Holiday season brings brightening skies for the BizAv market…
With aircraft utilization and used sales trending up in the major North American and European markets, many aircraft transaction professionals could be forgiven for having ‘sails’ - rather than tails - brightly on their radar screens as holiday season arrives. Rollie Vincent, Editor, Market Indicators explores...
With just in excess of 2,300 business jets currently listed ‘For Sale’ worldwide, available inventory slipped to 10.8% of the business jet fleet at the end of June 2017, based on the latest available data from JETNET. Business jet inventory levels have now returned to the levels last seen 9.5 years ago, as the US economy entered recession in the build-up towards the September 2008 financial crisis.
Encouragingly, each market segment – from Turboprops to Long-Range jets – appears to be improving, albeit sometimes modestly.
According to JETNET databases, there were more than 1,900 used whole retail business jet transactions recorded around the world in the 12 months ending in June 2017, about the same as the prior year. Averaging about 160 jet sales per month through the first six months of 2017, whole retail jet sales are up about 2.2% over the same period in 2016.
Interestingly, the worldwide business jet fleet and the number of business jets ‘For Sale’ have expanded by 44% since November 2007, providing plenty of activity to keep aircraft transaction professionals, market analysts and other good folks away from their sailboats – at least until now.
Average days on the market for business jets sold in H1 2017 has averaged 292 days, down only slightly from 298 days Year-over-Year (YoY), suggesting that even more wind in the sails would be a welcome breeze indeed.
In the meantime, precious VFR time enjoying the sun, sand and sea with visitors, friends and relatives is a well-deserved reward for success at the halfway point through the year.
Improving Market Sentiment
Results from the recently completed JETNET iQ Q2 2017 Survey, early indications from which were shared with participants at EBACE2017, suggest that market sentiment continues to improve amongst Europe- and North America-based business aircraft owners and operators.
In Europe and in North America, optimists now outnumber pessimists by more than 2.7 to 1, in stark contrast with other regions where the mood is decidedly less upbeat.
Sprinkled throughout the following articles, evidence of mostly stronger levels of aircraft utilization – a necessary ingredient in the cocktail - are as soothing as a fresh tropical breeze.
In the US, business jet cycles in FAA airspace have been up for 10 consecutive months on a YoY basis through May 2017. Similarly, EUROCONTROL activity has been up for eight consecutive months YoY through June 2017, and up a refreshing 6.2% from January through June 2017 over the same period last year.
Before spending your hard-earned aircraft sales commissions ordering too many rounds of salt-rimmed margaritas, we should remind ourselves that activity levels need to increase fairly significantly before we even begin to approach the per-aircraft utilization rates last seen in the pre-2008 financial crisis era.
On a trailing twelve months (TTM) basis, business jet flights in FAA airspace were up just 2.2% through June 2017 compared to the same period through June 2016. US domestic bizjet flight cycles in May 2017 were up 2.7% TTM YoY, but international flight operations were as flat as a day-old poolside beer.
We can look at a marketplace through many different lenses, and each can reveal different and often insightful perspective. In the pages that follow, AvBuyer brings together a variety of expert opinions on the state of the market, and its future direction. As always, our objective is to understand and, wherever possible, inform our readers on some of the key developments that we believe are important to you.
Of course, putting 10 sailors in a room will most certainly mean that at least 11 fish tales are told. May you find (either through the text on these pages, or better yet in the lines between the text) something insightful and helpful.
From our beachside chair, we are starting to like what we see. In addition to the warm weather, there are signs of a brightening and increasingly airplane-filled sky.
After a prolonged and sometimes stormy night that has already lasted for eight or nine years, it feels that this is finally a good time to sit back, relax and re-charge our personal batteries for what could be an even better six months ahead in H2 2017…
BizAv Activity – North America
June North American flight activity rose with the mercury, posting a 4.3% Year-over-Year (YoY) increase, led by a surge in the Part 135 Charter market.
