Asset Insight

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – July 2019 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the July 2019 Used Aircraft Maintenance Analysis.

    How did the Beechcraft King Air 350 (Post-2000) models do? 

    Average Ask Prices for Asset Insight’s tracked fleet increased somewhat in July but values are still below the 12-month average. Asset availability rose to the highest year-to-date figure. Tony Kioussis explores which models were impacted the most…

     

    Asset Insight’s monthly market analysis covering 96 fixed-wing models and 1,693 aircraft listed for sale was most recently conducted on July 31st, 2019 and marked the fourth consecutive month of asset quality deterioration for the inventory fleet (in this case -0.6%) to post a 12-month worst Quality Rating figure.

    However, the figure did remain within the ‘Very Good’ range even after decreasing from 5.196 to 5.165 on a scale of -2.5 to 10.

    Asset Insight’s tracked fleet’s Maintenance Exposure figure (an aircraft’s accumulated/embedded maintenance expense) followed suit, rising (worsening) 3.9% to an amount only marginally better than the 12-month high (worst) figure.

     

    July’s Aircraft Value Trends

    The average Ask Price for Asset Insight’s tracked fleet increased 0.9% in July, but only Large Jets were responsible for the Ask Price increase as, following classical supply dynamics, the three groups experiencing an inventory increase registered an Ask Price decrease:

    • Large Jet values posted a 7.3% increase;
    • Medium Jets lost 2.1% in July;
    • Small Jet values decreased 4.2% to post a 12-month low figure; and 
    • Turboprops posted a record-low figure for the group by decreasing 0.9%.

     

    July’s Fleet for Sale Trends

    The total number of used aircraft listed for sale within Asset Insight’s tracked fleet posted another increase in July, 0.8% (13 units), on top of June’s 27 aircraft increase, raising inventory availability to the highest year-to-date figure.

    • Large Jet inventory, the only one to decrease, fell 1.3% (five units);
    • Medium Jet inventory increased 1.2% (six units) for the second consecutive month;
    • Small Jets posted a 0.4% increase (two units); and
    • Turboprops inventory increased 3.8% (10 units).

     

    July’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) due to July’s inventory fleet mix rose (worsened) 3.9% to a value only marginally better than the 12-month high (worst) figure, increasing to nearly $1.5m from last month’s $1.4m. Results for each of the four groups were as follows:

    • Large Jet maintenance exposure rose (worsened) 4.0% to a figure marginally better than the group’s 12-month average;
    • Medium Jet exposure rose (worsened) 0.8% to a figure slightly worse than the 12-month average;
    • Small Jets rose (worsened) 0.4% to virtually equal the group’s 12-month average;
    • Turboprops posted the only maintenance exposure decrease (improvement) of 2.1%, but that was only slightly better than last month’s 12-month worst figure.

     

    July’s ETP Ratio Trend

    As a result of all these changes, the average ETP Ratio figure increased (worsened) to 68.3% from June’s 65.4%, with all four groups contributing to the degradation.

    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 the Market (DoM) increase, in many cases by more than 30%.

    How did each group fare during the month of July?

    • Turboprops regained their leadership position by posting the lowest (best) ETP Ratio at 56.9% although, for the second consecutive month, the figure represented this group’s highest (worst) Ratio;
    • Large Jets were next at 58.5%, a substantive worsening over last month’s 52.5%;
    • Small Jets followed at 71.5%, higher than June’s 68.8%;
    • Medium Jets posted 77.3%, equating to the group’s average figure over the past twelve months.

    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 July 2019.

     

    Asset Insight Most Improved Jet Models - July 2019

     

    Most Improved Models

    All ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Although the Bombardier Challenger 601-3R and Global Express did not experience an Ask Price change the Cessna Citation V 560 had an Ask Price decrease of $24,519. The remaining three models posted the following price increases:

    • Hawker 800A    +$29,558
    • King Air 350 (Post-2000 Models) +$23,143
    • Beechcraft Premier 1A  +$18,686

     

    Hawker 800A

    After appearing on the ‘Most Deteriorated’ list in June, the model captured top spot on the ‘Most Improved’ list in July through an ETP Ratio improvement exceeding 21%, thanks to a Maintenance Exposure reduction exceeding $114k and a substantial Ask Price increase.

    Three units transacted in July, one was added, and three were withdrawn, leaving 36 listed for sale. Regrettably, nearly 26% of the active fleet remains on the market, and an ETP Ratio approaching 167% is not making the 800A a highly marketable model.

    Still, this aircraft has quite a following and, if a unit’s maintenance status is in better-than-average condition, and if the asset’s engines are enrolled on HCMP, the seller should be able to generate some genuine interest in their aircraft.

     

    Bombardier Challenger 601-3R

    While this model experienced no sales in July, and no change to posted ask prices, one higher quality aircraft joined the fleet for sale, thereby reducing (improving) Maintenance Exposure by over $445k to earn the model second position on the ‘Most Improved’ list.

    Alas, that’s where the good news ends because, even though only 6.9% of the active fleet is on the market, the model’s average ETP Ratio, at nearly 134%, is unlikely to make acceptable offers magically materialize.

     

    Cessna Citation V 560

    This model moved from the middle of the ‘Most Deteriorated’ group for June to this position in July. One aircraft transacted during the month, but two were added to the fleet for sale, increasing the inventory total to 28 (11% of the active fleet).

    The Citation V 560 gained its spot on this list by virtue of a Maintenance Exposure decrease approaching $15k, and a respectable Ask Price increase.

