Asset Insight's latest analysis showed the overall Maintenance ETP Ratio of used jets declined over last month…But which jets were the movers and shakers at the start of September 2017?
Asset Insight conducted a market analysis on August 31, 2017 covering 92 fixed-wing aircraft models, and 1,814 aircraft listed ‘For Sale’. The analysis showed overall Maintenance Exposure to Ask Price Ratio (ETP Ratio) worsened from last month’s 52.5% to 55.3%. Tony Kioussis explains…
The Exposure to Ask Price Ratio (ETP Ratio) calculates an aircraft's maintenance exposure as it relates to the ask price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.
The ETP Ratio is a useful indicator of an aircraft’s marketability. ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increases (in many cases by more than 30%). So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2017 were listed ‘For Sale’ an average 52% longer than aircraft whose Ratio was below 40% (319 versus 211 Days on the Market respectively). Accordingly, as the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price).
At the end of August, Turboprops registered the lowest (best) ETP figure at 48.0%, followed by Large Jets at 49.6% – both figures a bit worse than the month of July. Small Jets were next (and unchanged) at 57.3%, while Medium Jets worsened a percentage point to 61.7%.
Most Improved Models
Except for the Learjet 31, all ‘Most Improved Models’ shown in the table (above) experienced a Maintenance Exposure improvement and, in the case of the Citation ISP and the Gulfstream GV, that Exposure reduction was sufficient to overcome an average Ask Price decrease of $1,262 and $100,000, respectively.
The Learjet 31 was propelled to the top of the list by a $252,500 increase in the inventory fleet’s Average Ask Price – overcoming a Maintenance Exposure degradation of nearly $78k. However, with an ETP Ratio of 97.0%, sellers will find securing higher value very challenging.
The Challenger 601-3R continued to show improvement by posting an additional 16% ETP Ratio decrease in August, following the model’s 27.9% improvement during July. A $445,636 decrease in Maintenance Exposure and a $10,000 average Ask Price increase fueled the improvement, and the CL601-3R inventory fleet has now posted an exposure improvement in excess of $1.1m during the past two months.
While this statistic is impressive, the aircraft’s 94.3% ETP Ratio is unlikely to dramatically improve the aircraft’s marketability.
Most Deteriorated Models
All six aircraft in the ‘Most Deteriorated’ category experienced a Maintenance Exposure increase as well as an average Ask Price decrease.
The Global Express’ addition to this list might be a surprise to many readers. However, with average Ask Prices dropping nearly $1.2m and average Maintenance Exposure increasing about $1.1m, it would be difficult to imagine this model’s exclusion from the most deteriorated asset list.
The Falcon 20-5 went from worst performer in June, to just making the list of worst performers in July, and now back to worst performer in August. Since May, the inventory fleet’s ETP Ratio has degraded from 172.4% to 264.0%, due to average Ask Prices dropping over $228k and the inventory fleet’s Maintenance Exposure increasing over $116k. While they may not know it, many Falcon 20-5 sellers are probably their aircraft’s final owner.
Lastly, it is worth noting the behavior of the Challenger 601-1A, a model that went from second worst deteriorated in June, to the most improved model in July, back to second worst in August. In so doing, the aircraft’s ETP Ratio degraded from 194.1% in May to 232.3% in August. Average Ask Price fell over $235k, and Maintenance Exposure increased approximately $19k. Again, it is unlikely sellers will be able to market their aircraft absent a buyer seeking a disposable asset.
A Word to the Wise Seller…
It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.
But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s Ask Price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.
It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.
The wise seller will carefully weigh the offer of a buyer against the loss in value of their aircraft ‘For Sale’ as the asset spends more days on the market awaiting a better offer and simultaneously accruing a higher maintenance figure.
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