Reviewing YoY flight activity (June 2017 vs. June 2016), TRAQPak data indicate that June 2017 posted another significant increase, up 4.3%. The results by operational category were all positive with Part 135 continuing with strong gains, Fractional activity recording a solid rise and Part 91 activity increasing too.
The aircraft categories were all positive with Large & Mid-Size jets posting the largest gains.
June Business Aviation flight activity posted an anticipated MoM lull compared with May activity. Results by operational category were mixed, with Part 91 posting the only increase.
Aircraft categories were also mixed with Turboprops posting the only monthly gain from May.
Next Month’s Forecast
Looking ahead to July activity, TRAQPak analysts estimate a 4.6% increase in overall flight activity YoY in July 2017.
BizAv Activity - Europe
June was the busiest month so far in 2017 for European Business Aviation activity. According to WingX there were some 84,000 departures represented an increase of 2.7% YoY…
The latest figure from WingX takes the European Business Aviation activity trend for the first half of the year to 3.1% (an additional 12,000 flights compared with H1 2016). However, activity in June 2017 was still 4.5% down compared with a decade ago.
Europe’s busiest market, France, saw a 6% drop in Business Aviation activity, but that was due to the unusually high level of activity during the Euro Football Championships last summer. Flight activity in France is still up by 1% on a YTD basis.
Other large Business Aviation markets saw growth this month. That growth was modest for Germany, Switzerland and the UK, but more than 10% YoY in Spain and Italy. The biggest growth in country flows was evident between Germany and Spain, UK and Italy.
Overall, flights in Southern Europe were up by 12% YoY in June, taking the six month trend for this region to 6%. Departures from Eastern Europe were up by 8% in June. Activity in the Russia market was flat.
Transatlantic arrivals into Europe were up by 12% for June, while a more modest growth of 3% in arrivals was recorded from the Middle East. Arrivals from North Africa were down 6%, but trending up 9% YTD. Arrivals from Asia were up 14% in June.
“It was another solid growth month for Business Aviation activity in Europe, despite the absence of the Euro football championship finals that boosted activity last year,” summarized Richard Koe, Managing Director, WingX.
Southern Europe is seeing the strongest regional growth, reflecting the increase in activity at the most popular Mediterranean resorts such as Ibiza and Mallorca. Primarily, charter demand is driving this activity growth.
“London, Madrid and Berlin appear to be the most frequent connection points for this surge in flights. The signs are that summer 2017 could be a hot one for the European charter market.”
Europe Set for Higher Altitudes?
Jetcraft Corporation anticipates an exciting time for European Business Aviation. Chad Anderson, President, notes Europe has quality aircraft priced correctly and good market conditions that are attracting the western buyer—great news for the European seller...
The recent election of a new president in France is beginning to chip away at some of the uncertainty surrounding the European Business Aviation sector’s longevity. In addition, the recent German, French and United Kingdom high stock markets results are also paving the way for transactions. Finally, with the euro increasing while the US dollar continues to fall, Europe is flushed with motivated sellers.
What this means is Europe has plenty of sellers with aircraft that are attractive to buyers in the region and in North America, and sellers that can benefit from the current currency situation.
Jetcraft continues to look to Europe for supply for the short term, but long term all indicators point to it remaining the sector’s second largest market overall.
Indeed, Jetcraft’s 2016 Market Forecast predicts that 15% of new aircraft deliveries will be headed to Europe between 2016 and 2025 (1,182 units).
Strong business transactions are expected to occur for used aircraft, which bodes well for Europe as it continues to have a healthy inventory of aircraft that meet the desired specifications of buyers. The majority of the demand for European aircraft is coming from North America at the moment.
The inventory from Europe is strong – including young, well-equipped, well managed aircraft with good infrastructure for support. In addition, there are still adequate levels of selection in most models. Overall, aircraft eight years and younger are moving quicker than others, and tend to be in favor primarily because there is an attractive price difference from a new aircraft, making them the more efficient buyer’s choice.
In addition, buyer’s European aircraft sweet spot is being fueled by mid-size and super mid-size jets that are just coming out of warranty.
