- 04 Oct 2021
- Brian Foley
- Market Insight
Pre-owned aircraft sales’ momentum is carrying across to new business aircraft sales, notes Brian Foley, Editor of Market Indicators for AvBuyer. Meanwhile, the pre-owned market looks set to further benefit…Back to Articles
As anticipated in previous columns, the incredible sales volume in the pre-owned aircraft sales market over the past couple of years has finally spilled over into the new business jet market. While 2021 had initially been slow for manufacturers, they now report sales outpacing customer deliveries by a two-to-one margin.
This is welcome news for the business jet OEMs, who have seen sales boringly flat for over a decade, since cratering to just half the yearly shipments they were enjoying before the 2008-09 Great Recession.
This was temporarily exacerbated by the pandemic, which initially drove 2020 deliveries down a further 20% (compared to 2019), due to factory closings, supply chain interruptions, and ‘wait-and-see’ buyers.
It’s a widely held belief in the industry that when pre-owned inventory shrinks and there are fewer choices of quality equipment, buyers will migrate to new aircraft. Until now this has been difficult to verify, having personally observed that new and used buyers are very different demographics who rarely cross over into one another’s domain.
However, given the chronic lack of inventory, currently just a third of the typical numbers of used aircraft for sale, there is arguably nowhere left to go for some buyers except new; even for those who would prefer to buy used.
Volume Orders from Charter/Fractional Players
The sudden interest in new aircraft has been further stoked by a general desire of customers to avoid the crowds at public airports, and on densely-packed airliners.
At first, these new users flocked to charter, fractional ownership programs, jet cards, and the pre-owned market. These same users are now responsible for charter and fractional fleet operators placing volume orders for new aircraft, which further bolsters the backlogs of OEMs.
As a result, my consultancy’s forecast of new jet deliveries has them finally breaking out of the 700-unit worldwide delivery doldrums, and coming dangerously close to the 900-unit mark by 2025. (This is perhaps the most optimistic forecast in the industry currently, from a forecaster who is normally one of the more conservative.)
The forecast does not foresee a return to the lofty 1,300-unit per annum levels of 2007 – at least not during its 10-year horizon.
Pre-Owned Sales – a Mutual Beneficiary
One might initially assume that a trend towards buying new aircraft would be negative for the pre-owned market. However, assuming that 85% of the 900 yearly new aircraft sales involve a trade-up, as opposed to a first-time buyer, that equates to 765 units being placed on the pre-owned market for resale.
This trend both helps to alleviate the inventory shortage and provides aircraft brokers with 765 more opportunities to make a sale.
More new airplanes coming into the fleet also supports the entire Business Aviation ecosystem.
A growing active fleet means more business for other sectors of the industry, such as finance, insurance, title and legal services. A bigger fleet also translates into more activity at FBOs and MRO facilities, as well as additional employment opportunities for pilots, mechanics and others who keep the whole system up and running.
Hurdles to Clear
There are still hurdles to clear before new business jet deliveries are firing on all cylinders. These include supply chain constraints, a labor shortage, and the reluctance of manufacturers to commit to increased production until their confidence in sustained levels of sales has been restored.
It’s believed that over the coming months these issues will be ironed out, setting the segment up for its best shipment levels since 2007, by 2025 (or thereabouts). Thus far, the industry has been waiting 14 years for this to happen, so another four years will seem like the blink of an eye.
Global Business Aviation Flight Activity Update
Business jet activity finished September 2021 up compared to September 2019, with 14% more flights for the full month. North American activity was up by 6% (while the US domestic market was up by 5%), and Europe enjoyed a consistently strong month, up 27% compared to September 2019.
As of the end of September, the worldwide business jet market remained on track to post a record year of utilization, with a strong summer rebound taking the full-year trend 2% above 2019.
North American BizAv Flying Activity
The core Business Aviation market in North America had a very strong September for Part 135 and Part 91K operations, the latter seeing 25% increase compared to September 2019.
