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Used Aircraft Maintenance Analysis (January 2018)

Which were the most improved and most deteriorated used jet and turboprop models in terms of maintenance exposure for January? Asset Insight’s Tony Kioussis explores the notable trends and the reasons behind them...

Tony Kioussis   |   14th February 2018
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Tony Kioussis Tony Kioussis

Tony Kioussis is President of Asset Insight. The company provides audit and valuation services...
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Which were the most improved and the most deteriorated used jet and turboprop models in terms of maintenance exposure for January? Asset Insight’s Tony Kioussis explores…

 

Data collected during Asset Insight’s January 30, 2018 market analysis (covering 92 fixed-wing aircraft models and 1,699 units listed ‘For Sale’), revealed a 1.2% improvement in the Quality Rating for the used aircraft fleet. All four aircraft categories registered an increase in Quality Rating while all but Large jets concurrently registered a Maintenance Exposure improvement.

 

Ask prices were another matter, increasing 0.5% overall thanks to a 1.8% improvement posted by Large jets. All other groups registered decreases in ask prices, however, including Medium jets (-0.7%) which posted a new record low; Small jets (-2.0%) and Turboprops (-1.0%), which each recorded 12-month low figures.

 

The decrease in Ask Prices impacted the ETP Ratio less than expected, primarily due to the Maintenance Exposure improvement for so many models. Still, 52.5% of tracked models posted an ETP Ratio in excess of 40%, adversely impacting their marketability.

 

ETP Explained

For those not familiar with the maintenance Exposure to Ask Price Ratio (ETP Ratio), 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 ETP Ratio improved since December’s analysis, from 65% to 64%.

 

  • Turboprops once again registered the lowest (best) ETP Ratio (47.3%);
  • Large jets followed at 57.2% (a slight degradation over last month);
  • Medium jets worsened slightly, increasing to 65.4%; and
  • Small jets improved to 79.2%, having posting 80.0% in December.

 

Excluding models who’s ETP Ratio has remained over 200% during the previous two months (we consider such aircraft to be outliers), following is a breakdown of which individual models fared the best, and which fared the worst as we closed out January.

 

Most Improved Models

All six ‘Most Improved Models’ shown in Table A (below) experienced a Maintenance Exposure reduction (improvement), while three also posted an Ask Price increase. Those three included:

 

  • Hawker 1000A (+$7,917)
  • King Air C90 (+$35,773)
  • Citation ISP (+$8,306)

 

Pricing for the Premier I and the Gulfstream GIV-SP dropped $35,000 and $69,364, respectively, while the Citation X (maintained under the MSG-3 program) saw no price change.

 

 

TABLE A: January's 'Most Improved' Used Jet and Turboprop Models

January's Most Improved Used Business Jet and Turboprop Models

 

 

Hawker 1000A: After leading the ‘Most Deteriorated’ list in December, the Hawker 1000A led the ‘Most Improved’ group in January due to one aircraft being withdrawn from among those listed ‘For Sale’. That single aircraft change left six assets on the market and reduced the average Maintenance Exposure figure by nearly $276k while increasing the Ask Price by nearly $8k.

 

King Air C90: Several new assets entering the ‘For Sale’ pool and three retail transactions occurred during the past 30 days. Combined, these inventory changes improved the model’s Maintenance Exposure and Ask Price figures, helping the King Air C90 become the second best improved model this month.

 

Citation X (MSG3): The Citation X inventory fleet (operated under MSG3 maintenance guidelines) decreased by two units during the month of January (one was a lease transaction). The six units remaining in the ‘For Sale’ fleet created a Maintenance Exposure improvement in excess of $488k that, even with no change in average Ask Price, led to a substantive improvement in the model’s ETP Ratio.

 

Cessna Citation X Private Jet

 

 

Premier I: This model registered no sales in January and the average Ask Price decreased $35k. However, the aircraft listed ‘For Sale’ posted a Maintenance Exposure decrease exceeding $153k, and that created the ETP Ratio improvement to place the model on the ‘Most Improved’ list.

 

Citation ISP: Five aircraft transacted in January and four new assets entered the inventory fleet. The changes resulted in a Maintenance Exposure Improvement of nearly $35k that, along with an Ask Price increase in excess of $8k, improved the group’s ETP Ratio by 8.7%.

 

Gulfstream GIV-SP: Lastly, the GIV-SP registered four sales and five new listings. This mix decreased the average Ask Price by over $69k. However, the changes also resulted in a Maintenance Exposure decrease of nearly $478k that improved the ETP Ratio by 8.5%.

