- 05 Aug 2020
- Rolland Vincent
- Market Insight
With autumn comes thoughts of what might lie ahead both at Year-End and for the next year. Rolland Vincent, editor, Market Indicators considers the evidence…Back to Articles
September is upon us, and with it the realization that, for many organizations and businesses, this is the time to begin planning for 2021. In the Business Aviation industry that means many different things.
For an aircraft manufacturer, the focus is clearly on ensuring that production rates are set, at least within a range of reasonableness, based on available insights into the evolving aircraft sales environment.
For the numerous OEMs who have recently celebrated the certification of a new aircraft model, the desire to ramp up production to satisfy early demand and begin the long road to return-on-investment has to be balanced against the risk of having too many aircraft to sell if demand stays soft.
(The last thing any OEM wants these days is unsold finished goods (white tails) sitting on their balance sheet, and the associated tensions that come with it – pressures to discount being amongst the most ominous, and softness in residual values along with a host of others.)
This is a tough time to be making these calls, for which OEM leadership teams rightly deserve extra danger pay (at least in our books).
For aircraft dealers, the challenges are the common ones – such as ascertaining whether the times are right to take on inventory and be in an advantageous position to capture year-end deals.
Given the paucity of young, high-pedigreed aircraft on the pre-owned market, where is that sweet acquisition opportunity in this vast worldwide market? And how can dealers even get into position (physically and otherwise) to evaluate the asset in person, review the log books, and meet the seller face-to-face?
More Important than Ever
Know Your Customer (KYC) is a noble and essential process that has never made more sense than today, when millions of dollars are moving from one side of the table to another (or more likely these days from one on-line account to another) in a business aircraft transaction.
Nobody on either side of the deal wants to enter into this activity with the thought that things will unravel. Orchestrating all of the complexities of a transaction is a role that is typically led by the aircraft broker/dealer.
Their primary responsibilities span the spectrum, from assembling the right team of trusted professionals that understands requirements and has the expertise and bandwidth to ‘get the deal done’, to ensuring that expectations are established and well communicated on each side of the table.
Experienced brokers and dealers know that each transaction is unique in one way or another. Having the ability to negotiate and successfully pivot based on changing information can make all of the difference in ensuring that deals happen.
Pre-Owned Aircraft Transaction Volumes
While overall transaction activity is down, some broker/dealers are doing much better than others, taking share in a competitive market. Transaction volumes of pre-owned business jets, including retail sales and leases to end-users, were down 29% year-over-year in the four-month period from March through June 2020 (averaging about 150 aircraft per month worldwide, based on the latest JETNET records).
Days-on-market for those aircraft that were sold have increased 22% (to ~305 days) YOY during this same period, reflecting both lower COVID-19 related demand and the fact that there is relatively limited young, high-pedigree inventory for sale.
With about 2,200 jets listed as ‘for sale’ across the world at press time (~10.2% of the in-service fleet), inventory has grown modestly this year against a backdrop of a marketplace that is relatively balanced between buyers and sellers.
First-time buyers and prospects are among today’s welcome market opportunities. Attracted to the notion of private and secure on-demand air travel, they would be wise to engage an experienced broker/dealer to help them with identifying the one aircraft and/or private aviation solution that best meets their particular requirements.
In some cases, given how few low-time aircraft are on the market, this search might end with the OEMs, who may be in a position to offer an all-new model with its advantages of factory warranty, specification flexibility, and personalized delivery experience that is something special to behold.
In other cases, the right solution might be to simply charter or invest in a membership program, particularly if annual utilization expectations are relatively modest.
An experienced dealer/broker is among the most knowledgeable professionals to advise a prospective buyer on their best options, which could include both acquiring an aircraft that fits their budget and supplementing it with an on-demand solution to meet specific but less frequent missions.
As we know from analysing the way most customers actually fly their aircraft, the vast majority of non-stop business aircraft flights are below 1,500nm, an average mission that can be accomplished by aircraft that carry more modest price tags.
Light Jet Category Trending Up
In May-June-July 2020, ~40-44% of pre-owned jet transactions have been for aircraft in the light jet and very light jet categories, which is up noticeably versus 2019 and 2018.
