As we enter Q4 2018, sellers appear to be more focused than ever on moving their aircraft. Which business jets and turboprops were the movers and shakers in September’s used aircraft marketplace?
Asset Insight’s market analysis on September 28th, 2018 covering 93 fixed-wing models and 1,553 aircraft listed ‘For Sale’, revealed an Ask Price drop of 5%. By group:
- Large Jet values decreased 1.2% (combined loss of 9.7% during Q3);
- Medium Jets gained 2.2% to finish Q3 up 0.9%;
- Small Jet values lost a nominal 0.2%, but posted a 4.1% pricing gain in Q3;
- Turboprops fell 1.1% to a 12-month low and recorded a Q3 loss of 3.4%.
The total number of used aircraft listed ‘For Sale’ for Asset Insight’s tracked fleet decreased by 2.4% (39 units), as Large, Medium and Small Jet inventories decreased 4.7% (16 units), 4.2% (11 units) and 1.3% (six units), respectively, while Turboprops increased by 1.4% (four units).
Average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) 4.8%, as the inventory fleet’s upcoming maintenance events are expected to be less expensive.
- Large Jets increased (worsened) 4.9% as higher-quality aircraft transacted;
- Medium Jet Maintenance Exposure remained unchanged as the quality of aircraft transacting was mixed;
- Small Jet Exposure decreased (improved) a dramatic 15.8%;
- Turboprops posted a 10.7% drop to an amount marginally worse than the group’s best (lowest) 12-month figure.
All this led to a Maintenance Exposure to Price (ETP) Ratio decrease (improvement) of 7.2% during September that – at 67.1% - remained virtually unchanged for the quarter.
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 34% longer to sell (280 versus 374 Days on Market).
- Turboprops yet again posted the lowest (best) ETP Ratio at 50.1%, reflecting a 4.4% improvement for the quarter;
- Large Jets followed with 64.2% (but that figure reflected a 7.4% degradation during Q3 and was the group’s highest (worst) ETP Ratio ever recorded);
- With an impressive 18.7% reduction during September, and an 8.3% reduction during Q3, Small Jets posted the group’s best 12-month figure at 68.3%;
- Medium Jets improved 2.5% during September, but with an ETP Ratio of 78% the group worsened by 8.2% during Q3.
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 September 2018.
Most Improved Models
All of the ‘Most Improved’ models shown in Table A experienced a Maintenance Exposure reduction (improvement). The Learjet 31 and Citation II experienced an Ask Price reduction of $12,500 and $19,607, respectively, while the remaining models posted the following price increases:
- Learjet 35A +$16,250
- Hawker Beechjet 400 +$47,333
- Citation ISP +83,788
- Challenger 601-3R +300,000
Bombardier Learjet 35A
Three aircraft transacted during September, leaving 38 inventory assets. While the model rightfully earned its place on this list through a Maintenance Exposure reduction exceeding $302k, along with a price increase due to inventory additions, an ETP Ratio of 180.8% is unlikely to open the transaction flood gates for sellers.
Bombardier Learjet 31
No transactions were recorded in September, with the decrease to Maintenance Exposure (nearly $232k) and Ask Price resulting from additions to the inventory fleet. While this model’s ETP Ratio is substantially better than the Learjet 35A, it is still too far into the excessive range for sellers to anticipate much in the way of exciting offers.
Hawker Beechjet 400
One below average price aircraft transacted last month, leaving five assets in inventory. One aircraft listed for sale moved from ‘Enquire’ to an ask price that exceeded all others, while a second owner reduced their ask price by nearly 30%.
The changes resulted in a Maintenance Exposure decrease exceeding $68k that, along with the model’s average ask price increase, drove down the Beechjet 400’s ETP Ratio to just over 120% and moved the model from last month’s ‘Most Deteriorated’ list to the ‘Most Improved’.
While perhaps not exciting, the model’s following and its low inventory might help sellers that are realistic about the offers they receive for their aircraft.
Cessna Citation ISP
With a Maintenance Exposure decrease (improvement) exceeding $125k, and a substantive increase in Ask Price considering the model type, the Citation ISP earned its place on this list.
Two Citation ISP aircraft traded in September, but that left 49 in the inventory fleet (17.9% of the active fleet) vying for buyer attention. There was some serious jockeying for position within the inventory group, with seven owners revising their listing to show an ask price as opposed to their previous ‘Enquire’ of ‘Make Offer’ invitation, while one owner increased their listed price by 10%.
Sellers that have their aircraft engines enrolled on an Hourly Cost Maintenance Program (HCMP) could well drive their asset’s HCMP-Adjusted ETP Ratio below the 40% ‘excessive’ mark, thereby improving their market presence and opportunities for sales success.
Bombardier Challenger 601-3R
There were two transactions in September, and there are six assets (10% of the active fleet) listed for sale. Maintenance Exposure decreased nearly $232k as a result of the changes to inventory that, along with a $300k average ask price increase, led to the Challenger 601-3R landing on the ‘Most Improved’ list.
However, the details are less rosy than they appear:
First, while one owner elected to reduce their ask price by 5%, another elected to change their pricing strategy from ‘Enquire’ to an ask price 23% higher than the model’s average.
Second, with an ETP Ratio of 144.5%, sellers are unlikely to create an adjusted HCMP ETP Ratio that even approaches the 40% ‘excessive’ level. Still, there are ‘disposable aircraft’ buyers for every make and model with whom, at some price, focused sellers can structure a transaction.
