Asset Insight's Business Jet & Turboprop Aircraft Quarterly Market Report - April 2019 see more
NAFA member, Anthony Kioussis, President of Asset Insight, shares the latest Business Jet & Turboprop Aircraft Quarterly Market Report for April 2019.
Younger assets trading well, but inventory is limited. Aging inventory decreasing average prices, widening“Ask vs. Transaction” value gap, and lowering asset quality.
Overall demand improved slightly. Welcome to the AI2 Market Report from Asset Insight, LLC. This Quarterly Market Report analyzed values for every production year of every modern make/model Business Class aircraft, and our March 31, 2019, maintenance analytics covered 96 fixed- wing models and 1,656 aircraft listed for sale.
To view the full market report, click here.
This report was originally published by Asset Insight in April 2019.
Nacelle Coverage - New Protection for Your Engine see more
NAFA member, Anthony Kioussis, President of Asset Insight, shares information on expanded Hourly Cost Maintenance Program (HCMP) coverage for your business aircraft.
As a business aircraft owner or operator, you may not know exactly which components your engine Hourly Cost Maintenance Program (HCMP) covers. Is it just the aircraft fuselage and actual engine? The nacelle (the aerodynamic engine cowl and its support system)? The nose cowls, cowl doors, and thrust reverser units? Are all line-replaceable units covered? And if so, are there any exclusions for damage such as corrosion?
When an uncovered event occurs, a villain is born – whether it’s the director of maintenance who didn’t budget a $200,000 repair to a thrust reverser unit (TRU), the principal who invited friends for a weekend in Nice but now is faced with a grounded aircraft, or the Original Equipment Manufacturer (OEM) who is happy to address the problem, but will send a costly bill to do so. All parties involved share the pain.
To avoid the financial expense, and decrease the response time required, to alleviate the problem, inform yourself so that you understand the actual coverage of your engine if it is enrolled on an HCMP (a.k.a. “Long Term Service Agreement”). Until recently, engine manufacturers excluded such hardware coverage in their HMCPs, despite having installed the subcontracted assembly built to their own specifications, with the nacelle and thrust reverser manufacturers. Recent changes should have a positive impact on aircraft reliability, asset value, annual budgeting, and your peace of mind.
Rolls-Royce has led the way by introducing its CorporateCare® Enhanced program late last year. Including nacelles for the first time, the program covers all maintenance and troubleshooting on the engine cowls, TRUs, and engine build-up on engines powering numerous aircraft, including the Bombardier Global 5000/6000, Global 5500/6500, and Gulfstream 550, 650, and 650ER. By covering repair and replacement costs, as well as key nacelle-specific service bulletins and spares, reliability of enrolled aircraft is likely to improve.
Rolls-Royce is not alone. GE recently announced that it would now also provide complete engine and nacelle coverage for the new Passport engine on the Bombardier Global 7500.
Why not simply rely on the warranty? Warranties are designed to cover severe defects, or items that break long before their designed useful life ends, causing their financial value to decrease over time. Additionally, warranties generally do not cover engine transportation costs, engine-specific logistics (e.g. an exact pre-specified truck type with a specifically designed suspension) or loaner spare parts while the component is being repaired. Expanded component coverage, which includes nacelles and TRUs, also adds to the asset’s value. The HCMP service coverage ensures that when it’s time to trade or sell the aircraft, its value remains comparable to other aircraft with such coverage. That also enables faster pre-owned transactions due to a decided market preference for aircraft covered by HCMP.
From an operational standpoint, make sure that you have such contingency plans in place when reviewing your aircraft’s annual budget. A new complete nacelle on a large cabin aircraft easily can cost more than $5 million per side, an unwelcome surprise in any fiscal year. A new TRU alone can cost more than $2 million, and unfortunately, an issue discovered on one side of the aircraft often is also found on the other side: a painful doubling of cost. Even if a component can be repaired, a repair scheme on the TRU could be in the $100,000-$200,000 range, per side.
