Business aircraft buyers are getting back to the business of aircraft transactions, notes Rollie Vincent. Going by JETNET’s latest numbers, there’s a solid base to build on in the latter parts of this year...
Gulfstream G550 Jet
Solid Base for Used Jet Buyers & Sellers to Finish the Year On…
After a well-deserved break, business aircraft sales professionals and buyers of jets for sale are getting back to the business of aircraft transactions, notes Rollie Vincent, Editor, Market Indicators. Going by JETNET’s latest numbers, there’s a solid base to build on in the latter parts of this year…
Based on the latest JETNET market intelligence, whole retail transactions of used business jets were up an encouraging 6.2% YoY (January through July 2017), with 1,140 transactions recorded so far this year.
Relatively brisk sales of used jets are clear signs of a return to more healthy and balanced markets, reflected in a tightening of business jet ‘For Sale’ inventory, slipping to 10.8% of the fleet as of the end of July. The most fundamental driver of these higher volumes is arguably the remarkable value for the dollar that can be found in used aircraft.
The story of the year (if not the past two to three years) continues to be sharply lower prices and residual values, which we believe has fundamentally altered the purchase behaviour of buyers who would typically have replaced their existing aircraft with a shiny new one – at least for the time being...
The smart money seems to be in used aircraft, especially later-model, only-flown-on-Sundays-and-kept-indoors-all-the-time airplanes that offer most of the bells and whistles, and even the welcoming aroma of new leather and sparkling paint schemes, of their factory-fresh brethren.
As luck would have it, very young aircraft inventory (less than five years since initial delivery) is as hard to find these days as the proverbial four-leaf clover. For example, there were just 29 Gulfstream G550 aircraft on the market as we were going to press, representing 5.4% of the in-service fleet – but only two of these aircraft were delivered new in the last 5.5 years.
The Falcon 2000 used market provides another illustration of a very tight market: Just five aircraft delivered new since the beginning of 2012 were available ‘For Sale’ worldwide at press time. Who would have thought as recently as 2013/2014 that a five-year-old large cabin, long-range business jet would have a retail value of (in some cases) just 50% of the new price?
Simply said, it is hard to argue that a factory-new long-range aircraft has twice the value of a five-year-old used model. This reality has been driving a very active used market in younger inventory.
What’s the Good News for OEMs?
For OEMs, the good news is that there’s less and less of this young inventory available to prospective buyers to muddy the waters in a new aircraft transaction consideration. The bad news is that existing owners and prospective buyers are now wary of aircraft value diminution like they have never been in recent memory.
When viewed through the lens of a Flight Department Manager, who is keen to demonstrate that s/he is a good custodian of his/her organization’s assets, the capital costs associated with a rapidly depreciating, recently delivered aircraft can easily outstrip its operating costs. In this environment, is it any wonder that many organizations and well-to-do buyers have found – and continue to find - very good value in used aircraft?
Despite the challenging residual value situation, indications are that optimism is on the rise in the aircraft owner/operator community, after a tough downturn in 2016, at least based on the ongoing quarterly JETNET iQ surveys of business aircraft owners and operators.
Net optimism scores, measuring the percentage of respondents who believe that Business Aviation market conditions are improving, less those who feel that they are getting worse, have rebounded in the last three quarters.
Regionally, optimism is highest amongst business aircraft owners/operators in Europe, followed closely by North America, which combine to account for more than 76% of the world business jet fleet and more than 66% of the world business turboprop fleet at this time.
Optimism outside these regions appears to be tepid, at least based on the indicators JETNET watches closely, and are held back by flat commodity prices, weakened currencies, and diminished economic growth prospects in the short- to medium-term.
On the Horizon
Ten or more new and improved business jets will be entering service in the next five years. New turbine aero-engines are in development to encourage new business jet and turboprop sales. Despite high barriers to entry, competition amongst the OEMs is fierce, and this ultimately benefits the buyer.