The US market also saw a tentative recovery in Private operations during September, including both individual and corporate flight departments. Flights were up 1% compared to September 2019. Shuttle operations, including corporate shuttles, remained down 6% versus pre-pandemic activity levels.
The busiest business jet in the US market in September was the Cessna Citation Excel, with flights up 14% (versus September 2019), but the jets with the biggest rebound during late-summer were the Embraer Phenom 300 and Cessna Citation Latitude, trending up 50% over the smaller fleet that was flying two years ago. Florida, California and Colorado were the hub spots for these two aircraft types.
At the other end of the spectrum, Ultra-Long-Range business jets were experiencing a more modest recovery. Though flights were back in line with 2019, flying hours lagged some way behind.
European BizAv Flying Trends
The European market continued to post its strongest ever Business Aviation utilization beyond the summer season, but this was clearly helped by the re-opening of lifestyle events such as Art Basel and the Monaco Yacht Show.
Across the European Union, flight activity rocketed 24% above September 2019 levels, with the biggest spike coming in international flights. This is undoubtedly connected with the pervasive deficit in scheduled airline capacity.
The Scandinavian markets saw the smallest recovery, up ~5% compared to September 2019. By comparison, France, Germany, The Netherlands, and Poland saw at least 20% increases over two years ago, and Italy, Spain, Greece, and Portugal were seeing much larger gains.
Rest of the World
Flight activity outside Europe and the United States remained a mixed bag – including record activity, modest rebound, and enduring declines. The aggregate trend was much weaker than for Europe and the US in September, with 4% fewer flights, and 8% fewer hours flown, compared with September 2019.
“The recovery in flight activity is entering an uncertain phase as the global backdrop for Business Aviation gets more complicated,” reflected Richard Koe, Managing Director of WingX Advance.
“The pace of the economic recovery is slowing, with inflationary risks increasing as post-pandemic supply-line disruption becomes more apparent. Ongoing virus concerns are keeping a lid on international travel, although the softening restrictions in Europe have clearly prompted a big rebound, particularly around re-opened calendar events.”
Aero Asset: Stable Heli Sales Volume, Shrinking Supply
Aero Asset’s Q3 2021 ‘Heli Market Trends’ reported a decrease in the supply of pre-owned twin-engine helicopters, along with a stable retail transaction volume Year-over-Year (YoY)…
For the first time, Heli Market Trends published worldwide flight data tracking helicopters equipped with ADS-B transponders in Q3. The report also published market data of twin-engine pre-owned helicopter models in production, and variants with recent pre-owned sales activity, including VIP, EMS, OGP, and others).
“Year-to-date (YTD) retail sales were stable compared to the same period in 2020,” said Valerie Pereira, Aero Asset’s Vice President of Market Research. “In the last quarter, many aircraft for sale were removed from the market and returned to service, translating into a 24% reduction of supply for sale YoY. There were 196 units for sale at the end of Q3.”
To date, 98 pre-owned twin-engine helicopters had been sold to retail buyers on- and off-market, totalling $263m. This dollar sales volume was down 26 percent YoY, mainly because of a significant decrease in heavy retail sales activity over same period.
VIP-configured twin helicopter sales volume rose 8%, and was the best performing market segment YTD. North America was the best performing region YTD, accounting for a third of all retail transactions.
The best performing pre-owned twin-engine helicopter market, YTD, is the Airbus EC/H145, followed by the Leonardo AW109S/SP, and the Sikorsky S76C+/C++.
Year to date, light twin-engine retail sales volume increased 5%, compared to the same period in 2020, while medium twin retail sales were up 43%. Heavy retail sales declined substantially over the same period.
The number of deals pending at various stages of transaction declined 24% in Q3, versus Q2 2021. However, the number of deals pending in Q3 remained 23% higher than in Q3 2020.
IADA: Pre-Owned Business Aircraft Demand to Continue Rising
Takeaways from the International Aircraft Dealers Association’s Q3 Market Report show an astounding 20-30% increase in sales prices of used business aircraft, driven by historically low inventory and a backlog of new aircraft orders from manufacturers.
