February’s inventory changes saw Asset Insight’s tracked fleet asset quality decrease 1.8%, while Maintenance Exposure rose 4.5% to a 12-month high (worst) figure. Which models were affected the most in February’s used aircraft marketplace? Tony Kioussis explores…
Asset Insight’s market analysis of February 28, 2019, covering 94 fixed-wing models and 1,624 aircraft listed for sale, revealed virtually no impact on average Ask Price, however all four groups did post changes.
- Large Jet values increased 2%;
- Medium Jets gained 1.4%;
- Small Jet values increased 3.1%;
- Turboprops lost 1.4%.
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased 2.6% during February (by 41 units). Large Jet inventory, the only group to experience a decrease, fell 0.6% (two units), Medium Jets increased 4.3% (21 units), Small Jet inventory increased 4.4% (21 units), while Turboprops decreased 0.4% (1 unit).
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for the latest inventory fleet mix degraded 4.5%, and at $1.465m posted the worst (highest) figure for the past 12 months. All four groups were negatively affected:
- Large Jets increased 3.8% to post the group’s 12-month worst (highest) figure;
- Medium Jets increased 4.9%, this group’s 12-month worst figure;
- Small Jets increased a substantive 11.9% to a figure marginally better than the group’s 12-month worst figure;
- Turboprop Maintenance Exposure rose 4.6%, posting a figure just slightly worse than the group’s 12-month average.
With Maintenance Exposure worsening (increasing) across the inventory fleet, we were not surprised to see the ETP Ratio follow suit, increasing (worsening) to 70.2% from January’s 64.8%. So why is this information important…?
ETP Ratios Explained
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 Market increase (in many cases by more than 30%).
So, for example, aircraft whose ETP Ratio exceeded 40% during Q3 2018 were listed for sale an average 34% longer than aircraft whose Ratio was below 40% (280 days versus 374 days on the market, respectively), while during Q4 2018 aircraft whose ETP Ratio exceeded 40% took over 57% longer to sell (246 versus 386 Days on Market).
All four groups lost ground last month.
- Turboprops continued to post the lowest (best) ETP Ratio, but at 52.9 versus January’s 49.6%;
- Large Jets followed at 59.4% versus January’s 57.8%;
- Small Jets degraded the most, posting 76.8% versus 65.8% one month ago;
- Medium Jets worsened to 79.7% from January’s 77.1%.
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 which fared the worst in February 2019.
Most Improved Models
All of February’s ‘Most Improved’ models posted a Maintenance Exposure improvement (decrease) as well as the following price increases:
- Gulfstream GIV-SP (MSG3) $710,667
- Bombardier Learjet 60 $144,199
- Gulfstream G450 $2,376,667
- Cessna Citation CJ3 $179,410
- Dassault Falcon 2000EX EASy $517,500
- Gulfstream G550 $972,292
Gulfstream GIV-SP (MSG3)
Two aircraft transacted in February leaving only five MSG3 Maintenance Program aircraft listed for sale. The listed fleet changes reduced Maintenance Exposure by nearly $286k, and this aircraft earned its top spot on the ‘Most Improved’ list (for the second consecutive month) by one of its two trades involving the lowest priced MSG3 GIV-SP in inventory (which raised the fleet average Ask Price).
The group’s ETP Ratio stood at 48.4% as February closed, and with many of these units enrolled on engine Hourly Cost Maintenance Programs there is every reason to believe that sellers have a very marketable asset on their hands.
Seller Advice: Higher pricing for this age of aircraft is unlikely to last long, and sellers are advised to carefully consider offers that are lower than anticipated.
Bombardier Learjet 60
Four aircraft transacted last month, but three more joined the inventory fleet. By our count, there were 32 aircraft listed for sale (10.3% of the active fleet) as February closed. Some higher-priced assets being listed for sale, along with a Maintenance decrease exceeding $67k placed this model in second position on the Most Improved list.
Unfortunately, with an ETP Ratio exceeding 100%, buyers will find it difficult to pay twice the Ask Price for an aircraft – once for the purchase, and an equivalent amount in Maintenance Exposure for the embedded maintenance.
Seller Advice: Sellers need to be mindful of their aircraft’s ‘true cost’ to a buyer based on its maintenance status. This includes sellers whose aircraft are enrolled on an engine Hourly Cost Maintenance Program.
We registered five transactions during February, leaving 15 aircraft for sale (5.3% of the active fleet). The aircraft earned its way on to the ‘Most Improved’ list through a nominal Maintenance Exposure decrease and a huge Ask Price increase due to the lowest priced asset trading and a new entrant to the fleet listed 37% above the fleet’s average price.
Seller Advice: With an average ETP Ratio below 20%, sellers may want to re-evaluate their pricing strategy. For now, at least, sellers appear to be in the driving seat.
Cessna Citation CJ3
Six aircraft trades and an equal number of additions to the fleet retained 29 CJ3 aircraft listed for sale (7.3% of the active fleet). The model earned its spot on the Most Improved list with a near $117k Maintenance Exposure decrease along with a hefty price increase.
