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Used Aircraft Maintenance Analysis – November 2019

Which were the most improved and most deteriorated business aircraft in November 2019, in terms of a maintenance exposure to ask price ratio - and what were the factors impacting them? Asset Insight's Tony Kioussis gives an overview.

Tony Kioussis   |   13th December 2019
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Tony Kioussis Tony Kioussis

Tony Kioussis is president of Asset Insight. The company provides audit and valuation services...
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Since December 2018, the average Ask Price for aircraft in Asset Insight’s tracked fleet has decreased 2.4%, but that figure is buoyed by a 14.4% increase in the Medium Jet sector. Which models were impacted the most during November? Tony Kioussis explores…
 
The number of inventory aircraft comprising the tracked fleet of 96 fixed-wing models increased by seven, to 1776 units as Asset Insight closed out November’s market analysis. The figure represents a year-to-date inventory increase of 11.6%, and the sixth consecutive monthly availability uptick.
 
Asset quality worsened 0.4% during the month, decreasing from October’s 5.218 to 5.198, but maintaining a Quality Rating within the ‘Very Good’ range on Asset Insight’s scale of -2.5 to 10.
 
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) equaled September’s 12-month low (best) figure of $1.36m. Together, the figures point to an inventory fleet mix that’s anticipated to have more near-term maintenance events, although these will be less expensive.
 
November’s Aircraft Value Trends
 
Receding from October’s 2.6% increase, the average Ask Price for Asset Insight’s tracked fleet fell 1.1% in November, with group performance varying as follows:
 
  • Large Jet values decreased 1.8% to remain below the group’s 12-month average;
  • Medium Jets rose an additional 1%, to a new 12-month high and a year-to-date (YTD) total of 14.4%;
  • Small Jet values remained virtually unchanged, below the group’s 12-month average;
  • Turboprop values increased another 1.4%, but this second consecutive monthly increase resulted in a figure still below the group’s 12-month average figure.
November’s Fleet for Sale Trends

The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased for the sixth consecutive month, rising by seven units during November and 11.6% (185 units) YTD. However, group performance was mixed.
 
  • Large Jet inventory decreased 1.8% (seven units);
  • Medium Jet inventory increased another 1.5% (eight units), the group’s sixth consecutive monthly increase;
  • Small Jet inventory receded 1.6% (five units); and
  • Turboprops posted the largest increase, 15 units (5.4%).
November’s Maintenance Exposure Trends

Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) improved, decreasing 5.7% to set a new 12-month low (best) figure. Individual results were as follows:
 
  • Large Jet maintenance exposure decreased (improved) 5.2% to post the group’s best (lowest) 12-month figure;
  • Medium Jet exposure worsened (increased) again, this time by 1.5% to post the group’s second consecutive 12-month high (worst) figure;
  • Small Jets fell (improved) by 16.6%, following October’s 19.3% spike;
  • Turboprop maintenance exposure remained virtually unchanged, increasing (worsening) 0.4%.
November’s ETP Ratio Trend

The latest fleet mix decreased (improved) the average ETP Ratio figure to 64.3% from October’s 70.9. The 12-month best (low) figure of 63.6% was set in April.
 
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 the Market (DoM) increase, in many cases by more than 30%.
 
During Q3 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale 76% longer than assets with an ETP Ratio below 40% (218 versus 385 DoM). How did each group fare during November?
 
  • In their ongoing competition with Turboprops, Large Jets yet again captured the top (best) spot with the lowest ETP Ratio, 53.9%, compared to October’s 57.1%;
  • Turboprops moved down one position with a Ratio of 54.1% (versus October’s 55.8%);
  • Small Jets moved up a spot into third with a figure of 67.3% (versus October’s 83.6%);
  • Medium Jets took last place at 73.6%, versus October’s, 74.2%.
Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during November 2019.
 
Asset Insight Most Improved Business Aircraft - November 2019
 
Most Improved Models
 
All six ‘Most Improved’ models revealed a Maintenance Exposure decrease (improvement). The Citation II, Citation ISP, and Citation Bravo experienced value reductions of $14,836, $2,806, and $20,238, respectively, while the remaining three models posted the following price increases:
 
  • Bombardier Challenger 601-3R $115,833
  • Beechcraft Premier 1   $107,500
  • Dassault Falcon 900B  $1,040833
Bombardier Challenger 601-3R
 
Capturing top spot on November’s ‘Most Improved’ list was Bombardier’s Challenger 601-3A, by virtue of a Maintenance Exposure decrease approaching $759k, an Ask Price increase, two withdrawn listings, one addition to inventory but, curiously, no transactions during the month.
 
The five assets listed for sale equate to only 8.9% of the active fleet, but with an ETP Ratio exceeding 112%, that is a small consolation for owners of an aircraft aged between 23 and 26 years.
 
Cessna Citation II
 
One of three Citations moving from October’s ‘Most Deteriorated’ list, the Citation II came second on November’s ‘Most Improved’ list, even with a near $15k Ask Price decrease, thanks to a Maintenance Exposure decrease approaching $196k.
 
Five aircraft transacted in November, but with listings totaling 95 units (18.5% of the active fleet), and an ETP Ratio approaching 110%, sellers need to carefully consider any offers that come their way.
 
Beechcraft Premier 1

The Beechcraft Premier 1 posted one transaction during November, and 17 assets were listed for sale when November closed (14.2% of the active fleet). With a Maintenance Exposure decrease approaching $260k, and a healthy Ask Price increase, the Premier 1 definitely earned its way onto this list.
 
