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  • NAFA Administrator posted an article
    Used Aircraft Maintenance Analysis – August 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the August 31, 2020 market analysis revealing a second consecutive monthly inventory decrease to the tracked business aircraft fleet, along with a 2.1% Ask Price increase.

    As August ended, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,281 aircraft listed for sale equated to a 2.1% inventory fleet decrease compared to July, reducing the year-to-date (YTD) increase to 4.5%...

    Moreover, the tracked fleet’s Quality Rating increased 0.7%, posting a 12-month best figure, and the latest ‘for sale’ fleet mix registered a 0.2% decrease to the anticipated cost for upcoming maintenance events. August’s 5.329 Quality Rating moved the inventory further into the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.

    August’s Aircraft Value Trends

    The average Ask Price increased 2.1% in August, reducing the tracked fleet’s value decline since the start of 2020 to 3.0%. By aircraft group, the figures were as follows:

    • Large Jets: Posted a 0.4% reduction, for a YTD loss of 12.2%.
    • Medium Jets: The only group posting an Ask Price increase in August, pricing rose another 2.8% to bring the YTD loss down to 1.1%.
    • Small Jets: The one group to hold a YTD price increase, Small Jet prices were down 2.5%, reducing their increase for the year to 6.5%.
    • Turboprops: Ask Prices were down a nominal 0.1% in August, and are now off by 2.5% for 2020.

    August’s Fleet for Sale Trends

    The tracked fleet’s total number of aircraft listed for sale decreased 2.1% in August (50 units), reflecting a YTD inventory increase reduction to 4.5% (99 units).

    • Large Jet Inventory: Increased by 0.6% (three units) and is now up 15.5% (67 units) YTD.
    • Medium Jet Inventory: Availability once again decreased by another 3.0% (20 units) and inventory is now down YTD by 2.9% (19 units).
    • Small Jet Inventory: Posted the largest decrease this month among the four groups, 4.1% (28 units), and is now up 2.0% YTD (13 units).
    • Turboprop Inventory: The group posted its first monthly decrease since January, dropping 1.0% of its inventory (five units) to maintain a YTD increase of 8.4% (38 units.

    August’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) a nominal 0.2% in August to $1.416m, signaling upcoming maintenance for the latest fleet mix would be marginally lower. All four groups posted improvements (decrease) in August, including…

    • Large Jets: A 0.7% improvement, the figure remained better than the group’s 12-month average.
    • Medium Jets: A 0.6% improvement, virtually tying with the group’s best (lowest) 12-month figure.
    • Small Jets: A 2.6% gain, improving from July’s 12-month worst (high) figure.
    • Turboprops: A 0.7%improvement, posting the group’s second consecutive 12-month low (best) figure.

    August’s ETP Ratio Trend

    The inventory’s ETP Ratio fell (improved) to 70.9%, from July’s 71.2%, bringing the tracked fleet to a figure half way between its 12-month worst and average figures.

    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) increases, in many cases by more than 30%.

    During Q2 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 53% longer than assets with an ETP Ratio below 40% (251 days versus 384 days). How did each group fare during August?

    • Turboprops: For a ninth consecutive month, Turboprops achieved the lowest ETP Ratio at 41.8%, unchanged from July’s 12-month low/best figure.
    • Large Jets: Worsened for the first time in four months, posting 63.2% (versus July’s 61.4%).
    • Medium Jets: Captured third place, improving to 71.7% from July’s 73.7%, a figure slightly worse/higher than the group’s 12-month average.
    • Small Jets: Posted the group’s second consecutive 12-month worst (highest) figure at 97.4%, further challenging sellers.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during August 2020.

    Most Improved Business Aircraft for August 2020, according to Asset Insight

    Most Improved Models

    All six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). From an Ask Price perspective, the Citation CJ1 posted a $77,143 Ask Price decrease, while the Gulfstream GIV-SP (operated under MSG3 maintenance rules) had no Ask Price change. The remaining models experienced the following price increases:

    • Dassault Falcon 50 (+$157,143)
    • Bombardier Learjet 40 (+$402,500)
    • Gulfstream GIV (+$27,389)
    • Beechcraft King Air 300 (+$237,167)

    Dassault Falcon 50

    Capturing August’s top position among the ‘Most Improved’ models is the Falcon 50. Two aircraft transacted during August, two were withdrawn from inventory, and one was added to create the current mix of 20 units (10.8% of the active fleet).

    Potential buyers need to keep in mind that these assets are now between 25 and 42 years of age. While the model made this list through a Maintenance Exposure decrease approaching $204k, along with an Ask Price increase exceeding $157k, the aircraft’s ETP Ratio, exceeding 98% should not be surprising.

    However, for assets whose engines are enrolled on an Hourly Cost Maintenance Program (HCMP), the Falcon 50’s HCMP-Adjusted ETP Ratio (accounting for the program’s value) might well place the asset below the 40% excessive Maintenance Exposure reference point.

    Bombardier Learjet 40

    We saw no transactions for this model during August, but one aircraft did join the inventory bringing the total to three (7.9% of the active fleet). The Learjet 40 made this list through a Maintenance Exposure decrease exceeding $71k, and an Ask Price increase approaching $403k.

    However, a closer look shows that the recent addition to the inventory is priced nearly 54% higher than the other aircraft showing Ask Prices. Though placing the Learjet 40 on this list might not seem equitable, the figures don’t lie and Asset Insight’s analytics will always be objective.

    Bombardier Learjet 40 private jet flies over fields

    Cessna Citation CJ1

    Third on this month’s ‘Most Improved’ list is a model that posted one sale in August and saw one aircraft enter the ‘for sale’ mix, maintaining a pool of 20 units (10.3% of the active fleet).

    A Maintenance Exposure decrease exceeding $263k, along with an Ask Price increase of more than $77k earned the CJ1 its place on the list. The CJ1’s 50.3% ETP Ratio is surprisingly low for an aircraft aged between 15 and 20 years.

    Gulfstream GIV

    Next is a model that found itself in second worst position among July’s ‘Most Deteriorated’ group. Swapping to this list through a Maintenance Exposure decrease approaching $226k, and an Ask Price increase exceeding $23k, the GIV’s 171.5% will, nonetheless not improve most sellers’ challenges.

    As if that were not enough, three transactions in August, an addition to inventory, and one withdrawal from the available fleet still left 20 aircraft listed for sale (12.1% of the fleet). As we mentioned previously, at the age of 27 to 34 years, this aircraft is beginning to approach financial obsolescence, so buyers must consider whether they’re purchasing a low-priced asset or one posing good value.

    Gulfstream GIV-SP (MSG3)

    Dropping from the top of July’s ‘Most Improved’ list to fifth place on August’s list is an aircraft whose 44.5% ETP Ratio should allow ample opportunity for sellers to structure transactions of reasonable value. The model achieved its position through no change in Ask Price, no change in fleet composition, but a Maintenance Exposure decrease exceeding $683k.

    As August ended, five aircraft were listed for sale, equating to only 5.6% of the active fleet. Did we mention that sellers should have ample opportunities to structure transactions…? Buyers will have to justify their offer if they wish to achieve a good price for an MSG3 GIV-SP.

    Beechcraft King Air 300

    The final aircraft to make the ‘Most Improved’ list did so thanks to a Maintenance Exposure decrease approaching $9k and an Ask Price increase exceeding $237k. During August, Asset Insight identified three sales.

    With the 17 aircraft available to buy representing only 8.9% of the active fleet, the model’s strong following, and 48.1% ETP Ratio, the stage is set for buyers to structure value-based transactions that also provide good prices for sellers.

