Moving into the second half of 2018, most Business Aviation market indicators are pointing in a positive direction, which bodes well for a strong finish to the year for key industry players. Rollie Vincent assesses…
Relatively strong economies in the US and in Europe are providing tailwinds that are as welcome as a warm sea breeze at the end of summer. Aircraft utilization rates, perhaps the most fundamental of all bizav health indicators, are generally trending upwards on a Year-over-Year (YoY) basis, which is as it should be with more new aircraft coming into the market than are being retired.
With the worldwide business jet fleet growing at 3.3% CAGR in the last 10 years, one would expect that overall utilization levels, whether in cycles (a takeoff and landing) or flight hours, would be accelerating at this pace or even better, as younger aircraft tend to fly more than older aircraft.
While we are amongst the first to take satisfaction in higher aircraft utilization and in knowing that more people are experiencing the best way to fly, an annual growth rate of about 3% should not necessarily be the subject of a long letter home to Mama. She may have better things to read, like The Economist or Investor’s Business Daily.
Tightening Market Segments
Evidence is sprouting up about stronger (read ‘higher’) pricing for sellers of younger, used business jets. This is absolutely as expected with tight inventory levels of the most attractive models.
As of mid-August 2018, just eight examples of the Gulfstream G650/G650ER were listed as ‘For Sale’ according to JETNET data, representing just 2.8% of the installed base of more than 300 aircraft. For folks preferring Bombardier or Dassault brands, the current worldwide market for both the Global 6000 (3.6% of the fleet is ‘For Sale’) and Falcon 7X (5.4%) has shifted towards favoring the seller.
Other examples reflect a similar market dynamic, with buyers having to move quickly – and pay something at or close to the asking price – if they want to see themselves in the Captain’s chair of one of these elegant business jets.
Total retail used business jet transaction volumes through H1 2018 were about flat YoY, no doubt throttled back by the age and maintenance status of the available inventory. Who would have thought that more than half of business jets built would still be flying more than 40 years after delivery?
For used business turboprops, the in-service fleet is even older, with about half the fleet still in service after 50 years.
Of approximately 1,900 business jets currently listed ‘For Sale’ globally, less than one-in-five were delivered new in the last 10 years. For buyers looking for a ‘smoking hot’ deal on a relatively young used business jet, those days are in the history books. As always, but especially now, the value of the services provided by an experienced aircraft dealer/broker and their transaction teams to help navigate through these tight market conditions cannot be overemphasized.
Owners and operators of turbine-powered fixed-wing business aircraft are feeling optimistic about current business conditions, especially in the US and Europe. Results from the in-progress Q3 2018 JETNET iQ Survey suggest that the positive sentiment recorded earlier this year is continuing, with optimists outnumbering pessimists by about five-to-one worldwide.
This is a precursor to possible interest in buying/flying a business aircraft. But can people afford it?
US after-tax corporate profits spiked by 15% to a remarkable $2tn on an annualized basis in the early part of 2018, buoyed by tax law changes favoring repatriation of internationally-held profits. With many US companies flush with liquidity, and with lending/leasing rates still at historically attractive levels, there appears to be little issue with “ability to pay” as an inhibitor to business aircraft sales.
The key questions start with:
- Is there a need?
- Is this a good place to park my capital?
Companies are actively allocating capital across a corporate portfolio of asset classes, and getting a ‘fair share’ of this distribution is no doubt Job #1 to aircraft sales professionals. Those who understand international economics and finance will do very well in today’s market.
We continue to expect strong H2 2018 sales results, especially in the US as buyers satisfy their needs, wants and curiosities about all the new and used aircraft and related services in today’s marketplace.
For now, let the good times roll! We’ll be monitoring the market and doing our best to keep you informed about the latest conditions. On the radar: all of the complexities of Brexit, a new US Congress, Korean nukes, Russian intrigues, Turkish delights and a host of other challenges that keep us all tuned in to the latest developments.
And that’s not to mention several new and enticing aircraft that are expected to certify and deliver in H2 2018. We live - and we continue to fly - in very interesting times!
Flight Activity – North America
TRAQPak’s review of Year-over-Year (YoY) flight activity (July 2018 vs. July 2017) indicates that July 2018 recorded a marginal increase. Month-over-month saw a decrease from June 2018 (see tables below).
The results by operational category were mixed in the YoY comparison with Part 91 activity providing the largest yearly increase. Fractional also posted a gain while Part 135 activity fell for the second straight month.
The aircraft categories were mostly positive with Large jets posting the largest gain from 2017. Light jets, however, posted a YoY decrease in July.