Wayne Starling, Executive Director of IADA described the market for used business jets as being “at an unusual place, with much higher prices and dearth of inventory in the most modern used business aircraft markets.”
Responses from IADA’s membership in Q3 predict the next six months will continue to have increased pricing and demand for all sectors of the market, while inventory deficiencies will continue to drive higher prices, he revealed.
Year over year, Q3 used aircraft dealer activity reflects a continuing heated market, with 182 aircraft agreements, compared to 110 in Q3 2020. There were only seven transactions with lowered prices in Q3 2021, while there were 83 in the same period in 2020.
IADA dealers reported 40 transactions that fell apart in Q3 2021, compared to 50 in the same period in 2020. And they closed a combined 325 deals this past quarter, compared to 283 in Q3 2020.
Projections for the next six months for the pre-owned Turboprop, Light Jet, Mid-size, Large, and Ultra-Long-Range Jet markets, all show prices and demand are both up dramatically. Similarly, supply will stay far below normal, or even drop slightly lower.
In-Service Aircraft Values & Maintenance Condition
A review of Q3 sales figures revealed a 1.5% increase in aircraft transactions compared to Q2. Asset Insight’s September 30, 2021 market analysis also exposed another 4.3% availability decrease (82 units) for its tracked fleet of 134 models, leaving 1,190 jets and turboprops listed for sale, mostly of the well-aged variety…
Year-to-date (YTD) availability has been steadily decreasing since June 2020, and is down 37.8% (722 fewer aircraft), equating to a 47.0% Year-over-Year (YoY) reduction.
In an attempt to benefit from the lack of availability, many Large and Mid-size Jet sellers have increased their asset’s Ask Price. Whether or not that strategy will bear fruit remains to be seen, but it did increase the tracked fleet’s average Ask Price by 12.3% in September, following August’s 12-month low figure. Overall values were still down 2.4% during Q3; 1.7% YTD; and 4.2% YoY.
Inventory Fleet Maintenance Condition
The inventory aircraft mix change during Q3 negatively impacted the Quality Rating of Asset Insight’s tracked fleet, and Maintenance Exposure deteriorated further.
The Quality Rating saw little change in September, improving by 0.1%, but deteriorated 0.7% for Q3, and 0.9% YoY. At 5.245, the fleet retained its ‘Very Good’ Quality Rating, but the Q3 deterioration reveals that, compared to Q2, more near-term maintenance events are due for the listed fleet.
Maintenance Exposure, defined as an aircraft’s accumulated/embedded maintenance expense, worsened (increased) another 1.9% in September and ended the quarter 0.3% higher (worse) than Q2, as well as 1.9% higher YoY. So, in addition to more maintenance events coming due, these tasks will, on average, be more expensive to complete.
Maintenance Exposure to Ask Price (ETP) Ratio
Statistical proof that the available inventory is comprised of older, difficult to remarket aircraft can be gleaned from the latest ETP Ratio, which has reached a record-high 78%.
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 Q3 2021, assets whose ETP Ratio was 40% or higher were listed for sale more than 84% longer (on average) than aircraft whose Ratio was below 40% (296 versus 545 Days on Market).
September’s market analysis also revealed that 49% of our tracked models, and 59% of our tracked fleet, posted an ETP Ratio greater than 40%.
The third quarter resulted in 547 transactions for Asset Insight’s tracked models, compared to 539 during Q2. The unprecedented number of first-time buyers is continuing to strain the supply chain, making purchasing or selling a used aircraft very challenging – assuming buyers can locate the type of asset they need.
Simply securing a slot to conduct a pre-purchase inspection has become difficult, and it may soon be impossible to book a spot at certain service centers prior to year-end.
With respect to our tracked assets, only 5.6% of the active fleet was listed for sale as Q3 2021 ended, compared to 10.4% one year ago. More challenging yet, most of the available assets have been listed for quite some time, suggesting they may well be with their final owner, and average Days on Market have been steadily increasing since June 2020.
Large Jets: Inventory for Asset Insight’s fleet of 43 tracked models decreased 1% in September (three units), which reads better than prevailing market conditions, considering the group has seen availability decrease 34.1% YTD (147 units) and 44.2% YoY.
