March revealed a 2% inventory increase to Asset Insight’s tracked fleet, with asset quality for listed jets and turboprops dropping 0.5% to record a 12-month low figure. But which models were affected the most in March? Tony Kioussis explores…
Asset Insight’s market analysis of March 31, 2019, covering 96 fixed-wing models and 1,656 aircraft listed for sale, revealed average Ask Price for the tracked fleet dropped 4.4% to post a figure just $20k higher than the record low value.
While Large Jet values were the only ones to lose ground, that was enough to overcome the gain recorded by each of the other three groups. In summary:
- Large Jet values decreased 6.2% in March (and 5.8% during Q1);
- Medium Jets gained 0.8% in March (and 3.4% for Q1);
- Small Jet values increased 2.4% in March, resulting in a 1.6% overall gain in Q1;
- Turboprops gained 0.7% in March, but lost 1.1% during Q1 2019.
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased 2% during March (32 units). Large Jet inventory posted an increase of 1.5% (five units); Medium Jets increased 1.6% (eight units); Small Jet inventory increased 3.2% (16 units); and Turboprops decreased 1.1% (three units).
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for the latest inventory fleet mix improved (decreased) 3%, virtually tying the fleet’s 12-month average. Results for each of the four groups varied as follows:
- Large Jet Maintenance Exposure fell (improved) 0.8%, although the group experienced a 0.9% increase (worsening) for the quarter;
- Medium Jets remained unchanged at the group’s highest (worst) 12-month figure, and also increased 3.6% during Q1 2019;
- Small Jets improved a dramatic 14.9% last month, nearly equaling the group’s 12-month best figure and achieving a 6.4% improvement for the quarter;
- Turboprop Maintenance Exposure was the only figure to post an increase for the quarter (0.5%), along with an increase of 3.6% for the year’s first three months.
The average ETP Ratio figure decreased (improved) to 66% from February’s 70.2%, but only two of the four groups saw the impact. 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 Q1 2019 were listed for sale an average 62% longer than aircraft whose Ratio was below 40% (237 days versus 384 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).
How did each group fare at the end of March?
- Turboprops were unchanged while continuing to post the lowest (best) ETP Ratio at 52.9%;
- Small Jets were next at 62%, a substantial improvement over February’s 76.8%;
- Large Jets worsened to 62.2% from last month’s 59.4%;
- Medium Jets worsened slightly to 79.5% from February’s 79.7%.
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 March 2019.
Most Improved Models
All of March’s ‘Most Improved’ models posted a Maintenance Exposure improvement (decrease). Additionally, the Bombardier Learjet 31 registered no change to the model’s average Ask Price, the Bombardier Learjet 35 and Cessna Citation II experienced Ask Price increases ($80,055 and $15,282, respectively) while the remaining three aircraft suffered the following price decreases:
- Cessna Citation V Ultra -$38,330
- Cessna Citation ISP -$29,831
- Cessna Citation Bravo -$24,237
Bombardier Learjet 31
No aircraft traded in March, and there were no Ask Price changes for the three aircraft listed for sale. However, completed maintenance reduced Maintenance Exposure by more than $288k, improving the model’s ETP Ratio by more than 49% to earn top spot on this month’s ‘Most Improved’ list, having occupied a place on February’s ‘Most Deteriorated’ list.
With that said, the Learjet 31’s ETP Ratio still exceeds 128%, and current prices for these aircraft leave little negotiating room for buyers and sellers.
Bombardier Learjet 35A
The model leading February’s ‘Most Deteriorated’ list took second place on the ‘Most Improved’ list in March. Two aircraft departed the inventory, but two more joined those listed ‘for sale’, keeping the percentage of aircraft at 6.9% of the active fleet. The new fleet mix lowered Maintenance Exposure by nearly $184k while the average Ask Price rose by $80k to earn the model its place on this list.
However, with 38 units listed for sale, and an ETP Ratio approaching 135%, structuring transactions for these assets – aged between 26 and 43 years – will be challenging for this model too.
Cessna Citation II
One aircraft transacted last month and two were withdrawn from the for-sale group. However, six additional aircraft joined the inventory, and the 91 assets currently listed represent 16% of the active fleet.
This model moved from February’s ‘Most Deteriorated’ list to March’s ‘Most Improved’ group because of a Maintenance Exposure decrease approaching $206k, combined with a decent Ask Price increase.
Keeping in mind its 99.6% ETP Ratio and a fleet that ranges from 24 to 41 years of age, buyers seeking a disposal aircraft may be required for sellers to structure transactions at anything approaching a decent value.
Cessna Citation V Ultra
One aircraft transacted last month, three were withdrawn from the inventory, and three more assets joined the fleet for sale, leaving 27 aircraft in the available pool (or 10.8% of the active fleet).
This model deservedly earned a place on this list due to a near $254k Maintenance Exposure reduction, even though it also posted an Ask Price drop. And with an ETP Ratio of 48.3%, these assets are infinitely marketable – especially if the aircraft’s engines are enrolled on an Hourly Cost Maintenance Program.
