- 06 Apr 2022
- Brian Foley
- Market Insight
Just when industry veterans think they have it all figured out, something new pops up that upends traditional thinking. Brian Foley reviews some areas where new paradigms are presenting...Back to Articles
One notion that needs to be recalibrated relates to the pre-owned aircraft sales market. A favorite metric has always been the percent of the fleet for sale, which normally indicates how tight the market is.
If the percentage is high, there are choices aplenty for buyers. When low, there’s nothing much around to buy. Historically, the number of pre-owned aircraft for sale have averaged around 10-12% of the fleet at any given time.
However, pandemic-driven first-time buyers drove this number into the ground, and a record low inventory level of just 5% of the fleet was available for sale in 2021.
That’s where the next juxtaposition becomes obvious: While 2021 set a record for the number of pre-owned aircraft transactions, industry metrics indicated there were very few aircraft actually listed for sale.
There’s clearly something unusual happening if brokers were able to find an unheard- of 3,000 units to sell, while the available inventory was decimated to levels that were less than half of normal...
The answer is that brokers are better networked than ever before and were able to facilitate deals even before airplanes hit the market. Thus, if the number of publicly-listed used aircraft for sale really isn’t a real measure of available inventory anymore, a rethink is needed.
The real number for sale is actually much higher than is tracked because aircraft are sold well before hitting the open market.
Higher Numbers, Lower Utilization
Lastly, there is a lot of industry talk about private jet utilization reaching all-time highs. At least for the US, there has never been more jet operations (measured as the number of monthly take-offs and landings).
One might naturally assume that we’re suddenly flying the life out of each individual business jet now, and that yearly usage must be well above any time in the past. It’s time to review...
Each year the business jet fleet grows in size, with the delivery of new aircraft minus a few retirements. As an example, back in 2005 the US business jet fleet size stood at 9,800 units, whereas today it has grown to over 14,600 jets. Thus, even though today the total number of business jet operations are at all-time highs, on a per-aircraft basis their usage is much lower because of the much larger fleet size.
To illustrate, there were 4.728m US business jet operations in 2005. Dividing this by 9,800 aircraft equates to 480 annual operations per aircraft. In contrast, in 2021 US business jet operations jumped to a record 5.1m – but dividing this by the 14,600 aircraft now in the fleet yields an average utilization of 350 operations per aircraft.
Thus, despite a record number of operations, the utilization of each aircraft is actually 25% below what it was in 2005.
So, if lower pre-owned inventory levels really mean fewer listings, and record business jet operations really signify lower utilization due to a larger fleet, it could be time to let go of a few of the age-old ‘rules of thumb’ applied to the industry and be open to new paradigms.
Flight Activity – Global Report
How did the war in Ukraine impact flight activity around the rest of the world during March 2022? Richard Koe and WingX Advance provide details...
The war in Ukraine continued to significantly impact Business Aviation activity out of Russia, Belarus, and Ukraine during March. Compared with flight activity in March 2021, business jet sectors originating in these countries fell by 65%.
The drop in business jet activity was particularly acute in light of some very strong trends in 2021. Compared to March 2019, however, business jet flights from these countries were down ‘only’ 57%.
Focusing solely on Russian business jet departures, sectors flown in March 2022 were down 57% compared to last year, and down 45% compared to March 2019. Domestic Russian bizjet trips made up 63% of the sectors flown in March 2022, and despite a 40% decline compared to March 2021, these were up by 11%, compared to March 2019.
Unsurprisingly the biggest declines in Russian flight activity during March were international sectors, which were 70% lower than pre-pandemic March 2019. (By far the most resilient international connection from Russia is to United Arab Emirates.)
Despite the ongoing Ukraine crisis and deepening economic concerns, business jets flew more sectors in Europe in March 2021 than in pre-pandemic March. There were 45,000 bizjet sectors originating in Europe, 42% more than last year, and 13% more than three years ago in March 2019.
March saw wide disparity in European country trends. With business jet demand in Russia collapsing, flight activity in France and Germany recorded single-digit growth compared with March 2019 and was well above March 2021. The UK ranked third for bizjet departures in March 2019, and in March 2022 it was second, flying 14% more sectors than in March 2019.
The United States hosted 91% of business jet activity in March 2022, and demand soared 30% above March 2019, and 28% ahead of March 2021. The month ended with Florida continuing to be the hub of US bizjet activity, with almost 41,000 departures, almost 50% more than in March 2019, and 20% more than March 2021.