However, the limited number of higher quality assets found homes, thereby pushing the group’s September Quality Rating down 0.6% to its second consecutive 12-month low (worst) figure. The 5.451 Rating was also 2.2% worse than in Q2, and off by 4% YoY.
The good news is that the Quality Rating is still well within the ‘Excellent’ range, but that may make little difference to buyers unable to locate an asset with the specification/configuration they seek. Maintenance Exposure increased 0.2% for the month, 0.7% for the quarter, and 4.8% YoY.
While the average Ask Price increased 14.2% in September, it was still down 5.8% for Q3, 2.6% YTD, and 0.8% YoY. All these facts pushed the ETP Ratio up to 72.7%, the group’s highest (worst) Ratio over the past 12 months. Entering Q4, we see virtually no relief in sight, relative to availability of lower-time, younger assets. We urge buyers to be patient, even if that means completing an acquisition in 2022.
Mid-Size Jets: This was the other group to post an Ask Price increase in September, and it was an impressive 25.4%. While 6.4% lower YoY, the figure was 10.7% higher for the quarter, and 4.5% higher YTD.
At 5.256, the group’s ‘Excellent’ Quality Rating decreased (worsened) by 0.5% for the month, 1.3% for Q3, and 1.1% YoY. At the same time, Maintenance Exposure rose (worsened) 1.4% for the month and 2.2% for Q3 (although it was 1.4% better/lower YoY). An Ask Price increase could not overpower the Maintenance Exposure influence, raising the ETP Ratio to a 12-month high 72.7%.
During Q3, 168 aircraft changed owners compared to 158 during Q2, and available inventory for Asset Insight’s 45-model tracked fleet decreased 4.8% (25 units), bringing the YTD decrease to 42.8% (223 units) and 52.8% YoY. Clearly, selection within this group is problematic, as many sellers are simply not offering aircraft that buyers desire.
Light Jets: The ETP Ratio for Light Jets continues to amaze – and not in a good way. Reaching a new record high 119.7%, the group achieved its latest feat through a 2.9% Ask Price drop. In addition to the average Ask Price remaining below that of Turboprops, it was also down nearly 1% for the quarter, 13.4% YTD, and 18.1% YoY.
The Quality Rating for the 29 tracked models improved to a figure approaching the group’s 12-month high figure but, at 5.225, was insufficient to push the group beyond ‘Very Good’ territory. On a positive note, the Quality Rating did improve 3.2% during Q2, and is 1.7% better YoY.
Maintenance Exposure decreased 2.6% for the month (1.6% for the quarter and 4.3% YoY), but that improvement was unable to override the Ask Price decrease.
Exactly as in Q2, 158 aircraft transacted during Q3. That lowered availability by an additional 5.8% (32 units), 42.4% YTD (234 units) and 49.5% YoY. Considering all these challenges, it is amazing that buyers and sellers can find common ground.
Turboprops: Following a slight increase in availability during August, September posted a 5.4% decrease (22 units), equating to a YTD decrease of 29% (118 units) and 39.2% YoY. The availability reduction may have been why Asset Insight’s tracked 17-model fleet chalked up just 88 sales as Q3 ended, compared to 102 during Q2.
Higher Quality Rated assets are the ones that continue to sell, with the Rating reflecting that fact through a 0.5% decrease for the month, 2.62% for the quarter, and a slight 0.1% YoY. The group barely managed to maintain its Rating in ‘Very Good’ territory at 5.051.
While Maintenance Exposure was down 1.4% for the month, it actually rose (worsened) 0.2% during Q3, and 1.6% YoY. Ask Price decreased 2.6% in September, and has fallen 4.2% for the quarter, and 0.2% YTD, although it was 0.4% higher YoY.
The changes in fleet mix, maintenance and pricing resulted in the ETP Ratio worsening (increasing) from 41.9% to 42.9%. Considering that this is just barely above the 40% point we consider excessive, the latest Ratio shouldn’t worry many sellers as opportunities abound (at least statistically).