Cessna Citation II
The Citation II rounds out September’s ‘Most Improved’ list via a Maintenance Exposure decrease exceeding $180k, even though the model’s ask price decreased last month. Seven assets traded in September, but there are 91 Citation II aircraft listed for sale, approximately 16% of the active fleet.
With an ETP Ratio approximately equaling the model’s average ask price, sellers will be challenged to differentiate their asset. Some are seeking to do so via price, and seven owners revised their listing from ‘Make Offer’ to an ask price figure; three decreased their ask price (one by 30%); and four increased pricing (one to a figure that’s 41% above the model average).
The challenge, of course, is justifying any ask price, which we suspect will be difficult for some sellers.
Most Deteriorated Models
Four of the six aircraft on the ‘Most Deteriorated’ list experienced a Maintenance Exposure increase in September, while all models posted the following price decreases:
- Challenger 601-1A -$49,500
- Global Express -$1,402,500
- Gulfstream GIV-SP -$1,750,000
- Gulfstream GIV-SP (MSG3) -$1,005,500
- Premier 1 -$83,000
- Hawker 800XP -$78,956
Bombardier Challenger 601-1A
No aircraft transacted in September from this fleet, but one was withdrawn from the inventory pool, while the ask price for another unit was reduced by 35%. With only six assets listed for sale (10.3% of the active fleet), and with Maintenance Exposure increasing (worsening) by nearly $316k, one can easily see how this model won the ‘Most Deteriorated’ spot this month.
With an ETP Ratio currently at 225.5%, sellers will need to locate disposable aircraft buyers and ensure they are seated before reviewing any offer.
Bombardier Global Express
This model moved from August’s ‘Most Improved’ list to September’s ‘Most Deteriorated’ group complements of a Maintenance Exposure increase exceeding $332k, along with a considerable Ask Price decrease. Three additions to the fleet created the changes leading to the ETP Ratio increase.
There are now 18 aircraft listed for sale (12.5% of the active fleet), but that figure might be manageable for some sellers in view of the distinct lack of younger competitive models. The challenge is swallowing the offer price that most will receive, given that all these assets have crossed the ten-year mark (while some are at the twenty-year age point).
Gulfstream GIV-SP/GIV-SP (MSG-3)
The 18 GIV-SP units listed for sale represent only 6.4% of the active fleet. However, when added to the 11 listed GIV-SP aircraft operating under MSG-3 maintenance regulations, the percentage for sale totals 10.4% of the active fleet.
By itself, this level of listings should not dramatically disadvantage sellers. However, with the listed aircraft’s age ranging from 16-30 years, GIV-SP demand is not at pricing levels that make most sellers smile.
GIV-SP: One transaction was uncovered during the month of September. The model experienced a Maintenance Exposure decrease nearing $210k, but an Ask Price decrease of $1.75m more than overcame the Maintenance Exposure improvement to land the model on this list. Based on an average ETP Ratio of 83.5%, sellers whose aircraft are enrolled on an Hourly Cost Maintenance Program are more likely to locate buyers.
GIV-SP (MSG-3): No transactions were posted for the GIV-SP (MSG-3) version of the model. Like the GIV-SP, assets operating under MSG-3 regulations experienced a Maintenance Exposure decrease approaching $127k. Yet, here again, an Ask Price decrease exceeding $1m placed this version on the ‘Most Deteriorated’ list.
Sellers appear to be searching for the appropriate transaction pricing level, with a couple of aircraft moving from ‘Enquire’ or ‘Make Offer’ to an actual ask price, while two owners decreased their existing ask price. However at least one seller is of the opinion prices are rising and increased their ask price by 7% to top all other figures.
Beechcraft Premier I
The 13 listed assets in this market represent 10.3% of the active fleet, but the model ranges from 13 to 17 years of age, heavily reducing the number of buyers.
The model’s statistics are actually not that bad. While a Maintenance Exposure increase nearing $151k and an ask price decrease place it on the ‘Most Deteriorated’ list, the Premier I’s Adjusted HCMP ETP Ratio (by virtue of engine Hourly Cost Maintenance Program enrollment) could substantially reduce the figure from the 73.5% currently posted.
Sellers should also note that ask prices are within a very narrow range. Knowing exactly how their aircraft competes with other models is the best weapon sellers can hold to justify their asset’s pricing.
Like the Premier I, sellers of the Hawker 800XP can improve their ETP Ratio through HCMP enrollment. However, in the case of the Hawker 800XP, engine HCMP enrollment is crucial, as most of the 800XP fleet in enrolled on a program.
Outliers will be punished through extended Days on Market and offers that account for the buyer’s cost to enroll the aircraft, along with a penalty for the additional work the enrollment will create.
The average Hawker 800XP experienced a Maintenance Exposure increase approaching $137k, along with an ask price decrease sufficient to land the model on this list. While five aircraft transacted in September and one was withdrawn from inventory, 45 units (10% of the active fleet) are still listed for sale.
Sellers electing not to bring their aircraft up to par with its competitors are unlikely to see anything other than rock-bottom offers.
The Seller’s Challenge
As mentioned numerous times above, the challenge for sellers is understanding how their asset compares to competitive models, enabling them to place offers received into market context.
Knowing the true current and near-term Residual Value and Asset Quality of any aircraft is the only way one can justify an Ask Price or know if an offer they receive is the best they’re likely to achieve in the existing market environment.
It’s 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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