Global wealth creation and concentration continues at high rates. Despite more than 50 years of aircraft production and operation, 58% of the world’s business aircraft fleet is still based in just one country. Asia Pacific is the world’s largest and fastest-growing regional economy, but is still home to fewer than 1,200 business jets. Are there opportunities to be seized in this market? Yes indeed! Stayed tuned…
BizAv Activity – North America
July 2017 flight activity in North America posted a modest increase, up 1.4%, over July 2016 thanks in part to a healthy increase in the Part 135 market, reports ARGUS TRAQPak. This number was offset by a 9.0% drop in overall flight activity during the 4th of July holiday week, however...
Year-over-Year (YoY) results by operational category were mixed, with Part 135 activity continuing to show the strongest growth. Fractional activity recorded a smaller rise, and Part 91 activity decreased.
Large Jets and Turboprops posted the largest gains in activity. Mid-size jets also saw an increase, while Small jets showed a YoY decline.
Business Aviation flight activity in July posted an unexpected Month-over-Month (MoM) decrease to finish down from June 2017. Results by operational category were mixed for the month, with Part 135 and Fractional activity posting slight increases, but Part 91 flight activity posted a significant decline from June. Aircraft categories were all down, with Large Jets posting the largest monthly drop.
Next Month’s Forecast
Looking ahead, TRAQPak analysts estimate there will be a 3.3% increase in overall flight activity YoY in August 2017.
BizAv Activity - Europe
July was the peak month so far in 2017 within Europe, reports WingX Advance. There were 87,826 departures, up 2.5% YoY, taking the YTD trend to 3.0%. Activity in July 2017 was down just 1% from pre-recession July 2008…
With no European Football Championship to bolster flight operations in 2017, activity was well down in France, and in Benelux and Switzerland YoY. However, Germany enjoyed a strong month with flights up by 5% YoY. Most of the increase came in AOC flights, up by 14%. The UK also maintained some growth, with flights up 2%. Both the UK and Germany had YTD growth trends approaching 4% over 2016 results.
The strongest growth in July flight activity came from the Mediterranean regions, with Business Aviation activity in Spain up by 7% and double-digit growth recorded in Turkey and Greece.
Europe’s business jet connections with Russia were up 6%, and transatlantic arrivals from North America gained 2%. Inbound traffic from Middle East and North Africa, however, fell by 5%. Flights from Europe to Asia-Pacific fell 15% but have trended up by 9% YTD.
“Summer 2017 is all about the Charter market, especially in the Mediterranean region, with leisure resorts seeing double-digit growth,” summarized Richard Koe, Managing Director, WingX.
JETNET H1 2017 Used Aircraft Sales Summary
JETNET released its June 2017 and H1 2017 used business jet, turboprop, helicopter and commercial airliner market data and once again, generally inventories were down across the board…
Business jets are showing a good start in the first six months of 2017, with a 5.6% increase in used sale transactions, but aircraft are taking more time to sell (delta of 12 days) than last year.
Business turboprops, meanwhile, decreased by 11.1% in sale transactions, while taking less time to sell (delta of six days).
Turbine helicopters saw a slight increase in YTD sale transactions, while piston helicopters showed double digit decline in sale transactions (comparing June 2017 to June 2016).
For the first six months of 2017 there were a total of 4,206 aircraft and helicopters sold, with business jets (1,299) and commercial jets (1,001) leading all types and accounting for 55% of the total. The number of sale transactions across all market sectors increased by 2.6% compared to the first six months of 2016.
Only business jets and turbine helicopters showed increases in sale transactions compared to the other market sectors.
Steady South American BizAv Fleet
Amidst economic and political upheaval in Latin and South America, the region’s combined fleet of private business jets, turboprops and turbine helicopters has remained relatively unscathed over the past year, notes aviation analyst Brian Foley…
“While one would expect a commensurate loss in fleet size and sales transactions, that is not currently the case,” observes Foley. “Pockets of weakness in specific countries were generally offset by stability and even improvements in others.”
Comparing June 2017 with June 2016, AMSTAT data indicate that the total fleet of private aircraft eked out a slight gain in 2017. Foley notes, however, that this annual rate of growth of just 1% pales in comparison to the double-digit percentage gains seen earlier in the decade.