It is hard to predict the impact Brexit will have on Business Aviation. Since the announcement of Brexit, however, Britain has seen an increase in the number of billionaires with 14 more in the UK alone than in 2016, bringing the total number to 134. This in turn, contributes toward an increase in the region’s potential customer base.
Jetcraft is seeing HNW buyers in their 30s and 40s executing many transactions.
This also spotlights the ongoing integrity of Business Aviation and the type of experience private aviation provides its clients. Flying private is resonating with the younger generation, keeping our industry and its offerings very relevant.
Despite Jetcraft’s strong FY 2016, the market bounce-back has not yet occurred in Europe. Overall, what we can say is that the global Business Aviation market today is much more predictable than it recently has been. The question is not if, but when Europe will become a strong demand market again…?
MI: To read in full, visit www.jetcraft.com/jetstream/2017/05/europe-path-reach-higher-altitudes-business-aviation/
BizAv Traffic Growth Continues
Traffic figures for European Business Aviation in June were up by 5.3% compared to a year earlier, according to Eurocontrol data, marking eight months of continuous growth (not been seen since 2010). In addition, the following points were noted by EBAA…
Summarizing the data provided by Eurocontrol, Brandon Mitchener, EBAA CEO, concluded “…with +6.2% YoY growth for the January-June 2017 period, this is the strongest showing for this period in a decade.”
Asia-Pacific Market Forecast for Q2 2017
Reflecting on the current state of the market in the Asia-Pacific region, Asian Sky Group (ASG) Managing Director, Jeffrey Lowe, believes the business jet market there has finally bottomed out…
The observation comes as Asian Sky Group’s Q2 2017 Asian Sky Quarterly, complete with updated forecasts on the business jet and civil helicopter markets throughout the Asia-Pacific region became available for download.
“If you consult the Market Dynamics section of this issue of Asian Sky Quarterly, you’ll find a number of indicators that - taken as a whole - represent the stabilization of the market we’ve all been hoping for,” Lowe elaborates.
The percentage of the fleet for sale in the Asia-Pacific region has topped out at around 12% and held steady for the last 12-15 months.
Likewise, average asking prices have bottomed out at approximately US$22m and held steady for the last 4-6 months. So, the market trend ASG noticed begin to change in April of last year, has now balanced out.
These positive signs are further supported by the results from this quarter’s ‘Mood & Intentions’ survey in Asian Sky Quarterly. “Optimism has been growing since Q3 2016 across all regions and reached its highest level this quarter,” Lowe adds. “Aircraft utilization is increasing, as well. The industry as a whole in the Asia-Pacific region, is generally feeling better about its future.”
The market is still decidedly a ‘Buyer’s Market’ though with plenty of supply and attractive prices. Nevertheless, with a stable market and growing optimism, ASG expects sellers to be firmer with their pricing positions going forward, so the recommendation is for acquisitions to move to the forefront if being considered.
Any expectations for an immediate and significant increase in sales activity has not materialized in the data yet. The average days on market for an aircraft in the Asia-Pacific region continues to grow, and purchase intention uncertainty remains high. ASG forecasts this change over the second half of 2017 as more buyers finally enter the market.
Bizjet Market Falls Flat
The latest UBS Business Jet Market Index fell 4% MoM, to 49, and is “still stuck” around break-even level (50) following a post-US election bounce late last year…
By cabin size, the Light jet index fared best at 52, but is down 6% sequentially. This was followed by Mid-Size jets at 49 and Large-Cabin at 46, both falling 2% from the prior month. However, UBS’s “straight-up measure” of absolute business conditions remained unchanged at 5.2.
On a more positive note, used business jet inventories shrunk 2% sequentially and 4% YoY, representing 11% of the installed base. Notably, inventory levels of very young (zero to five years old) jets were 8% lower MoM and down 14% YoY. Thus very young inventory accounts for just 5% of the installed base, according to UBS aerospace analysts David Strauss and Darryl Genovesi.
