market report

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

Average Ask Price for aircraft in Asset Insight’s tracked fleet decreased 0.7% in December, but value changes varied substantively based on model size. Which models were impacted the most? 

During December, the number of inventory aircraft comprising Asset Insight’s tracked fleet of 96 fixed-wing models decreased 1.6% to 1,748 units.

Asset quality improved 0.2% during the month, but worsened overall during Q4 by the same amount, and by 1.8% during the calendar year. Still, at 5.206, the ‘for sale’ fleet’s Quality Rating remained within the ‘Very Good’ range on Asset Insight’s scale of -2.5 to 10

Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the best (lowest) figure for 2019 during December at $1.345m, equating to an improvement of 1% for the month, 0.9% for Q4, and 4.9% year-over-year.

December’s Aircraft Value Trends

Asset Insight’s tracked fleet closed out 2019 by losing an additional 0.7% of asset value in December and, even though pricing increased 0.8% during Q4, the average aircraft in our tracked fleet lost 3.1% of its value year-over-year. Group performance varied as follows:

December’s Fleet for Sale Trends

The total number of used aircraft listed for sale within Asset Insight’s tracked fleet decreased 1.6% following six consecutive monthly increases, reducing inventory by 28 units during the December transaction frenzy while resulting in an increase in ‘for sale’ fleet of 9.9% during 2019 (157 units).

All four groups ended the year with higher availability:

• Large Jet inventory: Unchanged for the month, and up 8.7% year-over-year (30 units);
• Medium Jet inventory: Decreased 1.7% (nine units) in December, but gained 9.8% (48 units) during 2019;
• Small Jet Inventory: Receded an additional 2.8% (16 units) in December, but gained 15.4% (73 units) throughout the year; and
• Turboprop inventory: Decreased 1% (three units) for the month while increasing 2.1% (six units) since December 2018.

December’s Maintenance Exposure Trends

Graphically, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) traveled a sawtooth journey in 2019. It improved 1% in December (to post the year’s best figure); 0.9% during Q4; and 4.9% for the calendar year. Individual results were as follows…

• Large Jets: Posted their lowest (best) maintenance exposure of 2019 during the month of December through a 2% decrease (improvement) for the month, along with a decrease of 3.6% during Q4, and a 15% year-over-year improvement;
• Medium Jet: Exposure improved (decreased) 1.1% in December, but worsened 2.7% during Q4 and 6.9% since the start of 2019;
• Small Jets: Suffered a couple of costly spikes during the year, but fell (improved) by 1.4% in December, 1.9% during Q4, and 3.5% for the year;
• Turboprops: Maintenance exposure improved a bit during Q4, decreasing 4.2% (with 0.8% coming in December), but lost ground for the year by increasing (worsening) over 4.8% since last December.

December’s ETP Ratio Trend

The latest fleet mix increased (worsened) the average ETP Ratio slightly to 64.8%, from November’s 64.3%. While the year ranged from a low of 63.6% up to 70.9%, the tracked fleet posted the same figure in January 2019 as it did in December 2019.

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%.

During Q4 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (215 versus 395 DoM). How did each group fare during December?

• Turboprops recaptured the top (best) spot with the lowest ETP Ratio, 52.1% (compared to November’s 54.1% and December 2018’s 51.1%);
• Large Jets moved down into second place with a Ratio of 55.1% (versus November’s 53.9% and December 2018’s 58.8%;
• Small Jets captured third position by remaining unchanged for the month at 67.3%. But the group’s figure increased a bit from December 2018’s 66.4%;
• Medium Jets took last place at 75.5% (compared to November’s 73.6% and December 2018’s 77.8%.

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 December 2019.

Most Improved Models

Five of the ‘Most Improved’ models revealed a Maintenance Exposure decrease (improvement), while the King Air 300’s Exposure increased. Two aircraft – the Bombardier Global Express and Gulfstream GV – posted no price change, while the Cessna Citation II posted a price decrease of $4,596. The remaining three models experienced price increases as follows:

• Hawker 1000A  $88,000
• Beech King Air 300  $219,090
• Bombardier Learjet 45XR $292,500

Bombardier Global Express

The Bombardier Global Express captured top spot on the ‘Most Improved’ list as a single sale, an aircraft’s withdrawal from inventory and two additions to the ‘for sale’ fleet lowered the group’s Maintenance Exposure by nearly $1.6m.

