- 19 May 2022
- Tony Kioussis
- Market Insight
For the second consecutive month, inventory for Asset Insight’s tracked fleet increased. Ask Prices rose and are now nearly 40% higher than they were in December 2021. Which models were affected the most during May? Tony Kioussis explores…Back to Articles
Asset Insight’s tracked business aircraft fleet increased by another 28 units in May, or 3.9%. Listings are still down 14.7% Year-to-Date (YTD), but the 134-model tracked fleet for sale increased to 754 aircraft during the month.
Total inventory remains ~55% lower than the June 2020 peak, but there are ample signs that traditional aircraft buyers are taking delivery of new-production units, and that should start helping increase the number of pre-owned aircraft listed for sale.
Following four consecutive monthly improvements, the listed fleet’s Quality Rating decreased slightly to 5.303, following April’s 12-month best 5.347 on our scale of -2.5 (low) to 10 (high). That still left the fleet within ‘Excellent’ range but indicated more near-term maintenance events are coming due for listed assets. May’s Quality Rating also represented a 1% improvement Year-over-Year (YoY).
May’s Pre-Owned Aircraft Value Trends
Average Ask Price increased 5.2% in May, following April’s 4.2% decrease, and is now up 39.8% YTD and 10.6% YoY. So called ‘off-market’ aircraft – mostly young, low-time units, continue transacting at higher prices without a formal listing, but we expect their number will decrease as availability rises.
By category, the Ask Price changes for tracked models were as follows…
May’s Fleet for Sale Trends
Availability for Asset Insight’s tracked fleet may have increased to 3.3% from April’s 3.2%, but that simply means 5.4 units per model were available, versus 5.3 units in April. Demand continues to be plentiful, as are the number of first-time buyers when compared to one year ago (when inventory equated to 8% of the active fleet).
Turboprops and Large Jets are presently the most marketable aircraft among the four groups. As mentioned, traditional corporate buyers are starting to take delivery of factory-new aircraft. However, shifting to a ‘balanced’ market from one controlled by sellers, as is presently the case, will require a substantial production increase by the OEMs, which won’t occur this year.
Large Jet marketability, as it pertains to maintenance status, has improved quite dramatically over the past four months. The group’s Quality Rating decreased 6.4% in May following April’s all-time high (best) 5.987. May’s 5.601 still leaves the group in ‘Outstanding’ territory, though, and also represents a 0.5% improvement YoY.
At 5.140, the group’s Quality Rating remained within ‘Very Good’ range, but was worse than the 12-month average and nearly 3.9% worse YoY.
The group’s Quality Rating worsened a minor 0.2% following April’s 12-month high/best Rating, but the 5.347 Rating kept Light Jets within ‘Excellent’ territory, and reflected a 5.3% improvement YoY.
The Quality Rating rose 3.4% in May and 0.5% YoY to 5.187, bringing Turboprops back into ‘Very Good’ territory.
May’s Maintenance Exposure Trends
Maintenance Exposure (the cost of embedded/accrued maintenance) decreased in May – the first improvement over the past quarter. While it was slightly higher YoY, the change signified that upcoming maintenance events would be 2.7% less expensive to complete. By group, the Maintenance Exposure figures were as follows…
May’s ETP Ratio Trend
May’s Maintenance Exposure improvement/decrease and Ask Price increase improved the average ETP Ratio to a 12-month low 61.5% from April’s 68%. All four groups were favorably affected.
A useful indicator of an aircraft’s marketability, the ETP Ratio is computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price. ‘Days on Market’ (DoM) analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time on the market increases, usually by more than 30%.
During Q1 2021, assets whose ETP Ratio was 40% or higher were listed for sale more than 62% longer on average than aircraft whose Ratio was below 40% (500 versus 308 DoM). For May, over 43% of the tracked models, and nearly 50% of all listed aircraft, posted an ETP Ratio above the 40% excessive mark, with each group faring 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 pre-owned business jet and turboprop models that fared the best and worst during May 2022.