This mirrors flight activity patterns, where demand has been stronger at the lower price points of the market (including turboprops. This is a pattern that we will continue to watch closely in the months and quarters to come – if it is sustainable, this will indeed be a welcome development for a segment of the market that has had less than its fair share of good news in the long recovery period following the 2008 Global Financial Crisis.
With key players in Business Aviation within Europe and North America now back from their summer sojourns, we are entering the season of higher transaction volumes.
Every year, like clockwork, December sales and delivery activity surges upwards, as predictably as the ocean tides.
While many will be glad to see ‘The Year of the Asterisk’ in their rear-view mirror, there is unfortunately little that is predictable about December 31 or any other day on the Gregorian calendar when it comes to the coronavirus.
With progress on many fronts and in many countries on COVID-19 vaccines, we can only be hopeful that the palpable rebound we are witnessing in customer sentiment – whether in our JETNET iQ surveys or daily conversations that are occurring in the marketplace – is sustainable.
Flight Activity - Global
The recovery in global Business Aviation flying appears to have hit a mid-summer ceiling of around 80% of normal. From July through the first few days of August just over 23,000 Business Aviation aircraft operated a combined total of 500K flight hours.
The figure for July and the start of August was 18% shy of the activity for the same period in 2019 and, according to WingX, the trend hasn’t been smooth, with some relapse in the second half of July before renewed recovery at the end.
Nevertheless, BizAv still looks to be in better shape than the Scheduled Airlines, which remained down by almost 60%.
Europe continues to be the region where Business Aviation is coming back strongest, with July-early August trends up to 89% of the comparative 2019 activity. Regionally, Central Europe is seeing the strongest recovery with Germany slightly up YoY, and flights from Austria and Switzerland up around 5% compared to last year.
Core markets like France are in much better shape, too, with flights within 10% of normal. Unsurprisingly, Spain’s early month recovery was reversed as virus-related travel restrictions were reimposed, and flights were trending 3% below normal.
Italy, the UK and Greece are seeing gradual recoveries, with combined activity around a third below par. Much more robust recoveries are evident in Turkey, Russia and The Netherlands.
By contrast, the recovery in US Business Aviation activity has lost ground. In June, trends were coming within 15% of usual, but a month later they’re more than 20% behind. For the first time since the pandemic struck, Florida is no longer the busiest State.
The bellwethers of California and Texas are both around 80% of normal in terms of sectors flown since the start of July. Meanwhile, Colorado and Arizona appear to be thriving as getaway destinations, with flight hours operated in and out trending at least 5% above the same period in 2019. By contrast, New York, New Jersey and Illinois are still ~30% behind normal.
Rest of the World
“The mid-summer comeback in business jet activity has been weaker than anticipated due to the stop-start lockdowns in the US,” says Richard Koe, managing director, WingX Advance. “Europe is doing much better, but with similarities with the rapid recovery in Spain now offset by renewed restrictions, the UK still in a mire, and only Central Europe is showing strong pent-up demand.
“August usually sees a lull in the US market so we don’t expect a turnaround there in the next few weeks, but leisure demand in Europe should continue to boost the charter market. The missing piece is the corporate market, and we will need to wait until Fall to see how the business traveler adapts.”
Business Aircraft Value Trends (H1 2020)
AMSTAT and partner VANGAS Aviation Services have released data highlighting the monthly trends in business aircraft values in 2020 by market group for January to June…
Following is a brief outline of the findings, while more in-depth analysis and charts can be found on the AMSTAT website.
Heavy Business Jet Market Values
According to AMSTAT, 2020 started with a 4% increase in the average estimated value for the ‘Heavy’ jet group, a trend that was reversed in the second half of March and start of April, offsetting the initial gains with a 7% decline.
Values plateaued in late April and early May and then proceeded to fall 16% for a net YTD decline of 18%. Early data suggests a recent slowdown in this decline, however.
Super-Mid Business Jet Market Values
The group’s estimated values rose for the first two months of 2020, gaining 6%. There then followed a period of oscillating values between March and April. Between the second half of May through June the average estimated value for Super-Mid Business Jets fell 15%.