Considering the model’s ETP Ratio is only 19.1%, buyers have an opportunity to acquire some excellent assets, while sellers (if they understand their aircraft’s competitive position within the CJ3 fleet) should be able to generate acceptable offers.
Dassault Falcon 2000EX EASy
No aircraft trades were registered in February, but two aircraft joined the inventory, increasing the total to five units (~5% of the active fleet). The latest inventory mix decreased Maintenance Exposure by nearly $216k and, thanks to a new listing 9% above the model’s average ask price, increased the average by over $517k thereby placing the model on the ‘Most Improved’ list.
With an average ETP Ratio of 15%, sellers and buyers should not have a problem finding common ground. Whether the higher pricing strategy being pursued by some sellers is wise is another issue.
The inventory remained at 23 units (5.6% of the active fleet) following three transactions and an equal number of additions in February. The G550 earned the final spot on this list through a Maintenance Exposure reduction exceeding $318k, along with an Ask Price increase exceeding $972k. This is another model whose 19.3% ETP Ratio should result in active sales, assuming sellers are realistic about their pricing expectations.
Most aircraft are priced within a realistic band, but the highest priced aircraft is nearly 37% above the fleet’s average. While perhaps not impossible to achieve, this kind of deviation from the norm can make buyer consideration of an aircraft improbable.
Most Deteriorated Models
All of January’s ‘Most Deteriorated Models’ experienced a Maintenance Exposure increase. Two models, Bombardier’s Learjet 31 and Dassault’s Falcon 50, posted no price change; Cessna’s Citation Bravo posted a price increase of $50,313; and the remaining three models experienced the following decreases:
- Bombardier Learjet 35A -$18,691
- Hawker Beechjet 400A -$116,302
- Cessna Citation II -$8,000
Bombardier Learjet 35A
When only 6.9% of a model’s fleet is listed for sale, you might not expect to find the aircraft headlining the ‘Most Deteriorated’ list. However, a Maintenance Exposure increase exceeding $203k, along with an ask price drop and an ETP Ratio approaching 176% solidly earned this spot for the Learjet 35A.
Two aircraft transacted in February, but two more entered the inventory, and the average ask price hovered around the $700k mark, leaving little negotiating room for buyers and sellers to transact assets that are between 26 and 43 years of age.
Hawker Beechjet 400A
No aircraft transacted in February, but additions to inventory have raised the number of available assets to 59 units (18.4% of the active fleet). The ETP Ratio stood at 77.2% and, even considering the value of Hourly Cost Maintenance Programs, most sellers are likely to find reasonable offers hard to come by for an asset that suffered a maintenance exposure increase approaching $238k, along with a price decrease exceeding $116k.
Asset era is also a factor, with aircraft ranging from 16 to 29 years of age sporting minimal passenger amenities compared to more current production aircraft.
Cessna Citation II
Five aircraft traded in February, and just as many entered the inventory to keep availability at 88 units, 15.5% of the active fleet. Citation II vintages range from 24 to 41 years of age and their prices average slightly above $600k (although there are aircraft priced above $1m, including one asset whose ask price is 180% above the average).
Buyer Advice: With an ETP Ratio that exceeds 135%, serious buyers should be aware they might be the aircraft final owner and their offer is likely to reflect that belief.
Seller Advice: Carefully consider any offer. Serious buyers are likely to be limited in number.
Cessna Citation Bravo
Three units transacted in February, one was withdrawn from inventory, while three more were added to make 42 aircraft available (13.1% of the active fleet). While the model did incur a maintenance exposure increase approaching $273k, it also posted an ask price increase exceeding $50k (although the rise was fueled by a seller asking more than twice the fleet average for their aircraft).
Seller Advice: Considering that we’re dealing with aircraft between 13 and 22 years of age with an ETP Ratio of only 59.5%, younger Citation Bravo sellers should be able to secure some reasonable pricing, especially if their aircraft is enrolled on an engine Hourly Cost Maintenance Program.
Bombardier Learjet 31
One aircraft traded in February, leaving three in inventory, equating to 8.6% of the active fleet. While that may sound like a reasonable environment for sellers, this model’s age (between 24 and 31 years) and its ETP Ratio (>177%) do not create great opportunities for sellers.
The aircraft suffered a Maintenance Exposure increase approaching $105k to make this list, and many buyers are likely to view a Learjet 31 as a disposable aircraft.
Dassault Falcon 50
Four aircraft joined the Falcon 50 inventory in February, and with no aircraft transacting during the month the available fleet stood at 22 units (~9.5% of the active fleet). Pricing varies considerably for this model, with the high ask price nearly double that of the lowest posted figure.
With an ETP Ratio approaching 106%, February’s fleet additions increasing maintenance exposure by nearly $228k, and aircraft aged 24-41 years, prospective buyers may find that the value of an existing engine Hourly Cost Maintenance Program may equate to the value of the aircraft itself.
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 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.