Most Improved Models
Four of this month’s ‘Most Improved’ models experienced a Maintenance Exposure decrease, while the Hawker 800A and the Bombardier Learjet 60XP each posted an increase.
The Beechcraft King Air C90 posted an Ask Price decrease of $4,836, and the Bombardier Learjet 55 saw no Ask Price change. The remaining four models registered the following price increases:
Beechcraft King Air C90
Having completed four transactions in May, the Beechcraft King Air C90 managed to capture top honors, after featuring in fourth place on April’s ‘Most Deteriorated’ list. The dramatic improvement came following a Maintenance Exposure decrease exceeding $116k, overwhelming an Ask Price decrease approaching $5k.
Sellers would view the 23% ETP Ratio improvement as brilliant, were May’s Ratio not above 113%. Having said that, with only 4.1% of the active fleet listed for sale (14 units), buyers have relatively little inventory to choose from while sellers can price their aircraft knowing that availability is limited.
Through five sales and two additions to the listed fleet, the Hawker 800A dramatically improved its position in May, having occupied the penultimate spot on April’s ‘Most Deteriorated’ list.
May’s inventory changes increased/worsened Maintenance Exposure by nearly $37k, but that hurdle was easily overcome by an Ask Price increase exceeding $233k. Eight units (5.1% of the active fleet) do not offer much selection for buyers, and that may truly help sellers, as all these figures left the model’s ETP Ratio at 93%.
Socata TBM 700A
The sale of two unlisted aircraft, one inventory withdrawal, and two additions left eight Socata TBM 700A units listed for sale (8.3% of the active fleet). Maintenance Exposure decreased by over $94k and Ask Price increased more than $86k to earn the TBM 700A third place on this month’s ‘Most Improved’ list.
While an ETP Ratio of 50.4% is above the 40% ‘excessive’ demarcation point, the model has a strong industry following, and that should help sellers navigate their way to some value-based pricing.
Bombardier Learjet 55
The Bombardier Learjet 55 has made it onto this report six times during the past twelve months. It earned its spot on this month’s ‘Most Improved’ list through a Maintenance Exposure decrease approaching $87k, even though there was no change to the model’s Ask Price.
Three units transacted in May leaving six inventory aircraft for sale (6.5% of the active fleet), and that generated a reduction to the model’s ETP Ratio, which, incidentally, still exceeded 153%.
While it’s easy to think that a low price is the only possible deal-creator for one of these aging workhorses, the lack of inventory may actually be a greater aid for sellers.
Beechcraft King Air B200 (pre-2001 models)
Five transactions during the month, plus one addition to the inventory pool, created the ETP Ratio reduction necessary for the Beechcraft King Air B200 models built before 2001 to join May’s 'Most Improved' list – it’s third-ever appearance here.
Maintenance Exposure improved/decreased by nearly $84k, while Ask Price increased more than $111k, dropping the ETP Ratio to 42.2%.
With a Ratio just above the 40% hurdle, and with only 2.7% of the active fleet listed for sale, most sellers clearly hold a strong hand. The fact that 20 aircraft are formally listed for sale also helps buyers with reasonable availability.
Bombardier Learjet 60XR
Rounding out May’s ‘Most Improved’ chart is the Bombardier Learjet 60XR, which earned this spot mostly on technical grounds.
Statistically, Maintenance Exposure increased nearly $51k, while the Ask Price increased $975k to earn the model its place on this list. However, when only one listed aircraft carried an Ask Price in April, and a new listing entered the picture in May with an Ask Price that’s 66% higher, one has to wonder if such a large Ask Price increase can be achieved – even in the current market.
One aircraft transacted in May, while three joined the inventory. The 11 subsequent listings equate to 9.9% of the active fleet – a bit high considering current overall availability, and perhaps not truly indicative of the model’s marketability.