Business aviation commands operational reliability, financial predictability, and asset value optimization, both for your own peace of mind and for a swift aircraft sale in a competitive second-hand market. Expanded HCMP coverage that includes nacelles and thrust reversers can increase your aircraft’s value while concurrently improving its re-marketability.
This article was originally published by Business Aviation Advisor on December 27, 2018.
Optimizing ROI in a depreciating asset see more
NAFA member, Tony Kioussis, President of Asset Insight, breaks down the basic elements in understanding market dynamics using objective data points.
Each day, countless organizations collect and disseminate vast amounts of data points relating to business aviation. The challenge has always been translating such data into useful, actionable and timely information. While computers can process immeasurable statistics at the speed of light, their analytical capability must be intelligently guided to generate useful conclusions, as opposed to new data points that further complicate, rather than answer, the original questions. And, perhaps even more important, computers are dispassionate workhorses that can objectively convert massive amounts of data into useful information.
Asset Quality Rating
When it comes to aircraft, one of the most basic objective analytics able to act as a planning and decision-making tool is the Asset Quality Rating – a standardized scale by which one can measure the maintenance condition of any asset.
Asset Quality Rating is comprised of 2 data points. The first one is the aircraft’s Maintenance Rating, which grades an asset’s maintenance status on a standardized scale relative to its Optimal Maintenance Condition (maintenance condition on the day it came off the production line). In very simplistic terms, the figure is computed as follows for a theoretical asset that has only 2 maintenance events:
The 2nd data point is the aircraft’s Financial Rating, which grades the asset’s financial condition on a standardized scale relative to its Optimal Maintenance Condition, meaning the aircraft’s Maintenance Rating is weighted by the estimated cost to complete each maintenance event. While the Maintenance Rating for this asset is 5.000 (see above), the asset’s Financial Rating is 2.955 by virtue of its proximity to future scheduled maintenance events (Remaining Useful Life) and the anticipated cost to complete each maintenance event (Maintenance Event Cost).
Averaging the Maintenance Rating and Financial Rating figures derives the aircraft’s Asset Quality Rating:
To simplify the Asset Quality Rating explanation we assumed the asset had only 2 maintenance events. In reality, an aircraft may have hundreds of maintenance events. Also, each aircraft must be continually compared against its own Optimal Maintenance Condition.
Using this methodology, Asset Quality Rating permits us to establish a measurement standard that can be applied to all aircraft and allows us to compare different make/model assets directly on the same measurement scale (see Pro Pilot, Aug 2018, p 14). The Asset Quality Rating scale ranges from a low of -2.500 to a high of10.000, and the significance of the figures are detailed on Table A.
The Maintenance Rating scale ranges from a -5.000 to a 10.000, while the Financial Rating scale ranges from 0.000 to 10.000. There are 2 reasons for this: 1, an operator lying on Part 91 can overrun the OEM’s “recommended” maintenance time-period, at which point the Maintenance Rating for that event would post a negative value. And 2, the financial Rating can be no less than the cost for conducting the event, therefore its value cannot go below zero.
Maintenance Equity and Maintenance Exposure
There are 2 other objective analytics that can help an aircraft owner plan an aircraft replacement strategy that optimizes their investment in the asset: Maintenance Equity and Maintenance Exposure.
Maintenance Equity represents, in financial terms, the amount of maintenance value embedded in the asset. It defines the difference between the aircraft’s maximum scheduled maintenance financial value (achieved the day the aircraft came off the production line), LESS the maintenance financial value consumed through utilization.
Maintenance Exposure represents, in financial terms, the amount of maintenance value consumed through utilization, LESS maintenance completed on the aircraft.
There is a widely-held misconception that aircraft maintenance condition deteriorates dramatically over time. While some maintenance event costs increase as the asset ages, an aircraft’s Maintenance Equity is renewed as maintenance is conducted. Table B depicts the percent-age of Maintenance Equity retained by an aircraft during its first 5 years in operation, and the percent of Maintenance Equity available during operating years 15 through 20. The initial Maintenance Equity is available due to the aircraft’s recent production date, while scheduled maintenance completion will renew the asset’s Maintenance Equity in later years.
Read full article here.
This article was originally published in Professional Pilot April 2019.