Used aircraft sales transactions moved numerous lower quality assets out of the inventory in January. But which models were particularly impacted, and which were the big movers and shakers in Asset Insight’s end-of-month analysis? Tony Kioussis explores…
Combined with a decrease in overall Ask Prices, current availability offers much opportunity for buyers to identify good values and for sellers to strike reasonably-priced deals in today’s used aircraft marketplace.
Asset Insight’s market analysis of January 31, 2019 covering 94 fixed-wing models and 1,583 aircraft listed for sale, revealed an Ask Price decrease of 0.7%. Overall:
- Large Jet values fell 1.6%;
- Medium Jets gained 1.1%;
- Small Jet values lost 3.7%;
- Turboprops lost 0.4%.
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet decreased 0.5% during January (8 units). The Large Jet inventory increased 0.3% (one unit), Medium Jets decreased 1% (five units), Small Jet inventory increased 1.3% (six units), and Turboprops decreased 3.5% (10 units).
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for the latest inventory fleet mix improved 1.3%, and at $1.397m was only slightly worse (higher) than the best figure generated during the past 12 months. All four groups improved as follows:
- Large Jets - 2%;
- Medium Jets - 1.4%;
- Small Jets - 1.8%;
- Turboprops - 1.5%.
With Maintenance Exposure improving (decreasing) across the inventory fleet, the ETP Ratio improved (decreased) to 64.8% from December’s 65.6%.
This figure was only slightly worse (above) the best Ratio posted during the past 12 months, and it occurred despite Medium Jets posting the only Ask Price increase. 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 improved last month.
- Turboprops continued to post the lowest (best) ETP Ratio at 49.6%;
- Large Jets followed (57.8%);
- Small Jets were next (65.8%);
- Medium Jets improved (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 January 2019.
Most Improved Models
All ‘Most Improved Models’ posted a Maintenance Exposure improvement (decrease). The Citation V 560 posted an Ask Price decrease of $79,375, the Premier I and the Citation X (MSG3) saw no price change, while the remaining three models experienced the following price increases:
- GIV-SP (MSG3) $800,000
- Citation VI $5,500
- Learjet 45 $25,000
Gulfstream GIV-SP (MSG3)
One Gulfstream GIV-SP transaction took place in January and one more aircraft joined the inventory fleet, now comprised of seven units (just 2.5% of the active fleet – including non-MSG3 models).
The model earned the top spot on this list through a substantial Ask Price increase (complements of a single, lower priced asset leaving inventory) as well as a Maintenance Exposure decrease exceeding $196k. This model has seen a resurgence of late, and we expect its appeal to continue.
Seller Advice: With an average ETP Ratio of 62.5%, many sellers whose aircraft are enrolled on an Hourly Cost Maintenance Program should generate an ETP Ratio below 40%, substantially increasing their opportunity to receive acceptable offers.
Cessna Citation V 560
No transactions had been recorded for January when Asset Insight closed the books on the month, but one aircraft was withdrawn from inventory and four more were added to the for-sale fleet, making 25 units available (10% of the active fleet).
The model’s Maintenance Exposure decrease of nearly $195k was more than sufficient to overcome an Ask Price decrease exceeding -$79k and place it on this list.
Seller Advice: Similar to the Gulfstream GIV-SP, the Citation V’s ETP Ratio of 60.5% could make many aircraft on an Hourly Cost Maintenance Program quite marketable, assuming that a buyer for this model can be located.
Beechcraft Premier I
Two Premier I units transacted in January, but three more joined the fleet for sale increasing the available inventory to 14 units (11.1% of the active fleet). As the units trading last month had no posted price, the model gained access to this list primarily through a near $135k decrease in Maintenance Exposure, owing to the inventory changes.
Seller Advice: With a large portion of the Premier I fleet already enrolled on an Hourly Cost Maintenance Program, many sellers should have an asset able to generate an acceptable offer.
Cessna Citation VI
There were no recorded transactions during January, but one additional aircraft joined the fleet of assets for sale raising the total to nine (25% of the active Citation VI fleet).
While the aircraft earned its way on this list through a Maintenance Exposure decrease in excess of $88k along with a price increase, the model’s ETP Ratio (99%) and the percentage of fleet listed for sale does not bode well for sellers. Buyers interested in a 24- to 28-year-old aircraft will be in the driver’s seat here.
Cessna Citation X (MSG3)
We recorded no trades for this model in January, but one new asset joined the inventory fleet which now totals eight units. A Maintenance Exposure decrease approaching $243k placed the model on this list, and with only 3.2% of the active fleet listed for sale one would think sellers would hold the upper hand.
