What was the Cessna Citation CJ2+ doing on August's 'Most Deteriorated' list?
The average Ask Price for Asset Insight’s tracked fleet increased 2.7% in August, boosting value to above the 12-month average. Group and model performance varied substantially, though. Which models were impacted the most? Tony Kioussis explores…
Asset Insight’s latest monthly market analysis covering 96 fixed-wing models and 1,714 aircraft listed for sale was conducted on August 31, 2019 and revealed an asset quality improvement of 0.3%.
Though small, it did halt the slide the fleet posted over each of the previous four months, and the figure remained within the ‘Very Good’ range following the increase from 5.165 to 5.181 on Asset Insight’s scale of -2.5 to 10.
Asset Insight’s tracked fleet Maintenance Exposure figure (an aircraft’s accumulated/embedded maintenance expense) also experienced a slight improvement, falling 0.6% - but remains worse than the 12-month average figure.
August’s Aircraft Value Trends
The average Ask Price for Asset Insight’s tracked fleet increased 2.7% in August, marking the third consecutive monthly increase. However, group performance varied:
- Large Jet values posted a 2.4% increase on top of July’s 7.3% increase;
- Medium Jets increased 4.6% to post a 12-month high Ask Price;
- Small Jet values decreased 1.6% to post a 12-month low figure for a second consecutive month; and
- Turboprop values fell for a fifth consecutive month, and while it was only 0.3% in August, this was the group’s second consecutive record-low figure.
August’s Fleet for Sale Trends
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet posted a third consecutive monthly increase during August, by 1.2% (21 units), yet again raising inventory availability to the highest year-to-date figure.
- Large Jet inventory increased 0.8% (three units);
- Medium Jet inventory increased 1.2% (six units) for the third consecutive month;
- Small Jets, the only group to post a decrease, had an inventory reduction of 0.7% (four units); and
- Turboprop inventory increased by 16 units (5.9%).
August’s Maintenance Exposure Trends
August’s fleet mix saw Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decrease (improve) a slight 0.6%. However, the $1.4m exposure figure was worse than the fleet’s 12-month average with each group also reflecting a worse-than-average figure. Individual results were as follows:
- Large Jet maintenance exposure rose (worsened) another 2% on top of July’s 4% increase;
- Medium Jet exposure rose 0.1%;
- Small Jets rose 0.3%;
- Turboprops, for the second consecutive month, posted the lone maintenance exposure decrease (improvement), 1.4%. But the corresponding dollar figure was worse than the group’s 12-month average.
August’s ETP Ratio Trend
All of all these changes decreased (improved) the average ETP Ratio figure to 66.8% from July’s 68.3%, with all but the Small Jet group heading in the same direction.
Why is this information important? The 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.
As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increase, in many cases by more than 30%. So, how did each group fare during the month of August?
- Turboprops held on to their leadership position by posting the lowest (best) ETP Ratio (55.9%);
- Large Jets, as is usually the case, were next at 57.3%;
- Small Jets followed at 72% - a slight increase from July’s 71.5%;
- Medium Jets (73.6%) posted a figure only marginally worse than the group’s 12-month low (best) ratio of 72.9%.
Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual business jet and turboprop models fared the best and worst during August 2019.
Most Improved Models
Trades were sparse within the ‘Most Improved’ group during August 2019, and four out of the six models posted a Maintenance Exposure decrease (improvement). The Citation X operated under the MSG3 maintenance standard did not register an Ask Price change in August, while the remaining five models posted the following:
- Hawker Beechjet 400 +1,107
- Hawker 800A +$42,289
- Dassault Falcon 900B +$1,750,000
- Cessna Citation Bravo +$17,165
- Dassault Falcon 2000 +$227,028
Hawker Beechjet 400
Headlining August’s ‘Most Improved’ list with an ETP Ratio improvement exceeding 34% is the Beechjet 400. One aircraft traded during the month, one was withdrawn from inventory, and the two remaining assets for sale represent only 3.7% of the active fleet.
Keeping in mind that the youngest unit is now thirty years old, the model continues to have a surprising following. Also surprising is its ETP Ratio which, at 117.4% is relatively low given the model’s age. Whether buyers are willing to pay the Ask Price being sought by sellers remains to be seen.
The model led July’s ‘Most Improved’ list, and with a Maintenance Exposure decrease approaching $104k, and a nominal Ask Price increase, the Hawker 800A took second place in August. One aircraft traded in August, one was withdrawn from inventory, but three were added to the pool – and when we ran the figures, the 37 listed aircraft accounted for 14.2% of the fleet.
The model’s ETP Ratio exceeded 146% in August, which is difficult news for anyone contemplating a sale. While the aircraft does have a loyal – and well-deserved – following, buyers are definitively in the driver’s seat here.
Seller advice: Either make certain you seriously consider any offer that comes your way or be prepared to operate your aircraft indefinitely.
Dassault Falcon 900B
No aircraft transacted in August, but one was withdrawn from the Falcon 900B inventory and two were added. The remaining nine listed units represent only 5.8% of the fleet. A Maintenance Exposure increase exceeding $67k was experienced, that, for an aircraft of this size, is relatively small. However, the $1.75m ask price increase is what really propelled the unit onto this list.
Regrettably, this is another case in which the figures do not reveal all of the necessary facts. Of the nine listed units, only two sport an ask price, and one of those entered inventory in August at a price nearly two-thirds higher than the one already listed.