In fact, Brazil’s fleet has contracted for two years in a row but was counterbalanced by slight increases in other countries. Brazil’s decrease has been primarily due to a reduction in the number of business jets based there.
Perhaps contrary to popular belief, the number of new aircraft deliveries and used aircraft transactions are not indicative of the current upheaval in the area.
Amidst the regional chaos, the number of used aircraft transactions has barely budged and is within 5% of last year - with new aircraft deliveries actually increased 10% from 29 to 32 units. (It should be noted that these figures could improve even more since there’s a time lag in reporting these events.)
Brazil has been the antithesis to the rest of the region. Even though the fleet contracted 2% in the most recent YoY, used transactions climbed 23% while new deliveries rose a whopping 128% from seven units to 16. Foley tempers this spike by reminding that a large percentage increase of a small number is still a small number.
According to Foley, another standout is Mexico. Despite uncertainty with NAFTA and its trading status with the US the fleet total increased, led by jet and turboprop growth with a slight falloff in helicopters.
“It appears that despite drama in the region, the private aircraft market in Latin and South America may have already seen the worst,” summarizes Foley. “While it could easily take upwards of a decade for activity to return to previous levels, some of the downside risk has already been absorbed. It’s my supposition that the market may have already bottomed out.”
Used Aircraft Sales Growth & Inventory Contraction
AMSTAT’s latest Business Aircraft Resale Market Update shows transaction growth and inventory contraction in most market segments during H1 2017…
There have been further encouraging signs coming from the business aircraft resale market. Overall, Business Jet Resale Retail Transactions were up 8.4% during H1 2017 (versus H1 2016).
Of note were the Medium Jets, where transaction activity during this period was up 16.7% over 2016. Heavy Jet transactions were up 3.8% and Light Jets rose 4.4%. Turboprops, however, saw transaction activity in H1 2017 fall -0.5% versus 2016.
In many market segments, inventory levels are at (or close to) their lowest points in some time, as a percentage of active fleet. 10.7% of active Business Jets are for sale - the lowest percentage in this group since January 2008.
Specifically, 9.3% of Heavy Jets and 10.6% of Medium Jets are currently ‘For Sale’. The Turboprop inventory is at 8.3% ( below a year ago) while Light Jets inventory is currently at 11.7%, down from April, but up from 11.5% a year ago.
Despite better transaction results and contracting inventories, Average Asking Prices in most market segments continue to see downward pressure. All segments saw YoY declines in Average Asking Prices and most have experienced the same year to date.
Relatively Flat Market Continues…
UBS Global Research’s latest business jet market index is now down 10% from its post-US election high, settling in at 48 on a scale of one to 100. This denotes a “relatively flat market,” according to UBS aerospace analysts David Strauss and Darryl Genovesi…
By aircraft category, the Midsize jet segment has the highest index at 51, up 3% from last month. Both the Light jet and Large-Cabin jet categories came in with an index of 46, marking a 13% improvement for the former and slight erosion in the latter.
The overall index was driven lower by weaker customer interest, down 13% from last month; softer pricing, which fell 10%; and muted 12-month outlook, which declined 2%. This was partially offset by a 25% improvement in views regarding the used business jet inventory.
UBS said that its customer interest score has dropped 20% from its post-financial crisis peak following the US election. North America customer interest declined 13% from last month, though it remains strongest with an index score of 63. Europe is the next most robust region, with a score of 56, followed by Asia (50), Latin America (44) and the Middle East (41).
MI www.ubs.com (words courtesy of AIN)
Avionics Q2 2017 Sales Report
The Aircraft Electronics Association’s Q2 2017 Avionics Market Report revealed that in the first six months of the year, total worldwide Business and General Aviation avionics sales amounted to ~$1.145bn, a 2.7% YoY increase over 2016.
Sales during April, May and June 2017 were ~$579m, a 5.4% increase compared to the Q2 2016 (~$549m).
Of the more than ~$1.145bn in sales during H1 2017, 56.2% came from the retrofit market while forward-fit sales amounted to 43.8% of sales.
