Which aircraft were the big movers and shakers in July’s used aircraft marketplace? Asset Insight’s Tony Kioussis explores the trends, and what contributed towards them…
Data collected during Asset Insight’s July 31, 2018 market analysis (covering 93 fixed-wing aircraft models and 1,606 units listed ‘For Sale’) uncovered a 1.7% decrease in the average Ask Price during July, representing a trend reversal from the previous month’s results.
- Large jets decreased 7%, after gaining 18.2% in June;
- Medium jets gained 1.8%, after decreasing 7.1% during June;
- Small jets lost 0.5% as opposed to June’s 2% increase;
- Turboprops fell 1.8% compared to June’s 0.3% increase.
The total number of used aircraft listed ‘For Sale’ for Asset Insight’s tracked fleet increased by seven units as we closed out July. Large Jets posted a 1.8% decrease (six units); the Medium jet inventory increased 1.7% (nine units); Small Jets decreased by 0.6% (three units); and Turboprops increased 2.5% (seven units).
Average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) improved 1.1%, but the trend varied by group:
- Large jet Maintenance Exposure increased an additional 1.2% to post a third consecutive 12-month high (worst) figure;
- Medium jets posted their third consecutive 12-month low (best) figure, decreasing 3.6%;
- Small jets increased (worsened) 3.3%;
- Turboprops improved (decreased) 1.2%, following June’s 6.5% increased to a 12-month high (worst) figure.
With all but the Medium jet group contributing, the Maintenance Exposure to Price (ETP) Ratio increased (worsened) to 67.4% from June’s 67%, the highest (worst) figure we have ever recorded.
As additional proof that buyers prefer younger, low-time aircraft, 63.7% of the tracked ‘For Sale’ fleet posted an ETP Ratio in excess of 40%.
Any time recent production aircraft inventory becomes scarce, “middle-age” units tend to see pricing stability, if not a slight gain in valuation. But, when it comes to older, high-time aircraft, sellers need to recognize that a ‘bargain hunter’ is their most likely buyer.
Furthermore, as we pointed out last month, the present differential between sale and purchase values is likely to widen for older aircraft owners. This is one reason the ETP Ratio can be a useful tool in distinguishing between ‘good value’ and ‘low price’ assets.
For those not familiar with the ETP Ratio, let’s review its derivation and 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 Q2 2018 were listed ‘For Sale’ an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively).
Accordingly, as the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). By aircraft group:
- Turboprops continued to post the lowest (best) ETP Ratio, although it was the group’s 12-month high (worst) figure at 52.8%;
- Large jets followed at 62.1%, a degradation over last month’s 59.8%;
- Medium jets came in at 70.2% versus last month’s 72.1%; and,
- Small jets worsened for the third consecutive month to 76.5% from 74.5%.
Excluding models whose ETP Ratio has remained over 200% during the previous two months (these are considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in July 2018.
Most Improved Models
All of the ‘Most Improved Models’ shown in Table A (below) experienced a Maintenance Exposure reduction (improvement). The Bombardier Challenger 601-1A did not experience a price change, while the remaining models posted the following price increases:
- Hawker Beechjet 400 +$32,000
- Hawker 800XP +$96,700
- Dassault Falcon 50 +$13,393
- Cessna Citation CJ2 +$39,911
- King Air 350 (Post 2000) +$171,925
Hawker Beechjet 400: One aircraft transacted while another joined the inventory at a substantially higher price during July. When a model only has eight listed assets, even such minor changes (when coupled with a Maintenance Exposure decrease of nearly $8k) can alter its ETP Ratio sufficiently to vault from last place on June’s Most Improved list to the top of this month’s list.
Regrettably, considering the Hawker Beechjet 400’s 135% ETP Ratio, this good news is unlikely to help most sellers…
Hawker 800XP: This model experienced several changes last month, and four additional transactions were posted following the closing date of our June report.
Four transactions closed in July, two aircraft joined the inventory fleet, and one listing was withdrawn dropping the current listed total to 57 units. This is not a seller’s dream, but it’s better than last month’s 64 units.
The numerous market changes coupled with a pricing increase and a Maintenance Exposure decrease exceeding $170k earned the Hawker 800XP second position on the ‘Most Improved’ list. With an average ETP Ratio of 51.2%, many sellers should receive realistic offers based on current market conditions.
Bombardier Challenger 601-1A: The model posted no transactions during July, but two listed aircraft were withdrawn from the market leading to a Maintenance Exposure decrease exceeding $151k. The result was a substantial decrease in the model’s ETP Ratio for the remaining eight listed units.
The challenge for sellers is coming to terms with offers they receive as these are likely to appear low.
However, at the model’s current ETP Ratio, the average Maintenance Exposure is nearly twice that of the asset’s average Ask Price, limiting the buyer pool to those seeking a low-priced, wide-body aircraft.
Dassault Falcon 50: Two listed and one unlisted aircraft transacted in July, while three more aircraft joined the inventory fleet that now totals 35 units. With Maintenance Exposure decreasing over $150k, and average Ask Price increasing, it is not difficult to see how the Falcon 50 earned a place on this list. Nevertheless, sellers are facing two hurdles:
- The number of assets competing for sales.
- A Maintenance Exposure level that equates to 82.7% of the average aircraft’s Ask Price.
Justifying their asset’s value by comparing their aircraft’s Maintenance Equity to other units listed ‘For Sale’ could be key for sellers seeking anything but a low price for their aircraft.
