What's the health of the Business Aviation marketplace heading into September?
With results for the first half of 2019 filtering in, what is the state of the new and used business aircraft sales markets, and what are the factors influencing them? Rollie Vincent introduces September’s medley of trends, analysis and projections…
The Road to Hāna, a small town on the eastern tip of the island of Maui in the Hawaiian Islands, is memorable for its more than 600 twists and turns over a route that spans just 52 air miles from end-to-end. Beyond the spectacular scenery and a 2.5-hour and at times harrying drive, lies the final resting place of one of aviation’s true pioneers.
Charles Lindbergh is surely one of the world’s most famous aviators. Known most for achieving the first-ever non-stop, trans-Atlantic solo crossing with his Ryan flyer, the Spirit of St. Louis, Lucky Lindy clearly knew a thing or two about airplanes.
Later in his career, he took on the role of aviation consultant to senior leadership (a very noble profession, if I do say so myself). One of his assignments involved identifying the most compelling aircraft that would meet the needs of Pan Am’s soon-to-be-established executive avation division.
After inspecting Dassault Aviation’s Mystére 20 prototype at the company’s Bordeaux Mérignac facilities, Lindbergh famously dispatched a telegram in May 1963 to Juan Trippe, the CEO of Pan American World Airways, indicating “I’ve found your bird.”
In August of that same year, just after first flight, Pan Am ordered 40 Mystére 20 aircraft and an additional 120 options, subsequently renaming them “Fan Jet Falcons”. The rest, as they say, is history – being written each day.
The Long Winding Road of the BizAv Market
Anyone who has navigated the ~620 turns on the two-lane ‘highway’ between Kahului (where Maui’s main commercial airport is located) and Hāna might draw comparisons with the dynamics of today’s business aircraft market.
Depending upon who you ask or which data sets you look at, the so-called Business Aviation ‘recovery’ has now been underway for the past nine to 10 years, through ups and downs, and twists and turns.
Good news: new business jet sales have been quite robust through the first half of 2019, with OEMs recording book-to-bills above 1.0 and finally beginning to replenish backlogs, which had been slowly declining over the past several years.
GAMA’s highly anticipated Q2 2019 shipments report was released on August 11, and provided OEM- and model-specific details on business jet, turboprop, piston and rotorcraft deliveries to the Business and General Aviation market. New business jet deliveries were up 12.5% in H1 2019 compared to the same period last year, an impressive achievement.
As many as 316 business jet shipments were reported in H1 2019, putting the industry on course for its highest output in the post-crisis period.
Peeling the onion back to reveal more details, it is interesting to note that just three aircraft were responsible for almost 90% of the Year-over-Year (YoY) improvement – the Pilatus PC-24, Gulfstream G500, and Cirrus Vision Jet. The first two in this group were recently certified, and each is in production ramp-up mode at factories in Switzerland and the US.
Demand for most other in-production business jets (remarkably, there are about 40 different models in production today) is actually relatively flat. In sharp contrast to the business jet segment, GAMA’s turboprop shipments were down 11% YoY, no doubt dragged down by slowdowns in international economies and trade flows.
The Used Jet Market…
Used business jet sales and leases have also sputtered in H1 2019, and are down almost 22% YoY, according to JETNET. Clearly, part of the problem is a shortage of young, attractively-priced inventory (those types of aircraft tend to move quickly, with days-on-market down about 10% YoY in H1 2019).
With a small but noticeable rebound in the total number of business jets listed ‘for sale’ (up about 6% in H1 2019 over the end of last year), the improvement in availability has not fueled any increase in sales.
The sentiment of business aircraft owners and operators has remained subdued in 2019 after a robust 2018, according to the latest results from our on-going JETNET iQ Global Business Aviation Surveys.
With geopolitical tensions and trade tariffs on the rise, and with a no-deal Brexit and another divisive US federal election process already underway, some potential aircraft buyers have likely stopped at a roadside stand for rest and refreshments before embarking on the next part of their journey.
Navigating the complexities of the business aircraft marketplace is, in our opinion, a job best assigned to experienced aircraft sales professionals and their teams.
Who would be better to provide buyers and sellers with the insights they need, and the hard-earned trust they deserve, to make the most informed decisions about life in the fastest lane, well above the many twists in the road.
