- 17 Jun 2021
- Tony Kioussis
- Market Insight
Inventory has steadily decreased over the past year and, during June, the average Ask Price for Asset Insight’s tracked fleet actually decreased 1.8%. Not all models experienced a value loss, though. Which aircraft were impacted the most? Tony Kioussis explores…Back to Articles
Asset Insight’s June 30th, 2021 market analysis covering 134 fixed-wing models revealed a 5.0% inventory contraction, equating to a year-to-date (YTD) decrease of 24.2%, as well as a 38.6% Year-over-Year (YoY) reduction. All four groups were involved.
The picked-over inventory’s Quality Rating improved for the first time in four months, rising 0.2% to 5.282, helping keep the available fleet well within the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.
The Quality figure’s increase signifies inventory assets will require slightly fewer near-term maintenance events to be completed.
June’s Aircraft Value Trends
The average Ask Price for Asset Insight’s tracked fleet decreased 1.8% in June to about the 12-month average, fueled by the three jet groups. Q2, and YTD figures were higher (2.2% and 0.7%, respectively), while YoY Ask Prices posted a minor 0.2% increase.
This is not to be confused with transaction values, as demand has led some entities seeking younger, lower time aircraft, to make unsolicited offers at above-market prices (a phenomenon primarily seen within the Large Jet sector).
June’s Fleet for Sale Trends
Overall availability for Asset Insight’s tracked models has now decreased to 7.3% of the active fleet, compared to 10.9% in June 2020. We believe availability across the entire model spectrum to be even lower.
This month’s inventory contraction (96 aircraft) was the twelfth consecutive reduction, and our tracked fleet has now decreased by 462 units YTD, equating to a 38.6% contraction since June 2020, the inventory’s peak availability month. By group, inventory decreased as follows:
June’s Maintenance Exposure Trends
Defined as the aircraft’s accumulated/embedded maintenance expense, Maintenance Exposure improved (decreased) 1.9% to $1.459m in June. The significance here is that, on average, available assets are anticipated to experience slightly fewer near-term maintenance events due to the higher Quality Rating, and the overall cost to complete those events is predicted to be (on average) 1.9% lower.
By individual group, Maintenance Exposure results were as follows:
June’s ETP Ratio Trend
The inventory fleet’s ETP Ratio improved/decreased from May’s all-time high 76.3%, to 73.5%. (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 its 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 Q2 2021, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 89% longer than assets with an ETP Ratio below 40% (281 days versus 530 days). In June, each group fared as follows…
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 June 2021.
Most Improved Models
Five of the six ‘Most Improved’ models posted Maintenance Exposure decreases (improvements), while the Dassault Falcon 20-5 registered an increase. The Cessna Citation VI did not have an Ask Price change, while the remaining five models posted the following price increases:
Cessna Citation VI
Earning top honors on our ‘Most Improved’ list this month is a model that initially entered service thirty years ago. While no changes to the Cessna Citation VI inventory fleet mix were recorded, Maintenance exposure decreased nearly $251k and, even without a price increase, the seven units (20% of the active fleet) posted an ETP Ratio change that allowed the model to earn its place here.
Whether or not that will truly help sellers of an aircraft whose ETP Ratio is nearly 110% remains to be seen, as its million-dollar average Ask Price and slightly higher embedded maintenance exposure, are unlikely to provide much room for price negotiation.
Dassault Falcon 20-5
The Dassault Falcon 20-5 managed to capture top honors on May’s ‘Most Improved’ list, and reappears in June in second position.
The fleet mix change was due to one withdrawal and two additions, but no transactions were recorded as we closed out the month. The five available units (6.0% of the active fleet) registered a Maintenance Exposure decrease approaching $164k, along with a hefty Ask Price increase.
While a single owner’s aspirational pricing may have helped the model statistically, the hurdle facing buyers and sellers is the questionable negotiating room, based on an ETP Ratio approaching 110%.
The Hawker 800A seems to appear on one of these lists virtually every other month, which is a testament to its sales activity. One aircraft retail transaction was recorded in June, along with two additions. The ten aircraft listed for sale represent only 6% of the active fleet.
The latest fleet mix lowered Maintenance Exposure by nearly $167k, while pricing increased approximately $6k to help the model attain third place on this list.
Keeping in mind that the ETP Ratio for June exceeded 134%, one wonders how much opportunity is left for sellers. Still, this aircraft’s utility and operating-cost combination is difficult to ignore, and we forecast its market appeal will continue.
From second position on May’s ‘Most Deteriorated’ grouping, the Gulfstream GIV’s appearance on one of these two lists twenty times during the past thirty months – more than any other model – should provide some indication of the ongoing market appeal of this 29-to-35-year-old aircraft.
No transactions were recorded as we closed out June, but two aircraft were withdrawn from inventory and one was added creating a seven-aircraft pool that amounts to only 4.4% of the active fleet.
The changes lowered Maintenance Exposure by nearly $392k, while the average Ask Price rose nearly $103k. Considering the average Ask Price in nearly $3 million, the model’s 114% ETP Ratio would place Maintenance Exposure at more than $3.4 million.
Assuming the Maintenance Exposure is engine-related, and the aircraft is enrolled on an engine Hourly Cost Maintenance Program (HCMP), both buyers and sellers should have a decent chance of structuring a value-based transaction.
