- 20 Oct 2021
- Tony Kioussis
- Market Insight
October’s aircraft sales have led to another reduction in available inventory and Ask Prices have climbed for the second consecutive month. Which models were affected the most? Tony Kioussis explores....Back to Articles
Availability of Asset Insight’s tracked fleet of business jets and turboprops has steadily and continuously decreased every month since June 2020. Year-To-Date (YTD) availability is down 41.6% (795 fewer aircraft), equating to a 48.6% Year-over-Year (YoY) reduction.
Asset Insight’s October 29, 2021 market analysis revealed the listed fleet decreased by 3.8% during October (73 units) for the tracked fleet of 134 models, reducing availability to 1,117 jets and turboprops listed for sale. There were few young, low-time units available.
The listed fleet’s Quality Rating deteriorated 0.9% during October to post a 12-month low figure, and a YoY decrease of 2.9%. The Rating remained within ‘Very Good’ territory at 5.200 but the deterioration suggests more near-term maintenance events are due for the listed fleet.
October’s Aircraft Value Trends
Average Ask Price rose 0.9% during the first month of Q4 (traditionally the industry’s strongest sales quarter). Posted Ask Prices remained 0.9% lower YTD, and were down 6.3% YoY. This makes sense when considering most listings are currently for older aircraft with a lower price point. Many of these have occupied the inventory for an extended time period.
Based on the lack of available young, low-time aircraft, and the supply chain hurdles affecting both buyers and sellers, one wonders how many aircraft are likely to transact as we close out 2021.
By individual group, the price changes were as follows…
October’s Fleet for Sale Trends
Overall availability for the tracked fleet continued to hover in the 5.6% range, with all groups losing units except for Mid-Size Jets (although that group’s availability only increased by one).
This time last year, 10.1% of the active fleet was listed for sale, creating equilibrium in the market between buyers and sellers. Presently, sellers of young, low-time aircraft may be able to dictate price and terms, but neither buyers nor sellers can overcome the supply chain hurdles affecting routine elements required to complete a transaction, such as a pre-purchase inspection.
Recent comments by airframe OEMs point to a coming increase in production figures, which would place many currently owned aircraft on the pre-owned market. But here, again, supply chain issues are affecting the OEMs’ ability to raise production.
October’s Maintenance Exposure Trends
The listed fleet’s Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) 1.5% signifying the listed fleet’s maintenance events will cost less to complete (although that expense will average 2.5% more than it did one year ago). By individual group, Maintenance Exposure figures were as follows…
October’s ETP Ratio Trend
Improving somewhat from the 78% record high (worst) figure the listed fleet posted in September, October’s ETP Ratio equated to 77.2%. Asset Insight’s market analysis also revealed that nearly half of the tracked models, and over 59% of the tracked fleet, posted an ETP Ratio greater than 40%.
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 Q3 2021, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (296 versus 545 days). In October, 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 October 2021.
Most Improved Models
Four of the six ‘Most Improved’ models experienced a Maintenance Exposure decrease (improvement), and while the Bombardier Challenger 601-3R registered no change in Ask Price, the remaining five models posted the following increases:
Cessna Citation V
In September’s report, we pointed out how statistics can, at times, be misleading using the Cessna Citation V as the example. At that time, it occupied the ‘Most Deteriorated’ list. One month later, the model finds itself atop October’s ‘Most Improved’ list where, yet again, the statistics, if not researched, can create a wrong impression.
The asset arrived here through no transactions, one withdrawal from inventory, and two additions. The problem is that one of those additions came with a posted Ask Price over four times higher than the only other posted Ask Price, thus increasing the average by nearly $653k.
While Maintenance Exposure actually increased by more than $72k, the ETP Ratio for the eight listed aircraft (3.2% of the active fleet) improved by nearly 105%. It is worthwhile noting that excluding the latest, higher priced listing, the Citation V may have remained within the ‘Most Deteriorated’ list for a third consecutive month.
Hawker Beechjet 400
To date, the Hawker Beechjet 400 has occupied one of these two lists eleven times, and has been on the ‘Most Improved’ side four times this calendar year. It arrived here in October following one sale that dropped the Maintenance Exposure by more than $126k, while increasing Ask Price by $120k.
Only three aircraft are listed for sale, but that amounts to 12.0% of the active fleet, which, coupled with an ETP Ratio of 80.3% will not be much help to sellers.
Dassault Falcon 20-5
This is the fourth appearance on one of these lists for the Dassault Falcon 20-5, and all of them have been on the ‘Most Improved’ side of the equation. Again, when only three listings create such a large ETP Ratio shift, a more in-depth review is required.
The model’s Maintenance Exposure increased by over $39k, but the Ask Price rose by nearly $727k to reduce the ETP Ratio by over 26%. The question is, what caused this apparent improvement?
It turns out the seller for the higher priced asset increased their Ask Price by nearly 5%, while the seller for the lower priced aircraft changed from a stated Ask Price to ‘Make Offer’. That change created a huge (apparent) improvement in the ETP Ratio, and earned the Falcon 20-5 its position.
The lesson is that ‘Technical reasons’ don’t suddenly make aircraft more marketable when it comes to the ETP Ratio, and such is the case here…
Bombardier Challenger 601-3R
From third position on September’s ‘Most Deteriorated’ list to a position on October’s Most Improved list may seem significant, but that is not the case when the Bombardier Challenger 601-3R’s ETP Ratio stands at 142.1%.