    Most Deteriorated Business Aircraft for August 2020, according to Asset Insight

    Most Deteriorated Models

    Four of the six models on August’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase, while the Beechcraft King Air C90 posted an Ask Price increase of $4,008. The remaining models experienced the following price decreases:

    • Bombardier Challenger 601-3A (-$165,000)
    • Gulfstream G200 (-$377,667)
    • Bombardier Learjet 40XR (-$181,667)
    • Bombardier Learjet 45 w/APU (-$92,021)
    • Gulfstream G100 (-$197,500)

    Beechcraft King Air C90

    For the second consecutive month, the best aircraft among August’s ‘Most Deteriorated’ assets held the second-highest position on July’s ‘Most Improved’ list. The C90’s fall from grace was caused by a Maintenance Exposure increase exceeding $41k overshadowing a $4k Ask Price increase.

    Three aircraft sold in August, two joined the inventory, one was withdrawn from the available pool, and the remaining 46 aircraft equated to 11.9% of the active fleet for sale. This model has a strong following, but the average aircraft’s 124.2% ETP Ratio does not place sellers in a strong bargaining position.

    Bombardier Challenger 601-3A

    No stranger to this list, the CL601-3A recaptured a place in the ‘Most Deteriorated’ group thanks to a $169k Maintenance Exposure (would you believe) decrease along with a $165k Ask Price decrease.

    Two aircraft transacted in August and the 19 remaining ‘for sale’ units equate to 16.0% of the active fleet. With an ETP Ratio approaching 186%, sellers have few bargaining chips – even if the aircraft’s engines are enrolled on a HCMP.

    Gulfstream G200 private jet surrounded by clouds

    Gulfstream G200

    The third of four Gulfstreams occupying either list this month, the G200 posted one transaction during the month and three aircraft were withdrawn from the ‘for sale’ fleet. Still, that left 24 units available (10% of the active aircraft).

    The news for both buyers and sellers is quite positive: Sufficient selection exists for buyers to negotiate a deal with good value, while allowing sellers the opportunity to negotiate a reasonable selling price.

    The model posted a Maintenance Exposure increase exceeding $145k during August, along with an Ask Price decrease approaching $377k. With an ETP Ratio hovering around 54%, sellers with engines enrolled on a HCMP should see an adjusted ETP Ratio below 40%.

    Bombardier Learjet 40XR

    The second of three Learjets to occupy either of August’s lists attained its status through a Maintenance Exposure increase exceeding $64k and an Ask Price decrease approaching $182k. No aircraft transactions were recorded in August, but two assets joined the inventory increasing availability to 14.1% of the active fleet.

    With an ETP Ratio approaching 68%, sellers with aircraft whose engines are enrolled on a HCMP will have better opportunities to remarket their aircraft at a reasonable price, and in a reasonable timeframe.

    Bombardier Learjet 45XR (with APU)

    The Learjet 45XR (with APU) captured next to last place for some clear reasons. Its 76.3% ETP Ratio was caused by a Maintenance Exposure increase approaching $80k, along with an Ask Price decrease exceeding $92k.

    As if that will not pose substantial challenges for sellers, the one aircraft that transacted in August was replaced by three additions to inventory. The 23 units now available equate to 27.4% of the active fleet. If you’re trying to sell one of these assets, you should carefully consider any offers you receive.

    Gulfstream G100 flies over clear ocean

    Gulfstream G100

    Dead last on August’s ‘Most Deteriorated’ list was the G100, an asset whose 126.1% ETP Ratio was driven by a Maintenance Exposure decrease (no, that is not an error) exceeding $18k and an Ask Price decrease of $197.5k.

    It isn’t that a plethora of such aircraft are listed for sale, although the four in inventory (no sales in August) equate to 19.1% of the active fleet.

    The problem for sellers is the limited production (22 units) and age of these assets (14 to 19 years), placing them in a space where competitive aircraft are newer and often viewed as more efficient. The few buyers seeking these assets are most definitely in the driver’s seat.

    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 HCMP where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer, while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com.

    This article was originally published by AvBuyer on September 16, 2020.

  • NAFA Administrator posted an article
    NAFA Webinar: How the Priorities of the Aviation Industry Have Changed see more

    NAFA Webinar:  How the Priorities of the Aviation Industry Have Changed

    The Global Pandemic has had a profound effect on the industry and the way we do business.  What long-term effect will the CARES act have?  What about sustainable fuels, pilot shortages, and insurance rates?  Have those been affected, too? 

    Come listen to our distinguished panel of experts discuss the many ways industry priorities have changed in 2020.

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association) 

     

     

    This NAFA webinar originally aired on October 15, 2020.

  • NAFA Administrator posted an article
    PODCAST: Aviation Insurance: How to Navigate Today’s Challenging Market see more

    NAFA member, Stephen Johns, the Partner at LL Johns Aviation Insurance responsible for leading the company and managing daily operations, discusses what is, by all accounts, a challenging period in the insurance industry. Topics covered include:

    • The state of the current market, and how the Business Aviation industry got here.
    • What today’s market means to an aircraft owner and what can they expect going forward. 
    • The entities, or types of owners, that have been hit the hardest.
    • The types of owners that have been impacted the least.
    • Best practices owners and operators should follow to best navigate the current market.

    Click here to listen to the podcast

    This podcast was originally published by Asset Insight on August 4, 2020.

  • NAFA Administrator posted an article
    Do Most Lenders Offer 100% Financing? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers aircraft financing questions.

    Question: I’m working with a broker who indicates he has lenders who will do 100% financing as long as the purchase price leaves at least 15% equity in the purchase.  From looking at some of his planes he is selling with 0 down, it looks like he isn’t fibbing. Rates are fixed and vary from 4.2-4.9% (presumably based on credit score) and they are 20-year term loans with no penalties.  

    Is this something that can be done by most lenders or is this specific to whatever lenders he may be working with? 

    Answer: The short answer is no, most lenders won’t finance more than 85% of the purchase price.

    Here’s the logic behind that decision. If you were to negotiate the purchase price down from $100k to $85k it really wasn’t worth $100k. That’s not to say you couldn’t turn around and potentially find a buyer for $100k, you might, especially if you were willing to spend money for marketing and were willing to wait it out for the right buyer to come along. The banks, however, know that if they had to sell the asset, they’re going to look to get out of it as expeditiously as possible and turn it into cash so they can then turn around and lend it back out. That’s why they typically require 15% down on the lesser of the purchase amount or the aircraft value amount.

    More than likely in the scenario you’re discussing (where you have only slightly higher than market rates and 0% down), the broker has an agreement with their lender(s) whereby they will cover any shortfall resulting from a buyer default. This is typically done by an agreement to buy the airplane back at an agreed upon amount.

    The potential bigger problem though with regard to 0% down financing is if there’s a macro event that causes the market to drop 10-20%, when you go to sell the airplane you’re likely going to be upside down in value. Which means you’ll either have to come out of pocket to sell or else keep the airplane until the situation gets better.

    My advice would be to put at least 15% down to give yourself a hedge regardless of what you negotiate in purchase amount. 

  • NAFA Administrator posted an article
    Immediate Private Aviation Solutions During and After a Pandemic see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, answers your questions regarding private aviation during and after a pandemic.

    As the United States and other countries around the world start to lift their stay-at-home restrictions, many individuals and companies are electing to increase or exclusively fly privately for the foreseeable future. Prior to the global pandemic, a number of companies and individuals used either a hybrid solution of flying, which included both private and commercial flights, while others elected to fly all flights commercially, even when private aviation was financially viable. The reasons for these choices, such as cost savings or flight shaming, are now being significantly overshadowed as a result of the global pandemic. Today those companies that previously used a hybrid model have new mandates which extend private flying rights to more employees for both business and/or personal use. In addition, those who previously elected to fly commercially are now more likely to select a private aviation solution when it is financially practicable.