Cessna Citation II
Another frequent flyer on one of these two lists, having made an appearance virtually every other month, is the Cessna Citation II. This jet earned its June spot through a Maintenance Exposure decrease exceeding $28k and an Ask Price increase approaching $30k.
That is not to suggest the model’s visibility is due to its marketability… No transactions were recorded in June, and its near-147% ETP Ratio was derived through an inventory mix change that included four withdrawals and five additions. This resulted in an 84 aircraft pool, equating to 17.9% of the active fleet.
With the model’s Ask Price averaging just under $600k, sellers will be limited for buyers interested in an aircraft aged between 34 to 43 years, and whose embedded maintenance exposure could raise the asset’s effective cost to nearly $1.5 million.
The Hawker 800XP rounds out June’s ‘Most Improved’ list, and continues to hold strong market interest, as proven by the four transactions recorded last month. With one inventory withdrawal, and four additions to the pool, June ended with 27 units available, or 6.9% of the active fleet – an ample selection for buyers.
Maintenance Exposure decreased more than $56k and the average Ask Price rose nearly $140k through the new fleet mix. With a near-72% ETP Ratio, many sellers should have ample opportunity to structure value-based transactions, assuming their aircraft is enrolled on an engine Hourly Cost Maintenance Program.
Sellers marketing one of the few unenrolled serial numbers are probably going to realize the cost of HCMP coverage through a value decrease that may include the buyer’s fee for ‘pain and suffering’.
Most Deteriorated Models
Five of the six ‘Most Deteriorated’ models posted a Maintenance Exposure increase in June, while the Bombardier Learjet 45 experienced a reduction. The Bombardier Learjet 45 model equipped with an APU registered no Ask Price change, while the Gulfstream G100 posted an increase of $117,500. The remaining four models experienced the following price decreases:
Cessna Citation CJ1
In sixth position this month is an infrequent member of either list – the Cessna Citation CJ1. It earned its spot through a Maintenance Exposure increase exceeding $89k, along with an Ask Price decrease approaching $58k.
One unit was withdrawn from inventory, but the competitive environment worsened a bit through four additions to the fleet and zero transactions during the month of June. Subsequently, the 16 inventory units equate to 8.2% of the active fleet, while the ETP Ratio has risen to nearly 72%.
With the average Ask Price in the range of $1.3m, prospective buyers and sellers will need to rationalize another $930k in embedded maintenance, which may not be an easy hurdle to overcome for either side.
Bombardier Learjet 45 (with APU)
Asset Insight registered two Bombardier Learjet 45 (with APU) transactions for June, and with four additions to inventory, the total listed units stood at eight, equating to 9.1% of the active fleet. The average Ask Price was unchanged, but Maintenance exposure increased more than $153k to place the model on this list.
With an ETP Ratio below 62%, sellers whose aircraft are enrolled on engine HCMP coverage should have ample opportunities to negotiate a satisfactory transaction. Having said that, listed Ask Prices are few, and they vary widely. Buyers are advised to conduct detailed research before making an offer.
Cessna Citation V 560
The Cessna Citation V’s 12-unit availability (4.8% of the active fleet) should provide an acceptable selection for buyers, and decent opportunities for sellers. Having said that, no transactions were recorded as we closed on June.
Maintenance Exposure increased by a nominal $1,501, but Ask Price fell more than $211k (by virtue of a lower priced addition to the available fleet) to earn the Citation V its place on this list. With an ETP Ratio just shy of 70%, sellers will likely have some pricing challenges – but opportunities are there for both sides to achieve value-based transactions.
Bombardier Learjet 45
From third position on May’s ‘Most Improved’ list, the Bombardier Learjet 45 made its way onto June’s ‘Most Deteriorated’ list through an Ask Price decrease approaching $228k, even though Maintenance Exposure was actually $11k below May’s figure.
Two units transacted in June by our count, while one aircraft joined the inventory fleet, creating a selection of 11 units for sale. Sellers might be happy that only 7.4% of the active fleet is listed for sale, but the average ETP Ratio’s figure, at 111%, will likely make offers that account for their aircraft’s Maintenance Exposure disappointing, if not challenging to accept.
Though younger than its GIV brother, the Gulfstream GIV-SP’s fortunes are tied together at the wingtip with its sibling, so to speak. While the G-IV made the ‘Most Improved’ list, this younger, more capable version missed earning the most deteriorated slot only by a small margin.
Nine aircraft are listed for sale, following one transaction in June; two withdrawals; and one addition to inventory. That equates to only 5.6% of the active fleet, but that’s not the problem facing sellers…
The latest inventory mix raised Maintenance Exposure by more than $850k, while the average Ask Price dropped by $50k, creating an ETP Ratio approaching 122%. Sellers whose engines are enrolled on HCMP will be the ones most likely to secure a value-based transaction.
The third Gulfstream to occupy either list is this month’s ‘Most Deteriorated’ model. The Gulfstream G100 has managed to occupy a slot in one of our two lists one-third of the time we’ve run these analytics.
It earned its current placement through a Maintenance Exposure increase approaching $58k, a figure for this class of aircraft that even an Ask Price increase approaching $118k could not overcome.
No aircraft transacted in June, but one higher quality listing was withdrawn, leaving five assets listed for sale that represent nearly 24% of the active fleet. With an ETP Ratio exceeding 134%, and an average price in the $1.7m range, the Maintenance Exposure will likely make it difficult to financially accommodate both sides of a transaction for most serial numbers.
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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