Business jet cycles were also up 6% YoY in May, marking the 10th consecutive month of such increases. Charter flying soared 13% in May, while non-charter activity increased 3%. But the UBS analysts did caution, “Although seasonally adjusted cycles are 45% above the 2009 trough, we estimate per-aircraft utilization rates are still at trough levels given continued fleet growth.” (Words courtesy of AIN.)
It’s Not Always a Buyer’s Market Anymore
With used business jet supply remaining stubbornly above 10%, conventional thinking suggests that buyers will control this market into the foreseeable future. But Hagerty Jet Group sees signs of a transition, outlined in its Q2 Gulfstream Quarterly Market Update…
New buyers evaluating choices are facing unanticipated challenges finding used aircraft that meet their requirements. Hagerty Jet Group has heard countless stories about buyers’ multi-year searches pursuing specific make/model/floorplans ending with little or no success of buying the right airplane at the right price.
Informed buyers look for turnkey aircraft priced below the last transaction. They prefer US or European-operated aircraft with attractive cosmetics and avionics mandates and inspections completed. The choices narrow further if there are special requirements such as specific floorplans or cabin layouts.
The uptick in Broker ‘Wanted’ advertisements could indicate the market is stabilizing. If Buyers do not find what they need on the open market, they look for off-market opportunities which can be like finding a needle in the haystack.
Case in Point: G550 Market
The G550 market is a good example of a segment that deceives unsuspecting buyers. With an active base of 550 aircraft, the 30 aircraft ‘For Sale’ represent 5% of the fleet. At first glance, buying a G550 would seem easy with 30 choices, but the list of suitable options is limited for discerning buyers.
With 11 airplanes under contract, the available supply drops to 19, and is further limited to nine aircraft if a buyer demands a US-registered aircraft. Suddenly a 5% supply becomes a 2% supply. In other words, it’s now a Sellers’ market for the right G550.
A unique characteristic of the large-cabin Gulfstream models compared to Dassault and Bombardier products is Galley location flexibility for either forward or aft. Typically, a buyer prefers one or the other, which immediately eliminates more than half the available choices. Of the nine N-Registered G550s currently ‘For Sale’, seven have a forward galley. If a crew-rest area is required, the supply is reduced to five aircraft.
This is before price, model year, TTAF, paint, interior, equipment, programs or ownership history are evaluated. Young inventory is lower. There’s only one G550 ‘For Sale’ that is five years old or newer, compared with four aircraft ‘For Sale’ of that age just one year ago.
This is good news for the OEM, which now faces less competition from young inventory in the used market, but it limits buyer’s options for late-model used aircraft.
Over the past 36 months, the G550 values decreased 20% on average per year. Factors contributing to the steep decline include foreign sellers with less desirable pedigrees competing solely with price, and heavy OEM discounting.
Although Vref and Blue Book decreased values in their Spring 2017 editions, Hagerty Jet Group anticipates future residual value loss will become more moderate and show signs of stability. It’s certainly not predicting an increase in values, but is expecting aircraft values to normalize and follow similar asset depreciation patterns.
Buyers considering purchasing any used business jets within the next 12- 24 months need to engage the market sooner than later to understand the intricacies and personality of each market. Buyers need access to accurate and informative data from reliable sources with a specialization in the product they prefer.
In-Service Aircraft Values & Maintenance Condition
An Asset Insight market analysis conducted on June 30, 2017 covering 92 fixed-wing models, and 1,881 aircraft listed ‘For Sale’ revealed that higher quality assets are actively trading…
Ask Prices for tracked models fell another 2.2% in June, following May’s 2.0% decline, for a total decrease of 18.4% over the past twelve months, posting yet another record low figure. Month-over-Month, Large Jets were down 1.9% (new record low), Medium Jets improved 1.7%, Small Jets lost an average 3.3%, and Turboprops held fairly steady, posting a nominal 0.2% improvement.
Inventory Fleet Maintenance Condition
The Quality Rating Trendline remained negative, as overall Asset Quality decreased in May. However, the inventory fleet maintained a rating in the “Excellent” range.
