As fresh inventory looks set to enter the used business aircraft market, Rollie Vincent, Editor, Market Indicators urges prospective owners to understand the full costs of owning an airplane…
March 2019 looks set to be remembered as the month when the United Kingdom’s government took leave of the European Union; the United States’ government took funds appropriated otherwise to build barriers to protect its southern border; and many more Business Aviation pilots, A&P mechanics and other technicians opted to take better paying jobs in the commercial airline industry.
As the saying goes, may we continue to live in interesting times.
With more than 2,800 used business jets sold, the year 2018 set an all-time record for transaction volumes, just edging out 2017’s record performance.
With the confluence of three major forces in 2019 - the production ramp-up of several new business jets (Pilatus PC-24, Gulfstream G500, Bombardier Global 7500, and Cessna Citation Longitude), a compliance deadline for ADS-B Out in the U.S., and expectations for a broad-based slowdown in GDP growth in most economies important to Business Aviation - we expect some much-needed replenishment of for-sale inventory this year.
That should be good news indeed for aircraft brokers, dealers, and their customers, who have been faced with an increasingly limited variety of aircraft to consider.
With just under 2,000 jets for sale worldwide (about 9% of the in-service fleet), 46% of those aircraft were delivered more than 20 years ago and are of little or no interest to many buyers.
For a buyer seeking to purchase, say, a five-year-old aircraft that has been depreciated to perhaps 50% of its original value, they will find very little selection to choose from in today’s marketplace. JETNET records indicate that there were only 34 such business jets (representing 18 different models) on the market. That’s less than 5% of the in-service fleet of five-year-old jets.
With many buyers seeking a specific model - say, a Dassault Falcon 2000LXS – there was just one aircraft on the market at press time that met the criteria. Buyers with specific requirements have had little to choose from, and increasingly less negotiating leverage in the transaction over the past couple of years.
This should begin to change in 2019 as more inventory comes on to the market with higher volumes of trade-ins, as companies react to an expected slowdown in their business activities, and as aircraft that are not compliant with the December 31, 2019 ADS-B Out requirements are put up for sale.
Retaining Your Talent
While much of the excitement of a business aircraft transaction understandably surrounds the asset itself, it has become increasingly important for buyers to be aware of the very real challenges of finding, training and retaining the aviation talent they will need to operate safely and efficiently.
Seasoned aviation department managers, pilots, maintenance technicians, dispatchers and other experienced personnel are getting increasingly difficult to find, as wave after wave of airline recruiting continues to lure away some of the best, brightest and most mobile.
Companies, high net worth individuals, family offices and their trusted advisors would be wise to account for potentially higher staff-related costs and longer lead times to own a new or used aircraft.
While much attention is on getting the nuances of the aircraft transaction just right, buyers and their agents should also be aware that the airplane won’t fly if the crews are not trained. For those owners who recognize the value in having their aircraft professionally managed, such considerations are the primary concern of the aircraft management company they have hired.
While they will almost certainly have more buying power and leverage over training and other suppliers, the fact of the matter is that aircraft management companies are dealing with the same - and most likely even more - pressure to be competitive with the airlines on pay and benefits.
Recognized for their impeccable safety and quality standards, aircraft management companies, fractional program holders, and some of the larger charter operators appear brightly on airline recruiters’ radar screens and are having to be creative and increasingly generous to retain the professional talent they already employ.
Transactions Need Professional Management
While the time-saving conveniences of Business Aviation are unmatched by other forms of transportation, buyers need to carefully understand the full costs and complexities of acquiring and operating an aircraft before proceeding. This is too important a decision with too many consequences (with lots of zeroes in them) to leave to chance. They should therefore not hesitate to employ professionals.
With a refresh of inventory trickling in like a creek in spring, business aircraft buyers and sellers will have new opportunities to communicate their needs and expectations, stay focused on the task at hand, and make mutually beneficial win-win-win deals happen.
Professionals to the core, this is simply what they do, and they do it well. In the current era of political intransigence, elected officials from Westminster, Brussels, Washington, and places in between could benefit from a few lessons in the art and science of deal-making, business aircraft-style.
Flight Activity – North America
TRAQPak’s review of year-over-year (YoY) North American flight activity in January 2019 recorded a marginal increase over January 2018. Month-over-month (MoM) activity posted an anticipated increase over December 2018, too…
The YoY North American Flight Activity data indicates an increase of 0.7% in January 2019. Results by operational category were mixed with Fractional activity, once again, posting the largest yearly increase. Part 135 activity declined for the eighth consecutive month.
