A 1.8% decrease in Asset Insight’s tracked aircraft inventory for sale during May erased April’s increase, at the expense of asset quality and maintenance exposure. Tony Kioussis explains.
Asset quality and maintenance exposure deteriorated 0.7% and 3.5%, respectively, during May. Before we review which models were affected the most we’ll review some other trends that emerged.
Asset Insight’s May 31 market analysis covered 96 fixed-wing models and 1,653 aircraft listed for sale. It revealed a Quality Rating below the 12-month average that also receded back into the ‘Very Good’ range, falling from 5.251 to 5.212 on Asset Insight’s scale of -2.5 to 10.
Additionally, the tracked fleet’s Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted a figure worse than the 12-month average.
May’s Aircraft Value Trends
In terms of aircraft value, three of the four tracked groups lost ground in May, although Medium Jets (the one group to increase) posted a 12-month high figure that was sufficient to boost the entire tracked fleet by 0.9%. Specifically:
- Large Jet values decreased nominally by 0.2% in May (8.3% Year-to-Date) to a 12-month low;
- Medium Jets gained 4.7% (and are up 12.6% YTD) to post a 12-month high;
- Small Jet values decreased 3.1% and are now up only 1.0% for the year;
- Turboprops sustained a 0.5% loss this month and are now down 1.9% YTD.
May’s Fleet for Sale Trends
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet decreased by 31 units in May, overtaking April’s 28 unit increase. In particular:
- Large Jet inventory posted a 2.7% decrease (10 units);
- Medium Jet inventory decreased 2.9% (15 units);
- Small Jets increased 2.1% (11 units); and
- Turboprops decreased 6.2% (17 units).
May’s Maintenance Exposure Trends
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for the latest inventory fleet mix worsened by 3.5%, increasing to $1.45m from April’s $1.40m. Results for each of the four groups were as follows:
- Large Jet Maintenance Exposure fell (improved) 4.3% to a 12-month low;
- Medium Jet Exposure worsened (deteriorated) 4.8% to post a 12-month high;
- Small Jets worsened dramatically by 20.3% to post a 12-month worst figure;
- Turboprop Maintenance Exposure increased (worsened) by 1.0%.
May’s ETP Ratio Trend
The Maintenance Exposure and Ask Price figures led to the average ETP Ratio figure for May climbing (worsening) to 69.8% from April’s 63.6%, thanks primarily to Medium and Small Jet performance. Why is this information important?
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 the Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the 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 as May came to a close?
- Turboprops have yet to concede first place, once again posting the lowest (best) ETP Ratio at 54.5%. However, this was only 0.5% better than the worst Ratio the group has ever recorded;
- Large Jets improved to 57.1% (the group’s 12-month best figure) from April’s 60.2%;
- Medium Jets finally moved out of last place, albeit with a Ratio of 77.2%, compared to last month’s 72.9%;
- Small Jets earned last place through an ETP Ratio increase to 77.7%, compared to April’s 61.6%.
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 May 2019.
Most Improved Models
Two of May’s six ‘Most Improved’ models posted a Maintenance Exposure deterioration (increase). The Gulfstream G100 registered no change in price, the Piaggio Avanti P.180 posted a $29,886 price decrease, and the remaining models posted the following:
- Dassault Falcon 2000 +$202,000
- Gulfstream GIV +$365,000
- Dassault Falcon 900B +$640,000
- Hawker 400XP +$44,014
The Gulfstream G100 leads May’s ‘Most Improved’ list, compliments of a single transaction that removed from inventory an asset with high Maintenance Exposure, thereby improving that figure by nearly $498k. This also improved the model’s ETP Ratio, thereby earning it top spot for the month, even without an increase to Ask Price.
Alas, that’s where the positive news ends. With over 18% of the active fleet listed for sale, and with the G100’s current ETP Ratio standing at 119.8%, owners of the limited number of available units (four) are not likely to see many offers.
Dassault Falcon 2000
This model registered three transaction in May. In addition, four units were withdrawn from inventory, and four aircraft entered the for-sale pool. The changes to the inventory fleet mix ultimately decreased Maintenance Exposure by over $405k and increased the Ask Price, earning the model second place on our list.
The 23 inventory units represent 10.1% of the active fleet, and at 57.3 the models’ ETP Ratio should allow many sellers to structure transactions at acceptable values.
Additionally, those owners whose aircraft are enrolled on Hourly Cost Maintenance Programs (HCMP) are likely to find their HCMP Adjusted ETP Ratio to be below the 40% mark, expanding their pool of prospective buyers.
The Gulfstream GIV appears on this list for a second consecutive month (albeit one position lower in the rankings) by virtue of a $185k Maintenance Exposure decrease and an Ask Price increase of $365k.
This model posted two sales in May, another one was withdrawn from inventory, and yet another entered the pool, resulting in 11 aircraft available for sale, representing 6.3% of the active fleet.
Time will tell if the Ask Price increase can be converted into higher transaction value, especially for an aircraft whose ETP Ratio exceeds 125%. However, as we have stated in the past, this model has a strong and justifiable, following.