July Business Aviation flight activity posted mixed results in the MoM comparison. The Part 91 segment postted the largest monthly decrease, while Fractional flight activity increased over June 2018.
Aircraft categories were mostly negative with turboprops posting the only monthly increase. Large jets produced the largest monthly decline, meanwhile.
August Activity Forecast
TRAQPak analysts estimate there will be a 0.9% increase in overall flight activity YoY in August 2018.
Flight Activity - Europe
According to WingX Advance, there were 94,002 Business Aviation departures in Europe in July, marking a new record for July activity in Europe. As many as 60,178 of these flights were business jets…
YoY growth in total activity was 4% in July, taking the YTD trend to +3.0%. The busiest country was France, although demand there was down by 1% YoY (largely due to a decline in Large jet flights). The other top markets enjoyed moderate-to-strong growth, including the UK and Germany where flights were up 7% YoY. Greece came in as 7th busiest country, with growth of 11%.
The Football World Cup in Russia was reflected in a 26% increase in YoY flights between Russia and Europe.
Flights from France to Russia were up 7%, from Spain to Russia up by 17%, and from the UK to Russia, flights were up by more than 130%.
Business Aviation flights within Europe were up 4%, and were stronger in Western than Southern Europe. European flights to North America were up by 5%, and Middle East connections were down 13% in July. Charter/AOC activity accounted for almost 60% of all activity, growing 3.9% YoY.
“The Football World Cup helped in boosting Business Aviation activity to its highest ever monthly level in July, with business jets 6% busier than back in 2008,” Richard Koe, Managing Director, WingX Advance summarized. “There was balanced growth in Large, Mid-size and Small jet activity, with continued shift in demand towards Charter, although Private flights were also up.
“As with last year, the impetus for growth this summer is the high-end leisure market, with the distinction that Mykonos rather than Ibiza is attracting the most growth.”
JETNET H1 2018 Used Airplane Market Data
According to JETNET, fleet ‘For Sale’ percentages for all sectors were down in its June comparison. June 2018 was the lowest “For Sale” percentage (9.1%) for business jets since the Great Recession began…
Generally, JETNET notes, across all six aircraft sectors reported, inventories are down, and full sale transactions had mixed results, with little to no change to decreases in H1 2018 versus H1 2017. Specifically:
- Business jets are showing a flat start in the first six months of 2018, with a 0.2% increase in used sale transactions, but are taking less time to sell (26 days) than last year.
- Business turboprops saw no change in sale transactions, while taking more time to sell (13 days).
- Turbine helicopters saw a slight increase in YTD sale transactions, up 0.6%.
- Piston helicopters showed a decline of 8.1% in sale transactions.
- Commercial Jets and Commercial Turboprops were down in full sale transactions, at -9.1% and -0.8% respectively, in the YTD comparisons.
For the first six months of 2018 there were a total of 4,401 aircraft and helicopters sold, with business jets (1,344) and commercial jets (1,005) leading all types and accounting for 53% of the total.
The number of sale transactions across all market sectors decreased by 2.9% compared to H1 2017.
JSSI Flight Index: BizAv Activity Soars
According to the JSSI Business Aviation Index for Q2 2018 (tracking utilization of approximately 2,000 business aircraft worldwide) average per aircraft flight hours exceeded the 30-hour ceiling for the first time in a decade.
“As we entered the summer season, one of the strongest periods of the year for flight activity, we fully expected to see an increase in aircraft utilization. However, the continued growth this year has been exceptional,” noted Neil W. Book, president and CEO, JSSI.
The JSSI Business Aviation Index tracks and reports on the global flight activity and utilization of business aircraft, including jets, turboprops and helicopters. This utilization data ultimately provides useful insights into the state of global economic conditions.
Key findings in the second-quarter data include:
- Average flight hours increased 4.6% YTD.
- Average aircraft utilization of 30.35 hours for Q2 was only the fourth time activity has surpassed 30 hours (the previous three occurrences all took place in 2008).
- Of nine industries analyzed, seven reported an increase and two reported a decrease in Quarter-over-Quarter (QoQ) flight activity. The growth was primarily driven by the business services sector, which saw a 15.8% increase in flight activity compared to Q1 2018
- Seven key regions are sampled in the index. Significant QoQ increases were reported in Europe, with an 18.3% increase in average flight hours; and the Middle East, with a 16.4% increase. Decreases from Q1 were seen in South America (-3.1%) and Africa (-1.6%).
- All seven regions reported YoY flight activity increases. Significant growth was seen in Asia-Pacific (+12.6%); Europe (+13.3%); and South America (+6.4%).
- North America flight hours increased 4.5% QoQ and 2.4% YoY.