The aircraft categories were mixed with Mid-Size Jets posting the largest increase from 2018, and Turboprops posting the largest decrease.
Business Aviation flight activity in January was up 1.4% from December 2018. Results by operational category were mostly up for the month, with the Part 91 segment posting the largest monthly increase. Fractional flight activity declined, however.
Aircraft categories were mostly positive too, with Large Jets posting the largest increase, and Small Jets posting the only monthly decrease.
TRAQPak’s analysts estimate a 1.1% increase in overall flight activity YoY in February 2019.
Flight Activity - Europe
January saw 54,481 Business Aviation departures in Europe, according to WingX Advance. Year-over-Year, that represents a drop of -0.8% YoY, with a 2.1% drop in business jet sectors.
Despite the YoY decline, activity was up 1.4% on a 12-month rolling basis, and 10% above the 2016 trough. There were mixed YoY trends in Europe’s busiest markets, with France and the UK narrowly up; Spain showing robust growth; flights declining from Germany and Switzerland; and a 9% slump in demand out of Italy. Turkey recorded a big drop also.
The last 12-month trend looks strong out of Spain and is still solid out of Germany (although flat in the UK, Switzerland and France). Large Jet activity took the brunt of the decline in Europe with sectors down by 6% YoY, while Small and Medium Jet activity was flat.
Flights within Europe declined by 1% in January. The next busiest regional flow was transatlantic, flat YOY, beating a negative 12-month trend of -1.5%. Business Aviation flights to Africa have increased 5% over the last year but declined in January.
“The decline in January’s flight activity reflects anecdotal feedback from the charter operator market that customer demand is down, which fits with the wider deterioration in the macroeconomic situation in Europe,” said WingX managing director Richard Koe.
“January’s drop was concentrated in the Large Cabin Jet segments, which may reflect pull back from corporate flight departments.”
Used Aircraft Market Sales Information
JETNET has released its 2018 year-end results for the pre-owned business jet, business turboprop, piston, helicopter and commercial airliner markets. A total 9,198 transactions were recorded in 2018, compared with 10,111 the year before…
All market sectors are showing lower inventory for sale in the comparison of 2018 to 2017, except for piston helicopters. Moreover, there were fewer full-sale transactions in 2018 compared to 2017, except for business jets and fixed-wing pistons, where retail transactions were up 2.1% and 19%, respectively.
Moreover, the fleet for sale percentages for all market sectors were lower in the December comparisons, except for piston helicopters and Commercial Turboprops. Business jets and pistons were down the most (0.9% and 0.8%, respectively).
Across all market sectors, JETNET reports 9,198 full retail sale transactions for 2018, compared with 10,111 in 2017. That’s a decrease of 917 transactions (-9%). Commercial jet airliner transactions decreased by 710 (28.9%).
Business jets recorded 2,809 transactions in 2018, and when combined with commercial airliners (1,748), together they accounted for 50% of the total of the 9,198 transactions recorded in 2018.
2018 Inventory Specifics
All aircraft segments were taking less time to sell in 2018 compared to 2017, except for the turbine helicopters which took an additional 58 days before being sold, on average.
The ‘For Sale’ inventory of business jets has decreased steadily from a high point in July 2009 (2,938) to 1,974 jets in December 2018. That’s a reduction in the percentage of the in-service fleet from 17.7% in July 2009 to 9% at the end of 2018.
Most business jet dealers and brokers today would tell you that the pristine used jets that were on the market a few years ago have become more challenging to locate. The sage advice for buyers is to act now.
A closer inspection of the seven segments analyzed reveals that two actually increased in numbers, when compared to 2017. These were business jets (+2.1%) and piston (+19%). Note: JETNET does not cover all piston aircraft inventory or sales. The piston models tracked are: Baron 58 series, Cessna 421 series, Diamond DA62, and the Piper high-end singles M350, Malibu, Matrix, and Mirage.
The recovery in Business Aviation during the post-recession period has posted mixed results, with poor overall aircraft residual values that continue to be problematic.
Now that 2019 is here, JETNET hopes the US used market, along with improvements in the world economy, will continue to prompt more new aircraft purchases. As for now, the pre-owned market has become a seller’s market, with pre-owned for-sale inventories running at 9%.
JSSI: Flight Activity Surges in 2018
JSSI’s Q4 2018 Business Aviation Index, tracking utilization of ~2,000 business aircraft worldwide and reporting average flight hours flown on a monthly basis by region, industry and cabin type, revealed Year-To-Date (YTD) growth of 4.9% and of 4.7% over the same period in 2017.