    I have been inundated with questions related to immediately available solutions to cover the new normal individuals and companies are navigating. When looking for a private aviation solution the usual choices are still available: ad hoc charter, membership programs, pre-paid jet cards, leases, fractional ownership and whole aircraft ownership. What is different and hard to evaluate is the financial stability of the various service providers. When considering a service provider for private aviation, a few new questions should be asked:

    • What was the cash position of the service provider prior to the pandemic?
    • Did the service provider receive any funds from the CARES Act?
    • Has the service provider defaulted on any significant loans?
    • If funds are prepaid to the service provider, are the funds maintained in separate accounts and who is the owner of those accounts?
    • What budget cuts has the service provider implemented during the pandemic? Have any employees been laid off?

    We have already seen the closure of some private aviation companies as a result of the downturn in flying caused by the global pandemic. Some of these companies had significant prepaid deposits from customers on hand at the time of the closure, which are unlikely to be recoverable. Furthermore, we know that as companies struggle financially that budget cuts will be made, and it is important to understand how the budget cuts may impact safety and service.

    As a result of the financial uncertainty of many private aviation companies, it is more important than ever to have any unsecured prepaid funds maintained in a separate account and in the name of the customer. If that is not an option and the financial information of the service provider is questionable or not available, then negotiating that the prepayment of funds be adjusted into smaller and more frequent payments is recommended.

    When transitioning into a private aviation solution and/or increasing private aviation use, it is also important to look at the duration of time that the use and/or increase in private aviation use will occur. If the new normal for you or your company will likely become a permanent change, then whole aircraft ownership or fractional ownership should be strongly considered, particularly if the number of flight hours needed per year will exceed 100. If the change is anticipated to be temporary or the number of flight hours needed is not significant, then a less permanent solution such as a membership program, jet card or a fractional lease should be considered. If whole aircraft ownership is not the solution selected, then the cleaning process and safety procedures implemented by the service providers should also be evaluated.

    Finally, it is important to not rush the process of purchasing an aircraft or selecting a private aviation service provider. Be sure to evaluate the service provider selected and in the case of the purchase of a whole aircraft, the aircraft selected should go through a complete pre-purchase inspection. Taking such precautions and being deliberate in your evaluations will save you money and help you avoid pitfalls in the future.

    This article was originally published by Aerlex Law Group on July 14, 2020, in Articles, BusinessAir Magazine, The Latest.

  • NAFA Administrator posted an article
    Used Aircraft Maintenance Analysis – July 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares Asset Insight’s July 2020 market analysis.

    Asset Insight's Juluy 31, 2020 market analysis revealed a 1.2% inventory decrease to the tracked business aircraft fleet – the first monthly reduction since January – along with an Ask Price decrease of 1.5%. Which models were impacted the most?

    As July ended, Asset Insight’s tracked fleet of 134 fixed-wing business aircraft, and 2,331 aircraft listed for sale equated to a 1.2% inventory fleet decrease compared to June, and a year-to-date (YTD) increase of 6.8%.

    The tracked fleet’s Quality Rating dipped a bit from June’s 12-month best figure, and the latest ‘for sale’ fleet mix increased the anticipated cost for upcoming maintenance events close to the 12-month high (worst) figure. However, July’s 5.293 Quality Rating kept the inventory within the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.

    July’s Aircraft Value Trends

    Average Ask Price decreased 1.5% in July, leading to a 5.0% value decline since the start of 2020. By aircraft group, the figures were as follows:

    • Large Jets: This group fueled the loss with a reduction of 2.4%, and a total value loss during 2020 of 11.8%.
    • Medium Jets: Ask Prices increased 1.5% during July but were still down 3.7% YTD.
    • Small Jets: The group posted a 12-month high figure through a 0.3% gain in value and is now up 9.2% for the year.
    • Turboprops: Ask Prices gained 2.8% but are still off by 2.4% during 2020.

    July’s Fleet for Sale Trends

    The tracked fleet’s total number of aircraft listed for sale decreased 1.2% in July (29 units), reflecting a YTD inventory increase equating to 6.8% (149 units).

    • Large Jet Inventory: Decreased slightly by 0.4% (two units), but remains up 14.8% (64 units) YTD.
    • Medium Jet Inventory: Availability was down a substantial 2.7% (18 units) for July, bringing the YTD increase down to a single unit (0.2%).
    • Small Jet Inventory: Decreased 2.6% (18 units) in July but was still up 6.4% YTD (41 units).
    • Turboprop Inventory: The only group to post an increase, Turboprops were up 1.2% (nine units) for the month, and inventory has now grown 9.6% (43 units) YTD.

    July’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (deteriorated) 3.1% in July to $1.419m, signaling upcoming maintenance for the latest fleet mix would be close to the 12-month high (worst) figure. The last time our tracked fleet posted a higher (worse) Maintenance Exposure figure was in October 2019. Individual group results were as follows:

    • Large Jets: Worsened (increased) 1.0% for the month, but the figure was better than the group’s 12-month average.
    • Medium Jets: Worsened by 0.7%, but the figure was only slightly above (worse) than last month’s 12-month best number.
    • Small Jets: Suffered greatly from the reconstituted inventory, increasing 15.3% to set a 12-month worst (high) figure.
    • Turboprops: At the other end of the spectrum, Turboprops posted a 12-month low (best) figure through a 3.6% decrease.

    July’s ETP Ratio Trend

    The inventory’s ETP Ratio rose (worsened) to 71.2%, from June’s 69.9%, following three consecutive monthly improvements (decreases), bringing our tracked fleet to just below its worst (highest) 12-month figure.

    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) increases, in many cases by more than 30%.

    During Q2 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 53% longer than assets with an ETP Ratio below 40% (251 days versus 384 days). How did each group fare during July?

    • Turboprops: For the eighth consecutive month, Turboprops registered the lowest ETP Ratio at 41.8%, a 12-month low (best) figure that continued earning them the top spot among the four groups.
    • Large Jets: Improved for the third straight month, this time to 61.4% from June’s 64.0%, thereby remaining in second place.
    • Medium Jets: Deteriorated (rose) slightly to 73.7% from June’s 73.4%, with the figure remaining better (lower) than the group’s 12-month average.
    • Small Jets: Made the environment for many sellers even more challenging through a Ratio increase to 96.5%, a 12-month high figure that was substantially worse than June’s 85.8%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during July 2020.

    Most Improved Business Jets and Turboprops - Asset Insight July 2020

    Most Improved Models

    All six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Ask Price, on the other hand, was not as uniform, with the Beechcraft King Air C90, Bombardier Global Express, and Cessna Citation II, posting decreases of $5,976, $101,143, and $23,789, respectively. The remaining models experienced the following price increases:

    • Gulfstream GIV-SP (MSG3): +$2,102,500
    • Dassault Falcon 50: +$84,286
    • Beechcraft King Air B200 (pre-2001): +$9,247

    Gulfstream GIV-SP (MSG3)

    Eclipsing all models in July is the one that occupied the ‘Most Deteriorated’ spot during our June analysis. It earned the top position through a Maintenance Exposure decrease exceeding $852k, along with an Ask Price increase exceeded $2.1m. But that does not bring visibility to the full story.

    There were two aircraft listed ‘for sale’ in June carrying Ask Prices. When the asset carrying an Ask Price approximately one-third lower than the remaining one sold, the figure naturally shifted dramatically.

    Still, there’s no getting around the model’s substantial improvement in Maintenance Exposure, derived through the single July transaction and three additions to inventory. With an ETP Ratio of 55%, and with inventory at only five units (5.6% of the active fleet), sellers should have some realistic opportunities to trade their aircraft, assuming price expectations are sensible.

    Beechcraft King Air C90

    Our research uncovered two aircraft trades in July, and the 47 units comprising the latest inventory mix equated to 12.1% of the active King Air C90 fleet – hardly the stuff of legend.

    While the model’s Maintenance Exposure decrease of $71k far exceeded its Ask Price reduction, the resulting 116.6% ETP Ratio does not hold much promise for sellers. Buyers, on the other hand, have their pick of the litter.

