Used Aircraft Maintenance Analysis – November 2020

Strong sales figures were evidenced by Asset Insight’s November 30, 2020 market analysis of 134 fixed-wing models, and 2,111 aircraft listed for sale. The analysis revealed a fifth consecutive monthly contraction (-2.9%) of Asset Insight’s tracked inventory fleet.

The continued buyer focus in all groups except for Light Jets was on lower quality assets (i.e. aircraft with more upcoming maintenance events), helping to improve the inventory fleet’s Quality Rating to set another 12-month high (best) figure (5.371). The asset quality was, thus, further propelled into the ‘Excellent’ range for all of 2020, on Asset Insight’s scale of -2.5 to 10.

November’s Aircraft Value Trends

The tracked fleet’s average Ask Price decreased for the first time in three months, but only by 0.9% (following October’s 12-month high figure). The Year-to-Date (YTD) Ask Price increase is now 0.8%. By aircraft group:

• Large Jets: Average Ask Price registered a 3.4% decrease in November, worsening the YTD loss to 12.7%;
• Mid-Size Jets: Pricing decreased 1.6% in November, but was still up 2.1% in 2020;
• Light Jets: Posted another decrease in November, this time 3.0%, lowering the group’s YTD gain to 4.6%; and
• Turboprops: Lost 1.7% for November, dropping the YTD figure 0.8% into negative territory.

November’s Fleet for Sale Trends

With Asset Insight’s tracked fleet posting its fifth consecutive monthly decrease in availability (-63 units), YTD inventory was down by 3.3% (-71 units) compared with December 2019.

• Large Jets: Inventory increased 0.4% (two units), and is currently up 14.8% since December 2019 (64 units).
• Mid-Size Jets: Inventory for the second consecutive month posted the largest unit decrease among the four groups with a 3.9% reduction of 24 units. That represented a fifth consecutive monthly reduction, and Mid-Size Jet inventory is now down 11.4% YTD (75 units).
• Light Jets: Inventory decreased for the fifth consecutive month. November’s decrease was 3.3% (20 units), contributing to a YTD inventory decrease of 7.8% (50 units).
• Turboprop: By posting its fourth consecutive monthly decrease, Turboprop inventory decreased by 4.6% in November (21 units), while, YTD, inventory had fallen 2.2% (10 units).

November’s Maintenance Exposure Trends

Buyer focus on assets with more upcoming maintenance events (lower Quality Rating) had an unexpectedly positive impact on Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for all but the Light Jet category.

The resulting figures, by group, were as follows:

• Large Jets: Improved/Decreased another 0.3% during November to a figure better than the 12-month average.
• Mid-Size Jets: Improved by 1.4% to post a 12-month low/best figure.
• Light Jets: Worsened/Increased 3.1% to post the group’s 12-month worst/highest value.
• Turboprops: Improved an additional 1.1% to post the group’s second consecutive 12-month low/best figure.

November’s ETP Ratio Trend

The tracked inventory’s ETP Ratio worsened/increased to 70.1%, which was slightly worse than the 12-month average. It compares negatively with October’s 69.8% figure.

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) increases, in many cases by more than 30%.

During Q3 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale 50% longer than assets with an ETP Ratio below 40% (269 days versus 404 days). How did each group fare during November?

• Turboprops: For the past twelve months, Turboprops have registered the best/lowest ETP Ratio, and November’s 40.6% was the group’s third consecutive best 12-month Ratio.
• Large Jets: Came second with an ETP Ratio of 59.4% - better than the group’s 12-month average, and an improvement over October’s 61.8%.
• Mid-Size Jets: Rose very slightly to 69.0% from October’s 12-month low/best 68.9%, but the group has registered quite an improvement YTD from January’s 87.4%.
• Light Jets: Posted a record high/worst figure at 102%, primarily due to buyer preference for higher quality aircraft. That testifies to a different acquisition thought process than buyers in the other three groups.

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 2020.

