As the end-of-year trading season peaks, so do pricing expectations for many sellers. Those holding scarce inventory models are likely to benefit, but which models were the big movers and shakers in November’s used aircraft marketplace? Tony Kioussis explores…
Asset Insight’s market analysis on November 30, 2018 covering 93 fixed-wing models and 1,662 aircraft listed for sale revealed an Ask Price increase of 2.5%.
- Large Jet values improved 1.9%, with year-to-date (YTD) prices increasing 14%;
- Medium Jets gained 2.1%, but are still down 14.6% since December 2017;
- Small Jet values lost 4.4% but have gained 2.7% during 2018;
- Turboprops gained 2.9%, having inched up 0.5% this year.
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased by a substantive 4.6% (73 units), with all four groups affected. Large Jet inventory led the way with an 8.9% increase (29 units), Medium Jet inventory increased 3% (15 units), Small Jet inventories increased 5% (24 units), and Turboprop inventory increased 1.8% (five units).
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for the November inventory fleet mix is anticipated to be 2.2% higher than October’s figure, but that is only slightly worse than the 12-month best figure.
- Large Jets remained unchanged at their 12-month highest (worst) figure;
- Medium Jet transactions were of mixed asset quality, and Maintenance Exposure for the latest inventory mix decreased (improved) 0.9%;
- Small Jet changes to inventory increased (worsened) the group’s Maintenance Exposure 4.8%;
- Turboprops had the smallest change to inventory mix, but with higher asset quality aircraft trading and being replaced by aircraft of lower quality. Subsequently, Maintenance Exposure increased (worsened) by a substantive 8.5%.
Curiously, all this jockeying had no effect on the Maintenance Exposure to Price (ETP) Ratio, as it remained at 65.1% (better than the 12-month average and virtually identical to this year’s starting figure). 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 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), while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 58% longer to sell (280 versus 374 Days on Market).
- Turboprops yet again posted the lowest (best) ETP Ratio at 50.4%, which was 2.3% worse than last month’s figure;
- Large Jets followed with 60.2%, a 4% improvement from last month but still 6.2% higher for the year;
- At 66.1%, Small Jets gave up some of the very impressive gains achieved during the past two months, but the figure still reflects a 17.4% improvement over the year’s starting point;
- Medium Jets improved for the third consecutive month, but at 75.6% the group’s Ratio has increased (worsened) 16.1% this year.
Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual models fared the best and which fared the worst in October 2018…
Most Improved Models
Four of the six ‘Most Improved Models’ for November experienced a Maintenance Exposure reduction (improvement), while all experienced price increases:
- Bombardier Global Express +$1,323,000
- Bombardier Learjet 35A +$65,183
- Bombardier Challenger 601-3R +$151,667
- Gulfstream GV +$179,464
- Dassault Falcon 900 +$400,000
- Dassault Falcon 50 +$151,833
Bombardier Global Express
One Global Express transacted in November, but three more joined the inventory fleet to raise the total to 19 aircraft. While that represents a little over 13% of the fleet, sellers are bullish about their opportunities for success given the limited availability of younger, Large-Cabin, Long-Range Jets.
With a Maintenance Exposure reduction exceeding $340k and an average Ask Price increase exceeding $1.3m, this model easily topped November’s Most Improved list.
Bombardier Learjet 35A
Bombardier’s Learjet 35A was in this exact position last month and made this list for a third consecutive month primarily due to an Ask Price increase that overcame a $23k increase in Maintenance Exposure. One unit traded during the past month, but five more entered inventory and the for-sale fleet now totals 40 units.
This only represents 7.3% of the active fleet, but with the level of competitive spirit that exists within this group, we believe that price increases will be difficult for sellers to achieve in the near future.
Bombardier Challenger 601-3R
Two units transacted in November, but two more entered the fleet for sale keeping availability at five aircraft. The changes to the inventory did lower Maintenance Exposure by nearly $115k while Ask Price increased nearly $152k, helping the model make this list. While listings only represent 8.3% of the active fleet, Maintenance Exposure for available units is, on average, more than $4m.
For an aircraft of this age, its ETP Ratio (even if the asset is enrolled on an engine Hourly Cost Maintenance Program) is such that sellers probably need to locate disposable aircraft purchasers if they hope to sell their asset.
While the GV registered a decent Ask Price increase, a Maintenance Exposure reduction approaching $931k was what truly carried the day. One asset transacted in November, while four more entered inventory, increasing the available fleet to 16 aircraft.
With 8.6% of the active fleet listed for sale, and with an average ETP Ratio of 44.2%, many sellers should find sales success, especially if their aircraft’s engines are enrolled on an Hourly Cost Maintenance Program (HMCP).
Dassault Falcon 900
No trades occurred during the month of November, and availability is extremely tight for this model. Similar to the Gulfstream GV, the model’s ETP Ratio is sufficiently low to ‘statistically’ foster trades – especially for HCMP-enrolled aircraft.