Flight Activity - Europe
July saw 90,550 Business Aviation departures in Europe, or 2.5% fewer flights compared to July 2018, but still higher than in any other July month since 2006. Year to date, flight activity is down by 1.8% versus 2018…
Most of the YoY decline this month was due to a slowdown in flights from Germany and the UK, down 6% YoY. The busiest market was France, which recorded 19,000 flights. Half of France’s departures were domestic (French domestic flight activity rose 7% YoY).
Of the other main markets for Business Aviation in Europe, Italy was flat, Switzerland recorded a slight increase and Spain declined 3%. The strongest growth in July came from Turkey, up 4% while the biggest decline came from Russia, where flights fell 22% YoY.
Most of the decline in July came from the Mid-size and Small Jet categories, down 3% YoY; (-6% in Germany, -8% in the UK and -10% in Spain).
By Mission, the biggest contributor to the YoY decline came from Private/Owner flights, which were down 5% YoY.
By comparison Charter/AOC activity was down 1% overall, and has now declined every month since October 2018.
“Business Aviation flight activity continued to slow in July 2019. Whilst this draws a disappointingly premature end to the recovery in regional activity we saw in 2018, the month was still one of the busiest months on record,” noted Richard Koe, managing director, WingX.
“The impetus is coming disproportionately from the heavy metal, with the Super Mid-size, Heavy and Ultra-Long-Range jets in more demand.
This reflects the relatively strong growth of the active fleet in Europe at the top end of the market. The bigger jets are being deployed successfully on AOC activity, notably by the leading international operators,” he concluded.
JETNET H1 2019 Used Aircraft Market Update
JETNET recently released its data for H1 2019 pre-owned business jet, business turboprop, helicopter, and commercial airliner sales. ‘Fleet For-Sale’ percentages for all sectors were mixed in the June comparisons. Here are the details…
As of June 2019 the fleet percentage of business jets for sale (9.5%) was on the rise. Meanwhile, excepting piston helicopters, all aircraft sectors reported double-digit percentage decreases in full sale transactions during H1 2019 versus the same period in 2018.
For H1 2019, used business jets showed a 21.5% decrease in used sale transactions over H1 2018, and are taking more time to sell (28 days) than last year. Business turboprops saw a 13.9% decrease in sale transactions, while taking an average two days more to sell than last year.
Comparing June 2019 to June 2018, turbine helicopters saw a double-digit decrease in YTD Sale Transactions, down 13.3%, while piston helicopters showed a decline of 2.6%.
For the first six months of 2019 there were a total of 4,270 aircraft and helicopters sold, with business jets (1,122) and commercial jets (874) leading all types and accounting for 47% of the total.
The number of retail sale transactions across all market sectors decreased by 874 (17%) when compared to H1 2018. (Note: JETNET does not cover all piston aircraft inventory or sales.)
Q2 2019 Avionics Sales Update
According to AEA, during H1 2019 the total worldwide Business and General Aviation avionics sales amounted to ~US$1.51bn, a 14% increase over H1 2018. During Q2 2019, sales increased 14.8% compared to Q2 2018…
The dollar amount reported includes all Business and General Aviation aircraft electronic sales. The amount excludes repairs and overhauls, extended warranty or subscription services.
Of the more than $1.51bn in sales during H1 2019, 52.7% came from the retrofit market (avionics equipment installed after original production), while forward-fit sales (avionics equipment installed by airframe manufacturers during original production) amounted to 47.3% of sales.
According to the companies that separated their total sales figures between North America (US and Canada) and other international markets, 74.9% of the YTD sales volume occurred in North America while 25.1% took place internationally.
"Avionics sales for General and Business Aviation have now seen an increase in YoY sales for 10-straight quarters," - AEA president & CEO Mike Adamson.
"In addition to the ADS-B workload, our AEA member repair stations continue to report an increasing number of full-panel retrofits with new electronic flight displays and digital autopilots, as well as continued interest with in-flight connectivity solutions."
US ADS-B Equipped Fleet Update
With the automatic dependent surveillance-broadcast (ADS-B) Out deadline fast approaching, data from FlightAware indicates that as of June the number of turbine-powered US business aircraft equipped with ADS-B rose to 77% of the fleet…
In other words, 13,352 turbine business aircraft are currently equipped to meet the ADS-B mandate on January 1, 2020.