    Not surprisingly, its average ETP Ratio will prove troublesome for most sellers. However, owners whose aircraft is enrolled on engine HCMP coverage may fare better relative to offer price, assuming they’re able to identify a willing buyer.

     

    Beechcraft King Air 350 (Post-2000 Models)

    Generating four transactions in July, and with an ETP Ratio of only 22.6%, most sellers of this model should have little difficulty generating acceptable offers, even though current inventory represents 22.6% of the active fleet.

    This aircraft has a well-deserved following, and its place on this list was caused by a Maintenance Exposure decrease exceeding $213k, along with an Ask Price increase that may, or may not be achievable.

     

    Bombardier Global Express

    The 18 aircraft listed for sale represent 12.3% of the active fleet, and demand for this model is low at present, with no units transacting in July.

    The aircraft’s appearance on the ‘Most Improved’ list is due a Maintenance Exposure decrease for the listed fleet approaching $417k. But there were no notable price changes and the ETP Ratio is still hovering near 77% placing some sellers on the edge of the 40% Excessive Exposure demarcation point. The opportunity to generate good offers is not stellar for most owners.

     

    Beechcraft Premier 1A

    Closing out July’s ‘Most Improved’ list is the Premier 1A, which earned its place on this list through a $73k Maintenance Exposure Improvement and an Ask Price Increase. With an ETP Ratio of 44.5% - and considering that most of these aircraft have engine HCMP coverage – the news should be good for most sellers.

    Unfortunately, no units transacted in July and, by virtue of four additions to the fleet during the month, total availability presently stands at 22 units, equating to 14.3% of the active fleet. That much selection and very low demand are not transaction-conducive elements.

     

    Why was the Gulfstream GV on the 'Most Deteriorated' list for July 2019?

     

    Most Deteriorated Models

    All models on July’s ‘Most Deteriorated’ list experienced a Maintenance Exposure increase (deterioration). Two assets experienced no price change, the Gulfstream G100 and GV, while the remaining four posted an Ask Price decrease, as follows:

    • Gulfstream GIV  -$67,500
    • Bombardier Learjet 55 -$32,153
    • Dassault Falcon 900B -$1,122,500
    • Beechcraft Premier 1  -$71,950

     

    Asset Insight Most Deteriorated Jet Models - July 2019

     

    Gulfstream G100

    The model’s inventory was cut in half when two of the four aircraft listed for sale transacted in July. Demand is below average for the G100, so the change in inventory was surprising.

    What was not surprising was the model’s place on our ‘Most Deteriorated’ list, as it was well-earned, thanks to a Maintenance Exposure increase approaching $533k for the two remaining listings. Even without an Ask Price change, there was little chance for the G100 to miss this list.

     

    Gulfstream GIV

    The Gulfstream GIV found its way to the position occupied by its younger GIV-SP (MSG) cousin in June. One aircraft transacted in July and two entered inventory to increase Maintenance Exposure by nearly $458k, while the average Ask Price dropped $67.5k.

    The 14 units listed for sale equate to only 8% of the active fleet.  However, with an ETP Ratio of 143%, sellers are likely to find it challenging to negotiate acceptable transaction values, even though these older aircraft continue to have a reasonable following.

     

    Bombardier Learjet 55

    We registered no trades for this model in July, but one was withdrawn from inventory leaving 14 listings that equate to approximately 13.5% of the active fleet. With an ETP Ratio approaching a figure that only astronomers can interpret, the model is on this list due to a near $75k Maintenance Exposure increase and an Ask Price decrease exceeding $32k.

    None of this is surprising, considering these aircraft are between 32 and 38 years old. What we do find surprising is the aircraft’s ongoing buyer following, considering its age and technology.

     

    Dassault Falcon 900B

    No trades took place for this model during the month of July, but one aircraft was withdrawn from inventory leaving nine listed for sale, or about 6% of the active fleet.

    The Falcon 900B earned a place on this list for ‘technical reasons’, as an Ask Price decrease exceeding $1.1m is unlikely to keep any asset off the ‘Most Deteriorated’ list. However, this represents another case where statistics do not tell the whole story.

    Only two aircraft had a posted Ask Price in June, and one was withdrawn from the market, dramatically changing the model’s average Ask Price figure – in this case downward.  The $12k change in Maintenance Exposure is fairly benign for the Falcon 900B’s size, and the model’s 52.7% ETP Ratio makes many of the available units quite marketable.

    This is another case where statistics might point owners and buyers down a blind alley if they lack the supporting information.

     

    Beechcraft Premier 1

    Unlike the story for its younger brother, the Premier 1A (on July’s ‘Most Improved’ list), the Premier 1’s story is not as positive… but neither is it grim. One aircraft transacted in July, three were withdrawn from inventory, and two were added to the pool. When July ran out of days, we found 17 aircraft still listed for sale, or approximately 14.2% of the active fleet.

    The changes to the fleet mix led to a Maintenance Exposure increase exceeding $114k and an Ask Price decrease approaching $72k, neither statistic aiding transaction-structuring opportunities.

    However, considering these assets range in age between 14 and 18 years, and that the HCMP-adjusted ETP Ratio for many aircraft will be closer to the 40% excessive exposure demarcation point, many sellers have reason to be confident of achieving a reasonable transaction value. It should also be noted that this aircraft’s demand exceeds that of the Premier 1A. Not by much, but every little helps.

