- 18 Feb 2021
- Tony Kioussis
- Market Insight
Continuing a trend dating back to July 2020, Asset Insight’s tracked inventory fleet posted another reduction in February, although the decrease was much smaller than in recent months. Which business aircraft were impacted the most? Tony Kioussis explores…Back to Articles
Asset Insight’s February 28, 2021 market analysis covering 134 fixed-wing models, and 1,737 aircraft listed for sale revealed an eighth consecutive monthly contraction (0.5%) of the tracked fleet for sale.
A decrease in market transactions had a nominally positive effect on the Quality Rating, improving it to 5.354 from January’s 5.348, keeping the for sale fleet within the ‘Excellent’ range for the thirteenth consecutive month (based on Asset Insight’s scale of -2.5 to 10).
February’s Aircraft Value Trends
The tracked fleet’s average Ask Price increased 1.4% in February, following three consecutive monthly declines. By category, however, the results were mixed:
February’s Fleet for Sale Trends
Following seven consecutive monthly decreases in availability, Asset Insight’s tracked fleet posted another 0.5% reduction (nine units) during February, with only 8.3% of the active fleet being listed for sale.
February’s Maintenance Exposure Trends
Following the Quality Rating’s path, Maintenance Exposure, an aircraft accumulated/embedded maintenance expense, improved (decreased) by another 0.2% in February. This shows that upcoming maintenance events for the listed fleet will be slightly less expensive.
All four groups improved/decreased, and individual figures were as follows…
February’s ETP Ratio Trend
The overall tracked inventory’s ETP Ratio increased/worsened to 73.5%, a figure just shy of the 12-month high (worst) value.
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 increases, in many cases by more than 30%.
During Q4 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale 64% longer than assets with an ETP Ratio below 40% (277 days versus 454 days). How did each group fare during February?
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 February 2021.
Most Improved Models
Four of the six ‘Most Improved’ models for February posted Maintenance Exposure decreases (improvements), while the Hawker Beechjet 400 and Cessna Citation Excel 560XL recorded an Exposure increase of $1,063 and $9,054, respectively. All six models showed price increases, including:
February’s top spot went to the Hawker 800XP, complements of a substantially positive change in both its Maintenance Exposure and Ask Price, the former decreasing (improving) by over $57k, while the latter rose by nearly $232k.
Four Hawker 800XPs transacted during February, and another was withdrawn from the inventory. However, six units joined the listings, raising availability to 36 aircraft (9.1% of the active fleet).
On the surface, the level of availability should not cause a problem for sellers. However, the listed fleet’s 77.4% ETP Ratio may do. Owners whose engines are not enrolled on an Hourly Cost Maintenance Program (HCMP) are likely to pay a significant penalty, considering the fleet enrollment level is around 80%. That will make HCMP the expected standard for most buyers
Hawker Beechjet 400
Capturing second place on the Most Improved list is another Hawker model – and this one held the Most Deteriorated spot in January. The Hawker Beechjet 400 gained its elevated status when the only two sellers increased their asset’s Ask Price, and these overtook a nominal Maintenance Exposure increase for each.
No trades were recorded in February, and the two inventory assets equate to 6.9% of the active fleet. While these figures usually suggest a seller’s advantage, the model’s 128.1% ETP Ratio, and the fleet’s age, indicate otherwise.
Cessna Citation XLS
One transaction had been recorded as we closed February, and with two aircraft withdrawn from the listed fleet, the available Cessna Citation XLS inventory amounted to only five units (or 1.7% of the active fleet). Sellers clearly hold the stronger hand here, particularly when one takes into account an ETP Ratio under 27%, resulting from a Maintenance Exposure decrease approaching $286k in February.
Buyer Tip: Anyone seeking one of these aircraft should be prepared to pay the seller’s price, rather than miss out on the opportunity to acquire their preferred asset.
After occupying a slot on January’s Most Deteriorated list, the Gulfstream G200 found its place on February’s Most Improved list through a Maintenance Exposure decrease exceeding $276k, and an Ask Price increase exceeding $21k.
Two aircraft transacted in February, but four joined the inventory, raising availability to 20 units (8.4% of the active fleet).
While the average ETP Ratio ended the month at 48.5%, many sellers, especially those whose engines are enrolled on HCMP, will hold a decent hand when it comes to price negotiations – though buyers do have a decent selection available to them. This market has the making of mutually-beneficial values for both sides in a transaction.
Bombardier Global Express
Two Bombardier Global Express aircraft transacted in February, and the remaining 13-strong inventory equate to 9.2% of the active fleet. The model made it onto the Most Improved list through a Maintenance Exposure improvement (decrease) exceeding $377k, along with an Ask Price increase of more than $270k.