Medium Business Jet Market Values
YTD values in this group fell 14%. As with the Heavy and Super-Mid Business Jet groups, the Medium Business Jet average estimated value rose at the start of 2020, by 3%. Between February and May, however, average estimated values in this market group fell 22%.
This downward trend slowed in June and may have started to level off recently.
Light Business Jet Market Values
The average estimated value of Light Jets has been up and down YTD. The overall trend between January through May was down with values falling 12%. Recent data indicates that this trend has been reversed in June, with estimated values for Light Jets regaining 5%.
The net impact has been an 8% decrease in the average estimated value of Light Jets so far in 2020.
Business Turboprop Market Values
The average estimated value rose 4% in the Turboprop group between January and February 2020. The trend between March and May was generally downward, falling a net 14%. The average estimated value of Business
Turboprops has recently started to regain some of the losses from earlier months and, since the start of June, the average estimated value has risen 5%.
H1 2020 Avionics Market Report
In H1 2020, total worldwide Business and General Aviation avionics sales amounted to >$1.1bn, AEA reports; a 23.6% decrease compared to H1 2019. For Q2 2020, sales decreased 37.3% compared to Q2 2019…
Of the more than $1.1bn in sales during H1 2020, 53.3% 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 46.7% of sales.
Of the companies separating their total sales figures between North America and other international markets, 74.6% of the YTD sales volume occurred in North America. “Realizing a substantial decrease in worldwide avionics sales during Q2 2020 was the expectation in light of the COVID-19 pandemic,” said AEA President and CEO Mike Adamson.
“The economic impact of the disease has been significant, and the Business and General Aviation electronics industry is not immune to the crisis.
“However, I remain optimistic that our industry will be poised for recovery as our shops and manufacturers continue their essential operations, legislators continue to address key employment initiatives, and our industry amplifies the immense value of Business and General Aviation as an economic catalyst.”
JetHQ Reports Success, Despite Pandemic
Despite the global impacts of COVID-19 on the wider market, one company, JetHQ, has reported an unusually successful last few months. AvBuyer's Rebecca Applegarth spoke with JetHQ’s Jill Plumb…
According to Jill Plumb, vice president, Marketing & Sales Management, JetHQ has taken advantage of the “evolving market where the need for safe, private transportation has grown”. As a result, JetHQ says it has just enjoyed its most successful three-months to date.
“In addition to supporting the large US markets, our global reach and ability to access aircraft to fill our client’s needs has been beneficial,” she notes. “Having access to a great selection of pre-owned aircraft globally also bodes well for JetHQ in the coming months.”
Plumb joined JetHQ is 2019 with a focus on establishing and growing the JetHQ brand, as well as ensuring the company’s sales leaders have the market research and support necessary for JetHQ’s success.
With an inventory ranging from Ultra- Long-Range business jets all the way down to Turboprops, the company is well positioned to comment on activity in all sectors of the pre-owned marketplace.
“In recent months, we’re seeing that Mid-size jets and Turboprops have been the most popular due to our clients’ needs for safe and efficient regional travel,” Plumb shares.
“With long-range international travel still facing a lot of restrictions [owing to the COVID-19 pandemic], people are traveling more regionally right now.”
Asked about the impacts of COVID-19 on the wider market, Plumb responds, “The world has never seen a situation like this, so of course it’s going to change. [On the positive side] people are discovering private aviation’s many advantages over commercial airline travel – especially in terms of health and safety.”
Right Time to Recruit, Internationally
Over the years, JetHQ has experienced planned, gradual growth. According to Plumb, “JetHQ was established to pursue global business, and is centrally located in Dubai to serve emerging markets in the region.”
The goal of JetHQ has been to expand its global footprint and base sales personnel in specific markets to better serve those regions – a fact supported by the recent appointments to the International leadership team, the Middle East and Latin American sales teams.
“JetHQ is a global company with a regional focus,” Plumb explains.
“The US market is the largest, so moving the headquarters to the US was important. We anticipate continued growth in other markets, though, including the Middle East, Asia and Latin America.
“While our business is worldwide, we have found that customers are better served by a regionally-focused, refined sales process,” she adds. “So, as the world starts reopening, we’re better positioned to assist them and continue on our growth path.”