     

    Gulfstream GV

    Rounding out our ‘Most Deteriorated’ list was an unexpected model, as the GV’s ETP Ratio has been tracking well within acceptable levels, and only 13 units are listed for sale, which equates to 6.8% of the active fleet.

    Again, statistics have a way of skewing things. No aircraft traded in July, but two were withdrawn from inventory and two more joined the fleet for sale, and these changes increased Maintenance Exposure nearly $989k. Even without an Ask Price change, that level of maintenance expense variance is significant, even for this class of asset.

    We believe most sellers have strong bargaining positions in the case of this model, and buyers have a sufficient pool of assets to choose from to facilitate transactions. In fact, we wouldn’t be surprised if the GV appears on our ‘Most Improved’ list for August.

     

    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 an 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 by AvBuyer on August 20, 2019.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – June 2019 see more

    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

    Most Improved Business Jets and Turboprops - June 2019

     

    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 Private Jet

     

    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

    Most Deteriorated Business Jets and Turboprops - June 2019

     

    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.

    Gulfstream GIV-SP Private Jet

     

    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.

    Hawker 800A

    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.

  • Tracey Cheek posted an article
    In-Service Aircraft Values & Maintenance Condition see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the latest market analysis.

    Asset Insight’s April 30, 2019 market analysis covering 96 fixed-wing models and 1,684 aircraft listed for sale, revealed a 1.7% inventory increase to the tracked fleet. Large Jets experienced the greatest percentage inventory increase (a 4.6% gain), followed by Small Jets (3.5% inventory increase). Meanwhile Medium Jet and Turboprop inventory decreased 0.5% and 1.1%, respectively.

    Aircraft Values

    Average aircraft value for the tracked fleet increased just under 1% to post a figure just over $60k higher than the record low value.

    While Medium Jets posted a 12-month high figure and Small Jet values remained above their 12-month average, these increases could not overcome ask price decreases posted by Large Jets and Turboprops.

    Inventory Fleet Maintenance Condition

    Fleet asset quality improved nearly 1.2% in April while Maintenance Exposure also improved 1.4%. Overall, the tracked inventory posted the following:

    • Quality Rating was below the 12-month average, but it did manage to skirt into the ‘Excellent’ range, increasing from 5.191 in March to 5.251 for April, on Asset Insight’s scale of -2.5 to 10.

    • Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense), although below the 12-month average, improved (decreased) to $1.4m from March’s $1.42m.

    Maintenance Exposure to Ask Price (ETP) Ratio

    The ETP Ratio is a useful indicator of an aircraft’s marketability. It’s 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’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time for sale on the market increases, usually by more than 30%. During Q1 2019, assets whose ETP Ratio was 40% or more were listed for sale over 62% longer (on average) than aircraft whose Ratio was below 40% (i.e. 237 days versus 384 days on the market).

    April’s analysis also noted that 55% of all tracked models and nearly 63% of the tracked fleet posted an ETP Ratio above 40% (see Table B).  

    Our tracked fleet’s ETP Ratio posted another improvement in April, decreasing to 63.6% from March’s 66%.

    • Turboprops posted the lowest (best) ETP Ratio at 54.9% (although that reflected a worsening from last month’s 52.9% and a 12-month worst figure;

    • Large Jets improved from 62.2% to 60.2%;

    • Small Jets improved from 62% to 61.5%; and

    • Medium Jets improved from 79.5% to 72.9%.

    Large Jets

    Market Summary

    The continued increase to the inventory fleet must be worrisome for Large Jet sellers as final transaction values have shown a noticeable drop during the past few weeks.

    Small Jets also experienced an increase to the fleet for sale, but the impact on their pricing has not been as dramatic... at least, not yet.

    Large Jets April Market Summary

    Large Jet inventory increased by another 16 units, with April’s fleet mix change seeing a large number of higher quality assets enter inventory.

    Better asset quality ought to command higher pricing, but that does not appear to be the case as values are under supply pressure and there is an apparent desire by many sellers to transact while the trading climate is still favorable.

    Ask Prices decreased another 2.5% in April and are now 

    down 8.2% for the year. While the group’s ETP Ratio improved due to higher quality assets entering the fleet for sale, the improved selection is creating downward pricing pressure.

    Medium Jets April Market Summary

    Inventory for the tracked fleet decreased by three units in April, and asset quality improved an impressive 3.7% while Maintenance Exposure improved (decreased) 2.1%. If you combine those figures with a 4% price increase in April (a 12- month high figure and a 7.5% increase for the year) the result is an ETP Ratio of 72.9%, the group’s best figure since July 2018.

    Buyers and sellers are clearly finding common ground and, since 11.6% of the tracked inventory fleet is listed for sale, Asset Insight believes the traditional 10% transition point between a buyer’s and seller’s market may be shifting to a higher number.

    Click here for full report.

    This article was originally published in AvBuyer Magazine, Volume 23, Issue 6, p. 30.

  • Tracey Cheek posted an article
    Maintaining Objectivity in a Subjective World see more

    NAFA member Tony Kioussis, President of Asset Insight, discusses an appraiser's function in the valuation of an aircraft.

    We occasionally receive telephone calls that start with (what we call) the famous 4 words: "This can't be right." The caller then proceeds to explain why the figures displayed by eValues, our automated valuation system, do not match their view of the world, and the implied - if not stated - expectation is that we will correct the transgression. Knowing the artificial intelligence program running eValues is not infallible, we try to listen very carefully to ensure we understand the caller's issue. We then point out the objective path that led to our system's conclusion. 