    Dassault Falcon 50

    Two units found new owners in July. The remaining inventory of 23 aircraft equated to 12.3% of the active fleet. While the ‘for sale’ fleet saw Maintenance Exposure decrease over $33k and Ask Price increase more than $84k, the resulting ETP Ratio still exceeded 126%.

    Although statistically deserving of its spot on the ‘Most Improved’ list, it is doubtful that sellers will experience a dramatic change in fortune although, for some buyers, this may still be the perfect solution for their geographic operating environment.

    Beechcraft King Air B200 (Pre-2001 Models)

    The second King Air model to occupy a spot on this month’s ‘Most Improved’ list definitely belongs here. Four units traded in July, and the 55 aircraft listed for sale create good selection for buyers, while sellers can benefit from availability only equating to 7.1% of the active fleet.

    The model’s ETP Ratio, at 46.2%, is also a great deal more conducive to deal-making and resulted from a Maintenance Exposure drop exceeding $70k and a slight Ask Price increase.

    Bombardier Global Express

    By no means a stranger to this list, the Global Express gained its position in July following a Maintenance Exposure decrease approaching $393k that was overshadowed an Ask Price decrease exceeding $101k.

    We did not record a sale during July, and the model’s 21 listed units equate to 14.6% of the active fleet. However, with an ETP Ratio of 67%, and considering the aircraft’s capabilities and industry following, sellers should have more opportunities than sellers of many other models posting such figures.

    Cessna Citation II

    Occupying the final slot on July’s ‘Most Improved’ list is a model whose constituents range in age from 25 to 42 years, and whose 83 inventory units equate to 16.5% of the active fleet. For buyers not afraid to become the final owner of an asset within the Small Jet range, the Citation II might be worth considering, as Ask Price fell nearly $24k in July while Maintenance Exposure improved (decreased) over $55k.

    Of course, the aircraft’s actual Maintenance Exposure could make your acquisition a bit more expensive that planned, considering the ETP Ratio stood at nearly 128% when last calculated.

    Most Deteriorated Business Jets and Turboprops - Asset Insight July 2020

    Most Deteriorated Models

    All six models on July’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Bombardier Learjet 36A posted no Ask Price change, while the remaining models experienced the following decreases:

    • Cessna Citation ISP: -$58,192
    • Bombardier Learjet 55: -$26,071
    • Gulfstream GIV-SP: -$348,000
    • Hawker Beechjet 40: -$75,000
    • Gulfstream GIV: -$11,111

    Cessna Citation ISP

    The best aircraft among July’s ‘Most Deteriorated’ assets held the second-highest position on June’s ‘Most Improved’ list. Its dramatic change in stature came from a $7k Maintenance Exposure increase, along with a $58k drop in Ask Price.

    As if the model’s 128.5% ETP Ratio posed an insufficient challenge for sellers, inventory stood at 20% of the active fleet (55 units) as we closed out July. Three aircraft did trade last month, but this model’s fleet is aged between 35 and 43 years of age, so prospective buyers need to keep in mind that any future resale is unlikely to generate a price much above salvage value.

    Bombardier Learjet 55

    First the good news: One asset transacted last month and we did not record any additions to the Learjet 55 inventory.

    Now the bad news: The 14 units listed for sale equate to 14.6% of the active fleet for an asset whose ETP Ratio is 188% (by virtue of Maintenance Exposure increase exceeding $55k and an Ask Price decrease of more than $26k).

    Ask Prices for this model range between just below $500k to just below $1.0m. For an aircraft aged 33 to 39 years, even the low end of the pricing spectrum will be challenging for sellers to achieve, unless they can effectively monetize their aircraft’s Maintenance Equity.

    Gulfstream GIV-SP

    Three transactions took place in July proving, yet again, this model’s strong following. However, with a Maintenance Exposure increase approaching $487k, along with an Ask Price decrease of $348k, the GIV-SP, unlike those operated under MSG3 Maintenance rules (see above), found its way onto the ‘Most Deteriorated’ list.

    While the 19 aircraft listed for sale represent only 9.1% of the active fleet, the model’s 97% ETP Ratio will make selling against its MSG3 brethren challenging for most existing owners, especially if the aircraft’s engines are not enrolled on an Hourly Cost Maintenance Program.

    Hawker Beechjet 400

    This 31 to 34-year-old model joined the ‘Most Deteriorated’ list having completed no transactions during July. It did so on its Maintenance Exposure weakness which increased (worsened) over $25k, along with a $75k reduction in Ask Price.

    Only four units are listed for sale. Unfortunately for sellers, that equates to 12.1% of the active fleet, while the model’s average ETP Ratio, at over 131%, equates to a challenging selling environment.

    Gulfstream GIV

    The third Gulfstream model to make either list finds itself in the second worst position among July’s ‘Most Deteriorated’ group.

    Two aircraft transacted in July to lower the number available for sale to 21 units (12.4% of the active fleet). Unfortunately, at the ripe old age of 27 to 34 years, this superb aircraft is beginning to reach its financial obsolescence through an ETP Ratio approaching 185%, due to a Maintenance Exposure increase exceeding $477k, along with another Ask Price reduction.

    Bombardier Learjet 36A

    With an ETP Ratio approaching 185%, and units that are as much as 44 years old, it is not difficult to understand why this model occupied the most deteriorated spot on July’s list. What might be surprising is that one aircraft did trade in July, and only four are listed for sale.

    Unfortunately, those listings equate to 10.8% of the active fleet whose Maintenance Exposure increased by more that $306k by virtue of the latest inventory mix.

    While air ambulance work has kept this model flying, it, too, is staring at financial obsolescence with some units probably already at that destination.

    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 HCMP where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer, while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com.

    This article was originally published by AvBuyer on August 14, 2020.

  • NAFA Administrator posted an article
    Aircraft Share Options Explained: Fractional Jet Ownership vs. Charter vs. Jet Card see more

    NAFA member, H. Lee Rohde, III, President and CEO of Essex Aviation, discusses discusses private jet share options.  

    Flying private has long been a popular alternative to flying commercial due to the luxury, privacy, and convenience it affords — but now, in these uncertain times, flying private also provides a much-needed sense of security and peace of mind. As a result, a growing number of individuals are starting to explore private jet share options, particularly fractional ownership, charter programs, and jet card programs, each of which offer the same amenities as outright acquisition with less of a commitment.

    In this blog post, we’ll compare fractional jet ownership vs. charter program vs. jet card program to help you find the private jet share option that best meets your unique travel needs.

    Table of Contents

    • What is a Private Jet Share?
    • What is Fractional Jet Ownership?
    • When Does Fractional Jet Ownership Make Sense?
    • What is Private Jet Chartering?
    • When Does Private Jet Chartering Make Sense?
    • What Are Membership & Jet Card Programs?
    • When Do Membership & Jet Card Programs Make Sense?
    • At a Glance: Fractional Jet Ownership vs. Charter vs. Jet Card Programs
    • Fly Safer with Essex Aviation

    What is a Private Jet Share?

    As implied by its name, a private jet share refers to any private aviation program in which you own or lease a share of an aircraft rather than own it outright. There are multiple private jet share options to choose from, including fractional aircraft ownership, private jet membership or card programs and private jet chartering. How a private jet share is structured depends entirely on the program, aircraft model, and number of hours utilized.

    What is Fractional Jet Ownership?

    Those interested in fractional ownership purchase a share of a specific aircraft type and agree to an annual amount of allotted flight hours. Most fractional ownership programs require a minimum size share of 50 hours of flight time per year, though this can vary depending on the provider. The maximum share size is 800 hours of flight time per year, which is roughly equivalent to ownership of an entire aircraft.

    Fractional ownership shares are acquired from the company that operates the aircraft and that has a designed shared ownership program and services agreement in which all share owners participate. This company also employs pilots, cabin crew and flight operations coordinators, administers maintenance and covers airport and hangar fees and insurance, which can be attractive to individuals who want the benefits of aircraft ownership without the responsibility. Some fractional ownership programs even provide the option to upgrade or downgrade the size of the aircraft depending on your trip requirements.