Rest of the World
Outside of Europe and the United States, Business Aviation users flew 10% more sectors in March 2019, and 30% more than March 2021.
• Despite strong growth compared to March 2021, Canada, and Mexico – the two largest markets – still failed to recover to pre-pandemic activity.
• Three countries saw a doubling in their business jet activity since March 2019, including Brazil, Nigeria, and the United Arab Emirates.
• Demand in China languished at approximately half of what it was in March 2019.
“Repercussions from the Ukraine crisis have started to affect business jet demand outside the immediate conflict zone,” said Richard Koe, Managing Director, WingX Advance. “The US market has yet to see any slowdown, with more charter operator consolidation reflected in very strong Part 135 trends.
“Other regions are also seeing strong growth in bizjet demand, with China being a big exception...as new Covid lockdowns ramp up.”
In-Service Aircraft Maintenance Condition & Marketability
Pre-owned aircraft availability is beginning to demonstrate some stability, with Asset Insight’s tracked fleet decreasing only 0.7% (five fewer aircraft) during March, although listings are still 58.5% below their June 2020 peak.
Asset Insight’s March 31 analysis examined 134 models equating to 698 inventory assets. However, many young, lower-time unlisted aircraft continue to transact without ever being listed for sale.
Ask Prices for the listed fleet increased 21.9% during March, 38.7% during Q1, and 14.2% year-over-year (YoY), with all four groups posting gains. As stated in previous reports, actual transaction values for young, low-time aircraft are generally higher.
Inventory Fleet Maintenance Condition
On the surface, the Quality Rating and Maintenance Exposure values appeared to contradict each other. However, they make perfect sense when one recognizes the significance of each figure.
Quality Rating: Posted three consecutive monthly improvements to reach a 12-month high figure in March. At 5.308 on Asset Insight’s scale of -2.5 (low) to 10 (high), inventory assets moved into the ‘Excellent’ range (from February’s ‘Very Good’ status), signifying fewer near-term maintenance events and proving, yet again, that Maintenance Status does not directly relate to aircraft age. The figure was also relatively unchanged YoY.
Maintenance Exposure: On the other end of the spectrum, the cost of embedded/accrued maintenance (Maintenance Exposure) increased (worsened) 6.2% during March (0.7% during Q1 and 3.4% YoY) to approach the 12-month worst figure, signifying that upcoming events, while fewer in number, will be more expensive to complete.
Maintenance Exposure to Ask Price (ETP) Ratio
Continuous Ask Price increases during Q1 helped the ETP Ratio achieve a 12-month low figure of 65.3% in March, with all four groups benefiting.
The ETP Ratio continues to be 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 2022, assets whose ETP Ratio was 40% or higher were listed for sale more than 62% longer (on average) than aircraft whose Ratio was below 40% (308 versus 500 Days on Market). In March, 40% of the tracked models, and nearly 55% of all listed aircraft, posted an ETP Ratio above the 40% excessive mark.
The tracked fleet’s availability has now decreased to 3.1% of the active fleet, versus the 8.1% inventory figure posted in March 2021. This equates to a 21% drop during Q1, and a 58% decrease YoY.
Demand continues to set record-high figures, posting a second consecutive all-time quarterly high level for all aircraft groups, while more than doubling to 4.68 during Q1 2022, compared to Q1 2021’s 2.27. The figure is based on the percentage of each Make/Model’s active fleet listed for sale and its Days on Market, and the scale ranges from 0.00 (lowest Demand) to 5.00 (highest possible Demand).
As we have previously reported, while we expect demand to remain strong during 2022, availability limitations are likely to stifle pre-owned aircraft sales for this year.
Large Jets: Preliminary sales figures for our 43-model tracked fleet totaled 108 units during Q1 2022, compared to 98 aircraft transactions in Q1 2021. Availability is down to 2.4% of the active fleet (the figure stood at 7.1% in March 2021). Listings did, however, increase by 4.6% (six units) in March, leaving total availability down 17.9% year-to-date (YTD), 64.4% lower YoY, and 63.2% below the June 2020 peak.
The group’s Quality Rating skyrocketed 5.8% in March to an all-time-high 5.837 (a figure deep within ‘Outstanding’ territory), while also improving 7.6% in Q1, and 4.5% YoY. Again, if you ever needed proof that an aircraft’s maintenance status and its age have little correlation, these figures provide it.
The asset’s age and specification may not increase its value, but fewer upcoming maintenance events could improve its marketability.