    Most people understand that an automated system looks at everything with complete objectivity, yet some clients cannot help but "feel" that our conclusions are wrong. Feelings are fine. The problem is they provide a subjective viewpoint. Our goal is to minimize the subjectivity to the maximum extent possible, and we have programed eValues to think the same way. Subjectivity is a very slippery slope that an appraiser can follow to an unsupportable conclusion. We know. We have encountered some of these folks during expert witness testimony and their 'feel" did not serve them, or their clients, well. 

    Take, for example, aircraft exterior paint. The Asset Insight Maintenance Rating scale ranges from -2.500 to 10.000, and the rating for new paint objectively depreciates to 0.000 over 7 years. Why? Because in speaking with numerous paint facilities, that has ben the average life expectancy of aircraft paint and styling. The paint on any specific aircraft could (and many times does) exceed 7 years of service, but odds are that a buyer will adjust their offer price for the cost to repaint the aircraft if its paint looks marginal, or if the paint scheme is dated.

    We once had a discussion with an owner who believed his aircraft's paint should be rated at an 8, even though more than 15 years had elapsed since the aircraft was last painted, because the aircraft had been kept in a hangar. Well, the aircraft didn't do any of its flying inside of the hangar, but it certainly experienced the elements that affect paint, such as rain, sleet, hail and UV rays from the sun each time it flew a mission.

    Next is the issue of an aircraft's interior condition. Again, there are those who will rate their aircraft's interior much higher than the 0.000 it achieves when it has aged more than 8 years. The interior's condition could be good, but styles change, and interior colors and schemes become dated. The colors that were prevalent some years ago are probably out of fashion today, and even the TV monitors may need to be replaced with high-definition units. 

    Notice that we are not suggesting that the paint was peeling, the interior fabrics were torn, the leather was worn, or the wood on sidewalls and table-tops was damaged. In fact, the paint and interior may be perfectly acceptable to the current owner and the prospective buyer. However, unless transaction prices allow us to value the asset higher, the only objective basis that intelligence, human or artificial, can rely on is the facts. 

    Another client valuation angst is the market depreciation pace of cockpit and passenger cabin "technology," which is often valued lower than some people "feel" it should be. What many are not considering is the pace of technology obsolescence. Avionics manufacturers, along with cabin communication system OEMs, are introducing new equipment every few years. Considering capability and dependability - not to mention safety - improve with each iteration, values of aircraft not equipped with the latest technology can depreciate more rapidly than "feels" fair. But is that not to be expected? 

    Consider a scenario where you install a new avionics suite after its technology has been available for some time. A couple of months later a more advanced system is introduced, and many aircraft owners adopt it for the make/model aircraft you operate. While perhaps unfair, sellers of these newly-equipped aircraft are likely to expect more (and buyers are likely to pay more) for those assets, at the expense of aircraft equipped with your less capable system.

    One item with the potential to dramatically alter an aircraft’s value is Hourly Cost Maintenance Program (HCMP) enrollment, and the amount of value change can be influenced by several factors, and the specific level of coverage the program provides is certainly an important one. More than one level of coverage is often made available by the OEM, and there are independent companies offering such programs with differing levels of coverage. Another important factor is a program’s transferability. If it cannot be transferred at time of sale, the program holds no value for the purchaser.

    However, the primary HCMP value driver is the actual differential between what buyers are willing to pay, by make/model, for aircraft enrolled on HCMP compared to those not enrolled on a program. Also, if only 20% of your make/model fleet is enrolled on a program, don’t expect the value increase to be dramatic. On the other hand, if 80% of your make/model fleet is enrolled on a program and your aircraft is not, expect a value deduction on your asset. Why? Because your aircraft’s specification relative to HCMP coverage is clearly not preferred by most buyers. You may find a buyer who does not wish to acquire a HCMP-covered aircraft, just like you may find a buyer willing to acquire an aircraft sporting an outlandish paint scheme. However, rest assured, if they are an experienced buyer, their offer will more than likely reflect your asset’s HCMP coverage status.

    By way of seeking an increase in their aircraft’s valuation, some HCMP-covered aircraft owners point to the higher Ask Prices often sought by sellers whose aircraft are enrolled on a specific level of HCMP coverage. Regrettably, higher Ask Prices do not always translate into higher Transaction Values – the only relevant figure when it comes to valuing an aircraft.

    Lastly, maintenance condition can be a serious value driver – particularly following a major airframe inspection or engine work. While some owners “feel” that an aircraft’s valuation should increase by an amount equal to the average cost of a major maintenance event, that is usually not possible. In fact, the value applied to maintenance events will decrease over time, as will the value applied to the other items mentioned in this article, including HCMP coverage.

    As an aircraft ages, there will come a time when an engine overhaul, or even a major airframe inspection, will be more expensive than the aircraft market value. The asset’s owner may elect to invest $1 million for a double-engine overhaul, and prospective buyers may become preferentially fond of this aircraft, but that does not mean a “willing buyer” will be found who will pay $1 million above the $300k to $400k transaction price range achieved by aircraft of this make/model.

    Individually, most of these items are likely to have a negligible effect on an aircraft’s value – excepting HCMP coverage. As a group, however, even if only some of them are misinterpreted or computed by “feel,” the consequences can be an illogical and erroneous conclusion.