    When Does Fractional Jet Ownership Make Sense?

    Although the total cost, including the share acquisition or lease, is more expensive than other alternatives, fractional ownership doesn’t require you to pay a “deadhead cost” — that is, any costs incurred from positioning the aircraft at your departure point. Additionally, it’s possible to sell fractional shares back to the program provider, though these shares tend to depreciate more due to their high level of annual utilization, resulting in lower residual values.

    Fractional ownership is a popular option among those who frequently travel for business-related reasons because it offers tax benefits. Frequent fliers also appreciate the consistency and continuity that fractional ownership offers. Most groups that operate fractional programs, such as NetJetsFlexJet and AirShare are highly reputable and have well-documented, standardized procedures for everything from how they vet operators to how they sanitize aircraft between one flight and the next.

    Fractional aircraft ownership is ideal for individuals who want the experience of flying with an organization with a dedicated fleet of aircraft, pilots, and crew, and who require the flexibility to avoid duty times and other restrictions.

    What is Private Jet Chartering?

    Private jet chartering is an on-demand service that enables you to compare pricing and amenities for various aircraft types and book the one that best meets your travel needs in much the same way as you’d book a seat on a commercial flight. Those interested in chartering have the option of working with either a charter operator or a charter broker, though it’s best practice to work with a private aviation consultant before considering either option.

    When Does Private Jet Chartering Make Sense?

    Of the three types of private jet share presented in article — fractional jet ownership vs. charter vs. jet card — private jet chartering requires the least commitment, both in terms of time and expense.

    In fact, chartering is the most popular private aviation option due to the fact that it doesn’t require a significant capital cost upfront or fixed costs associated with maintenance and staff salaries — all you have to pay for is the utilization of the aircraft on a trip-by-trip basis. This makes chartering ideal for anyone who wants the private aviation experience without any of the responsibility. It’s important to note, though, that what you save on chartering, you’ll make up for in terms of non-guaranteed availability in a specific aircraft type: It can sometimes be challenging to find an aircraft that meets both your specific needs and your schedule, so you may be forced to choose between one and the other.

    What Are Membership & Jet Card Programs?

    Membership and jet card programs, though often referred to interchangeably, are structurally unique. With a membership program, you agree to a fixed cost per hour at the start of the contract and are billed after each flight. You’re also typically subjected to either monthly management or annual membership fees.

    There are two types of jet card programs: a dedicated service with a predetermined number of hours on a specific aircraft type or size category, and a debit card service that enables you to fund an established travel account and select the aircraft category on a trip-by-trip basis with agreed-to hourly rates. Depending on the program, the provider will either quote you for a certain number of hours during booking and bill actual time upon completion of the trip or deduct the final total cost of the trip from your balance after it is completed.

    When Do Membership & Jet Card Programs Make Sense?

    Much like chartering, membership and jet card programs are best suited for individuals who want a short-term commitment and require a much lower investment than fractional ownership. Jet card programs, in particular, are appealing because they come at a fixed rate. There’s no need to negotiate the price for each flight — just add money to your jet card account and go. In some cases, you can even cancel your membership and get a refund for unused hours if you’re dissatisfied with your service, which makes jet card programs one of the most accessible points of entry to the private aviation market.

    Another compelling reason to consider a membership or jet card program is because most major private aviation companies offer them, making them a reliable option. When evaluating either membership or jet card programs, be sure to work with an experienced private aviation consultant who can steer you toward a reputable company and help you understand the relationship between the program provider and the aircraft you intend to utilize.

    If you’re interested in joining a membership or jet card program, keep in mind that they often come with a longer advance notice requirement to schedule an aircraft. This is less of an issue if you’re the type of traveler who books their trips well in advance but can be challenging if you frequently make last-minute travel arrangements, especially during peak periods such as holidays.

    At a Glance: Fractional Jet Ownership vs. Charter vs. Jet Card Programs

    Fly Safer with Essex Aviation

    If you’re in need of private aviation assistance, Essex Aviation Group is here for you. From private jet charter consulting to new aircraft acquisition to aircraft completion management, we offer a wide variety of services tailored to support the travel needs of each and every customer. Contact us today to let us know how we can help you find the private jet share option that’s right for you.

    This article was originally published by Essex Aviation.  

  • NAFA Administrator posted an article
    NAFA member, Adam Meredith, discusses the hidden or unexpected costs of aircraft ownership. see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the hidden or unexpected costs of aircraft ownership. 

    Major hidden costs, for example, can result when a previous owner has deferred maintenance. You’re better off buying an airplane that’s been regularly used because the owner will typically address issues as they arise in order to continue using the plane regularly.

    It’s a myth that it’s smart to look for an aircraft that’s had low flying time. Less wear and tear on the engine and the airframe? While those are important considerations, they should not be the only ones. After all, these are machines and machines are made to be run. When an aircraft sits, its problems remain hidden.

    Low flying time could mean high maintenance when it’s your time to own the airplane. That’s one reason the first annual inspection can be unusually expensive — another hidden cost. So be prepared.

    Here is a list of other hidden costs associated with aircraft ownership:

    • Expenses incurred when an airplane is tied down outside (as opposed to protected in a hangar), including repainting and reskinning the exterior and replacing or repairing instrument panels, aircraft seats, interiors or even sun-crazed windows.
    • Contaminated fuel, or more likely, a lineman who accidentally fills your gas tanks with the wrong fuel.
    • Unforeseen mechanical failures or mishaps, such as a blown tire, a gear door jamming, a baggage door opening in flight and ejecting an object that damages an elevator or tail surface, etc.
    • Compliance with unforeseen airworthiness directives (ADs).
    • Animal strikes, bird strikes, lightning strikes, prop strikes, strikes by another aircraft taxiing into you.
    • Mud daubers corrupting your pitot-static system or rodents chewing through electrical cables or nesting in your push-pull tubes.
    • Sudden failure of one or more instruments, navigation radios or engine monitors.
    • Even a pandemic.

    The list is extensive but not exhaustive. Hence our advice to add 10% to 15% on top of your projected operations budget, so when those hidden costs reveal themselves, you aren’t surprised.

    This article was originally published by AOPA Aviation Finance Company on June 10, 2020.

  • NAFA Administrator posted an article
    NAFA member, David Norton, partner at Shackelford Law, shares presentation on Part 91 Dry Leasing. see more

    NAFA member, David Norton, partner at Shackelford, Bowen, McKinley & Norton, gave a presentation on Part 91 Dry Leasing, which was immediately followed up with a panel discussion on illegal charters, the two topics going hand-in-hand.

    According to Norton, a wet lease is defined as the "aircraft plus crewmember," and a "dry" lease as a mere equipment lease of the aircraft.  Some aircraft owners, shying away from key legal, logistical and cost differences between Part 91 and Part 135 operations, enter into dry leasing agreements seeking to raise revenue with their aircraft while letting others operate the aircraft.  If not done properly, Part 91 dry leasing can result in penalties from the FAA and refusal of insurance coverage when incident occurs.

    The key question is whether operational control is transferred or if an air transportation service is actually being provided.  Norton says that "operational control" continues to be a confusing term among owners and pilots, but essentially boils down to who gets to stay where an airplane is going on a given day. 

    "Pilots will say they have operational control, but unless they are the aircraft owner or the aircraft is leased to them personally, pilots are generally not in operational control of the airplane," said Norton.  "The operator is generally a company or person who has the right to say where [the aircraft] is going on a given day, and for [business jets] that means you're usually hiring a professional pilot.  So it's not necessarily the person whose hands are on the yoke acting as the operator."

    Read more

    This article was originally published by Shackelford, Bowen, McKinley & Norton in The Binder, Vol. 45 No. 2 - Summer 2020 - on August 4, 2020.