However, the model’s average ETP Ratio of 72.2% is likely to increase the challenge of reaching a price acceptable to both buyer and seller – even if the aircraft is enrolled on an Hourly Cost Maintenance Program.
Bombardier Learjet 45
No transactions were recorded for January, but one Learjet 45 was withdrawn while another was added thereby reducing Maintenance Exposure in excess of $104k, increasing the model’s average Ask Price, and earning it the final spot on this list.
With only 3.3% of the active fleet (eight units) listed ‘for sale’, and with an average ETP Ratio of 54.4%, many sellers have the ability to generate some decent offers, especially if the aircraft is enrolled on an Hourly Cost Maintenance Program. Additionally, as the model’s asset quality is rated as ‘Outstanding’, both buyers and sellers can benefit.
Most Deteriorated Models
All of January’s ‘Most Deteriorated Models’ experienced a Maintenance Exposure increase in addition to the following Ask Price decreases:
- Bombardier Challenger 601-3R -$250,000
- Embraer Legacy 600 -$2,875,000
- Cessna Citation ISP -$51,565
- Cessna Citation CJ2 -$12,500
- Dassault Falcon 50EX -$134,167
- Gulfstream GIV-SP -$58,333
Bombardier Challenger 601-3R
No Bombardier Challenger 601-3Rs traded in January, and the five units listed for sale represent a, theoretically, manageable 8.3% of the active fleet.
However, the fleet’s ETP Ratio of 153.5%, its Maintenance Exposure increase of nearly $164k, along with an Ask Price decrease of $250k (due to one owner’s desire to increase their asset’s appeal), easily earned this model the worst spot on January 2019’s ‘Most Deteriorated’ list.
Embraer Legacy 600
Two units traded last month, but two more entered the inventory fleet to maintain availability at 11 aircraft (5.8% of the active fleet).
At 34.7%, the model’s ETP Ratio is well within the ‘strong marketability’ safety margin. However, January’s fleet mix changes generated a Maintenance Exposure increase approaching $94k and, as we have mentioned in the past, when a single aircraft’s Ask Price posts a dramatic change in a small fleet (in this case a drop approaching 17%), a model can end up on the Most Deteriorated list due to ‘technical’ reasons.
Cessna Citation ISP
Two aircraft traded in January and six more joined an inventory group that now totals 53 aircraft (19.2% of the active fleet). The model earned its place on this list complements of a Maintenance Exposure increase in excess of $15k, and a sizeable Ask Price decrease.
Seller Advice: With the ETP Ratio at 100.5%, and in view of the large number of aircraft for buyers to choose from, sellers should carefully consider any offer they receive, as buyers of 34- to 42-year-old aircraft are unlikely to be plentiful.
Cessna Citation CJ2
Inventory decreased by three aircraft, due to five transactions and only two additions to the for-sale fleet during January. Regrettably, that jockeying increased the fleet Maintenance Exposure by nearly $168k (a huge figure considering the class of aircraft) and decreased the average Ask Price, earning the model a place on this list.
There were 22 assets listed for sale as we closed out January, providing quite a varied selection for buyers (but only representing 9.2% of the active fleet). With an ETP Ratio hovering in the 36.5% range, sellers should be able to generate some acceptable offer figures.
Dassault Falcon 50EX
One aircraft traded in January, one was withdrawn from inventory, and two more joined the fleet to keep availability steady at 13 units (approximately 13% of the active fleet). Inventory mix changes increased Maintenance Exposure in excess of $176k, while the average Ask Price dropped over $134k to earn the Falcon 50EX a spot on the Most Deteriorated list.
With the model’s ETP Ratio at just over 34%, sellers should be in fairly good shape here, especially if the aircraft’s engines are enrolled on an Hourly Cost Maintenance Program. We see this model’s appearance on this list due to ‘technical issues’ rather than an actual deterioration in its sales opportunities.
The final model to make January’s ‘Most Deteriorated’ list, the Gulfstream GIV-SP earned its place due to a Maintenance Exposure increase approaching $203k, along with an Ask Price decrease exceeding $58k.
Two aircraft traded in January, but two more joined the inventory to keep the fleet total at 16 units. With only 5.7% of the active fleet listed for sale, regrettably the model’s ETP Ratio stood at 71.6% in January, making acceptable offers more difficult to come by (especially for sellers whose aircraft’s engines are not enrolled on an Hourly Cost Maintenance Program).
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 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.
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