The asset earned it place through a single sale that reduced Maintenance Exposure by more than $392k, while the Ask Price remained unaffected.
The five listed units represent 9.4% of an aging fleet whose large cabin holds appeal to entities presumably unperturbed by potentially high maintenance costs and a higher-than-average likelihood they may become the aircraft’s final owner.
Capturing the slot held in September by its older brother, the Hawker 800A, the Hawker 800XP achieved this feat in October through a Maintenance Exposure reduction approaching $100k, along with an Ask Price increase nearing $101k.
Three aircraft trades were posted during October that, along with one withdrawal from inventory, left 15 listed units (3.8% of the active fleet). The model continues to hold strong market interest, and with the average ETP Ratio at 57%, many sellers should be able to structure value-based transactions.
Cessna Citation CJ1
Most sellers of October’s final ‘Most Improved’ model should have little trouble structuring transactions of decent value, considering the ETP Ratio of the Cessna Citation CJ1 stood at 46.2% following two sales in October that reduced availability to 3.6% of the active fleet (seven units).
Maintenance Exposure decreased over $81k and Ask Price increased $50k to derive the latest figure, and pricing is sufficiently level across the available fleet to suggest sellers are realistic about the value of their asset.
Most Deteriorated Models
All six ‘Most Deteriorated’ models posted a Maintenance Exposure increase during October. While the Beechcraft Premier 1 and the Piaggio P-180 Avanti posted Ask Price increases of $8,247 and $131,250, respectively, the Gulfstream G100 recorded no change in Ask Price. The remaining three models experienced the following decreases:
Beechcraft Premier 1
Making its eighth appearance on one of these two lists is the Beechcraft Premier I, which posted two transactions in October, along with one addition to the inventory, leaving ten aircraft listed for sale (8.6% of the active fleet).
Although Ask Price increased by $8,247, this was insufficient to cover the Maintenance Exposure increase exceeding $164k, and the resulting ETP Ratio, which stood at 84.8% as we closed October, increased sufficiently to earn the model its fourth appearance on the ‘Most Deteriorated’ list.
In what has to be some sort of odd record, the Gulfstream G100 has found its way on one or the other list on 14 occasions (half of them on the ‘Most Deteriorated’ side of the leger), and eight of ten months this year, including the last five reports.
To add insult to injury in October, the model held the ‘Most Improved’ slot on our September report. No aircraft transacted during October, but 50% of the inventory was withdrawn (translation: one of the two listed aircraft) leaving 4.8% of the active fleet on the market.
The lone inventory inhabitant held an ETP Ratio of 114.9%, complements of its Maintenance Exposure (which increase September’s average by more than $257k). There was no change to the aircraft’s posted Ask Price.
Making its ninth appearance on the ‘Most Deteriorated’ list is the Hawker 800A, which came fifth on September’s ‘Most Improved’ list.
While no transactions were uncovered for the month, one aircraft was withdrawn from inventory, while another’s Ask Price was reduced by more than 18% during October. The remaining asset mix lowered the average Ask Price by nearly $16k and raised Maintenance Exposure by nearly $135k. The effect on the ETP Ratio was a rise (worsening) to 129.1%.
Seven assets remained available for sale, which is only 4.2% of the active fleet, and as we have stated in previous reports, the model continues to enjoy a strong following. However, any seller marketing a Hawker 800A whose engines are not on an Hourly Cost Maintenance Program (HCMP) is swimming against a strong current.
Piaggio P-180 Avanti
From third place on last month’s ‘Most Improved’ list to fourth position on this month’s ‘Most Deteriorated’ group is hardly good news for sellers of the Piaggio P-180 Avanti.
With no sales in October, the model’s fortunes were altered by a single addition to the inventory fleet. That aircraft increased the model’s Ask Price nearly $132k, but also mushroomed the Maintenance Exposure by nearly $366k to hike the ETP Ratio to 117.2%.
Only seven assets are listed for sale (8.6% of the active fleet), but that will not place most sellers in a useful bargaining position.
Cessna Citation V Ultra
To achieve its fourth appearance on the ‘Most Deteriorated’ list, the Cessna Citation V Ultra merely had to sell two listed aircraft and add an asset to inventory.
The six available aircraft by the end of October only amounted to 2.3% of the active fleet. However, the change in fleet mix raised Maintenance Exposure by nearly $255k, and lowered the Citation Ultra’s Ask Price by nearly $248k to seal the aircraft’s present position.
The news is far from terrible for sellers, though, as the ETP Ratio is only averaging 55%, and any aircraft enrolled on HCMP will certainly generate an HCMP-adjusted ETP Ratio below the 40% demarcation point.
Cessna Citation ISP
Last, but certainly not least, we come to an aircraft that has visited one of these two lists on 19 occasions, and makes its ninth appearance on the ‘Most Deteriorated’ list.
Two Cessna Citation ISPs transacted in October, two were withdrawn, and seven (would you believe) were added, to create a herd of 46 assets for sale, equating to 17.2% of the active fleet. Buyers certainly have options. However, considering the model’s 143.5% ETP Ratio, few units are likely to be particularly appealing assets.
The well-aged fleet got into this position through a Maintenance Exposure increase exceeding $88k, along with an Ask Price decrease approaching $41k. The question for sellers is: how do they get out of their position?
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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