The 14 listed aircraft represent 10.3% of the active fleet and, while that percentage may be a little high, many of those aircraft are enrolled on an engine Hourly Cost Maintenance Program (HCMP) that should bring the 55.1% ETP Ratio to below 40% once adjusted for HCMP coverage.

Note: The Bombardier Global Express still has plenty of financial and operating life remaining, along with a strong following. For this reason, many current and potential owners are considering upgrading their asset utilizing the JANUS Modernization Program, a decision that could add substantial value to the aircraft while making it virtually indistinguishable from a new production unit, particularly with respect to passenger amenities. Some owners are also contemplating upgrading their avionics suite.

Cessna Citation II

The Cessna Citation II placed second on November’s ‘Most Improved’ list and earned the same position in December thanks to a Maintenance Exposure decrease approaching $97k (even though its Ask Price actually dropped in December).

Two aircraft transacted in December, two were withdrawn from inventory, while two more entered the ‘for sale’ pool. The 93 units currently available represent 18.5% of an aging fleet, and the model’s near 94% ETP Ratio make this a potential ‘buy it to keep it’ asset for prospective owners.

Hawker 1000A

The Hawker 1000A moved from occupying the ‘Most Deteriorated’ position in November, to third best on the ‘Most Improved’ list in December thanks to a Maintenance Exposure decrease exceeding $30k and a respectable Ask Price increase by virtue of a single repriced inventory aircraft.

The seller’s repriced unit perhaps notwithstanding, this model’s ETP Ratio suggests that the average buyer should count on incurring Maintenance Exposure equivalent to the price of the aircraft they’re purchasing, and that’s not the type of asset sought by most buyers, especially a model sporting a limited production run.

Seller Advice: Consider any offer that comes your way. Another proposal may not come any time soon.

Beechcraft King Air 300

Two aircraft transacted in December, but three more entered inventory raising availability to 18 units, approximately 8% of the active fleet. The King Air 300 made this list primarily due to an Ask Price increase exceeding $219k that overrode a Maintenance Exposure increase exceeding $11k.

With few such models enrolled on engine HCMP, the King Air 300’s 54.8% ETP Ratio might require some sellers to accept a lower price than they’d like. However, even an ETP Ratio slightly above 40% should not be a serious impediment to mutually beneficial transactions, in view of the model’s fan base.

Bombardier Learjet 45XR

Three sales and one lease were completed in December, but with four additions to inventory the number of units for sale remained at 18, representing 8.8% of the active fleet.

The model’s ETP Ratio of 33.7% makes this aircraft readily marketable, especially if the asset’s engines are covered by HCMP. Whether the Ask Price increase can be supported remains to be seen.

Gulfstream GV

The final model on this month’s ‘Most Improved’ list experienced no average Ask Price change in December, but a single transaction and two additions to inventory lowered the average Maintenance Exposure by more than $658k.

The 14 inventory units equate to 7.3% of the active fleet for sale. With an ETP Ratio of 31.5%, and with more than half of this fleet enrolled on engine HCMPs, sellers of HCMP-covered assets should experience less trouble securing an acceptable offer than the current 260 Days on Market would suggest.

Most Deteriorated Models

Five of the six models on December’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase, while the Dassault Falcon 50 posted a decrease. The Bombardier Learjet 55C posted no Ask Price change; the Challenger 601-3R Ask Price rose by $50,000; and the remaining models registered the following decreases:

• Dassault Falcon 50  -$185,909
• Cessna Citation ISP  -$38,461
• Dassault Falcon 900EX -$316,667
• Bombardier Learjet 35A -$1,455

Bombardier Learjet 55C

December’s ‘Most Deteriorated’ model posted no transactions in December, and only two inventory aircraft remained after one of the ‘for sale’ units was withdrawn. The Learjet 55C’s Maintenance Exposure increase exceeded $189k that, along with no Ask Price change, earned the jet its position on this list.

This Learjet’s problem is two-fold: First, it’s an aging asset with limited market following. Second, with an ETP Ratio approaching 109%, buyer offers are unlikely to be appealing for sellers.

Dassault Falcon 50

The second ‘Most Deteriorated’ asset to make this list registered two transactions in December, two aircraft were withdrawn from inventory, three were added to the ‘for sale’ fleet, and the 30-unit availability equated to 15.7% of the active fleet.