    An appraiser’s function is to provide “an opinion of value.” Thus, valuing an aircraft higher or lower for some specific reason is well within their job description, and their purview. At Asset Insight, when computing a figure (except in the case of an eValues calculation), we try to ensure that “reason” is based on objective factors to the maximum degree possible, just in case we’re asked to support our conclusion through expert witness testimony.

    This article was originally published in Professional Pilot Magazine, May 2019, p. 14

  • Tracey Cheek posted an article
    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.

  • Tracey Cheek posted an article
    Optimizing Value When Selling An Aircraft see more

    NAFA member, Anthony Kioussis, President of Asset Insight, shares his viewpoint on optimizing the value of your aircraft when selling it.

    Not many aircraft buyers acquire an aircraft with a specific date in mind to sell or replace an asset. While a little planning could help optimize their investment value, this thought process rarely comes into play during the exciting, and sometimes less than rational, aircraft acquisition period.

    In a recent Pro Pilot Viewpoint article (November 2018, page 10) we discussed the importance of distinguishing between "low price" and "good value" in an effort to optimize an aircraft investment at point of purchase. Let's have a look at the financial dynamics that come into play when selling the asset.

    I have yet to speak to an owner who believes their aircraft is anything but "the best" asset available for purchase when it is listed for sale. Fortunately, Asset Insight's tools allow for logic to prevail in the form of objective analytics and a standardized grading system allowing anyone to determine how their aircraft truly compares with like models listed for sale, as well as how it rates within the model's active fleet. There are also tools that make it possible to determine exactly  how any aircraft's Residual Value is affected by the estimated expense of maintenance due, as well as the appraisal value of maintenance events completed. Simply put, you may have just completed a $1 million double-engine overhaul, but it may only add $750,000 (perhaps less) based on the aircraft's age and it's "market desirability."

    Some aircraft owners, as well as inexperienced brokers, believe it is not possible to predict an aircraft's Residual Value (RV) more accurately than basing the aircraft's future value trend on the model's value degradation history. Thus, traditional RV forecasts start with an estimated Current Value, usually based on aircraft prices obtained from an industry "source." The Current Value estimate is then degraded based on the aircraft model's average historical annual depreciation percentage, and the resulting RV figures are usually presented as a line graph similar to the RV Trend line shown in Table A.

    To read the full article, please click here.

    This article was originally published in Pro Pilot magazine, February 2019, p. 10.

  • Tracey Cheek posted an article
    Seller's Market Settles in as Prices Increase and Buyers and Sellers Expectations for Price Come Tog see more

    NAFA member, Tony Kioussis, president of Asset Insight, forecasts prices to continue to increase through first quarter 2019.

    January 22, 2019 – According to Asset Insight’s Year End 2018 Market Report (AI2 Market Report), demand for late model turboprops and large jets continued to increase in the fourth quarter of 2018 and helped drive a continued seller’s market with higher average selling prices.Excellent quality “for sale” aircraft are expected to drive prices up further in Q1 2019 as buyers’ and sellers’ expectations continue to converge on selling price.

    The 4Q 2018 AI2 Market Report analyzes values for every production year of every modern make and model Business Class aircraft, while the Report’s maintenance analytics cover 94 fixed-wing models and 1,591 aircraft listed for sale.

    Other trends detailed in the 4Q 2018 Market Report include:

    • Ask Prices increased for all groups during Q4;

    • Inventory aircraft with higher maintenance exposure relative to Ask Price, spent 57%

      longer on the market than comparable aircraft;

    • Tracked fleet’s Quality Rating remained within the “Excellent” range and saw

      improvement in Q4 2018, over previous 12-month best ratings;

    • Excellent Asset Quality improves Maintenance Exposure for most groups, except for Large

      Jets as the unsold inventory’s accrued/embedded scheduled maintenance increased (worsened).

      “Q4 continued the trend with sales of high-quality, recent models driving average selling prices higher” said Tony Kioussis, president of Asset Insight, LLC. “The seller’s market continued through the end of 2018, and we are forecasting increased prices well into 2019. However, buyers should continue to research the cost for pending maintenance events.”

      Note to editors, managers and owners: Please see the bottom right corner of each category page for a concise summary of the results and conditions in that specific market segment.

      Exclusively available from Asset Insight, the AI2 Market Report includes eTrendTM, a 90-day forecast for aircraft value by make and model. This tool is especially helpful to sellers who are evaluating offers on their aircraft while concurrently considering if their prospects are likely to improve.

    Statistically, Asset Insight's eTrendTM forecasts are based on some of the most robust data analytics in the industry and have been thoroughly back-tested to confirm a significant degree of accuracy.

    To download the complete Market Report covering Q4 2018, visit www.assetinsight.com or click here.

    This press release was published on January 22, 2019 by Asset Insight.

  • Tracey Cheek posted an article
    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.

  • Tracey Cheek posted an article
    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.

     

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – October 2018 see more

    NAFA member, Tony Kioussis, President of Asset Insight, discusses which models were the big movers and shakers in October’s used aircraft marketplace. 

    With inventory asset quality at a 12-month high, and maintenance exposure at a near 12-month best, it would be difficult to conceive a better environment for aircraft trades. So which models were the big movers and shakers in October’s used aircraft marketplace?

    Asset Insight’s market analysis on October 31, 2018 covering 93 fixed-wing models and 1,589 aircraft listed for sale revealed an Ask Price increase of 3.4%.

    • Large Jet values improved 5.3%, and prices are now up nearly 12% since December 2017;
    • Medium Jets lost 1.5%, and are now down 16.4% since December 2017;
    • Small Jet values gained 7% to post a 12-month high and a 7.5% gain in 2018;
    • Turboprops remained virtually unchanged, having lost 2.3% this year.