 

Note: While all of the Most Improved models except for the Citation X (MSG3) are (on average) sporting ‘excessive’ ETP Ratio figures, understanding what is producing that figure is key to understanding if a specific aircraft’s marketability is actually being restricted. Only then can the seller either adjust their aircraft’s Maintenance Exposure (possibly by conducting maintenance early), or understand they must consider a lower than desired price in order to sell their aircraft.

 

Gulfstream GIV-SP

 

 

 

Most Deteriorated Models

All aircraft in the ‘Most Deteriorated’ category (except for the Hawker 800XP) experienced a Maintenance Exposure increase. While the Global Express registered no change in Ask Price, the other five models incurred a decrease, including:

 

  • Challenger 601-3A (-$80,595)
  • Gulfstream GIV (-$81,750)
  • Premier IA (-$100,625)
  • Hawker 800XP (-$233,984)
  • Challenger 604 (-$414,583)

 

 

TABLE B: January's 'Most Deteriorated' Used Jet and Turboprop Models

January's Most Deteriorated Jet and Turboprop Models

 

 

Challenger 601-3A: This model topped our ‘Most Improved’ list in December, but headlined January’s ‘Most Deteriorated’ list. While posting no retail sales, one aircraft did leave the inventory fleet through a lease, while a second was purchased by a Dealer. The combined effect increased Maintenance Exposure by nearly $196k, decreased the average Ask Price just shy of $81K, and increased the model’s ETP Ratio 18.5%.

 

(One could argue that the average 601-3A was already an aircraft strictly of interest to the disposable aircraft buyer, but there is quite a bit of life left in these models, assuming ADS-B has been installed.)

 

Gulfstream GIV: There were two GIV retail transactions in January, while two other aircraft joined the inventory fleet. The aircraft sold were of higher Asset Quality than the replacement ‘For Sale’ listing.

 

Consequently, the average Maintenance Exposure increased by over $337k while the average Ask Price reduced by nearly $82k. Accordingly, the resulting 13.7% increase in the ETP Ratio was unavoidable.

 

Global Express: The inventory level increased by two units in January and, while there were no retail transactions, one aircraft sale is pending. The two fleet additions were listed as ‘Make Offer’ thereby not altering the average Ask Price, but their substantially lower Asset Quality increased Maintenance Exposure for this model by over $773k.

 

(While the average ETP Ratio increased to 77.1% in January, this figure assumes no Hourly Cost Maintenance Program (HCMP) coverage. Aircraft enrolled on an HCMP benefit from an HCMP-Adjusted ETP Ratio that is often dramatically lower, potentially allowing the aircraft to experience fewer Days on the Market while concurrently increasing its final transaction price.)

 

Premier IA: While the older Premier I found its way to the ‘Most Improved’ list in January, that model’s ETP Ratio was worse than the Premier IA. This might appear to be incongruous, but consider that the Premier IA had a Maintenance Exposure increase in excess of $78k along with a >$100k Ask Price decrease.

 

Proof that higher-quality assets are the ones trading was evidenced by the single Premier IA sale that occurred in January leading to the model’s plummet.

 

Hawker 800XP: Three retail sale transactions along with seven additions to the inventory fleet negatively impacted the model’s Maintenance Exposure and Ask Price figures. Although January’s ETP Ratio averaged 57.4%, most of the Hawker 800XP aircraft listed ‘For Sale’ will have a much lower HCMP-Adjusted ETP Ratio as the majority of the fleet in enrolled on engine and APU Hourly Cost Maintenance Programs.

 

Sellers whose aircraft are not HCMP-enrolled are likely to find the HCMP buy-in fee, plus an additional amount to cover ‘pain and suffering’, embedded in the offers they receive.

 

Bombardier Challenger 604

 

 

Challenger 604: This model found its way into this group through a $414k Ask Price reduction coupled with a $64k Maintenance Exposure increase. To create these figures, two aircraft were sold while three entered inventory. With 36 assets to choose from (10.2% of the in-service fleet), downward value pressure is likely to continue. The one thing going for many sellers is their HCMP enrollment, as it will improve their Adjusted ETP Ratio to far below the 40% level we consider to be excessive.

 

A Word to the Wise Seller…

It’s 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 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.

 

More information from www.assetinsight.com

 

 


Read more about: Business Aircraft Maintenance | Business Aircraft Values | Used Aircraft Sales Trends

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