The model earned its spot on this list through a Maintenance Exposure increase approaching $16k, along with an Ask Price decrease approaching $186k that combined to create an ETP Ratio approaching 126%.

Considering the aircraft’s age, the only surprise is the model’s relatively short remarketing period of approximately six months, which speaks to the aircraft’s operating capabilities that continue to create followers.

Bombardier Challenger 601-3R

Those of you following these monthly reviews may recall that this aircraft led all models on November’s ‘Most Improved’ list. How quickly an asset’s fortune changes as it approaches financial obsolescence.

One asset sold in December, but two more entered inventory and the six available units represented 9.8% of the active fleet. That statistic is not the problem. The 601-3R’s ETP Ratio of 125% (created by a Maintenance Exposure increase nearing $394k, and the fleet’s age) are this asset’s greatest challenges.

Cessna Citation ISP

As we closed out December, there were 53 Citation ISP units listed for sale (19.3% of the active fleet). With this level of competition, singling out their aircraft’s value is a serious challenge for sellers. Nevertheless, some were able to do so and four sold in December.

Unfortunately, two other units entered the fleet, and the change in availability resulted in a Maintenance Exposure increase exceeding $17k, along with an Ask Price drop of more than $38k. The model’s ETP Ratio (which now exceeds 107%) makes this a buyer’s paradise, assuming they’re willing to risk becoming the aircraft’s final owner.

Dassault Falcon 900EX

This model earned its place on the ‘Most Deteriorated’ list for technical reasons. Its ETP Ratio of 34.9% should cause few challenges for sellers who understand their aircraft’s value relative to comparable assets listed for sale.

Three aircraft transacted in December and one new asset joined the inventory. The seven available units equate to only 5.9% of the active fleet.

The technical figures creating the model’s ETP Ratio deterioration were a Maintenance Exposure increase approaching $479k, along with an Ask Price decrease of nearly $317k (thanks to the latest entry to inventory). These aircraft continue to be financially and operationally viable assets.

Bombardier Learjet 35A

This is yet another example of a model nearing financial, and probably operational, obsolescence. And yet one aircraft sold during December (and another was withdrawn from inventory), leaving 43 units, or 10.1% of the active fleet, listed for sale.

When a model offers this much selection to buyers, along with an ETP Ratio exceeding 181%, complements of a Maintenance Exposure increase nearing $46k and a nominal Ask Price decrease, sellers are at a severe disadvantage. The one thing buyers should ensure they consider is if they truly wish to own an asset of this age.

ADS-B Equipage and Values

The new year could result in some dramatic price decreases for older aircraft that have not met the January 2020 ADS-B equipage mandate. While we do not believe non-equipped turbine assets will be ‘worthless’, their values will be negatively impacted.

For aging assets, especially those with little time left before their recommended engine overhaul point, Salvage Value is a very real possibility, although actual transaction figures will be the true determinant.

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 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

This article was originally published by AvBuyer on January 10, 2020.

NAFA member, Johnny Foster, President and CEO of OGARAJETS spoke with AvBuyer’s Rebecca Applegarth to discuss some of the current trends in the Business Aviation marketplace and offer insights on where the aircraft sales market could be heading in 2019.

Johnny Foster, President and CEO, OGARAJETS, grew up around Business Aviation. His father, John Foster III, known as the ‘World’s Greatest Fighter Pilot’, retired from the US Navy in 1973 and moved directly into Business Aviation. Johnny and his brother David have many early memories of playing around aircraft in the hangars and flying as their father’s co-pilot on both business and personal trips.

John Foster III formed O’Gara Aviation Company in 1980 with a Naval squadron mate Ed O’Gara, and Johnny joined the team in 1991 just after the company had purchased three Gulfstream GIIs and the outbreak of the Gulf War.

Those were challenging times for a small family business, but tenacity and commitment saw it emerge through recession with its head above water and grow from Turboprop and Light Jet sales into heavy aircraft.

With almost 30 years in the industry, Johnny has experienced up and down cycles in aircraft sales, was appointed president of the company in 2006 and oversaw the rebranding of his business as OGARAJETS in 2013.