    The total number of used aircraft listed for sale for Asset Insight’s tracked fleet increased 2.3% (36 units). Large Jet inventory did not change, Medium Jet inventory increased 3.7% (18 units) and Small Jet inventories increased 5.5% (25 units). Turboprop inventory was the only one to experience a reduction, 2.4%, equating to seven aircraft.

    As the inventory fleet’s upcoming maintenance events are expected to be less expensive, average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) slightly, nearly matching the 12-month best figure.

    • Large Jets increased (worsened) 0.5% as younger, higher-quality aircraft transacted;
    • Medium Jet transactions were of mixed asset quality, causing Maintenance Exposure to increase 1.3%;
    • Small Jet trades and fleet additions helped improve (decrease) Maintenance Exposure 1.1%;
    • Turboprops (possibly due to seller pricing concessions) helped improve the group’s Maintenance Exposure 5.9% to a 12-month best (lowest) figure.

    All this led to a Maintenance Exposure to Price (ETP) Ratio decrease (improvement) of 3% during October that, at 65.1%, was slightly better than the average figure for the past 12 months. Why is this information important?

    ETP Ratios Explained…

    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 2018 were listed for sale an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively), while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 34% longer to sell (280 versus 374 Days on Market).

    • Turboprops continued to post the lowest (best) ETP Ratio at 49.1%, reflecting a 7% improvement during the past 90 days;
    • Large Jets followed with 62.7%, a 2.3% improvement from last month but still 10.6% higher for the year;
    • With an impressive 18.7% reduction during September, and an additional 7.2% improvement in October (the group’s best figure during the past 12 months), Small Jet ETP Ratio has improved nearly 21% this year;
    • Medium Jets improved slightly in October, but the group’s ETP Ratio, at 77.5%, reflects a 19% increase during 2018 and quantifies the challenges faced by sellers within this highly competitive market sector.

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in October 2018…

    Most Improved Models

    All of the ‘Most Improved Models’ experienced a Maintenance Exposure reduction (improvement). The Gulfstream GIV-SP (MSG-3) and Bombardier Learjet 45 experienced an Ask Price reduction of $77,000 and $72,000, respectively, while the remaining models posted the following price increases:

    • Bombardier Learjet 35A (+$16,400)
    • Hawker Beechjet 400A (+$17,815)
    • Beechcraft King Air 350 Pre-2001 (+$1,071)
    • Embraer Legacy 600 (+$1,566,667)
       

    Most Improved Business Aircraft in October


    Gulfstream GIV-SP (MSG-3)

    Three retail transactions and two additions to the inventory fleet led to the model posting a near $778k Maintenance Exposure reduction (improvement) that overtook (by a factor of ten) an Ask Price decrease to earn top honor among the Most Improved models in October.

    With only 3.6% of the active fleet listed for sale, aircraft with engines enrolled on an Hourly Cost Maintenance Program (HCMP) could easily generate an HCMP-adjusted ETP Ratio below the 40% mark, improving their selling environment.

    Bombardier Learjet 35A

    The Bombardier Learjet 35A made this list for a second consecutive month by virtue of a $60k Maintenance Exposure reduction and an increased Ask Price.

    Actually achieving the price increase may be the real challenge, judging by the two October transaction, the group’s ETP Ratio, and the 36-unit inventory level (even though it represents less than 7% of the active Learjet 35A/36A fleet).

    Hawker Beechjet 400A

    The 59-unit inventory level remained unchanged in October, as one aircraft transacted, one was withdrawn, and two more assets were listed for sale. The model joined the ‘Most Improved’ list due to a $100k Maintenance Exposure reduction along with a price increase.

    However, with 18.4% of the active fleet on the market, sellers whose aircraft are not enrolled on HCMP are on the wrong side of the model’s 52.3% average ETP Ratio and must come to terms with market pricing reality if they hope to structure a deal before year-end.

    Hawker Beechjet 400A

    Beechcraft King Air 350 Pre-2001

    Only 20 units were listed for sale at the end of October, and with five units trading during the month the pre-2001 King Air 350 trading environment is very active. With only 7% of the active fleet listed for sale and considering the ETP Ratio ended October at 27.9%, sellers are definitely well-placed to secure good value.

    Interestingly, the model’s Maintenance Exposure dropped nearly $173k in October due to lower quality assets transacting, so good value is also available for buyers, assuming they understand the maintenance condition of aircraft they are considering.

    Beechcraft King Air 350

    Bombardier Learjet 45

    One aircraft sold in October and one joined the inventory to maintain the eight-unit fleet for sale. The changes reduced Maintenance Expense by a substantive $189k. More importantly, the $72k ask price reduction resulted from pricing reductions on previously listed aircraft; it was not affected by either the single unit sale or the new addition to the fleet.

    It would appear that at least some Learjet 45 owners are focused on selling their aircraft prior to year-end.

    Embraer Legacy 600 

    We were a little surprised to find the Legacy 600 on this list, but detailed analytics provide plenty of explanation. Only three inventory aircraft listed an actual selling price in September, and two of them traded in October (a third one was withdrawn from inventory).

    Of the ten listings that were left (5.3% of the active fleet), only one posted an actual Ask Price, and it was substantially higher than those posted for the two traded assets.