     

  • NAFA Administrator posted an article
    Used Aircraft Maintenance Analysis – July 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the latest used aircraft maintenance report.

    As July ended, Asset Insight’s tracked fleet of 134 fixed-wing business aircraft, and 2,331 aircraft listed for sale equated to a 1.2% inventory fleet decrease compared to June, and a year-to-date (YTD) increase of 6.8%.

    The tracked fleet’s Quality Rating dipped a bit from June’s 12-month best figure, and the latest ‘for sale’ fleet mix increased the anticipated cost for upcoming maintenance events close to the 12-month high (worst) figure. However, July’s 5.293 Quality Rating kept the inventory within the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.

    July’s Aircraft Value Trends

    Average Ask Price decreased 1.5% in July, leading to a 5.0% value decline since the start of 2020. By aircraft group, the figures were as follows:

    • Large Jets: This group fueled the loss with a reduction of 2.4%, and a total value loss during 2020 of 11.8%.
    • Medium Jets: Ask Prices increased 1.5% during July but were still down 3.7% YTD.
    • Small Jets: The group posted a 12-month high figure through a 0.3% gain in value and is now up 9.2% for the year.
    • Turboprops: Ask Prices gained 2.8% but are still off by 2.4% during 2020.

    July’s Fleet for Sale Trends

    The tracked fleet’s total number of aircraft listed for sale decreased 1.2% in July (29 units), reflecting a YTD inventory increase equating to 6.8% (149 units).

    • Large Jet Inventory: Decreased slightly by 0.4% (two units), but remains up 14.8% (64 units) YTD.
    • Medium Jet Inventory: Availability was down a substantial 2.7% (18 units) for July, bringing the YTD increase down to a single unit (0.2%).
    • Small Jet Inventory: Decreased 2.6% (18 units) in July but was still up 6.4% YTD (41 units).
    • Turboprop Inventory: The only group to post an increase, Turboprops were up 1.2% (nine units) for the month, and inventory has now grown 9.6% (43 units) YTD.

    July’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (deteriorated) 3.1% in July to $1.419m, signaling upcoming maintenance for the latest fleet mix would be close to the 12-month high (worst) figure. The last time our tracked fleet posted a higher (worse) Maintenance Exposure figure was in October 2019. Individual group results were as follows:

    • Large Jets: Worsened (increased) 1.0% for the month, but the figure was better than the group’s 12-month average.
    • Medium Jets: Worsened by 0.7%, but the figure was only slightly above (worse) than last month’s 12-month best number.
    • Small Jets: Suffered greatly from the reconstituted inventory, increasing 15.3% to set a 12-month worst (high) figure.
    • Turboprops: At the other end of the spectrum, Turboprops posted a 12-month low (best) figure through a 3.6% decrease.

    July’s ETP Ratio Trend

    The inventory’s ETP Ratio rose (worsened) to 71.2%, from June’s 69.9%, following three consecutive monthly improvements (decreases), bringing our tracked fleet to just below its worst (highest) 12-month figure.

    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) increases, in many cases by more than 30%.

    During Q2 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 53% longer than assets with an ETP Ratio below 40% (251 days versus 384 days). How did each group fare during July?

    • Turboprops: For the eighth consecutive month, Turboprops registered the lowest ETP Ratio at 41.8%, a 12-month low (best) figure that continued earning them the top spot among the four groups.
    • Large Jets: Improved for the third straight month, this time to 61.4% from June’s 64.0%, thereby remaining in second place.
    • Medium Jets: Deteriorated (rose) slightly to 73.7% from June’s 73.4%, with the figure remaining better (lower) than the group’s 12-month average.
    • Small Jets: Made the environment for many sellers even more challenging through a Ratio increase to 96.5%, a 12-month high figure that was substantially worse than June’s 85.8%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during July 2020.

    Most Improved Business Jets and Turboprops - Asset Insight July 2020

    Most Improved Models

    All six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Ask Price, on the other hand, was not as uniform, with the Beechcraft King Air C90, Bombardier Global Express, and Cessna Citation II, posting decreases of $5,976, $101,143, and $23,789, respectively. The remaining models experienced the following price increases:

    • Gulfstream GIV-SP (MSG3): +$2,102,500
    • Dassault Falcon 50: +$84,286
    • Beechcraft King Air B200 (pre-2001): +$9,247

    Gulfstream GIV-SP (MSG3)

    Eclipsing all models in July is the one that occupied the ‘Most Deteriorated’ spot during our June analysis. It earned the top position through a Maintenance Exposure decrease exceeding $852k, along with an Ask Price increase exceeded $2.1m. But that does not bring visibility to the full story.

    There were two aircraft listed ‘for sale’ in June carrying Ask Prices. When the asset carrying an Ask Price approximately one-third lower than the remaining one sold, the figure naturally shifted dramatically.

    Still, there’s no getting around the model’s substantial improvement in Maintenance Exposure, derived through the single July transaction and three additions to inventory. With an ETP Ratio of 55%, and with inventory at only five units (5.6% of the active fleet), sellers should have some realistic opportunities to trade their aircraft, assuming price expectations are sensible.

    Beechcraft King Air C90

    Our research uncovered two aircraft trades in July, and the 47 units comprising the latest inventory mix equated to 12.1% of the active King Air C90 fleet – hardly the stuff of legend.

    While the model’s Maintenance Exposure decrease of $71k far exceeded its Ask Price reduction, the resulting 116.6% ETP Ratio does not hold much promise for sellers. Buyers, on the other hand, have their pick of the litter.

    Dassault Falcon 50

    Two units found new owners in July. The remaining inventory of 23 aircraft equated to 12.3% of the active fleet. While the ‘for sale’ fleet saw Maintenance Exposure decrease over $33k and Ask Price increase more than $84k, the resulting ETP Ratio still exceeded 126%.

    Although statistically deserving of its spot on the ‘Most Improved’ list, it is doubtful that sellers will experience a dramatic change in fortune although, for some buyers, this may still be the perfect solution for their geographic operating environment.

    Beechcraft King Air B200 (Pre-2001 Models)

    The second King Air model to occupy a spot on this month’s ‘Most Improved’ list definitely belongs here. Four units traded in July, and the 55 aircraft listed for sale create good selection for buyers, while sellers can benefit from availability only equating to 7.1% of the active fleet.

    The model’s ETP Ratio, at 46.2%, is also a great deal more conducive to deal-making and resulted from a Maintenance Exposure drop exceeding $70k and a slight Ask Price increase.

    Bombardier Global Express

    By no means a stranger to this list, the Global Express gained its position in July following a Maintenance Exposure decrease approaching $393k that was overshadowed an Ask Price decrease exceeding $101k.

    We did not record a sale during July, and the model’s 21 listed units equate to 14.6% of the active fleet. However, with an ETP Ratio of 67%, and considering the aircraft’s capabilities and industry following, sellers should have more opportunities than sellers of many other models posting such figures.

    Cessna Citation II

    Occupying the final slot on July’s ‘Most Improved’ list is a model whose constituents range in age from 25 to 42 years, and whose 83 inventory units equate to 16.5% of the active fleet. For buyers not afraid to become the final owner of an asset within the Small Jet range, the Citation II might be worth considering, as Ask Price fell nearly $24k in July while Maintenance Exposure improved (decreased) over $55k.

    Of course, the aircraft’s actual Maintenance Exposure could make your acquisition a bit more expensive that planned, considering the ETP Ratio stood at nearly 128% when last calculated.

    Most Deteriorated Business Jets and Turboprops - Asset Insight July 2020

    Most Deteriorated Models

    All six models on July’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Bombardier Learjet 36A posted no Ask Price change, while the remaining models experienced the following decreases:

    • Cessna Citation ISP: -$58,192
    • Bombardier Learjet 55: -$26,071
    • Gulfstream GIV-SP: -$348,000
    • Hawker Beechjet 40: -$75,000
    • Gulfstream GIV: -$11,111

    Cessna Citation ISP

    The best aircraft among July’s ‘Most Deteriorated’ assets held the second-highest position on June’s ‘Most Improved’ list. Its dramatic change in stature came from a $7k Maintenance Exposure increase, along with a $58k drop in Ask Price.