Fleets With Highest Equipage Rates
- Cirrus Vision SF50 (97%)
- Honda Aircraft’s HA-420 HondaJet (97%)
- Gulfstream G650 (93%)
- Gulfstream G150 (93%)
- Cessna Citation CJ4 (91%)
- Beechcraft Super King Air 300 (90%)
Fleets With Lowest Equipage Rates
- Learjet 35 (55%)
- Dassault Falcon 20 (55%)
- Cessna Citation III (52%)
- Learjet 55 (49%)
- Gulfstream III (43%)
Another 3,967 of the 17,319 aircraft in the fleet had not been equipped to meet the FAA’s ADS-B mandate. Those figures represented a nearly 56% rise from a year earlier when only 55% of the registered US fleet had been equipped.
Latin America Used Aircraft Sales Update
Following the recent LABACE Convention, Jose Costas EMEA & Asia Pacific Aircraft sales representative, Duncan Aviation shares some thoughts about the current used aircraft market in Latin America…
The Latin American market is an important part of Business Aviation. The world's second and third largest business aircraft fleets are in Mexico (>1,000 jets) and Brazil (>800 jets).
With scheduled airline connectivity still in development, these large economies have relied on Business Aviation to assist many entrepreneurs and companies in their commutes between cities, financial centers, industrialized areas, natural resources sites, and agriculture and livestock farms. Business Aviation is critical to the economies of these countries.
Aviation is part of Brazil's heart and soul, home of Santos-Dumont and the legendary 14 Bis, who paved the way over the last century in the development of knowledge and innovation in the aerospace industry.
Used Fleet Observations
There has been a significant decrease in the pre-owned fleet for sale in Latin America where the inventory of aircraft less than 10 years old came down from 80 to 30 units in the last few years.
On the other hand, H1 2019 saw 16 new aircraft added to the region, which is possibly the best number for the period in the last few years. The Light and Mid-size Jets have been the preference with more than 75% of deliveries. Brazil and Mexico remain responsible for at least 66% of the deliveries into the region.
Although the economic and political status for the region remains weak, with near zero GDP growth for the year as well as exchange rate challenges and market volatility, it appears that there is a small but consistent appetite for both new and young pre-owned inventory showing that the region does need Business Aviation to support the geography and accessibility challenges for entrepreneurs looking at opportunities despite the overall regional status.
Pre-owned Helicopter Market Trends
Aero Asset released its findings for the Q2 2019 pre-owned helicopter market, with several interesting findings. Following is a rundown of the highlights…
- Twin-engine helicopter retail sales are up across weight classes except for medium-twin, which account for 30% of pre-owned transaction volume YTD;
- 63% of sales YTD have been VIP configurations;
- Just 2% of sales YTD have been for airframes older than 20-years-old;
- OEM’s two-year lead time for the factory new H145 T2 is driving pre-owned activity.
- The EC/H145 is the most liquid twin-engine pre-owned market segment in Q2 with just six months of supply at current trade levels.
- H225 pre-owned activity continues to grow with two trades in Q2 and several units with a deal pending.
- Bell 412 and 429 pricing is set to decline in the next quarters as pre-owned activity is lagging.
To obtain a full copy of the report, contact Aero Asset.
Washington Top for Aero Manufacturers
Washington remains the best state in the US to be an aerospace manufacturer or to locate a new business, consultancy PwC says in its latest ranking of manufacturing attractiveness, as originally reported by Aviation Week…
Beyond being home to Boeing’s aircraft manufacturing operation, as well as newer Aerospace and Defense (A&D) entrants including Blue Origin, Washington counts several favorable factors, such as the nation’s leading infrastructure for aerospace.
“In order to promote innovation, the state offers favorable tax policies, such as tax credits for preproduction development expenditures, and support for several public-private partnerships,” the report notes.
In order, PwC says the top 10 states are:
- North Carolina
Just having major manufacturing operations in a state did not seem to tip the scale in PwC’s multifactor ranking. For instance, Kansas, home to leading aerostructures provider Spirit AeroSystems, and South Carolina, where Boeing has a competing commercial aircraft production center, came in 23rd and 29th, respectively. Second to last on the list was West Virginia, while territory Puerto Rico finished at the bottom.
In-Service Aircraft Values and Maintenance Condition
Asset Insight’s monthly market analysis (covering 96 fixed-wing models and 1,693 aircraft listed for sale), conducted on July 31, 2019 revealed another inventory increase to the tracked fleet, this time by 13 units (0.8%). Here are the details…
By aircraft category, Large Jets, the only group to experience a fleet decrease, receded 1.3% while Medium Jets increased 1.2%, Small Jets 0.4% and Turboprops grew by 3.8%.
