at least so far. But that’s not their only reason for not selling…”
The Safety Bonus of BizJets
As air travel begins to resume, those who can afford to avoid the public airport crowds and fly privately will do so. “One typically travels on a private jet, at most, with a couple of people they know, handily beating the alternative of being trapped for hours in an airliner with hundreds of strangers of unknown health pedigrees.”
For this reason, Foley argues, it’s assumed that the Business Aviation industry will recover more quickly than the airlines. And while new business jet sales aren’t expected to surge due to the large capital commitment, “it is likely that charter and other non-ownership business models will see an uptick from well-heeled newcomers willing to pay a premium to avoid the airliner petri dish experience”, Foley predicts.
“While many will eventually return to the scheduled airlines once the hysteria subsides, a few will remain in the folds of private aviation having sampled the wares,” he concludes.
JETNET Q1 2020 Pre-Owned Aircraft Sales Analysis
Comparing Q1 2020 to Q1 2019, inventories of aircraft for sale were mostly up across the board, but only slightly, increasing from 5.5% last year to 5.6% across the business aircraft, helicopter and commercial airline sectors…
Total sale transactions for business aircraft, helicopters and commercial airlines were down 337 units (15.4%) for all the markets reported in Q1 2020 versus Q1 2019. Specifically:
In-Service Aircraft Values & Maintenance Condition
The number of aircraft transactions decreased substantially during April due to the COVID-19 Pandemic, concurrently resulting in an increase of assets listed for sale. Here’s Asset Insight’s analysis for the month…
Asset Insight’s April 30, 2020 market analysis of 134 fixed-wing models uncovered a 4.1% inventory fleet increase over March, and a year-to-date (YTD) increase to the global tracked fleet of 5.8%. All four groups once again contributed to the increase, with Medium Jets leading the way through a 5.9% rise, followed by Turboprops (5.0%), Large Jets (4.1%), and Small Jets (1.7%).
Tracked Aircraft Values
Average Ask Price for aircraft in Asset Insight’s tracked fleet decreased 1.6% in March, fueled by price decreases in the Large Jet and Turboprop categories (3.8% and 2.5%, respectively). Medium Jets posted a 5.1% price increase in April, while the Small Jet ask price increased 3.3%.
Inventory Fleet Maintenance Condition
The ‘for sale’ fleet posted a 12-month best (highest) asset quality rating for a second consecutive month in April, with near-term maintenance costs running slightly below the 12-month average. Asset Insight’s tracked inventory registered the following figures:
Maintenance Exposure to Ask Price (ETP) Ratio
The ETP Ratio is a useful indicator of an aircraft’s marketability. It’s 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, usually by more than 30%. During Q1 2020, assets whose ETP Ratios were 40% or more were listed for sale nearly 68% longer (on average) than aircraft whose Ratio was below 40% (246 versus 413 Days on Market).
Asset Insight’s April analytics revealed nearly 51% of the tracked models, and almost 55% of the tracked fleet, posted an ETP Ratio greater than 40%.
April’s fleet ETP Ratio improved (decreased) to 69.8% from March’s 71.1%, placing the figure about half-way between the worst (highest) 12-month figure and the 12-month average Rating.
10.7% of the tracked fleet was listed for sale in April (versus 10.3% in March). The lowest (best) figure was again captured by Turboprops at 7.2%. Large Jets were next at 9.7%, followed by Small Jets and Medium Jest (11.6% and 12.1%, respectively).
Large Jets:The tracked inventory of Large Jets increased by 19 assets in April, with these additions raising (improving) the group’s Quality Rating to a record high 5.733 over March’s 5.589, and moved the group further into ‘Outstanding’ territory. Maintenance Exposure also improved (decreased) 3.8%, to post a figure only slightly higher than the group’s 12-month best.
With Ask Price decreasing 3.8%, there are great values to be had for prospective buyers. At the same time, buyers must do their homework, since the group’s ETP Ratio of 64.4% indicates that some low-priced assets may not offer good value for money.
Medium Jets: Little movement was uncovered in both the Medium Jet group’s Quality Rating and Maintenance Exposure during April, with the former decreasing for the third consecutive month, but still managing to remain within the ‘Excellent’ range. The latter worsened 0.2%, although it still bettered the 12-month average.
All this resulted from a 37 unit increase to inventory that, surprisingly, resulted in a 5.1% increase to an Ask Price figure just below the group’s 12-month high. That price increase helped lower the ETP Ratio to a 12-month low. Nevertheless, it is difficult to believe that, with 12.1% of the tracked fleet listed ‘for sale’, the higher Ask Price will hold, thereby worsening the ETP Ratio and placing buyers in the driver’s seat.
Small Jets: Inventory increased by another 12 units in April (60 assets YTD), and with 11.6% of the active fleet listed for sale, knowledgeable buyers hold the better hand here too. Asset Quality improved 0.64% during April, for Small Jets to approach the top end of the ‘Very Good’ range. While
Maintenance Exposure increased 0.1% to post a 12-month high (worst) figure, Ask Price increased 3.3% to a 12-month best figure, lowering the ETP Ratio from March’s 12-month worst (highest) figure. Pricing may not hold and, as we reported of March, the spread between Ask Price and actual Transaction Value should widen assuming owners are serious about selling their aircraft.
Turboprops: Inventory increased by 22 units in March, which didn’t create positive statistics for the group. Asset Quality worsened by 2.4% and Maintenance Exposure worsened by 1.6%. The group’s Quality Rating did manage to remain within the ‘Very Good’ region, but both Ask Price and the ETP Ratio worsened (the former by 2.5% and the latter through an increase to 43.2% over March’s 42.1%).
The silver lining here is that only 7.2% of the active fleet is listed ‘for sale’, creating sufficient selection for buyers while providing transaction opportunities for sellers at a price just below the group’s 12-month high figure.