    As if the model’s 128.5% ETP Ratio posed an insufficient challenge for sellers, inventory stood at 20% of the active fleet (55 units) as we closed out July. Three aircraft did trade last month, but this model’s fleet is aged between 35 and 43 years of age, so prospective buyers need to keep in mind that any future resale is unlikely to generate a price much above salvage value.

    Bombardier Learjet 55

    First the good news: One asset transacted last month and we did not record any additions to the Learjet 55 inventory.

    Now the bad news: The 14 units listed for sale equate to 14.6% of the active fleet for an asset whose ETP Ratio is 188% (by virtue of Maintenance Exposure increase exceeding $55k and an Ask Price decrease of more than $26k).

    Ask Prices for this model range between just below $500k to just below $1.0m. For an aircraft aged 33 to 39 years, even the low end of the pricing spectrum will be challenging for sellers to achieve, unless they can effectively monetize their aircraft’s Maintenance Equity.

    Gulfstream GIV-SP

    Three transactions took place in July proving, yet again, this model’s strong following. However, with a Maintenance Exposure increase approaching $487k, along with an Ask Price decrease of $348k, the GIV-SP, unlike those operated under MSG3 Maintenance rules (see above), found its way onto the ‘Most Deteriorated’ list.

    While the 19 aircraft listed for sale represent only 9.1% of the active fleet, the model’s 97% ETP Ratio will make selling against its MSG3 brethren challenging for most existing owners, especially if the aircraft’s engines are not enrolled on an Hourly Cost Maintenance Program.

    Hawker Beechjet 400

    This 31 to 34-year-old model joined the ‘Most Deteriorated’ list having completed no transactions during July. It did so on its Maintenance Exposure weakness which increased (worsened) over $25k, along with a $75k reduction in Ask Price.

    Only four units are listed for sale. Unfortunately for sellers, that equates to 12.1% of the active fleet, while the model’s average ETP Ratio, at over 131%, equates to a challenging selling environment.

    Gulfstream GIV

    The third Gulfstream model to make either list finds itself in the second worst position among July’s ‘Most Deteriorated’ group.

    Two aircraft transacted in July to lower the number available for sale to 21 units (12.4% of the active fleet). Unfortunately, at the ripe old age of 27 to 34 years, this superb aircraft is beginning to reach its financial obsolescence through an ETP Ratio approaching 185%, due to a Maintenance Exposure increase exceeding $477k, along with another Ask Price reduction.

    Bombardier Learjet 36A

    With an ETP Ratio approaching 185%, and units that are as much as 44 years old, it is not difficult to understand why this model occupied the most deteriorated spot on July’s list. What might be surprising is that one aircraft did trade in July, and only four are listed for sale.

    Unfortunately, those listings equate to 10.8% of the active fleet whose Maintenance Exposure increased by more that $306k by virtue of the latest inventory mix.

    While air ambulance work has kept this model flying, it, too, is staring at financial obsolescence with some units probably already at that destination.

    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 HCMP where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer, while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com.

    This article was originally published by AvBuyer on August 14, 2020.

  • NAFA Administrator posted an article
    NAFA member, Adam Meredith, President of AOPA Finance, answers your aircraft purchase questions. see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your aircraft purchasing questions.

    Question:  I am a healthy 60 year old, retired student pilot with aspirations to purchase a used Cessna 182 for recreational travel after successfully passing my private pilot check ride. My intention at this point is to pay cash /not finance, but that decision is not based on considerations other than a personal aversion to debt. My expected budget for the purchase is $100-$175K, including any ancillary expenses associated with the purchase (inspections, taxes, fees, etc.) I am ignorant of the various considerations involved in choosing / buying an airplane and am curious about any services AOPA may offer to assist new pilots in purchasing their first airplane.

    Are there benefits to financing? Is there a “playbook” on buying an airplane that AOPA provides for its members? Is there a financial advantage to waiting, i.e., is the current market in used GA aircraft likely to soften into a “buyers market?” Is it typically more cost effective to acquire a low tech platform and update avionics or look for a plane with glass panel already installed? Other considerations not mentioned?

    Answer: The biggest benefit to financing is for folks with cash flow that want to preserve liquidity. Right now, especially, we are seeing people preserve capital either for investing in the market or for a safety margin if things start to get tight, cash flow-wise, down the road. In terms of a “play book”, we have a great resource page on our website for members trying to navigate the purchasing and financing process: https://finance.aopa.org/aviation-finance/first-time-buyers

    At this point, it seems unlikely for the used GA aircraft market to soften. Inventory levels of good 182s was limited prior to the COVID-19 outbreak. What we’ve seen since the COVID-19 outbreak is very few new listings of aircraft for sale, making it just as hard to find deals. Could it change down the road?  Possibly, but at the rate things are going it won’t likely be for a while longer. In terms of acquiring a low tech platform and updating the avionics vs. looking for an airplane with glass panel already installed, you are almost always better off (economically) buying an airplane someone else has done upgrades on. They put the money in but won’t get it back out. We always recommend that members get pre-approved so that when you find the airplane you like you’re not going to lose out to a cash buyer. Please reach out to us by calling 800.627.5263 so we can answer any other questions you may have.

    This article was originally published by AOPA Finance on May 29, 2020.

  • NAFA Administrator posted an article
    Asset Insight Launches Podcast Series Focusing on the Aircraft Ownership Lifecycle see more

    July 7, 2020 – Asset Insight today announced the launch of a new podcast series, available through the company’s website (www.assetinsight.com) and across all podcast platforms, free of charge. The library of episodes is stocked with 15 to 30-minute sessions focused on all segments of the Business & General Aviation aircraft ownership lifecycle – Acquiring, Financing, Operating, Maintaining and Selling. Host Anthony Kioussis visits with expert guests from numerous industry organizations and sectors who offer best practices, timely advice, proven principles, and explore specific aspects of the business aviation industry.

    The Asset Insight Podcast library presently features 8 episodes, including sessions with Jay Mesinger at Mesinger Jets; Jim Blessing at Air Fleet Capital; Shelly Svoren at First Republic Bank; Lee Rohde at Essex Aviation; Jim Simpson at First Republic Bank; René Bangelsdorf at Charlie Bravo Aviation; Janine Iannarelli at Par Avion Ltd; and Ryan Waguespack with NATA. More podcasts will be made available each week.

    “Asset Insight is in a unique position to bring aviation professionals together to hold timely discussions in short, interesting, educational and entertaining on-demand podcasts.” said Tony Kioussis, president of Asset Insight, LLC and host of the series. “This new aviation podcast series offers our community the opportunity to select episodes and topics on their schedule, and according to their interest and business segment. As many of us work from home to maintain safe social distancing, our podcasts allow people to remain connected. The podcasts can also assist new personnel entering the industry; people that would otherwise find it challenging to secure such information.”

    Asset Insight Podcasts are available on Apple Podcasts, Spotify, Stitcher, Google Podcasts, www.assetinsight.com http://www.assetinsightpodcast.com, and wherever you get your podcasts.

    This release was originally published by Asset Insight on July 7, 2020.

  • NAFA Administrator posted an article
    Webinar: Ready to Buy & Fly? see more

    Educational Webinar Covers Best Practices & Acquisition Strategies Teaming Strategies

    Are you thinking about purchasing an aircraft? It can be an overwhelming experience, especially if you’re a first-time buyer, but there are experienced industry professionals who are ready to help.

    In a free educational webinar on May 28 2020, Essex Aviation President and CEO Lee Rohde joined GKG Law Principal Chris Younger to talk about everything you need to know when it comes to purchasing an aircraft.