Cessna Citation ISP
Fifth on the ‘Most Improved’ list is the Citation ISP, with four aircraft transacting in March, two being withdrawn from inventory, and 56 assets listed for sale (which is over 20% of the active fleet). The model earned its spot on the ‘Most Improved’ list via a Maintenance Exposure decrease exceeding $137k that overshadowed an Ask Price decrease of nearly $30k.
However, with an ETP Ratio exceeding 99%, and one out of five Citation ISP aircraft listed for sale, transactions are unlikely to be easy to structure in the favor of sellers.
Cessna Citation Bravo
Earning the last place on March’s ‘Most Improved’ list (following its appearance on the ‘Most Deteriorated’ list in February) is the Citation Bravo. Three transactions were posted in March, four aircraft were withdrawn from inventory, and two assets joined the fleet for sale bringing the total to 39 (approximately 12.2% of the active fleet).
Maintenance Exposure dropped by over $205k and, while the model lost ground from an Ask Price perspective, its ETP Ratio is just over 45%. That should place a good portion of the listed fleet at an ETP Ratio below the magic 40% mark.
Seller Advice: For owners that have enrolled their engines on an Hourly Cost Maintenance Program, the opportunity to structure a decent transaction is certainly available.
Buyer Advice: These aircraft are between 13 and 21 years old, offering a decent age selection for buyers seeking good value.
Most Deteriorated Models
Two models on March’s ‘Most Deteriorated’ list – the Gulfstream GIV and the Falcon 2000 – experienced a Maintenance Exposure decrease. The Learjet 60XR posted an Ask Price increase of $68,000, while the remaining five models experienced the following decreases:
- Hawker 800A -$55,765
- Gulfstream GIV-SP (MSG-3) -$633,333
- Gulfstream GIV -$270,000
- Cessna Citation V 560 -$5,000
- Dassault Falcon 2000 -$490,556
The Hawker 800A earned the opportunity to headline the ‘Most Deteriorated’ list by posting a Maintenance Exposure increase exceeding $53k and a slightly higher Ask Price decrease. A surprising seven aircraft traded in March, leaving 47 in the inventory pool (over 18% of the active fleet). Evidently, there continues to be quite a following for this model.
Even though its ETP Ratio is approaching 175%, aircraft whose engines are enrolled on an Hourly Cost Maintenance Program should be able to shed as much as half that figure. The problem is that about 80% of the active fleet has its engines enrolled on HCMP, diminishing its value as a differentiator for sellers, somewhat.
Gulfstream GIV-SP (MSG-3)
Two aircraft traded last month leaving eight MSG-3 inventory aircraft. We were surprised to find this model on the ‘Most Deteriorated’ list, but it earned its spot through a Maintenance Exposure increase exceeding $370k and a dramatic Ask Price drop. (As has been the case with other aircraft, the price change resulted from one higher priced asset selling, and a lower priced asset joining the fleet.)
Seller Advice: We believe this model still has substantial value, especially if the aircraft’s engines are enrolled on an HCMP.
Four aircraft traded last month, leaving 13 in the for-sale pool. The new inventory mix led to a Maintenance Exposure decrease of more than $101k, but that was overshadowed by a $270k Ask Price decrease. Unlike its younger cousin, the GIV-SP, this model’s ETP Ratio is beginning to demonstrate the aircraft’s age and reduced value for buyers.
Seller Advice: Carefully consider any offer. Serious buyers are likely to be limited in number.
Cessna Citation V 560
Four aircraft transacted in March, three joined the inventory, and the 26 units for sale represent 10.4% of the active fleet. The new inventory mix raised Maintenance Exposure by nearly $111k, while the model’s $5k nominal Ask Price decrease didn’t help its cause.
With these aircraft ranging between 28 and 30 years of age, the ETP Ratio of 87% is likely to create challenges for sellers. Moving one of these models is beginning to depend on a seller’s ability to identify a buyer in the market for a disposable aircraft.
Dassault Falcon 2000
We did not register any transactions for March, but two aircraft were withdrawn and one more joined the for-sale fleet, resulting in 24 listings that equate to over 12% of the active fleet.
By virtue of these changes to the fleet mix, the model experienced a relatively small Maintenance Exposure decrease of about $21k but that was overshadowed by a substantial Ask Price drop whose principal drivers were a 25% price drop for one listing, while another high-priced aircraft stopped posting an Ask Price in March.
The group’s ETP Ratio is likely to make a number of listed assets difficult to sell at a decent price, but sellers whose aircraft are enrolled on an HCMP should have better opportunities.
Bombardier Learjet 60XR
Approximately 13.8% of the active Learjet 60XR fleet is listed for sale, amounting to 15 units. One aircraft transacted in March while two were withdrawn – but an equal number joined the inventory. The model made this list primarily due to a Maintenance Exposure increase exceeding $257k, a figure that overshadowed a $68k Ask Price increase.
With an ETP Ratio of 44.8%, sellers have ample room to structure an acceptable transaction, while buyers can derive some good values if they run sufficiently detailed analytics.
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.
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