“Despite the dramatic market swings that defined the end of the year, flight hours were up significantly for both the quarter and the year, contributing to 2018 being one of the strongest years in a decade,” explained Neil W. Book, president and CEO of JSSI. “We have seen flight activity increase worldwide and a growing demand for private travel.”
Other key findings include:
- Regional increases were reported in nearly every segment of the world, with the highest YTD increases reported in Africa (17.4%), Europe (8.8%), and South America (8.1%);
- The small cabin segment reported a 6.6% YTD increase, and large cabins a 5.3% increase. Medium-sized cabins reported a decrease of -4.2%;
- Three of the nine industry segments analyzed reported YTD increases, with aviation at 9.1%, business services at 5.4%, and power and energy at 3.6%;
- Every aircraft age group analyzed reported a YTD jump in flight hours. Newer aircraft with less than five years in service reported the largest increase, of 7.2%;
- Aircraft operated for compensation or hire (i.e., FAA Part 135), including non-scheduled charter and air-taxi operations, reported a 9.5% YTD increase and an 11% increase in YoY activity;
- Aircraft operated under general operating and flight rules, without compensation or reimbursement for carriage of passengers or cargo (i.e., FAA Part 91), reported a YTD decrease of -1.5% but a 2% increase in YoY activity.
Middle East Bizjet Deliveries to Grow
Business jet deliveries to the Middle East are expected to total nearly 200 aircraft over the next decade, according to data from the Aviation Week Network…
Twelve deliveries in 2019 could rise to 20 in 2028. The top deliveries through the 10-year period from 2019 through 2028 are expected to be the Boeing 737 MAX (23 deliveries), followed by the Gulfstream G650, with the Bombardier Global 6500, Bombardier Global 7500 and the Gulfstream G600 tied for third place.
At the same time, the business jet fleet in the Middle East is expected to grow to nearly 435 aircraft in 2019 and to 580 by 2028, with a compound annual growth rate of 3.3%, according to Aviation Week data.
SkyQuest Projects Busy Anniversary Year Ahead
North Carolina-based SkyQuest International, LLC announced a significant increase in aircraft appraisals and valuations requests in the last two quarters and projects a busy 2019 to mark its 20th anniversary year.
Greg (left) and Jeff Melang, SkyQuest
Based on the demand experienced during the last two quarters in 2018, Jeff Melang, executive vice president and senior aircraft appraiser at SkyQuest projects 2019 will “be a busy year in both appraisals and aircraft sales.”
For the entirety of 2018, SkyQuest International provided 44 individual aircraft and six fleet appraisals for various airlines and financial institutions worldwide, including 21 aircraft and three fleets in Q4 alone.
“For the whole of 2018, we achieved the highest transaction value of aircraft sales since 2014, with an average transaction of $1.3m per aircraft,” Greg Melang, president & CEO revealed. “As we kick off into 2019…we have an inventory of over 125 aircraft, with almost half of that being currently marketed.”
Agreeing with Jeff, Greg anticipates “a very busy year ahead in the secondary aircraft market.”
Three Reasons Why Used Inventory Will Increase
For almost ten years the number of used business jets for sale on the market has been declining reaching less than 9% of the fleet for sale in January 2019, a low not seen in the last 20 years. Brian Foley offers three reasons why this trend is set to reverse…
“It’s always a risk to call the high or low of any market, but after nearly a decade of tightening inventory I feel we're at a bottom and used business jet inventory will begin edging upwards into the foreseeable future,” Foley predicts. There are three key reasons why inventory will grow.
1) US Economy: First, the economy is beginning to show early signs of fatigue in the US, which is the biggest purveyor of used jets. This will have the effect of causing inventory to rise as confidence deteriorates and discretionary spend on airplanes reigns in.
While new tax reform benefits introduced in 2017 juiced the used market, it’s believed that buyers who could benefit from it have already bought, thus reducing used demand going forward.
2) Analytics: Next is simple analytics. Previous periods of contracting inventory in the 1990s and 2000s each lasted for a period of seven and six years respectively. The current 2009-2019 ten-year inventory contraction has already exceeded those periods by 3-4 years, which suggests statistically that a correction is overdue in this cyclical business.
3) FAA Mandate: Finally, a new mandate by the Federal Aviation Administration (FAA) will require all business jets to be equipped with new, expensive, electronic equipment to signal the aircraft’s whereabouts (ADS-B), by the end of this year.
Some owners will put their aircraft up for sale rather than paying to comply. This will contribute to steadily rising inventory levels throughout the year consisting of undesirable aircraft that won't sell anytime soon.