Dassault Falcon 900B
Dassault Falcon 900B
No Falcon 900B units traded in May, but two were added to inventory bring the total listings to 11. However, that figure represents only 7.2% of the active fleet. With Maintenance Exposure remaining virtually unchanged with an increase of less than $2k, an Ask Price increase of $640k placed this model on the ‘Most Improved’ list for the second consecutive month and moved it up in the standings by two positions over April.
With an ETP Ratio that, at 39.7%, places the aircraft outside of the ‘excessive’ range, buyers and sellers have the tools they need to structure sales at mutually acceptable values.
No aircraft transactions had been posted for the Hawker 400XP as May closed, but seven jets were withdrawn from the ‘for sale’ pool leaving 28 listings (12.7% of the active fleet).
The Hawker 400XP earned its place on this list through a Maintenance Exposure decrease exceeding $91k and an Ask Price increase exceeding $44k, and with the model’s ETP Ratio down to 46.4%, sellers with aircraft sporting engine HCMP coverage should have substantially better transacting opportunities against non-enrolled 400XP assets.
Piaggio Avanti P.180
Asset Insight recorded one transaction for this model during the month of May, one addition to inventory, and one withdrawal from the pool, creating an availability of 14 units that (unfortunately for sellers) equates to 15.9% of the fleet.
The Piaggio Avanti P.180 earned its spot on the ‘Most Improved’ list primarily through a near $105k reduction in Maintenance Exposure. However, the model’s Ask Price decreased nearly $30k, proving the difficulties sellers are having moving aircraft whose ETP Ratio is just below 90%.
Most Deteriorated Models
All models on May’s ‘Most Deteriorated’ list experienced a Maintenance Exposure increase (deterioration) and, excepting the Cessna Citation II (whose Ask Price increased $13,304) and the Bombardier Learjet 31 (which did not register an Ask Price change), all posted Ask Price decreases, including:
- Bombardier Learjet 35A -$31,603
- Cessna Citation V Ultra -$66,500
- Cessna Citation ISP -$12,207
- Cessna Citation Bravo -$15,323
Bombardier Learjet 35A
With a Maintenance Exposure increase approaching $273k, and an Ask Price drop nearing $32k, the Learjet 35A not only found its way onto the ‘Most Deteriorated’ list for the second consecutive month but also managed to capture the worst position possible.
Only 9% of the model’s active fleet is listed for sale. But, with no aircraft trades in May, three withdrawals from inventory, four additions to the for-sale fleet, an ETP Ratio approaching 200% and 42 aircraft listed for sale, buyers can structure deals in their favor.
Seller Advice: Carefully consider all offers as buyers for this age of aircraft will be difficult to locate.
Cessna Citation V Ultra
One aircraft sold in May, but three more entered the inventory pool, and the 24 units listed for sale equate to 8.8% of the active fleet.
The model’s marketability worsened in May due to a Maintenance Exposure increase exceeding $331k along with an Ask Price drop. Having said that, we believe that sellers whose aircraft are covered by engine HCMP have a reasonable opportunity to achieve acceptable transaction values.
Bombardier Learjet 31
No transactions were recorded during the month of May for the second Learjet model on this list, but one additional unit entered the inventory bringing the total to four aircraft (13.3% of the active fleet).
The model did not incur an Ask Price change but it did post a Maintenance Exposure increase approaching $170k. With an ETP Ratio that now exceeds 157%, the aircraft’s statistics are demonstrating its age, and its limited marketability.
Cessna Citation II
Cessna Citation II
Buyers certainly have their pick of Citation II units, as 91 aircraft were listed for sale at the end of May (17.2% of the active fleet). While six units did trade in May and two listings were withdrawn, 12 more aircraft were added to the inventory.
The model’s ETP Ratio, which is approaching 127%, was created by a Maintenance Exposure increase approaching $184k, which trumped the Ask Price increase of $13k.
Buyer Advice:Make certain that what you are paying represents good value, not just a low transaction price, since you may well be the aircraft’s final owner.
Cessna Citation ISP
The third of four Citations gracing the ‘Most Deteriorated’ list this month posted one sale, one aircraft withdrawn from the market, and another joining the sales fray. As we closed on May, nearly 20% of the active fleet was listed for sale, equating to 56 units.
Between a Maintenance Exposure increase exceeding $129k, and an Ask Price decrease of over $12k, the model had little trouble earning its spot on the ‘Most Deteriorated’ list. And, with an ETP Ratio of 121%, we expect the number of transactions to remain low, absent some truly willing sellers.
Cessna Citation Bravo
Three Citation Bravos traded in May, two were withdrawn, one was added to inventory and – when the figures were totaled – 40 aircraft graced this model’s inventory (~12.5% of the active fleet).
The new inventory mix generated a Maintenance Exposure increase exceeding $227k, and an Ask Price decrease exceeding $15k, to earn the model the final place on May’s ‘Most Deteriorated’ list.
Unlike its five brethren, though, the Citation Bravo’s 58.3% ETP Ratio means that a number of sellers (especially those whose engines are enrolled on HCMP), should have sufficient room to structure a transaction.
Bombardier Learjet 35A
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 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 that 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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