In-Service Aircraft Values & Maintenance Condition
Aircraft transactions continued to rise, with Asset Insight’s July 31, 2020 market analysis of 134 fixed-wing models revealing a 1.2% inventory fleet decrease over the previous month. This was the tracked fleet’s first reduction since January, and brought the year-to-date inventory increase down to 6.8%...
Medium Jets led the way with a 2.7% inventory decrease. They were closely followed by Small Jets at 2.6%, then Large Jets at 0.4%. Unlike the rest of the fleet, however, Turboprops posted a 1.9% increase.
Average Ask Price for aircraft in the tracked fleet decreased 1.5% in July, leading to a 5.0% value decline since the start of 2020.
Inventory Fleet Maintenance Condition
July’s Quality Rating for Asset Insight’s tracked fleet dipped a bit from June’s 12-month best (highest) figure, and the latest ‘for sale’ fleet mix increased the anticipated cost for upcoming maintenance events close to the 12-month high figure. Asset Insight’s tracked inventory recorded the following:
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 2020, assets whose ETP Ratio was 40% or more were listed for sale nearly 53% longer (on average) than aircraft whose Ratio was below 40% (251 versus 384 Days on Market). July’s analytics revealed that over 50% of the tracked models, and nearly 54% of the tracked fleet posted an ETP Ratio greater than 40%.
July’s fleet ETP Ratio worsened/rose to 71.2% from June’s 69.9%, coming to within less than a point of the worst/highest 12-month recorded Rating.
Our tracked fleet’s inventory continued to decrease in July, with listings equating to 10.7% of the active fleet (the same as in April), compared to June’s 10.9% and May’s 11.3%. Turboprops posted the lowest (best) figure by remaining at 7.4%, Large Jets were next at 9.6%, Small Jets improved to 9.9%, while Medium Jet inventory increased to 12.3% from June’s 11.5%.
Following June’s 5.788 record high (best) figure, the tracked fleet’s Quality Rating receded to 5.712 but remained well within ‘Outstanding’ territory. With higher priced units transacting, ask prices dipped 2.4% to a figure lower than the group’s 12-month average.
Inventory decreased by two units, and the latest mix worsened (increased) Maintenance Exposure by 1.0%. While late production inventory is sparse, the ETP Ratio decrease (improvement) to 61.4%, from June’s 64%, proves that good values are still available.
An 18-unit inventory decrease brought Asset Insight’s tracked fleet total to one unit more than the group’s year-end inventory. The new fleet mix lowered asset Quality by 0.8%, but still kept it within the ‘Excellent’ range at 5.279. Maintenance Exposure increased 0.7%, but the figure was only slightly higher than June’s 12-month best (low) figure.
With Ask Price increasing 1.5%, the ETP Ratio saw little change, climbing from June’s 73.4% to 73.7%. The main problem affecting many sellers is the percentage of the active fleet listed for sale, which decreased only slightly, from 12.4% in June to 12.3%. For this reason, it appears buyers continue to hold the better hand.
This group also posted an 18-unit inventory decrease, but is still 41 units ahead of the 2019 year-end total. Asset Quality dipped 1.75% to drop Small Jets back into ‘Very Good’ range, but Maintenance Exposure skyrocketed by 15.3% thanks to the latest fleet mix.
Ask Prices posted a second consecutive 12-month high figure with a 0.3% increase but, not surprisingly, the ETP Ratio ballooned from June’s 85.8% to post a 12-month high (worst) figure of 96.5% due to the large Maintenance Exposure increase.
Based on the drop in asset quality, and the increase in Maintenance Exposure, higher Ask Prices are unlikely to be realized in the ultimate transaction value generated by most sellers.
Tracked fleet listings increased by another nine units in July, but the 9.6% YTD increase still means that only 7.4% of the active aircraft are listed for sale. Asset Quality rose 3.8% to regain the ‘Very Good’ Rating at 5.046, while Maintenance Exposure improved (decreased) 3.6% to reach a 12-month low (best) level.
With Ask Price increasing 2.8% (just slightly higher than the 12-month average), the group’s ETP Ratio posted a 12-month low (best) figure at 41.8%. This environment continues to offer great transaction opportunities for both buyers and sellers, something Asset Insight does not expect to see change any time soon.