What’s the Impact?
A significant impact on new aircraft sales isn't expected, since an increase in older aircraft is not of interest to typical new aircraft buyers. For used aircraft brokers, somewhat fewer pre-owned sales activity can be expected since rising inventory is indicative of more people wanting to get out of ownership than get in.
Finally, don’t expect pricing of used aircraft, which have also been in a tailspin for a decade, to recover much. Whereas supply and demand dynamics once kept used prices propped up, basic capital good economics have caught up to business jets and softer residual values are now the norm. A new business jet now depreciates no differently than a Buick automobile.
In-Service Aircraft Values and Maintenance Condition
Asset Insight’s market analysis on January 31, 2019 covering 94 fixed-wing models and 1,583 aircraft listed for sale, revealed a 0.5% decrease to the tracked inventory fleet (-8 units). Following were the important trends…
Turboprops led the way for the inventory reduction with a 3.5% decrease, Medium Jets decreased by 1%, Large Jet inventory increased 0.3%, while Small Jet inventory grew by 1.3%.
The average aircraft value for our tracked fleet matched the average value figure generated over the past 12 months, but only Medium Jets experienced a value increase as January closed.
Inventory Fleet Maintenance Condition
Fleet asset quality improved during January 2019. Large jet transactions once again focused on lower quality, higher priced assets, while Medium Jet buyers focused on lower quality, lower priced assets.
Small Jet additions to the inventory fleet raised asset quality for this group, while Turboprop inventory quality remained virtually unchanged. Overall, Asset Insight’s tracked inventory revealed:
- Quality Rating remained in the ‘Excellent’ range, improving from 5.300 to 5.318 on Asset Insight’s scale of -2.5 to 10 (www.nafa.aero/articles/understanding-asset-quality).
- January’s Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted an improvement that, at $1.397m was only slightly higher (worse) than the best figure for the past twelve months.
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% and, during Q4 2018, assets whose ETP Ratio was 40% or more were listed for sale over 57% longer (on average) than aircraft whose Ratio was below 40% (246 vs 386 Days on Market).
January’s analysis revealed that over 51% of all tracked models and just under 62% of the tracked fleet posted an ETP Ratio above 40%. The ETP Ratio decreased (improved) during January 2019, decreasing to 64.8% from December’s 65.6%.
Turboprops led the way at 49.6%, an ETP Ratio just slightly higher (worse) than the group’s best (lowest) figure registered during the past 12 months; Large Jets followed with an improvement at 57.8%; Small Jets improved to 65.8%; and Medium Jets improved to 77.1%.
The combination of transacting aircraft and new additions to the inventory fleet improved overall asset quality to just below the 12-month best (highest) figure and concurrently decreased (improved) Maintenance Exposure to just above the 12-month best (lowest) posted value.
Combined with the decrease in overall Ask Pricing, current availability offers much opportunity for buyers to identify good values and for sellers to strike reasonably-priced deals.
Large Jets: Inventory increased by one unit, with January’s transactions comprised of mostly lower quality assets. The changes to inventory resulted in another 12-month high (best) Quality Rating and a Maintenance Exposure figure slightly better than the 12-month average.
Ask Price decreased 1.6%, but the group still posted an increase of 8.9% during the past twelve months. With an ETP Ratio that hasn’t been this good since March 2018, there are ample opportunities for buyers and sellers to find middle ground.
Medium Jets: Inventory for the tracked fleet decreased by five units in January, while the group’s average Ask Price increased 1.1%. Asset Quality improved a slight 0.1%, while Maintenance Exposure also improved (decreased) 1.4% due to lower quality assets primarily trading.
Ask Price has not been this high since May 2018. While the group’s ETP Ratio continues to create an unfriendly transaction environment, buyers should keep in mind that current pricing and better-than-average asset quality offer real opportunity to identify good values.
Small Jets: The for sale fleet increased by six units in January, with mostly higher quality assets joining the inventory. The latest aircraft mix improved both asset quality and Maintenance Exposure, and with average Ask Price dropping 3.7%, and the group’s ETP Ratio at its lowest (best) figure of the past three months, we advise prospective buyers to act – and soon.
Turboprops: Inventory decreased by another ten units this month, but asset quality remained virtually unchanged within the ‘Very Good’ range. Maintenance Exposure improved (decreased) 1.5% and, while Ask Price decreased a nominal 0.4%, the group’s ETP Ratio improved (decreased) to 49.6%, the lowest (best) figure of the past three months.
As we stated last month, we anticipate demand and marketability to remain strong for Turboprops during Q1 2019.