    The webinar, Ready to Buy & Fly? Best Practices & Teaming Strategies for a Successful Aircraft Acquisition, includes resources, tips, and information on the following topics:

    • Steps to a successful aircraft transaction (including a week-by-week timeline!)
    • The necessary parties you should include when it comes to purchasing a plane, including:
      • CFO, CEO, and the COO
      • Corporate general counsel
      • An aircraft technical consultant
      • Commercial lender
      • And many more
    • Key closing checklist items
    • Potential post-closing issues
    • Net operating loss (NOL) carrybacks and The Coronavirus Aid, Relief, and Economic Security (CARES) Act

    Essex Aviation handles everything from new and pre-owned aircraft acquisitions to private jet charter counseling and membership. GKG Law works with purchase and sale transactions, aircraft ownership, federal and state tax planning, aircraft ownership trusts, and more.

    To find out more about purchasing an aircraft or to ask our industry experts any questions, contact Essex Aviation today.

    View Webinar Here

    This webinar hosted by Essex Aviation and GKG Law originally aired on May 28, 2020.

     

  • NAFA Administrator posted an article
    GAMA Publishes First Quarter 2020 Aircraft Shipments and Billings Report see more

    WASHINGTON, D.C. – The General Aviation Manufacturers Association (GAMA) released its report of general aviation aircraft shipments and billings for the first quarter of 2020. Piston, turboprop, business jet and rotorcraft deliveries declined across all segments during the first quarter of 2020 as compared to the first quarter of 2019.

    “While the year started off strong, the health and safety restrictions put in place to respond to the COVID-19 pandemic began to significantly impact global operations, supply chains and deliveries towards the end of the first quarter. Companies rapidly implemented a wide range of health protocols in accordance with local, regional and national level guidance to keep production, maintenance and training activity churning. Many companies then supplemented ongoing activities with the production and transport of health care materials needed by front line health care workers and communities across the globe. These actions serve as a testament to the adaptability and resilience of our industry’s incredible workforce who will play such a pivotal role in our recovery process,” said GAMA President and CEO Pete Bunce.

    The first quarter of 2020, when compared to the first quarter of 2019, saw piston airplane deliveries decline 11.7%, with 219 units; turboprop airplane deliveries decline 41.8%, with 71 units; and business jet deliveries decline 19.1%, with 114 units. The value of airplane deliveries through the first quarter of 2020 was $3.4 billion, a decline of approximately 21.3%.

    Turbine helicopter deliveries for the first quarter of 2020, when compared to the first quarter of 2019, saw a decline of 18.3%, with 85 units; and piston helicopter deliveries saw a decline of 43.9%, with 37 units.

    GAMA’s complete 2020 first quarter report can be found at gama.aero.

    This release was originally published by GAMA on May 27, 2020.

     

  • NAFA Administrator posted an article
    Overview of the GAO Report on FAA see more

    In March of 2020, at the request of Congressmen Stephen Lynch and Peter King with the Subcommittee on National Security and the Committee on Oversight and Reform, the GAO released its long-awaited report on the FAA Registry’s ability to handle fraud and abuse risks in aircraft registrations.  As the title of the report clearly implies, the GAO found that the FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration.  

    More specifically, however, the report found that the FAA needs to better review and vet the actual owners of aircraft.  As we all know, the FAA currently takes filed documents at face value, and records them if they meet certain requirements as set by the FAA itself.  While the rest of the industry has been subject to more and more demands to Know Your Customer, and to adhere to KYC and OFAC guidelines, the FAA has remained immune.  This report suggests that it is time for the FAA itself to do more due diligence and better vet the entities registering aircraft on its registry.

    There is also a clear need to allow law enforcement agencies more access to the data contained in the FAA registry.  Currently, registration information is mostly provided in .pdf format which is not easily searchable or accessible.  Many law enforcement agencies expressed frustration with an inability to have easy access to this information, and the report outlines opportunities for the FAA to be a center point to house data that could help law enforcement agencies to not only have better access to information, but to potentially allow for better cross-agency coordination to crack down on illegal activity involving the registration and use of general aviation aircraft.  

    The report seems to focus on increasing transparency in “Opaque Ownership Structures” for registering aircraft, which the GAO believes are at the highest risk for fraud and abuse.  Opaque Ownership Structures are legitimate business structures that are widely used by corporations and individuals to facilitate commerce as well as for asset and tax management. However, they lack transparency related to aircraft registrations and can create challenges for safety and law-enforcement investigators seeking information about beneficial owners to support timely investigations. 

    These ownership structures can include the following:  

    • shell companies, especially in cases where there is foreign ownership that is spread across jurisdictions; 
    • complex ownership and control structures involving many layers of shares registered in the name of other legal entities;
    • formal nominee shareholders and directors where the identity of the beneficial owner is undisclosed;
    • trusts and other legal arrangements that enable a separation of legal ownership and beneficial ownership of assets; 
    • use of intermediaries in forming legal entities, including professional intermediaries.  

    It is worth noting that the report specifically excludes publicly traded companies, shifting the focus of these security measures away from commercial airlines and towards the general aviation industry.  

    On pages 58-59 of the report, the GAO outlined 15 recommendations for Executive Action by the FAA.  Many of the recommended improvements to the FAA system are expected to be implemented in the FAA’s modernization project, slated to be completed by October 2021.  Generally speaking, the modernization project is expected to help streamline and automate the aircraft registration process,  and make the FAA records available to the public at all times.  The GAO report includes recommendations for using this new system to improve the FAA’s vetting process of owners registering aircraft on the FAA’s system, and using that technology to allow law enforcement officials more access to registry data.  Initial conversations with the FAA indicate they are on track to complete this project by the stated October 2021 deadline.  

    While the GAO has many recommendations to the FAA, there are still many questions to be answered.  These are the Top Issues we have identified:

    • The biggest unanswered question causing the most consternation in the industry, is the one involving transparency of ownership information.  How much transparency will there really be?  Will all aircraft ownership information be made available to the public, or only some?  Will there be sections of registry data that remain “private” and only made available to authorized government agencies?  That remains to be seen.  
    • Possibly the second largest question includes cost.  The report is clear that the $5 filing fee set in 1964 is not enough to cover even today’s operating expenses, much less the costs to modernize the system.  FAA has been talking about increasing registration costs for years, so an increase can likely be expected, but the question of how much remains to be answered.   How much will it cost to register an aircraft in the future?  
    • Time is money, so questions about increases in registration time also remain.  If FAA will be doing more vetting of its registrants, how much time will that take?   How much longer will it take to register an aircraft with the FAA?  What will this do to aircraft closing timelines?
    • Lastly, there is the issue of international operations.  The report expresses clear concern for FAA’s ability to issue Declarations of International Operations without knowledge or consent of specific law enforcement agencies.  FAA currently expedites requests for international flights on a daily basis for the general aviation community, but will they be able to do that in the future?  Or will there be a more stringent system of checks and balances required to issue Declarations of International Operations?  And how long will it take to finally have one issued?

    The FAA has yet to officially respond to the GAO’s report, but they have updated their website on the CARES Initiative to enhance and modernize the FAA registration services.  To learn more about it, you can go to their website here:  https://www.faa.gov/about/initiatives/cares/

    Furthermore, on March 30, 2020, they issued their Third Request For Information, requesting information from the industry.  To participate, click here:  https://beta.sam.gov/opp/8b7d6e20940d4d5b8b4e8e9e76a991b3/view  

    As NAFA members, it is important that we participate in any proposed changes to the FAA registration process as much as possible.  To the extent that you have time to fill out the FAA’s RFI, we encourage our members to do so. 

    NAFA will continue to monitor the proposed changes and the FAA’s eventual response and will report those to the membership.  

    The full report can be found here:  https://www.gao.gov/assets/710/705505.pdf