Cessna Citation CJ2: The CJ2 is on this list for all the right reasons, and the model offers value-based transaction opportunities for both buyers and sellers.
With two units trading last month and three more entering inventory, listed availability totals 13 aircraft, which is less than 5.5% of the active fleet. That leans the market in favor of sellers.
Buyers can consider similar models by way of creating negotiating leverage. However, this model’s 30.4% ETP Ratio, resulting from a $135k Maintenance Exposure decrease and a near $40k Ask Price increase, will be difficult to recreate through similar models.
Beechcraft King Air 350 (Post 2000): King Air 350s manufactured after December 2000 rounded out this month’s ‘Most Improved’ list. There were 14 units listed ‘For Sale’ at the end of July, following one sale and one unit entering inventory, and there are several reasons why this model continues to reward current sellers while justifying buyer interest and investment:
- First, the model’s ETP Ratio sits at 19.8%, truly impressive for the average unit’s age.
- Second, Maintenance Exposure decreased nearly $109k in July.
- Third, Ask Price increased by nearly $172k.
- Lastly, it would be difficult for buyers to obtain the same financial and operational capabilities through other models.
In short, advantage goes to sellers at this point, while buyers should take note of the model’s historical value retention.
Most Deteriorated Models
Four of the six aircraft on the ‘Most Deteriorated’ list experienced a Maintenance Exposure increase in July. The Dassault Falcon 900B posted an Ask Price increase of $100,000, the Hawker 1000A experienced no change in price, while the remaining four models incurred the following Ask Price decreases:
- Bombardier Challenger 601-3A -$101,292
- Gulfstream GIV -$143,333
- Bombardier Learjet 55 -$28,571
- Cessna Citation V Ultra -$34,425
Dassault Falcon 900B: The model earned the bottom spot by posting a $509k Maintenance Exposure increase, a figure that even an average Ask Price increase of $100k could not overcome.
Eleven units are listed ‘For Sale’ (although one of those units has already transacted), and the market was quite active in July with three aircraft transacting and two more entering inventory.
Some buyers will neglect to consider this model due to the average aircraft’s age, which might be a mistake. Consider that the Falcon 900B’s ETP Ratio ended July at 37.1%, and that current inventory is less than 7.2% of the active fleet. This model is on this list only because three higher-quality assets traded in July, and transaction leverage probably rests with sellers.
Photo courtesy of Adrian Pingston
Bombardier Challenger 601-3A: The outlook is not as bright for sellers of the Challenger 601-3A. With a Maintenance Exposure increase of nearly $56k, and an Ask Price drop of over $101k, the model’s appearance on this list is unsurprising.
But, in addition to the 177.5% ETP Ratio, the model saw one additional unit join the inventory fleet in July while registering no transactions. The 23 aircraft now listed ‘For Sale’ equate to 17.7% of the active fleet, providing a huge advantage to buyers seeking (what is likely to be) a disposable aircraft.
Gulfstream GIV: The model earned a spot on this list by posting a $143k Ask Price decrease, easily overcoming a nominal $4k Maintenance Exposure decrease. One aircraft transacted in July, one was written-off in June (after we completed our monthly survey), while two more entered an inventory fleet now totaling 17 units.
While that equates to only 9.2% of the active fleet, sellers are facing an ETP Ratio averaging 156.4% that places buyers in the driver’s seat.
Bombardier Learjet 55: Sellers of the Learjet 55 are likely to be the most challenged out of the aircraft on this list due to the model’s 186.3% ETP Ratio and the 21 units (nearly 18.6% of the active fleet) competing for the few available buyers.
No transactions were registered as we closed out July. One aircraft was withdrawn from the inventory reducing Maintenance Exposure by $6k, but that could not overcome the Ask Price decrease approaching $29k that was fueled primarily by a 50% price reduction posted by one owner.
Hawker 1000A: This model moved from our Most Improved list in June to the Most Deteriorated list in July based strictly on a $107k increase in Maintenance Exposure. There were no transactions posted in July, but one asset was added to inventory bringing the total to five aircraft, which is 11.6% of the active fleet.
At 76.2%, the model’s ETP Ratio provides a less-than-ideal environment for sellers. However, this aircraft has always had a very specific niche, and buyers seeking good value may well find it in this model.
Cessna Citation V Ultra: The Ultra rounds out our ‘Most Deteriorated’ list this month, and the model was in a near identical position on this list in June. There were 31 aircraft listed ‘For Sale’ when we closed out July, as a result of two sales transactions, one lease deal, and one aircraft being withdrawn from sale.
Maintenance Exposure increased by over $51k due to inventory changes and aircraft utilization, while Ask Price dropped over $34k primarily due to inventory mix changes. By virtue of an ETP Ratio approaching 83%, advantage is likely to rest with buyers.
While every aircraft has a price at which it will trade, many sellers need to better understand how their aircraft compares to competitive models in order to place offers into market context.
As demonstrated by this month’s report, ‘why’ an aircraft is not selling may have more to do with the seller’s perception of its worth being out of step with market realities. This lack of understanding is likely to result in more ‘Days on Market’ along with additional pricing penalties for ongoing maintenance, insurance, and other fees.
Knowing the true current and near-term Residual Value and Asset Quality of any aircraft is the only way one can justify an Ask Price or know if an offer they receive is the best likely to be achieved in the existing market environment.
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.
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