According to the companies that separated their total sales figures between North America (US and Canada) and other international markets, 70.6% of sales in H1 2017 occurred in North America and 29.4% in other international markets.
In-Service Aircraft Values and Maintenance Condition
An Asset Insight market analysis conducted on July 31, 2017 covering 92 fixed-wing models, and 1,859 aircraft listed ‘For Sale’ evidenced all but Large Jet models actively trading…
Ask Prices for tracked models experienced a nominal 0.1% increase in July, following June’s 2.2% decline. Over the past twelve months, however, there has been a total decrease of 17.5%. Large Jet values were down by only 0.1% in July, but that represented the group’s eighth consecutive monthly decrease, along with a new record low figure. Medium Jet values saw a 2.3% value decrease, Small Jets gained 0.3%, while Turboprop values improved by 0.9%.
Inventory Fleet Maintenance Condition
The Quality Rating Trendline continued to point downward, but overall Asset Quality remained in the ‘Excellent’ range. Specifically:
Maintenance Exposure to Ask Price (ETP) Ratio
Our tracked fleet’s ETP Ratio (an aircraft’s Maintenance Exposure divided by its Ask Price) decreased to 52.5% from June’s 54.8%. 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 40.8%, Large Jets posted the lowest/best figure, followed by Turboprops at 46.5% (the group’s worst figure over the past twelve months). Small Jets came in at 57.3%, while Medium Jets trailed all groups at 60.7%.
Increased sales activity, coupled with Maintenance Exposure improvement and the decreased inventory for tracked models, indicates many buyers acquired assets carrying greater embedded maintenance.
That is not necessarily bad, assuming they did their homework and accounted for the cost of accrued maintenance in their offer price. If not, sellers should be pleased with the transaction value they achieved – even if it was lower than they thought it would be when they originally acquired the aircraft.
Large Jets: The inventory fleet’s Quality Rating remained in the ‘Excellent’ range, with relatively few tracked aircraft trading during the past month. Interestingly, more traded aircraft were of a lower asset quality, and that pushed the group’s Maintenance Exposure to a 12-month low/best figure.
Sales also focused on lower value aircraft, thereby keeping Ask Prices relatively stable with a decrease of only 0.1%, but that figure also represented a new record low and the group’s seventh consecutive monthly Ask Price drop.
(Translation: exceptional bargains continue to be available for buyers, but the pickings are beginning to dwindle, and sellers for certain models may soon be, if they are not already, in the driver’s seat.)
Medium Jets: The group maintained its ‘Very Good’ Quality Rating, with fifteen fewer tracked inventory assets following a fairly active sales month. It appears that buyers favored lower quality assets whose Ask Price was at the higher end of the available aircraft spectrum, as evidenced by a 2.4% improvement in the remaining inventory fleet’s Maintenance Exposure, along with a 2.3% drop in average Ask Price.
On a weighted average basis, the group’s ETP Ratio improved from last month’s 62.0% to 60.7% and, even though it may not seem like much, savvy sellers can use this information to their advantage.
Small Jets: Quality Rating improved slightly during the past month, helping maintain Small Jets’ rating of ‘Excellent’. Maintenance Exposure also improved slightly to achieve the best 12-month figure and collaborated with a 0.3% increase in Ask Price to improve the group’s ETP Ratio from 57.7% to 57.3%.
Keeping in mind that in August 2016 the group’s ETP Ratio stood at 69.7%, the marketability of Small Jets has improved substantially, as has the value they offer buyers.
Turboprops: Sales maintained their active pace during the first month of Q3 and, with buyers acquiring higher quality assets, the group’s Quality Rating dropped from ‘Very Good’ to ‘Good’, while the weighted average ETP Ratio worsened from 45.8% to 46.5%.
Average Ask Price during the past twelve months has remained within a $50k band, while Maintenance Exposure has posted only a $41K differential between minimum and maximum figures. With little room to maneuver, buyers and sellers are advised to run detailed analytics if they hope to optimize their asset’s value.