Most Improved Models

All six of the ‘Most Improved’ models posted Maintenance Exposure decreases (improvements) in November. Although the Bombardier Learjet 31 did not register a price change, the remaining five models experienced the following price increases:

• Gulfstream GIV: +$130,625
• Gulfstream GIV-SP: +$392,500
• Bombardier Learjet 40XR: +$120,500
• Cessna Citation II: +26,927
• Dassault Falcon 2000: +$181,515

Gulfstream GIV

What a difference a month can make. After earning October’s ‘Most Deteriorated’ slot, the Gulfstream GIV achieved November’s top spot on the ‘Most Improved’ list, thanks to a Maintenance Exposure decrease exceeding $321k and an Ask Price increase approaching $131k.

Asset Insight registered one GIV transaction in November and one inventory withdrawal, but three more assets joined inventory to create an 18-unit troop, equating to 11% of the active fleet.

Even though the model’s 163% ETP Ratio is substantial, operators continue to display interest in this aging workhorse, and new buyers may still be able to sell their acquisition five years from now for a respectable residual value, compared to current transaction values.

Gulfstream GIV-SP

The second Gulfstream on this list also occupied a slot on October’s ‘Most Deteriorated’ grouping, and the Gulfstream GIV-SP’s 97.6% ETP Ratio reflects its difference in age to the GIV. The model earned its position on this list through a Maintenance Exposure decrease exceeding $288k, and an Ask Price increase nearing $393k.

One November transaction was recorded, and the 17 inventory units account for only 8.2% of the active fleet. Accordingly, sellers should be able to do well, especially if their aircraft’s engines are enrolled on an Hourly Cost Maintenance Program (HCMP).

Bombardier Learjet 40XR

The first of two Learjets is no stranger to both the ‘Most Improved’ and ‘Most Deteriorated’ list, having taken next to last place on our ‘Most Deteriorated’ list in October. A single Bombardier Learjet 40XR sale in November, along with a new listing carrying an Ask Price substantially above the other listings led to the positive statistics.

A total of three aircraft were added to inventory, bringing availability to 12, or 13% of the active fleet. Maintenance Exposure decreased more than $232k, and Ask Price increased to nearly $121k.

Keeping in mind the average ETP Ratio for inventory units is in the 58% range, current owners whose aircraft are under engine HCMP coverage should see their HCMP-Adjusted ETP Ratio fall below the 40% demarcation point.

Cessna Citation II

After capturing the final slot on October’s ‘Most Improved’ list, the Cessna Citation II moved up two places this month through a Maintenance Exposure decrease exceeding $33k and an Ask Price increase approaching $27k.

One unit traded in November, four more joined the inventory, and the fleet of 83 units available for sale spells trouble for sellers, creating a target-rich environment for buyers. Now, 16.8% of the active fleet is listed for sale. With the ETP Ratio equating to 134.5%, sellers are advised to think hard before turning down offers.

Dassault Falcon 2000

No transactions were recorded for November, but two Dassault Falcon 2000 jets joined the ‘for sale’ fleet bringing availability to 24 units (10.7% of the active fleet). The two additions decreased Maintenance Exposure nearly $341k and increased ask price by almost $182k, placing the Falcon 2000 on November’s ‘Most Improved’ list.

With an ETP Ratio of 60.5%, one would hope that at least some sellers would have decent pricing opportunities. Those whose aircraft engines are enrolled on HCMP will. Those with uncovered engines, not so much.

The problem here is that this model is powered by an orphan engine that carries a high overhaul cost, making any aircraft that is not enrolled on engine HCMP problematic for buyers and sellers to reach an acceptable transaction figure.

Bombardier Learjet 31

The second of two Learjets on November’s ‘Most Improved’ list earned its place via a Maintenance Exposure decrease exceeding $45k. There was no change to Ask Price, and no Bombardier Learjet 31 jets traded. One listed asset was withdrawn, and the three remaining inventory units equated to approximately 10% of the active fleet.

