NAFA member, Tony Kioussis, President of Asset Insight, shares the June 2019 Used Aircraft Maintenance Analysis.
Average Ask Prices for Asset Insight’s tracked fleet decreased in June to just above the 12-month low figure while asset availability rose near to April’s YTD high. Tony Kioussis explores which models were impacted most.
Asset Insight’s June 30, 2019 market analysis covering 96 fixed-wing models and 1,680 aircraft listed for sale, revealed a Quality Rating only slightly better than the 12-month worst figure, but remained within the ‘Very Good’ range after decreasing from 5.212 to 5.196 on a scale of -2.5 to 10.
At the same time, our tracked fleet’s Maintenance Exposure figure (an aircraft’s accumulated/embedded maintenance expense) improved 3.1% last month, and 1.1% for the second quarter of 2019.
June’s Aircraft Value Trends
The average Ask Price for Asset Insight’s tracked fleet fell 1.1% in June, as all four groups lost ground:
- Large Jet values posted a new record low figure, decreasing 5.5% in June and 8% during Q2;
- Medium Jets lost 1.3% over the last 30 days but registered a 7.5% overall increase during Q2;
- Small Jet values decreased 1.2% for the month and 1.8% for Q2; and
- Turboprops suffered their third consecutive monthly Ask Price decrease, posting a record-low figure with a 1.6% reduction, and a total decrease of 2.4% during Q2.
June’s Fleet for Sale Trends
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased by 27 units in June.
- Large Jet inventory increased 5.9% (21 units);
- Medium Jet inventory increased 1.2% (6 units);
- Small Jets was the only group whose inventory decreased (0.5%, or 3 units); and
- Turboprops increased 1.2% (3 units).
June’s Maintenance Exposure Trends
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for June’s inventory fleet mix improved 3.1%, decreasing to $1.4m from May’s $1.45m. Results for each of the four groups were as follows:
- Large Jet maintenance exposure rose (worsened) 0.2% to remain just above the 12-month low figure. For Q2 the maintenance exposure improved 7.1%;
- Medium Jet exposure fell (improved) 4% in June and 1.4% during Q2;
- Small Jets posted a dramatic 11.4% reduction (improvement), but maintenance exposure ended Q2 6.7% higher;
- Turboprop maintenance exposure increased (worsened) 2.5% in June and 6.3% during Q2.
June’s ETP Ratio Trend
Based on June’s maintenance exposure and ask price changes, the average ETP Ratio figure decreased (improved) to 65.4%% from May’s 69.8%, with all but the Turboprop group contributing to the improvement. Why is this information important…?
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 2019 were listed for sale an average 71% longer than aircraft whose Ratio was below 40% (226 days versus 386 days on the market, respectively).
By comparison, during Q1 2019 aircraft whose ETP Ratio exceeded 40% took 62% longer to sell (237 versus 384 Days on Market).
How did each group fare during the month of June?
- For the first time ever, Large Jets posted the lowest (best) ETP Ratio at 52.5% (which was also the group’s 12-month best figure);
- Turboprops were not in first place for the first time since Asset Insight has been keeping records, due to the group’s all-time highest (worst) ETP Ratio at 56.6%;
- Small Jets were third with a Ratio of 68.8%; and
- Medium Jets improved slightly by decreasing to 75.2%.
Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual business jet and turboprop models fared the best and worst during June 2019.
Most Improved Models
All of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Interestingly, the Bombardier Learjet 31 did not experience an Ask Price change, while the Bombardier Learjet 35A, Cessna Citation ISP and Cessna Citation II experienced decreases of -$46,073, -$1,690 and -$30,399, respectively. Only two models posted price increases. They were:
- Cessna Citation V Ultra +$179,385
- Bombardier Learjet 45 (APU equipped) +$395,875
Bombardier Learjet 31
The Learjet 31 leads our ‘Most Improved’ list after placing second from the bottom on May’s ‘Most Deteriorated’ list. Although no aircraft traded in June, the model captured this spot complements of a Maintenance Exposure decrease (improvement) for the listed fleet that exceeded $226k.
Nevertheless, while only four aircraft (11.5% of the active fleet) are listed for sale, the asset’s 118.6% ETP Ratio holds about the same minimal hope for sellers during the coming months as it did in June.
Bombardier Learjet 35A
In terms of a statistical recovery, it doesn’t get much better than the Learjet 35A’s leap from worst on May’s ‘Most Deteriorated’ list to the model’s ranking in June – and it’s all thanks to a Maintenance Exposure decrease exceeding $265k (a figure that overshadowed a substantive ask price decrease).
One aircraft transacted in June, and two joined the inventory fleet to increase that number to 43. That only represents 8.6% of the active fleet, but the aircraft’s ETP Ratio (170.3%) is unlikely to find buyers for too many sellers.
Cessna Citation ISP
Three aircraft transacted in June, three were withdrawn from the market, and three were added to an inventory mix that now totals 53 units (19.9% of the active fleet). The model earned its way onto the ‘Most Improved’ list through a Maintenance Exposure reduction exceeding $131k, and the inventory fleet also posted a slight Ask Price decrease.
The resulting ETP Ratio – approaching 102% - combined with high availability of this well-aged fleet is unlikely to generate sudden purchasing exuberance.