Though the tracked fleet continued to increase, Ask Prices also increased by 0.9%. The reality was that only Large Jets (the one category to experience a fleet decrease) posted an Ask Price increase while, following classical supply dynamics, the three groups experiencing an inventory increase registered an Ask Price decrease.
Inventory Fleet Maintenance Condition
July marked the fourth consecutive month of fleet asset quality deterioration (0.6%), and Maintenance Exposure followed suit, rising (worsening) 3.9%.
The latest fleet mix signifies more maintenance events will be coming due to the new inventory fleet and their average cost will be noticeably higher. Overall, the tracked inventory registered the following figures:
- A 12-month worst figure, but the ‘Quality Rating’ remained within the ‘Very Good’ range after decreasing from 5.196 to 5.165 on Asset Insight’s scale of -2.5 to 10.
- The ‘Maintenance Exposure’ figure (an aircraft’s accumulated/embedded maintenance expense) was only marginally better than the 12-month high (worst) figure, increasing to nearly $1.5m from June’s $1.4m.
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’ 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 Q2 2019, assets whose ETP Ratio was 40% or more were listed for sale 71% longer (on average) than aircraft whose Ratio was below 40% (226 versus 386 Days on Market).
Asset Insight’s July analytics also revealed nearly 58% of all tracked models, and over 63% of the tracked fleet, posted an ETP Ratio greater than 40%. The tracked fleet’s ETP Ratio deteriorated in July, increasing to 68.3% from June’s 65.4%, with all four groups contributing.
- Turboprops regained their leadership position by posting the lowest (best) ETP Ratio at 56.9% (although for the second consecutive month the figure represented this group’s highest (worst) Ratio).
- Large Jets were next at 58.5%, a substantive worsening over June’s 52.5%.
- Small Jets followed at 71.5% from June’s 68.8%.
- Medium Jets posted 77.3%, equating to the group’s average figure over the past twelve months.
After falling in June, following three consecutive monthly increases, average Ask Prices reverted to an upward trajectory in July, although the figure was still below the 12-month average and only one group, Large Jets, was responsible for the increase.
Simultaneously, our tracked inventory fleet increased by 102 units (6.4%) since December.
With demand (based on Days on Market and percent of make/model fleet ‘for sale’) worsening 9.7% to 2.52 last quarter on Asset Insight’s scale of 1.00 (lowest) to 5.00 (highest), older aircraft are likely to experience even greater downward valuation pressure.
Large Jets: Availability decreased by five units and the latest inventory fleet mix pushed the group’s Quality Rating down to the figure posted in May, along with a Maintenance Exposure increase that approached the group’s 12-month highest (worst) figure.
However, average Ask Price recovered from June’s record low by increasing 7.3% to a figure just below the 12-month average. With younger aircraft inventory improving slightly, Large Jets currently offer some of the best value among the four groups, and perhaps the best opportunity for buyers and sellers to structure mutually-beneficial transactions.
Medium Jets: When you consider that this group’s ETP Ratio posted a 12-month high (worst) figure in July, tracked inventory increased by six units, asset quality decreased 0.5%, and Maintenance Exposure rose (worsened) 0.8%, it’s not surprising to see Medium Jet Ask Prices fall 2.1% in July.
What is surprising is the group’s ability to maintain an 8.8% Ask Price improvement since December.
Small Jets: The group’s tracked inventory increased by two units in July, but that marks a staggering 71 unit (15%) increase since December. Ask Prices, not surprisingly, dropped 4.2% in July to post the group’s 12-month low figure, while asset quality receded for the third consecutive month (nearly 5% over the past 90 days) and Maintenance Exposure rose (worsened) slightly.
There are good bargains available within this group, but many Small Jets are bordering on ancient, so caution is advised not to confuse low price with good value.
Turboprops: If you don’t believe that higher quality assets are the ones transacting, all you need to do is look at July’s Turboprop figures.
Inventory increased by 10 units, yet our tracked fleet’s availability is down 13 units (4.6%) YTD, and Ask Prices, which have decreased every month save one since November, hit a record low figure in July, as higher quality, pricier aircraft were the ones that transacted.
Having said that, asset quality and Maintenance Exposure both improved in July, 0.6% and 2.1%, respectively, but the price drop created a record-high ETP Ratio that will be difficult for sellers of older, lower quality units to overcome relative to Days on Market. We strongly advise such sellers to carefully consider each and every offer.