    Between the model’s relatively low ETP Ratio, the limited listings, and a Maintenance Exposure reduction exceeding $241k, this aircraft might have made the list even without the ‘technical Ask Price reduction’, but it goes to show how figures can be misleading without the benefit of interpretation.

    Embraer Legacy 600 Jet

     

    Most Deteriorated Models

    All of the ‘Most Deteriorated Models’ experienced a Maintenance Exposure increase, while Ask Price changes were as follows:

    • Gulfstream G100 (No change)
    • Hawker Beechjet 400 (No change)
    • Bombardier Learjet 31 (No change)
    • Cessna Citation VI (+$2,000)
    • Cessna Citation CJ2 (+$63,214)
    • Beechcraft King Air 300 (-$36,111)
       

    Most Deteriorated Business Aircraft in October


    Gulfstream G100

    No Gulfstream G100 transactions closed in October, and with one addition to the fleet the inventory stands at only three units. This might sound positive, but with production totaling only 22 units that means 13.6% of the fleet (aged between 12-17 years) is listed for sale.

    A Maintenance Exposure increase exceeding $1m is unlikely to invite buyers, let alone help sellers. The best opportunity for sellers to market their aircraft lies in identifying a ‘disposable aircraft buyer’ and coming to terms with the true (read, ‘low’) value of their asset.

    Hawker Beechjet 400

    To understand how quickly marketing opportunities can go from bad to worse, readers might recall that this model was on the ‘Most Improved’ list for September. One model transacted in October, but another joined the inventory to keep the total at five units (9.3% of the active fleet).

    The issue challenging sellers is their aging aircraft’s value since ask prices (ranging from $195k to $550k) have little negotiating room. Couple an $87k Maintenance Exposure increase to an already high ETP Ratio and it becomes clear why the Beechjet 400 is on this list.

    Bombardier Learjet 31

    One transaction closed in October, and the four remaining units represent 11.4% of the active fleet. Similar to the previous two models on this list, Learjet 31 sellers are hobbled by a lack of negotiating room when it comes to their aircraft’s value.

    Add a $76k Maintenance Exposure increase to the model’s ETP Ratio and the situation becomes virtually irrational, even if a seller is able to locate someone willing to become the asset’s final owner.

    Cessna Citation VI

    With only 36 aircraft in the active fleet, the nine listed for sale represent too large a competitive fleet for sellers to benefit. The addition of one lesser quality aircraft increased fleet Maintenance Exposure by over $100k, and the nominal Ask Price increase could not prevent the Citation VI from joining the Most Deteriorated list.

    Unlike the previous three models, sellers have some pricing room to maneuver but generating interest in this well-aged fleet will be difficult.

    Cessna Citation VI

    Cessna Citation CJ2

    Sales were non-existent during the month of August, and the listed fleet increased by over 50%. The additions increased Maintenance Exposure by over $238k, not a minor figure for this model, nor a number that a $63k average Ask Price increase could overcome.

    On the surface, opportunities for sellers do not appear good. However, the 23 aircraft available for sale represent only 9.7% of the active fleet.

    With an ETP Ratio averaging 35.1% we believe sales figures will increase once October’s newly-listed eight aircraft have had some market visibility. Prospective buyers are encouraged to act, as CJ2s representing good value are unlikely to enter 2019 as inventory.

    Beechcraft King Air 300

    No transactions closed in October, and the fleet saw three more aircraft enter inventory, raising the total to 14 units (7.6% of the active fleet). While the King Air 300 is a well-aged model, it continues to experience decent sales due to its operating performance and characteristics.

    A Maintenance Exposure increase exceeding $78k and an Ask Price reduction (due to a couple of lower priced units entering inventory) helped secure the model’s place on this list, but several inventory assets offer good value and should be quite marketable.

    Since most King Air 300 engines are not enrolled on Hourly Cost Maintenance Programs, owners marketing (or considering selling) non-HCMP aircraft nearing major engine events should be aware that the financial penalty buyers will assess is likely to exceed the cost for each overhaul.

    The Seller’s Challenge

    Aircraft are, and will continue to be, depreciating assets, making it illogical to think of how one can profit through the sale of an asset acquired five years earlier. However, one can ‘optimize’ their aircraft investment by:

    • Acquiring an aircraft, at a reasonable price, able to perform the mission requirements;
    • Correctly projecting maintenance costs during the ownership period, perhaps through Hourly Cost Maintenance Program enrollment;
    • Limiting scheduled maintenance expense (not covered through HCMP) through detailed analytics of the aircraft’s future maintenance requirement when considering its purchase;
    • Securing science-based, objective, Residual Value analyses on an ongoing and regular basis; and
    • Remarketing the aircraft at a point in time when its ETP Ratio is below 40%.

    It is also 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 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 by AvBuyer on November 13, 2018.

     

     

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis - September 2018 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares who the movers and shakers were in the September 2018 Used Aircraft Maintenance Analysis.

    As we enter Q4 2018, sellers appear to be more focused than ever on moving their aircraft. Which business jets and turboprops were the movers and shakers in September’s used aircraft marketplace?

    Asset Insight’s market analysis on September 28, 2018 covering 93 fixed-wing models and 1,553 aircraft listed ‘For Sale’, revealed an Ask Price drop of 5%. By group:

    • Large Jet values decreased 1.2% (combined loss of 9.7% during Q3);
    • Medium Jets gained 2.2% to finish Q3 up 0.9%;
    • Small Jet values lost a nominal 0.2%, but posted a 4.1% pricing gain in Q3;
    • Turboprops fell 1.1% to a 12-month low and recorded a Q3 loss of 3.4%.