With the model’s ETP Ratio at 59.4%, some sellers are likely to be disappointed by the offers they receive. However, as we have pointed out in previous reports, this model still offers operational and financial value, and it has a sufficient following for sales to occur.
Cessna Citation Excel 560XL
Last on this auspicious list is a model that was quite active during February, registering five transactions. After accounting for four additions to the inventory, Cessna Citation Excel availability stood at 18 units, or 5.0% of the active fleet.
The model’s 54.4% ETP Ratio, resulting from a Maintenance Exposure deterioration (increase) exceeding $9k will challenge the Ask Price increase approaching $274k. But this model is highly marketable, as long as sellers have market-based pricing in mind.
Most Deteriorated Models
All six models on February’s ‘Most Deteriorated’ list posted a Maintenance Exposure increase. The Cessna Citation V Ultra registered an Ask Price increase of $14,016, while the remaining five models experienced the following price decreases…
The first model on February’s Most Deteriorated list occupied the top spot on our Most Improved list in January. The fall from grace for the Gulfsream GIV resulted from one transaction that was posted after we closed out the January analysis, one addition to the inventory fleet, and no further transactions in February.
The change in fleet mix left the same number of units (14) listed for sale (8.6% of the active fleet) and, more importantly, increased Maintenance Exposure by nearly $157k, while lowering the average Ask Price by over $11k.
The ETP Ratio has now climbed to 143.4%, and although we think the model still has some operational and financial runway left, potential buyers need to consider the very real possibility they could become the asset’s final owner.
Bombardier Learjet 60
One Bombardier Learjet 60 transaction was posted for February, and three additions to the inventory fleet, ‘helping’ earn the model its position on this list.
There are now 30 units listed for sale, equating to 10.5% of the active fleet. That may not sound bad, until you note the model’s ETP Ratio, now exceeding 120%, perpetrated by a Maintenance Exposure increase approaching $119k and an average Ask Price decrease nearing $6k.
With production ceasing on the Learjet line, we anticipate further price erosion for this very capable asset, which, in turn, perhaps will raise demand.
Bombardier Learjet 60
Cessna Citation V Ultra
The Cessna Citation V Ultra was in this same position for January’s review. It retained its place with a Maintenance Exposure increase nearing $127k, which overtook an Ask Price increase exceeding $14k.
Three aircraft transactions were recorded during February, and the 22 units remaining on the market equate to 8.3% of the active fleet. The 67.1% ETP Ratio is bound to create pricing hurdles for some sellers, but opportunities do exist for transactions – and at values that benefit both parties.
The Nextant 400XTi is a re-engineered aircraft from the airframe of the Hawker Beechjet 400A, and there are presently 35 units in operation. Two aircraft changed owners in February, and following three additions to inventory, plus one withdrawal, four assets remained listed for sale (representing 11.4% of the active fleet).
The revised fleet mix earned the model its position on this list through a Maintenance Exposure increase approaching $105k, and an Ask Price decrease of $500k. However, the news is actually quite good for sellers.
The model’s Ask Price change was due to the withdrawal from inventory of the highest-priced aircraft. Based on that change primarily driving the higher ETP Ratio, and considering that the model’s Ratio is only 33%, sellers should have a good opportunity to extract good value from the sale of their asset.
One aircraft was withdrawn from the Hawker 800A inventory last month, and one was added. No transactions were recorded. Hence, the 13 units comprising the present availability equate to 7.6% of the active fleet; an availability figure that, under different circumstances, would offer decent opportunities for sellers.
Unfortunately, compared to its younger brother topping February’s Most Improved list, the 800A’s fortunes are nowhere near as good, based on an ETP Ratio approaching 168%. That high Ratio was orchestrated by a Maintenance Exposure increase exceeding $95k, along with an Ask Price decrease exceeding $24k.
Keeping in mind the average listed aircraft’s Ask Price is about $422k, the model’s ETP Ratio means that a prospective buyer would be acquiring an asset with nearly $709k of embedded maintenance.
If that maintenance applies to the aircraft’s engines, and they are enrolled on HCMP, the seller still has a fighting chance of finding a buyer.
Cessna Citation ISP
From second-best on January’s Most Improved list to the Most Deteriorated position in February – that is the story of the Cessna Citation ISP. With 46 units listed for sale (17.0% of the active fleet), and an ETP Ratio of 145.4%, owners of these face an uphill challenge in the pre-owned market.
A Maintenance Exposure increase exceeding $92k, along with an Ask Price decrease exceeding $8k resulted in the model earning its rock-bottom spot on February’s Most Deteriorated list.
However, considering the average age of these assets, perhaps the bigger surprise would be the position it held on the Most Improved list in January.
The Seller’s Challenge
It is important to understand that an aircraft’s 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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