Unfortunately, while fewer maintenance events may be due for Large Jets, they are expected to cost more, as reflected by the 14% increase (worsening) to the group’s Maintenance Exposure during March (just 0.4% worse than the Q4 2021 figure, and 4.9% higher YoY.
Ask Price rose 8.8% in March to post an all-time-high value that was also nearly 34% higher than Q4 2021, and reflected a 54.4% increase YoY. The price rise helped lower the ETP Ratio to 38.3%, the group’s second consecutive monthly improvement, and the first time Large Jets have been below the 40% excessive exposure demarcation point since August 2016.
There is no way to tell if the group’s future inventory will continue to improve asset marketability but, for now at least, the signs are generally positive.
Mid-Size Jets: Inventory for our 45-model tracked fleet posted a 2.9% increase in March (five units), but equated to more than a 60% drop YoY and a 64.4% decrease since the June 2020 peak. These figures resulted, in part, from the sale of 102 aircraft during Q1 2022 – fewer than the 110 sold during Q1 2021.
The Quality Rating was relatively stable throughout Q1, remaining within ‘Very Good’ territory while improving to 5.122, a nominal 0.3% gain for March, and 2.2% since December. However, the Rating was 3.7% lower YoY. Maintenance Exposure, on the other hand, increased 2.3% to set the 12-month high (worst) figure, while also worsening 7.4% for the quarter and 9.6%, YoY.
Ask Price rose nearly 33% in March to a 12-month high value that was also 65% higher for Q1 2022, and 15% higher YoY. The figure helped the ETP Ratio decrease to 69.1%, which was a major improvement over February’s 83.3%.
With only 2.3% of the active fleet listed for sale, some sellers may find this an ideal time to create a transaction for an otherwise unmarketable asset.
Light Jets: Of the three Jet groups, Light Jets is the only one whose Quality Rating and Maintenance Exposure figures both moved in a positive direction. Remaining in ‘Very Good’ territory throughout, the Quality Rating improved each month during Q1 2021 to post a 1.6% increase for March, 3.8% during Q1, and a 0.9% increase YoY.
Maintenance Exposure followed suit, decreasing 7.7% in March (to a 12-month low/best value), 8% during Q1, and 12.4% YoY. The average Ask Price rose a dramatic 56% in March, resulting in an increase of 64.8% for Q1 2022, and 36.6% YoY. March’s value represented a 12-month high Price, and was also the first time since May 2021 that Light Jet values exceeded that of Turboprops.
Combined, these changes improved the group’s ETP Ratio to 90.5%, a 12-month low/best figure, and the first time the Ratio has not been in triple-digits since October 2020.
The statistics were created through the sale of 144 aircraft during Q1 2022 (compared to 127 in Q1 2021), reducing inventory by 2.7% (five units) in March, 52% YoY, and 58.6% since the June 2020 peak. Only 3.2% of the active fleet was listed for sale as March ended, compared to 8.2% in March 2021.
On a per-tracked-model basis, Light Jets posted more sales than any other group (5.0 units) during Q1, while also offering greater availability at the end of Q1 than any other jet category (7.6 units per tracked model). Concurrently, they required the fewest Days on Market to create a sale.
Turboprops: The 17 models tracked by Asset Insight closed 62 transactions during Q1 2022, versus 88 in Q1 2021. Inventory decreased 6.5% in March (11 units) to finish Q1 down 28%, as well as approximately 56% lower YoY, and 40.1% below the June 2020 peak. At the end of March, availability stood at 2.9% of the active fleet, compared with 6.4% one year ago.
Buyer preference for assets sporting a higher Quality Rating resulted in a 1.0% Rating decrease for March, 1.3% during Q1, and 2.4% YoY. However, at 5.055, Turboprop Quality remained within ‘Very Good’ territory. Maintenance Exposure managed to eke out a slight 0.5% improvement, but that decrease was not shared by the figures posted for Q1 and YoY, which increased (worsened) 1.5% and 7.8%, respectively.
Ask Price increased 13.3% in March, resulting in a 6.6% rise during Q1, and 5.2% YoY. Between the slight Maintenance Exposure decrease and the Ask Price increase, the ETP Ratio improved to 44.4% – higher (worse) than the group’s 12-month average.
Considering that Turboprops offer more availability per model than any other group (8.9 aircraft compared to 5.1 for our tracked fleet’s average), and an ETP Ratio that is just slightly above the 40% excessive ETP Ratio point, ample opportunities exist for buyers and sellers to structure value-based transactions.