    The total number of used aircraft listed ‘For Sale’ for Asset Insight’s tracked fleet decreased by 2.4% (39 units), as Large, Medium and Small Jet inventories decreased 4.7% (16 units), 4.2% (11 units) and 1.3% (six units), respectively, while Turboprops increased by 1.4% (four units).

    Average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) 4.8%, as the inventory fleet’s upcoming maintenance events are expected to be less expensive.

    • Large Jets increased (worsened) 4.9% as higher-quality aircraft transacted;
    • Medium Jet Maintenance Exposure remained unchanged as the quality of aircraft transacting was mixed;
    • Small Jet Exposure decreased (improved) a dramatic 15.8%;
    • Turboprops posted a 10.7% drop to an amount marginally worse than the group’s best (lowest) 12-month figure.

    All this led to a Maintenance Exposure to Price (ETP) Ratio decrease (improvement) of 7.2% during September that – at 67.1% - remained virtually unchanged for the quarter.

    ETP Ratios Explained

    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 2018 were listed ‘For Sale’ an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively) while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 34% longer to sell (280 versus 374 Days on Market).

    • Turboprops yet again posted the lowest (best) ETP Ratio at 50.1%, reflecting a 4.4% improvement for the quarter;
    • Large Jets followed with 64.2% (but that figure reflected a 7.4% degradation during Q3 and was the group’s highest (worst) ETP Ratio ever recorded);
    • With an impressive 18.7% reduction during September, and an 8.3% reduction during Q3, Small Jets posted the group’s best 12-month figure at 68.3%;
    • Medium Jets improved 2.5% during September, but with an ETP Ratio of 78% the group worsened by 8.2% during Q3.

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in September 2018.

    Read full report here.

    The original article was published by AvBuyer on October 16, 2018.

  • Tracey Cheek posted an article
    The difference between diminution of value and cost to cure see more

    NAFA member, Anthony Kioussis, President of Asset Insight, shares the difference between diminution of value and cost to cure.

    When an aircraft sustains any form of damage, its effect on the asset’s value must be considered. True “value diminution” occurs when an incident happens that requires maintenance or repair, such as a tug running into an aircraft or a hangar door denting the asset. Once repaired, a stigma associated with the event may lead to value diminution that follows the aircraft going forward.

    Cost to cure

    An area less understood by many, and often confused with value diminution, is “cost to cure.” Cost to cure results from an expense incurred after an incident that leads to maintenance or repair. The difference is that once the maintenance or repair takes place, the aircraft is as good as it once was – perhaps even better. It is important to remember that cost to cure does not necessarily equate to value and may not lead to a dollar-for-dollar value adjustment. Removing and replacing a wingtip mitigates the damage sustained and is a direct cost, but there is no increase to value, unless one can upgrade to a higher efficiency style wingtip. Should that be the case, the more efficient wingtip’s ability to improve fuel burn and speed may even mitigate “functional obsolescence” (the loss of value due to characteristics inherent within or to the aircraft) and increase value.

    “The challenge is determining if true value diminution has occurred and accounting for it correctly when valuing the aircraft,” explains Barb Spoor, a senior ASA (American Society of Appraisers) accredited appraiser with Asset Insight, and former chair of the ASA’s Appraisal Review & Management Discipline Committee.

    According to Spoor, numerous items must be considered. “We try to determine whether the damage was static or dynamic. In other words, was the aircraft standing still or was it in motion. Damage to the wing may be far less invasive from a tug creasing a wingtip than from the aircraft creasing that same wingtip while taxiing under its own power,” she adds.

    Has structural damage occurred?

    Another item to consider is whether structural damage has occurred. “The crease to the wingtip may be the tip of the iceberg,” according to Spoor, pointing out that there may be damage to the wing spar that required repair, an event that will likely impact the aircraft’s value, and perhaps its marketability, for the remainder of its life.

    Was the pressure vessel damaged? A bird strike on the nose cone that results in the critter terminating in the cockpit (an actual incident) is likely to have a far greater, and lasting impact – no pun intended – on the aircraft’s value than a bird ingested by an engine. “The cost to cure for the engine repair may be high, although that is often covered by insurance,” says Spoor. “But there is unlikely to be any value diminution, or even a marketing stigma, to the aircraft associated with an engine event, especially if the engine is overhauled.”

    Who performed the repair? Was it the aircraft’s manufacturer, an expert at an OEM-approved facility, or a local shop that is no longer in business? Did the OEM issue engineering drawings for a maintenance facility to conduct the repairs leading to an FAA Form 337 filing, or were the repairs conducted by the OEM, thereby negating a Form 337 filing? According to Spoor, “The more favorable perception of an OEM repair may assist in mitigating at least some of the value diminution.”

    Exactly how were the repairs completed? Was the damaged part removed and replaced, or was the part repaired and reinstalled? An aircraft sporting an aileron that was punctured and replaced is likely to be valued differently than one whose aileron was repaired and reinstalled, as the latter asset will continue carrying a part that was damaged.

    How long ago did the damage occur and when was the repair completed? “A 15-year-old aircraft that had a damaged wingtip replaced by the manufacturer during its 5th year of service is going to carry a nominal value diminution compared to an asset that received the same amount of damage during its 15th year of service while it was listed for sale,” states Spoor.

    Read full article here.

    This article was originally published in the October 2018 issue of Professional Pilot Magazine.