Cessna Citation II
From May’s ‘Most Deteriorated’ list to June’s ‘Most Improved’ grouping, the Citation II’s reversal of fortune appears impressive – until you start to peel back the technical onion: No trades occurred during the month of June; the asset’s Ask Price dropped over $30k; 94 aircraft are listed for sale (16.8% of the active fleet); and the ETP Ratio stood at 109.1%, even after a Maintenance Exposure decrease approaching $148k.
While a 17.7% one-month ETP Ratio decrease technically earned the model a place on this list, it’s unlikely to aid sellers seeking to dispose of a Citation II.
Seller Advice: Carefully consider all offers, as prospective buyers will be few in number and are unlikely to be negotiation motivated.
Cessna Citation V Ultra
Sellers of this model have some opportunities, especially if their aircraft’s engines are enrolled on an Hourly Cost Maintenance Program. No aircraft transactions were posted for the Citation V Ultra in June, but one unit was withdrawn from the inventory and three were added, resulting in 26 aircraft listed for sale (8.4% of the active fleet).
With the model’s average ETP Ratio falling below 65% by virtue of a Maintenance Exposure decrease exceeding $89k and an Ask Price increase exceeding $179k, both buyers and sellers have an opportunity to structure transactions offering good value.
Bombardier Learjet 45 (APU-equipped)
As with three other models on June’s ‘Most Improved’ list, we captured no transactions during the month of June. The 17 aircraft in inventory, when added to listed Learjet 45 units that are not APU-equipped, represent approximately 10.8% of the model’s active fleet.
With the model experiencing a Maintenance Exposure decrease exceeding $67k, along with a sizeable Ask Price increase, the resulting average ETP Ratio should make many listed units (especially those enrolled on an engine HCMP) quite marketable – assuming a willing buyer can be located.
Most Deteriorated Models
All but two models on June’s ‘Most Deteriorated’ list (the Hawker Beechjet 400 and Hawker 800A) experienced a Maintenance Exposure increase (deterioration), and all six asset types posted Ask Price decrease, as follows:
- Hawker Beechjet 400 -$125,250
- Gulfstream GIV-SP (MSG3) -$947,500
- Cessna Citation V 560 -$7,538
- Hawker 800A -$73,714
- Beechcraft King Air 350 (Pre 2001) -$97,019
- Beechcraft King Air C90 -$21,228
Hawker Beechjet 400
The model earned the ‘Most Deteriorated’ position for June through a Maintenance Exposure increase exceeding $11k and an Ask Price reduction exceeding $125k. Only four aircraft are presently listed for sale (10.1% of the active fleet), and two aircraft traded during the past 90 days.
However, at nearly 152%, the model’s ETP Ratio is too high for even engine Hourly Cost Maintenance Program coverage to help much on the valuation front – although it may make the asset slightly more appealing.
Gulfstream GIV-SP (MSG3)
We were somewhat surprised to find this model on the ‘Most Deteriorated’ list, but it earned its way here through a $570k Maintenance Exposure increase along with an Ask Price decrease approaching $945k. One aircraft traded in June and the seven remaining in inventory represent only 8.6% of the entire GIV-SP active fleet.
As we have cautioned in previous reports, whenever a limited number of units are listed for sale, changes to one or two assets can radically alter the view. In this case, only two aircraft are posting an Ask Price and one asset dropped its price by nearly 22% in June.
This model may be on the ‘Most Deteriorated’ list, but with an ETP Ratio of 60.3%, and with many units enrolled on engine HCMP, many sellers should have the opportunity to entertain reasonable offers.
Cessna Citation V 560
Two units transacted in June, and the 27 inventory assets represent 10.2% of the active fleet. The model’s Maintenance Exposure increased nearly $117k in June, while value decreased as a result of two sellers lowering their Ask Price.
The problem here is the aircraft’s economic usefulness and its ETP Ratio – neither of which is assisting its marketability.
The single trade we uncovered during the month of June left 40 aircraft listed for sale (16.4% of the active fleet). The model actually posted an almost $33k maintenance exposure decrease in June, but that was overshadowed by an Ask Price decrease of more than twice that magnitude.
The real problem affecting sellers of these assets is how far prices have fallen leading to the model’s 188.1% ETP Ratio. Since most of this fleet is enrolled on engine HCMP, there few levers (other than price) that sellers can engage to help them compete for the limited number of buyers.
Beechcraft King Air 350 (Pre 2001)
The King Air 350 was another model we were surprised to see on this list, especially since its ETP Ratio is 44.4%. However, price reductions to a couple of listed assets, along with a Maintenance Exposure increase approaching $138k earned the asset its recognition.
Three units traded in June and the 21 aircraft listed for sale now represents 5.3% of the active fleet. Many sellers should be well-positioned to negotiate a decent price, while many buyers will find sufficient selection to maintain the model’s fairly robust trading environment.
Beechcraft King Air C90
The story is a little different for the King Air C90, and we recorded no trades for the month of June with one addition to inventory. With 50 aircraft listed for sale (13.1% of the active fleet), buyers hold the stronger hand.
The King Air C90 earned its spot on this list through a Maintenance Exposure increase approaching $18k and an Ask Price drop exceeding $21k that, combined, raised the model’s ETP Ratio past 124%.
Considering that we’re dealing with aircraft aged between 37 and 48 years, the ETP Ratio is unsurprising. What is surprising is the sudden deterioration this relatively popular model has experienced.
The Seller’s Challenge
It is 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 its 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.
More information from www.assetinsight.com
This article was originally published in AvBuyer on July 17, 2019.