Most Deteriorated Models
Five of the six ‘Most Deteriorated’ models posted a Maintenance Exposure increase, while the Bombardier Learjet 35A registered a decrease. From an Ask Price perspective, the Cessna Citation XLS and Hawker 1000A had no Ask Price change, while the average Ask Price for Bombardier Challenger 601-3A increased $327.5k.
The remaining three models posted the following decreases:
Cessna Citation Sovereign
We seriously doubt that any seller is facing challenges marketing their Cessna Citation Sovereign, considering that only three units are listed for sale (less than 1% of the active fleet), three were sold in May, two were withdrawn, and two other aircraft joined the ‘for sale’ pool.
All these changes led to a $62k Maintenance Exposure increase, and an Ask Price drop exceeding $2m. This combined to increase the model’s ETP Ratio nearly seven points to 23.5%.
So why the dramatic Ask Price drop, you ask? May’s three sales included the only aircraft posting an Ask Price. Of May’s two inventory additions, one aircraft listed an Ask Price, and it was 25% less than the sold unit. If you’re a bit confused, you’re not alone…
Bombardier Learjet 35A
The Bombardier Learjet 35A has appeared on about 25% of these reports, two-thirds of the time on the ‘Most Deteriorated’ side of the ledger.
It earned its place in May (falling from fifth place on April’s ‘Most Improved’ list) despite a Maintenance Exposure decrease exceeding $32k, thanks to an Ask Price decrease of more than $51k.
One aircraft sold in May, one was withdrawn, and three joined the ‘for sale’ pool to leave 27 aircraft available to buyers (7.3% of the active fleet). Of course, the only thing that really matters to sellers is the model’s 177.6% ETP Ratio – the likely reason for the lone sale figure.
One Beechcraft King Air 300 was sold in May, one was withdrawn from inventory, and two were added to create a pool of six units listed for sale (3.2% of the active fleet). These inventory changes raised Maintenance Exposure by nearly $103k and lowered the average Ask Price by more than $155k, thus raising the ETP Ratio to 44.5%.
While admittedly above the 40% excessive mark, the asset’s industry following and low inventory level will create less problems for sellers than the Rating might otherwise suggest.
Cessna Citation XLS
While statistics placed the Cessna Citation XLS on May’s ‘Most Deteriorated’ list, sellers listing one of these assets have little to worry about. Case in point: Four aircraft were sold in May and, while one joined inventory, only three assets were listed for sale when we closed the month – less than 1% of the active fleet.
The model’s ETP Ratio, 20.1%, resulted from a Maintenance Exposure increase approaching $741k along with no change in Ask Price. These figures should worry only buyers who will be seeking a model whose listings offer limited selection.
This limited production model has appeared on one of our reports a total of seven times, and occupies May’s penultimate position on the ‘Most Deteriorated’ list due to a Maintenance Exposure increase approaching $302k with no change in Ask Price.
No Hawker 1000A transactions were recorded by the time we closed out May, but one more aircraft did join the inventory pool to leave six assets listed for sale (18.8% of the active fleet). As a result, the model’s ETP Ratio rose to 105.9%, creating an asset whose average embedded maintenance exceeds the average Ask Price, making it difficult for any seller to justify their aircraft value.
Bombardier Challenger 601-3A
Occupying May’s ‘Most Deteriorated’ position is the Bombardier Challenger 601-3A, a model that landed here after being on April’s ‘Most Improved’ list.
Ask Price actually increased by $327.5k, after the less expensive of two priced units was withdrawn from inventory. With another unit selling, the three-aircraft pool was reduced to one asset in May whose Maintenance Exposure created a differential exceeding $1.4m, sealing the model’s fate.
The single listed asset represents less than 1% of the model’s active fleet in a market devoid of large cabin jets. However, the model’s 163.3% ETP Ratio is unlikely to increase its market appeal much.
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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