AMSTAT H1 2018 Used Aircraft Market Analysis
According to AMSTAT, 5% of the Heavy Jet market group turned over in the first six months of the year, the best first six months in this group since 2007…
The latest AMSTAT report breaks the market into Heavy Jet (>40,000lbs), Medium Jet (20,000‐40,000lbs), Light Jet (<20,000lbs) and Turboprop groups and then further reviews these groups using the following age segments: Newer (20 years).
At a macro level, there were modest increases in the number of Jets and Turboprops sold in H1 2018 compared to H1 2017, but the overall active population of these aircraft also increased. A more relevant comparison is to look at the percentage of the active fleet that sold by group and age segments.
Heavy Jets: All age segments performed better in H1 2018 than in H1 2017. In each Heavy Jet age segment the percentage of active fleet sold in H1 2018 increased over H1 2017 from 4.2% to 5.7% in the Older segment; 5% to 6% in the Mid‐Age segment; and 3.2% to 3.9% in the Newer segment.
Medium Jets: 5.1% of the fleet sold in H1 2018, matching transaction activity in the same period in 2017 which itself outperformed the first six months of the previous two years. At a segment level, only the Older Medium Jet performance in H1 2018 beat their 2017 performance.
Light Jets: Did not perform as well with 4.8% of the fleet turning over in H1 2018 versus 5.1% during H1 2017. Despite the overall Light Jet performance, 4.7% of the Newer Light Jet age segment turned over in H1 2018, exceeding 4.2% in H1 2017.
Turboprops: 3.9% of the fleet turned over in H1 2018, modestly up from 3.8% during the same period the year before. The Newer Turboprop slightly underperformed with 3.7% of the fleet turning over in H1 2018 compared to 3.9% the year before. H1 2018 transaction activity in the Older and Mid‐Age groups, meanwhile, exceeded transaction activity in these groups in H1 2017.
Inventories at Their Lowest
At a macro level, 9.1% of the Business Jet fleet is ‘For Sale’, the lowest overall percentage since 1998; and 7.2% of the Turboprop fleet is ‘For Sale’, a historical low in this market.
- 6.8% of the Heavy Jet fleet is for sale compared to 9% a year ago and the lowest percentage since 1998. The greatest YoY contraction has occurred in the Mid‐Age group (from 9.0% to 6.3%) and Newer (from 7.6% to 5.2%).
- 9.2% of the Medium Jet fleet is ‘For Sale’ compared to 10.7% a year ago, the lowest since 2000. The greatest YoY contraction has occurred in the Mid‐Age group (11.6% to 9.6%) and Newer (6.2% to 4.8%).
- 10.7% of the Light Jet fleet is ‘For Sale’ compared to 11.7% a year ago. The greatest YoY contraction has occurred in the Newer group (5.6% today versus 7.9%).
- The greatest YoY contraction in the Turboprop market has been from 7.5% to 5.7% in the Mid‐Age segment.
Average Asking Price Data
Heavy Jets: The Average Asking Price for Newer Heavy Jets is at $26.5m, up 8.1% YoY and 17.7% YTD. In contrast, the Average Asking Prices of Older and Mid‐Age Heavy Jets have remained largely unchanged.
Medium Jets: The Average Asking Price for Newer Medium Jets is at $7.2m, up 4.4% YoY, but down 3.1% YTD. In comparison, the Older and Mid‐Age segments are off 16.9% and 9.5% YoY and 3% and 4.2% YTD.
Light Jets: The Average Asking Price for Newer Light Jets is at $3.3m off 2% YoY but up 4.8% YTD. In comparison, the Average Asking Price for Mid‐Age Light Jets is up 5.2% YoY and up 9.8% YTD to $1.9m. The Average Asking Price for Older Light Jets is now below $700k.
Turboprops: The Average Asking Price for Newer Turboprops is up 11.1% YTD to $2.9m and up 5.4% YoY. The Mid‐Age Turboprop Average Asking Price is flat YoY but up 4.4% YTD to $1.7m. Average Asking Prices for Older Turboprops continue to slide.
Asia-Pacific Market Q2 2018 Update
The Q2 2018 edition of Asian Sky Quarterly is available from Asian Sky Group (ASG), focusing exclusively on the Asia-Pacific Business Aviation market, used business jets and civil helicopters…
“Over the course of the last 12 months, the business jet market has swung almost 180 degrees from where it was in Q2 2017 to where we find ourselves in Q2 2018 seeing the emergence of a strong seller’s market manifested by lower inventory levels and rising prices,” offered ASG Managing Director, Jeffrey Lowe.
