As business jet and turboprop sales activity intensified during the traditional rush to close transactions before year-end, ask prices for Large jets and Turboprops recorded a slight increase in December. Medium and Small jet pricing was down. Tony Kioussis reviews…
Data collected during a December 29, 2017 market analysis covering 92 fixed-wing aircraft models and 1,710 aircraft listed ‘For Sale’, revealed that Quality Rating for the used aircraft inventory decreased 1% in December, as mostly higher ‘Asset Quality’ aircraft were transacting. On the other hand, Ask prices increased 0.2%, which was surprising given the intense competition among sellers.
During 2017, average ask prices decreased 22.6%, negatively impacting the ETP Ratio for most aircraft. The year ended with approximately 54% of tracked models, and 62% of tracked units, posting an ETP Ratio in excess of 40%, adversely impacting their marketability.
Let us review the maintenance Exposure to Ask Price Ratio (ETP Ratio) and its relevance. 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.
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 increase (in many cases by more than 30%).
So, for example, aircraft whose ETP Ratio exceeded 40% during Q4 2017 were listed ‘For Sale’ an average 42% longer than aircraft whose Ratio was below 40% (199 versus 284 Days on the Market, respectively).
Accordingly, as the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). Our tracked fleet posted the highest (worst) figure for 2017 at 65% during the month of December. By aircraft group:
Excluding models whose ETP Ratio has remained over 200% during the previous two months (we consider such aircraft to be outliers), let’s examine which individual models fared the best, and which fared the worst in December.
Most Improved Models
Four of the ‘Most Improved Models’ shown in the Table experienced a Maintenance Exposure reduction (improvement), while an equal number posted an Ask Price increase, including:
The Challenger 601-1A and the Hawker 800A were the two models registering an Ask Price decrease (-$32,500 and -$8,753 respectively).
Challenger 601-3A: The reduction of one inventory Challenger 601-3A aircraft was not what catapulted this model to the top of our list. Neither was the model’s Maintenance Exposure change, which posted a nominal increase since last month. The surprisingly high ask price increase was what led to the CL601-3A capturing top spot among the most improved models.
Whether buyers are willing to pay the higher ask price some sellers are seeking remains to be seen.
Challenger 601-1A: Conversely, the CL601-1A earned second position through a substantial Maintenance Exposure decrease ($461,589) while concurrently posting a relatively minor ask price decrease.
Beech 1900C: With only one of three assets posting an ask price – a common issue with minimally-traded models – the Beech 1900C gained third place on this list on ‘technical grounds’. The model actually experienced a small Maintenance Exposure increase, but that was insufficient to blunt its ETP Ratio decrease (improvement) by virtue of the very healthy ask price posted for the single priced unit.
Do not be surprised to find this model on the Most Degraded list once more units are listed sporting actual ask prices.
Hawker 800A: At least two known Hawker 800A trades occurred during December (more may have happened that were not registered before our data collection cut-off date), and one new asset joined the inventory fleet. All of this jockeying led to a slight price decrease, but a Maintenance Exposure decrease of nearly $135k was the factor that made the difference.
With 35 assets listed ‘For Sale’, Hawker 800A sellers can help their cause by understanding how their aircraft compares with other listings and if their ask price is reasonable. Considering the average Hawker 800A has experienced 246 Days on Market, and values are anticipated to decrease another $27,500 during Q1, sellers might reconsider their pricing at this time to help stem their losses.
Learjet 45XR: Research captured one transaction for a Learjet 45XR, and four new units entering the ‘For Sale’ fleet in December. While at least some of the recent inventory aircraft were of higher quality, thereby helping decrease the model’s Maintenance Exposure figure, it remains to be seen whether the substantial increase in ask price can be supported.
Global XRS: This model joined the group based on a substantive Maintenance Exposure decrease along with a reasonable ask price increase. We recorded the sale of one aircraft in December, but another unit joined the ‘For Sale’ fleet keeping the inventory level at twelve.
Most Deteriorated Models
All of the aircraft in the ‘Most Deteriorated’ category experienced a Maintenance Exposure increase. Two models managed to post an Ask Price increase (Cessna Citation II and Beechcraft King Air C90 prices increased $27,884 and $3,090 respectively), while the Citation Excel registered no price change.
The remaining three models incurred an Ask Price decrease, including:
Hawker 1000A: Leading the list due to a $55,000 pricing reduction for one unit. With only seven units listed ‘For Sale’, and with a Maintenance Exposure increase in excess of $245k due to utilization, the model’s ETP Ratio could not help but be significantly (and negatively) impacted.
Citation II: There were five Citation II trades during December while eight joined the inventory fleet (now totaling 100 units). With 540 active units, this means 18.5% of the fleet is listed ‘For Sale’. Accordingly, it was somewhat surprising to see the model record an ask price increase, and even more surprising to then find the aircraft on the ‘Most Deteriorated’ list.
The ETP Ratio’s degradation became clear when we calculated the aircraft’s Maintenance Exposure, which increased $103k to nearly $905k – a relatively high figure for this model. Some sellers are likely to be overvaluing their aircraft, and that may hurt them as this model’s average value is expected to lose $19k during Q1 2018.
King Air C90: Inventory levels did not change, even though there were three King Air C90 transactions. The change in the inventory mix raised the ask price a nominal amount, but that could not counter the Maintenance Exposure figure which increased nearly $46k to negatively impact the ETP Ratio.
Citation ISP: ETP Ratio was negatively impacted by both a Maintenance Exposure increase exceeding $19k and an ask price decrease of nearly $18k for the Citation ISP. These figures resulted from five sales and three new listings.
Citation Excel: An inventory decrease of two units along with six sales was experienced in the Citation Excel market. None of the transacting aircraft listed an ask price, resulting in no ask price change for the reconstituted inventory. However, a Maintenance Exposure increase in excess of $201k was more than sufficient to worsen the model’s ETP Ratio and add the aircraft to this list.
Gulfstream GIV-SP: This model ‘made the cut’ through an ask price reduction in excess of $479k and a Maintenance Exposure increase of nearly $70k. Our research did not register any transactions while inventory increased by one unit. The detailed data driving the statistics exemplifies why sellers need to understand the condition and pricing for competitive aircraft.
One of the inventory aircraft is listed at an unrealistically high ask price, substantially increasing the average ask price for this model.
Excluding this one pricing outlier from the inventory mix lowers the average Ask Price by $1.295m thereby increasing (worsening) the model’s ETP Ratio from 64.6% to 75.1%. We anticipate the average GIV-SP to depreciate $89,500 during Q1, and caution sellers about their pricing expectations and to carefully consider offers that come their way.
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.
As suggested earlier, 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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