Quality Rating: The Asset Insight Quality Rating degraded 3.1 AI2 basis points to 5.278, from May’s 5.309, on our scale of -2.5 to 10. This level of Asset Quality is just above the 12-month low figure, clearly revealing that higher quality assets are primarily the ones trading.
Maintenance Exposure: The tracked fleet’s average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted a 1.9% degradation/increase to $1.452m from last month’s $1.435m. A decrease in total inventory was another clear example of higher quality assets being absorbed by purchasers.
Maintenance Exposure to Ask Price (ETP) Ratio
Our tracked fleet’s ETP Ratio (an aircraft’s Maintenance Exposure divided by its Ask Price) remained unchanged, at 54.8%, over the past month. We consider any ETP Ratio over 40% to represent excessive Exposure in relation to Ask Price, and the tracked fleet’s average has been above 40% since March 2014.
At 45.8%, Turboprops posted the lowest/best figure for a third consecutive month, followed by Large Jets (48.6%), Small Jets (57.7%), and Medium Jets (62.0%).
Asset Quality remained ‘Excellent’ this month – albeit just above the industry’s 12-month low figure. During Q2, values posted a slight improvement in the Ask versus final Transaction Price differential. This may be due to the 18.4% pricing compression over the past twelve months, but it may also signal that sellers are beginning to justify their Ask Prices to buyers...
Large Jets: The inventory fleet’s Quality Rating receded to the ‘Excellent’ range, driven by trades of higher quality assets that led to a 12-month low Asset Quality Rating, along with an increase to the Maintenance Exposure figure. Those still holding aircraft listed ‘For Sale’ cannot be pleased with the continued drop in the average Ask Price, which has decreased 21.5% over the past twelve months.
Medium Jets: Asset Quality posted a second consecutive 12-month low figure, reducing the group’s rating to ‘Very Good’. Concurrently, Maintenance Exposure posted a degradation/increase in excess of 1.5%, while sellers seemed bullish, since the average Ask Price increased 1.7% for the month, and 3.0% for the past quarter.
With an ETP Ratio of over 60% for all but two of the past 12 months, along with the highest number of Days on Market, one would think that Medium Jet transactions would be negatively impacted. However, approximately the same number of retail sales occurred during Q2 (159) & Q1 (160), so buyers are uncovering good values.
Small Jets: A greater number of aircraft traded during Q2 (148) vs Q1 (132), and low price does not appear to have been the primary discriminator, as overall Ask Prices fell 8.0% during Q2 and now stand at a 12-month low. The Asset Quality figure improved a bit, retaining an ‘Excellent’ rating, while Maintenance Exposure improved/decreased to a 12-month low figure.
This group continues to harbor good value for savvy buyers, as recent transactions absorbed lower quality assets. Additionally, the differential between Ask and final Transaction pricing decreased/improved 0.3% to 8.0%. This may not appear to be much, until you consider the differential has not been this low since December 2015, when it was 7.9%.
Turboprops: Sales were brisk during Q2 (153) vs Q1 (93). The group maintained its ‘Very Good’ Asset Quality rating during the past month, posting the fifth consecutive monthly improvement. While Maintenance Exposure has fluctuated a bit over this period, the oscillations have remained quite docile, with the current figure being just a little worse than the 12-month average.
Ask Price improved a nominal 0.2% during June, continuing to post figures within a very narrow band that has lost 2.0% over the past twelve months. We believe this market sector has recovered well, especially when one considers the differential between Ask and final Transaction value, which at 9.2% has not been this low since 2013.
Sellers unable to definitively differentiate their aircraft’s Asset Quality are likely to find themselves at a serious valuation disadvantage, as an asset’s maintenance condition is quantifiable, and the figure is often used by buyers to adjust and justify their offer price.
Additionally, sellers that have not yet incorporated NextGen mandates on their aircraft – or have not secured a definitive slot to do so – will suffer an additional valuation penalty that is likely to include a ‘nuisance fee’.