“This last quarter saw a much higher level of business jet transactions (96) than Q2 2017 (83) and 2016 (70). However, optimism, which has been on a steady rise since Q2 2016, finally plateaued in the last quarter. So despite the overall strength of the market at the moment, we are seeing small pessimistic feelings popping up which could be an ominous trend for the future.”
Avionics Sales Up for Q2 2018
According to AEA, in H1 2018, total worldwide Business and General Aviation avionics sales amounted to more than $1.3bn, representing a 15.5% increase in YoY sales compared to the H1 2017 amount of more than $1.1bn.
Sales during Q2 2018 were >$682.1m, a 17.8% increase compared to the <$578.8m in Q2 2017.
In H1 2018, both the retrofit and forward-fit markets have seen double-digit increases in sales compared to H1 2017, with the retrofit market up an impressive 18.1%.
Of the more than $1.3bn in sales during H1 2018, 57.5% came from the retrofit market (avionics equipment installed after original production), while forward-fit sales amounted to 42.5% of sales.
According to the companies that separated their total sales figures between North America (US and Canada) and other international markets, 76.8% of sales H1 2018 occurred in North America and 23.2% internationally.
"The Q2 report shows continued and significant increases in sales for both the retrofit and forward-fit markets during the first half of the year," said AEA President Paula Derks. "It is another positive indicator for the overall health of the industry.
“We have now seen six-straight quarters of positive Year-over-Year sales growth dating back to the end of 2016."
Aircraft Values and Maintenance Condition
Asset Insight’s market analysis on July 31, 2018 covered 93 fixed-wing models and 1,606 aircraft listed ‘For Sale’, and revealed a 0.4% increase to the tracked fleet and a 1.7% decrease to the average ask price…
Trading assets in July represented, for the most part, aircraft carrying a higher Quality Rating.
‘For Sale’ Medium Jets and Turboprops posted a Quality Rating and Maintenance Exposure improvement while the figures for Large and Small jets degraded (see table below).
Overall the tracked fleet’s Quality Rating remained within the ‘Very Good’ range, with the figure decreasing slightly to 5.196, on Asset Insight’s scale of -2.5 to 10, reflecting a slight increase in the number of upcoming maintenance events.
At the same time, average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) 1.1% to $1.422m, as the inventory fleet’s near-term maintenance events are anticipated to be less expensive.
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%. The July analysis revealed that 51.2% of all tracked models and 63.7% of the tracked fleet posted an ETP Ratio in excess of 40%.
The tracked fleet’s ETP Ratio worsened for the fourth consecutive month, climbing to a record-setting 67.4% from June’s 67%.
- Turboprops posted the lowest (best) ETP Ratio at 52.8% (but it was also the group’s highest (worst) 12-month figure);
- Large jets followed at 62.1%, worse than last month’s 59.8%;
- At 70.2%, Medium jets posted an improvement compared to last month’s 72.1%; and
- Small jets worsened for the fourth consecutive month to 76.5% from 74.5%.
Large Jets: Inventory aircraft decreased by another six units and the fleet has retained its ‘Excellent’ Quality Rating, now going on 14 consecutive months, although at a slightly lower 5.317.
Upcoming maintenance is anticipated to be more expensive, and that worsened the group’s Financial Exposure through a 1.2% increase, its fourth consecutive degradation and a 12-month high (worst) figure.
Asset Insight believes some ‘middle age’ units will see pricing stability, if not a slight gain in valuation, due to the limited inventory of young, low-time units.
Medium Jets: The inventory fleet increased by nine units, but the group’s Quality Rating climbed 1.43% to reach the ‘Excellent’ range (a 12-month best figure) while Maintenance Exposure fell 3.6% to post a 12-month low (best) figure.
Ask Price increased 1.8%, but that was only $50k above the group’s lowest figure for the past twelve months. With the high number of inventory units, challenges continue for sellers while buyers can identify some great values.
Small Jets: Inventory decreased by another three units in July. As in June, transacting aircraft leaned toward higher quality, once again degrading the ‘For Sale’ fleet’s Quality Rating (down 0.89% to a 12-month low) and Maintenance Exposure (worsening 2.4%).
The group’s Quality Rating slipped to ‘Very Good’ and average Ask Price decreased 0.5%. As predicted last month, sellers of above average assets were able to generate better pricing.
Turboprops: Identifying an asset offering good value within this group will require research, but buyers should consider investing the time, as the average Turboprop Ask Price decreased 1.8%, the group maintained its ‘Good’ Quality Rating while posting a 0.5% improvement, and Maintenance Exposure improved by 1.2%.
This group’s statistics are leaning toward a seller’s market, and locating good value will be challenging. However, the tools to do so are inexpensive and readily available via the internet.