Furthermore, aircraft enrolled on an Hourly Cost Engine Maintenance Program are likely to find their ETP Ratio approaching, if not below, the 40% level we consider excessive, creating decent opportunities for sellers of these 14 to 18-year-old aircraft.
 
Cessna Citation ISP

The second of three Citations on the Most Improved list posted two transactions in November. The 55 assets still listed for sale represent 19.6% of the active fleet. The aircraft’s position on this list is well-deserved, thanks to a Maintenance Exposure decrease exceeding $135k.
 
However, the model’s average Maintenance Exposure figure, and its November Ask Price decrease, led to an ETP Ratio exceeding 98% - not a scenario favoring sellers. And considering these aircraft are between 34 and 42 years old, most are at (or near) obsolescence.
 
 
Dassault Falcon 900B
 
 
Dassault Falcon 900B

While ‘technically’ the Falcon 900B belongs on this list, it achieved its position by virtue of a Maintenance Exposure decrease exceeding $13k and an Ask Price increase. However, the latter figure was caused by a new listing at twice the price of the next highest Ask Price.
 
The single November transaction left 14 assets in inventory, equating to only 8.6% of the active fleet, and with the model’s ETP Ratio averaging 32.8%, opportunities to structure value-driven transactions exist for both sellers and buyers.
 
Cessna Citation Bravo

The last Citation on the Most Improved list earned its spot through a Maintenance Exposure decrease exceeding $188k, a figure that overtook an Ask Price decrease.
 
One aircraft traded in November, and the 39 assets listed for sale represent 12.6% of the active fleet. While that figure is a bit high, the model’s 38.5% ETP Ratio should provide ample opportunities for value-related transactions.
 
 
Asset Insight Most Deteriorated Business Aircraft - November 2019
 
Most Deteriorated Models

November’s ‘Most Deteriorated’ list posted only one transaction between the six models. All member aircraft realized a Maintenance Exposure increase. One model, the Citation Excel, had an Ask Price increase approaching $94k, while the remaining five models registered the following decreases:
 
  • Hawker 1000A   -$10,000
  • Piaggio Avanti P-180   -$112,262
  • Bombardier Learjet 45 (with APU) -$216,375
  • Bombardier Learjet 55  -$10,635
  • Cessna Citation VI   -$25,167
 
Hawker 1000A

Although it generated no transactions in November, two more Hawker 1000As joined the inventory increasing the total to 11 assets, or 28.2% of the active fleet.
 
The model’s ETP Ratio deteriorated to 119.3% thanks to a Maintenance Exposure increase exceeding $115k, along with a nominal Ask Price decrease. This low production aircraft has not experienced the following other Hawkers had, making current owners strong candidates to be the final holders of their aircraft.
 
Hawker 1000A
 
 
Piaggio Avanti P-180
 
The P-180 saw no ownership changes in November, but Maintenance Exposure changes in the existing inventory fleet, along with only one existing listing posting a ‘for sale’ figure, created the opportunity necessary for the P-180 to earn this spot.
 
There are presently 11 aircraft listed for sale, equating to 12.4% of the active fleet and, with an ETP Ratio of 102.6%, there are very few prospects the model’s Ratio will come anywhere near the 40% excessive exposure figure going forward – even with Hourly Engine Maintenance Program coverage.
 
Bombardier Learjet 45 (with APU)

Another type to post no transactions during November, the 15 inventory Learjet 45s comprise 17.2% of the active fleet (when including listed assets not equipped with an APU).
 
The model’s Maintenance Exposure increased >$60k while its Ask Price decreased over $216k. The 61.3% ETP Ratio should create reasonable opportunities for some sellers, but buyers are definitely at an advantage.
 
Cessna Citation Excel
 
The only model to post a transaction among this month’s ‘Most Deteriorated’ assets, the 560XL also saw four new units enter the inventory, creating a total of 20 available aircraft (a figure equating to 5.5% of the active fleet).
 
Maintenance Exposure increased nearly $215k, but Ask Price improved almost $94k. With an ETP Ratio averaging 44.1%, these 15 to 24-year-old aircraft are quite marketable. Based on the aircraft’s following, sellers have some good opportunities while buyers have a decent selection.
 
Bombardier Learjet 55
 
The 15 aircraft comprising the ‘for sale’ fleet decreased by one last month, due to a withdrawn asset. Listings equate to 14.7% of the active fleet, and with an ETP Ratio exceeding 189%, sales opportunities are likely to be few and far between, and at a low price.
 
The aircraft earned its place on this list through a Maintenance Exposure increase approaching $21k and an Ask Price decrease approaching $11k, which are to be expected from an aircraft aged between 32 and 38 years.
 
Cessna Citation VI Private jet
 
Cessna Citation VI

The Citation VI was able to make this list through a Maintenance Exposure increase approaching $13k, along with an Ask Price decrease, thereby eroding the asset’s ETP Ratio to 135.9%.
 
The single decrease to inventory still left 17.1% of the active fleet available, and that ‘for sale’ reduction resulted from the withdrawal of a listed asset, not an aircraft transaction. With ages ranging from 24-28 years, most current owners are likely flying assets approaching obsolescence.
 
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 one.
 
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.
 
More information from www.assetinsight.com
 
 
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