So, the Falcon 900B is on our August ‘Most Improved’ list for ‘technical reasons’. That’s not to say that buyers and sellers cannot reach a deal, especially when you consider that the ETP Ratio stood at only 30.8% in August.
Cessna Citation X (MSG3)
We registered no trades in August, and the six aircraft in inventory represent only 2.4% of the active MSG3 and non-MSG3 fleet. This model made it onto the ‘Most Improved’ list due to a Maintenance Exposure decrease exceeding $481k and no price change among the listed units.
With an ETP Ratio of 60.7%, owners whose engines are enrolled on an Hourly Cost Maintenance Program have decent deal-structuring opportunities. Those whose engines are not may need to locate a buyer willing to risk becoming the final owner of their asset.
Cessna Citation Bravo
The Citation Bravo made our ‘Most Deteriorated’ list in May, so it’s nice to see its appearance on the ‘Most Improved’ list for August. And that’s thanks to a Maintenance Exposure decrease approaching $124k and an Ask Price increase.
Even though we registered no trades in August, there were two additions to inventory and the number of listed units equates to 10.2% of the fleet. However, the news is generally good here for most sellers, thanks to a 36% ETP Ratio.
Dassault Falcon 2000
Rounding out August’s ‘Most Improved’ list is the Falcon 2000, which made the cut as a result of a Maintenance Exposure decrease exceeding $227k and an Ask Price increase exceeding $132k.
The model’s ETP Ratio of 59.1% would appear to place many sellers in a decent position to receive acceptable offers. However, the fleet’s age now ranges between 13 and 26 years. Sellers must also overcome the level of availability, as no aircraft traded in August and, while two were withdrawn from inventory, five more were added, which totals 27 aircraft (13.4% of the active fleet).
Most Deteriorated Models
Four of August’s ‘Most Deteriorated’ models experienced a Maintenance Exposure increase (deterioration), while all six aircraft posted an Ask Price decrease:
- Bombardier Learjet 35A -$65,443
- Gulfstream GIV -$169,643
- Cessna Citation CJ2+ -$206,667
- Bombardier Learjet 55 -$22,847
- Cessna Citation CJ2 -$19,945
- Piaggio Avanti P-180 -$50,000
Bombardier Learjet 35A
Capturing the ‘Most Deteriorated’ position this month is the Learjet 35A. Curiously, the model’s Maintenance Exposure decreased nearly $19k. However, Ask Price fell over $65k locking in its market position.
We recorded no retail trades, but there was some jockeying in the background, and the model ended the month with 43 aircraft listed for sale, equating to 7.8% of the combined Learjet 35 and 36 active fleet. Keeping in mind the model’s ETP Ratio exceeded 193% in August, and that the fleet ranges from 26 to 43 years of age, its position on this list should surprise nobody.
In August, the Gulfstream GIV found its way to the same position it occupied on this list in July. The model posted a Maintenance Exposure decrease of approximately $9k, but an Ask Price decrease approaching $170k was what captured this slot.
Our July analysis included the following viewpoint: “With an ETP Ratio of 143%, sellers are likely to find it challenging to negotiate acceptable transaction values”. Sellers may have found it challenging, but they managed to structure four transactions in August. So much for our prognosticating abilities!
To be fair, we also stated “these older aircraft continue to have a reasonable following”. We continue to believe that to be the case, and while additions to inventory make 14 units available for sale, that only represents 7.6% of the active fleet.
Cessna Citation CJ2+
To earn its spot on this list, the CJ2+ posted a Maintenance Exposure increase approaching $214k, while the average Ask Price fell nearly $207k. One aircraft traded in August, and five joined the inventory.
The 15 aircraft available for sale represent only 6.6% of the active fleet, and with an ETP Ratio of 30.8%, sellers are unlikely to have difficulty obtaining decent values for their assets.
Bombardier Learjet 55
A model that frequents one or the other of these two lists, the Learjet 55 is virtually in the same position it occupied during July. This time it’s due to a nominal $8k Maintenance Exposure increase and a more substantial Ask Price decrease.
Like the Learjet 35A, the model’s 194.8% ETP Ratio does not offer much hope to sellers with respect to strong pricing. Although three units did trade in August, there are 14 aircraft occupying inventory, representing 12.4% of the active fleet.
Buyer advice:If you’re considering purchasing one of these 32 to 38-year-old aircraft, don’t just focus on a low price; make certain the deal also provides good value, as you may be the aircraft’s final owner.
Cessna Citation CJ2
Even though the model deteriorated less than the CJ2+ (discussed above), a fair number of sellers will find good pricing a bit more challenging to attain due to a slightly higher ETP Ratio, although at 41.8% the figure is only slightly above the 40% Excessive Exposure figure.
The model found its way onto this list by virtue of a Maintenance Exposure increase approaching $165k, and a near $20k Ask Price decrease. One unit traded in August, but the 26 inventory aircraft equate to approximately 10.9% of the active fleet. Increasing supply is good when you’re a buyer, but it’s rarely helpful when you’re the seller.
Piaggio Avanti P-180
For the second month in a row, an unexpected model rounded out our ‘Most Deteriorated’ list. The Piaggio P-180 got here thanks to a Maintenance Exposure increase approaching $39k and a price decrease of $50k, due to a 25% Ask Price decrease posted by one seller.
We uncovered no trades during August, and the 13 aircraft listed for sale represent 14.8% of the fleet. With an ETP Ratio exceeding 95%, most sellers are likely to see few offers, if any, that excite them.
The Seller’s Challenge
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.
A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on an HCMP.
Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.
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