However, most of the original Falcon 900s are pushing 30+ years of age so potential buyers are likely to be limited to disposable aircraft enthusiasts.
Dassault Falcon 50
Following four trades and an equal number of additions to inventory there were 24 listed aircraft at the end of November, representing approximately 10.8% of the active fleet. Nearly 75% of the active fleet is at least 30 years old, and no aircraft is younger than 23 years of age.
While sellers can certainly hope to achieve a decent price, at least one unit is priced far outside the ‘zone of probability’, and with average Maintenance Exposure exceeding $1.4m buyers will probably be limited to those requiring the Falcon 50’s airfield performance attributes.
Most Deteriorated Models
All of the ‘Most Deteriorated Models’ experienced a Maintenance Exposure increase. The Cessna Citation V (560) and Citation ISP experienced price increases of $14,036 and $32,963, respectively, while Ask Prices for the remaining four models were down as follows:
- Cessna Citation II -$1,965
- Bombardier Learjet 60 -$98,357
- Beech King Air B200 – Pre-2001 -$41,833
- Bombardier Learjet 45 -$49,917
Cessna Citation II
This model earned the title of ‘Most Deteriorated’ through a Maintenance Exposure increase exceeding $71k, along with a relatively minor loss to the inventory fleet’s average ask price. Two aircraft transacted last month, but 92 units for sale remain (approximately 16.2% of the active fleet).
Given that nearly 80% of the fleet is over 30 years old (some are pushing 40 years of age) and Maintenance Exposure is averaging $711k, one must wonder how many existing and/or potential owners are willing to sink the cost for ADS-B to meet the 2020 mandate for an asset of this ilk.
Bombardier Learjet 60
This model forged its way onto this list through an $11k Maintenance Exposure increase and an ask price decrease exceeding $98k. With an average Maintenance Exposure figure almost identical to the average ask price, buyers could potentially be looking at an investment that totals over $3m in an asset that is anywhere from 12-26 years of age.
Owners of younger Learjet 60s whose aircraft engines are enrolled on an HCMP might be able to make the numbers work. However, the prospects for sellers of older models seeking a decent price are not encouraging.
Cessna Citation V (560)
One transaction closed in November, but five units joined the inventory, increasing availability to 24 aircraft, representing 9.6% of the active fleet. The model’s Ask Price did post an increase, however a Maintenance Exposure jump approaching $84k overrode that benefit to land the asset on the most deteriorated list.
These aircraft are now 27-30 years old and today’s average buyer would be acquiring an asset whose combined Ask Price and Maintenance Exposure would equate to about $1.9m.
Assuming the aircraft is enrolled on an engine program, its HCMP-adjusted ETP Ratio could be below 40% today, and possibly during the next few years. That level of investment relative to the aircraft’s operating capability and (relatively plausible) future return should entice a certain group of buyers.
Beechcraft King Air B200 (Pre-2001)
Four aircraft traded and 53 assets (6.6% of the active fleet) were listed for sale as we closed out November. With a traditionally active market and an ETP Ratio averaging in the low forties, the Pre-2001 model King Air B200 found its way onto this list through the statistical anomaly created by a $60k increase in Maintenance Exposure along with a near $42k drop in ask price.
It is quite unlikely that savvy buyers and sellers will not be able to structure deals for assets that have historically been industry workhorses.
Bombardier Learjet 45
The model’s appearance on October’s Most Improved list was short-lived, as a Maintenance Exposure increase nearing $47k, and an even higher ask price drop earned it a spot within November’s Most Deteriorated aircraft.
No aircraft were traded during November, and one joined an inventory that totaled nine units as we closed out the month. However, when one considers that 19 APU-equipped Learjet 45s were also listed, the percentage of the total fleet on the market now exceeds 11.6%.
That could make it tougher for sellers who already find themselves in a highly competitive pricing and model selection space.
Cessna Citation ISP
Three aircraft reportedly traded in November, but five additions raised the number of inventory assets to 54. While this represents only 7.8% of the active fleet, this model’s age ranges from 33 to 41 years.
It is unknown how many listed aircraft have thus far been equipped with ADS-B. If the necessary mandates have not yet been met, that cost would need to be added to an investment approaching $1.4m between Maintenance Exposure and Ask Price.
While the Citation ISP has a well-deserved following, especially among owner-pilots, competition from higher technology, newer models may well sideline a large portion of this fleet come 2020.
The Seller’s Challenge
Buyers are focusing on the difficulty surrounding ADS-B and FANS installation due to service center capacity constraints. While the ETP Ratio does not take the 2020 mandates into account, sellers marketing aircraft lacking such equipment that also have a high ETP Ratio are unlikely to receive anything approaching a reasonable offer for their aircraft – if any offer at all.
Furthermore, those considering reducing their price to address the cost of equipage facing potential buyers should account for the ‘pain and suffering’ buyers are likely to tack on to the installation fee price reduction.
It is also 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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