The problem comes when examining the model’s ETP Ratio, which stood at 190.1%. That means that if a buyer pays, say, $500k for one of these aging assets, they also have to deal with embedded maintenance in the region of $950k, which is a challenging figure to justify.

Most Deteriorated Models

All six models on November’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Cessna Citation CJ1+ and the Bombardier Challenger 601-3R registered no Ask Price change, while the remaining models experienced the following:

• Bombardier Learjet 31A: -$14,258
• Bombardier Global 5000: -$3,877,500
• Beechcraft King Air 300: -$141,300
• Cessna Citation ISP: -$46,213

Bombardier Learjet 31A

Two aircraft transacted in November, one was withdrawn, and two joined the inventory, which created a mix that increased Maintenance Exposure by more than $41k while lowering the Ask Price over $14k. That was enough to earn the Bombardier Learjet 31A its place on November’s ‘Most Deteriorated’ list.

At the end of the month, inventory totaled 35 units (18.1% of the active fleet), and the average ETP Ratio exceeded 122%. Put simply, most sellers are likely to have virtually no bargaining position when it comes to their aircraft.

Cessna Citation CJ1+

The Cessna Citation CJ1+ stumbled onto this list by posting a Maintenance Exposure increase of more than $210k following the sale of one unit, the addition to inventory of another, and registering no change to the model’s Ask Prices.

However, the six aircraft listed for sale account for just 5.9% of the active fleet, and, even with the ETP Ratio climbing from 34% to 43.3%, most sellers should have little trouble negotiating a fair price for their aircraft.

Bombardier Global 5000

The Bombardier Global 5000 is another model that found its way onto this list for ‘technical’ reasons. It posted no trades during November, but two units did join the inventory raising the total to 20 (8.5% of the active fleet). This figure should provide a decent selection for buyers, while retaining good opportunity for sellers to obtain value for their asset.

The average Maintenance Exposure figure for listed units increase by nearly $282k, while Ask Price dropped by $3.88m, in another example of how statistics can be misleading.

Of the 20 listed units, only two aircraft posted an Ask Price for each of the past two months. The aircraft carrying October’s higher Ask Price changed to ‘Make Offer’ in November, while one aircraft without a price in October published one in November that was substantially lower – hence the Ask Price differential.

With an ETP Ratio of 35.8%, the aircraft’s capabilities, and its market following, we believe sellers hold a very good hand with respect to transaction value.

Beechcraft King Air 300

One aircraft transacted in November, and the remaining 14-unit Beechcraft King Air 300 inventory equated to 7.5% of the active fleet, so availability should not be an issue for either buyers or sellers. What brought the model onto the ‘Most Deteriorated’ list was a Maintenance Exposure increase exceeding $102k, and an Ask Price decrease of over $141k.

Those figures raised the King Air 300’s ETP Ratio to 56.2%, which could create challenges for some sellers, particularly as HCMP is not sufficiently common on this model to be a sought-after differentiator.

Cessna Citation ISP

Five Cessna Citation ISP jets traded in November, while four more joined the inventory. The 53 units listed for sale equate to nearly 20% of the active fleet. Creating the aircraft’s 139.5% ETP Ratio was a Maintenance Exposure increase approaching $32k, and an Ask Price decrease exceeding $46k.

You’ve got to hand it to Cessna for creating an aircraft with a continued following after so many flight hours and years in service. Clearly, buyers still feel there is life left in these birds.

Bombardier Challenger 601-3R

With no transactions for the month, November’s ‘Most Deteriorated’ spot was captured by the Bombardier Challenger 601-3R, a model which held top spot on the 'Most Improved' list in October. It arrived here through the addition of one un-priced unit to inventory that increased Maintenance Exposure by more than $400k.  

Only six aircraft are listed for sale, which equates to a respectable 10.7% of the active fleet. The problem for sellers is the model’s ETP Ratio, whose 140.7% cannot be helped by anything other than a buyer wishing to acquire a piece of aviation history.

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 HCMP 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.

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