Now, at a time that he notes a lack of transparency in much of the industry (with back-to-back deals and ‘flip’ structures common), Johnny points to his father’s vision for the company which has never faltered: “Family values, unquestioned integrity, personal relationships, and roll-your-sleeves-up hard work remain at the cornerstone of our commitment to clients and assurance of continued success,” he offers.

Since its formation, OGARAJETS has completed roughly 1,100 transactions in over 60 countries, totalling more than $5bn in market value. Services offered by OGARAJETS range from sales, brokerage and acquisition to management, leasing and flight operation services.

Tapping in to his vast experience of the pre-owned business jet marketplace, AvBuyer spoke with Johnny to get his perspectives on where the market is, and where it’s going as 2018 draws to a close…

AvBuyer: A review of AMSTAT data released in October representing used aircraft sales between January-August shows the percentage of Heavy/Large Jets for resale to be at its lowest since 1998.

Notably the biggest improvement in turn-over YTD was in the Large Jet ‘mid-age’ segment. What does this tell you about that market, and how do you see the scenario playing out as we move into 2019?

Foster: More than anything, I believe the positive statistics of the pre-owned space reflects a high level of confidence that remains in the market, and that today’s prices (which largely have been compressed over the previous eight-plus years) represent unimaginable values.

As for the Large Jet segment, a quality turnkey aircraft, fully programed, and capable of flying 5,000-plus miles for less than $10m? Wow! There are some tremendous transportation values in this space across all makes and models, especially those aged under 20 years.

The OEMs have largely remained disciplined in their new jet production, which has helped to strengthen the jets aged less than five years old. This is one of the few segments we have actually seen prices rise over the previous 12 months. This thinning supply and strengthening of prices are now opening the door to ‘recovery’ for the six-to-15-year-old space, as AMSTAT is reporting.

While the transaction pace remains feverish, and good quality aircraft that are priced appropriately are selling quickly, the value opportunities remain. Buyers in today’s market must be prepared to move quickly when the right opportunity presents itself. There could never be a more appropriate time to engage a trusted professional to guide purchase efforts and success.

Let’s not overlook that the ‘Tax Cuts and Jobs Act’ has imparted a very measurable and positive impact on the pre-owned aircraft marketplace. We believe the market will continue to enjoy a continued boost into 2019 and beyond.

AvBuyer: At the other end of the market, AMSTAT says the Light Jet fleet for sale is at 10.8%, down 0.7% from this time last year. Can you see a point in the next year or so where the Light Jet market actually moves into traditional sellers’ market territory (i.e. <10% for sale)?

Foster: Business Aviation is not immune to Business 101 lessons of supply and demand. As values across the board have compressed significantly over the last decade, buyers today can simply purchase ‘more’ cabin for the same dollars. So, much of the Light Jet market has continued to lag in transaction flow.

All the while, the OEMs in this segment continue to produce significant numbers of new aircraft of many varieties. There simply is not the demand to absorb the supply. Price compression, or market depreciation will continue.

With that said, looking on a micro-level, there are some specific over-performers in this space, namely Embraer’s Phenom 300.

AvBuyer: Price depreciation has been a hallmark of the used jet market since the great recession. What needs to happen for values to increase again, beyond the newest, best conditioned aircraft on the market?

Foster: This is an interesting thought. Until the collapse in 2008, most owners experienced at least a level (even a rising) value over the term of their ownership. Sure, there were dips in the economy that drove values down in spurts, but most were short-lived and generally owners enjoyed an appreciating asset.

This really made owning aviation assets fun and often ‘justified’. Value appreciation was so common that it took several years after 2009 for me to stop apologizing to clients for their aircraft values slipping.

By 2014, it was clear annual depreciation was here for good, similar to virtually every other piece of capital equipment. Today, in very general terms, we see annual depreciation of over 10% per year for less-than five-year-old assets, trailing down to 2-3% annually on aged assets.

The positive transactions over the last 18 months have begun to flatten the curves, but I am confident depreciation is here to stay and should be factored in any purchase decision.

AvBuyer: In which segments of the market would you expect to see higher demand in 2019?

Foster: I believe the Large Jet sector will remain a point of focus, driving all markets. Each of the OEMs have some amazing launches planned for 2019; significantly more speed, range and comfort all in one package! I suspect there are some more announcements coming, too – though only time will tell…

We also like what we’re seeing with some of the ‘disruption’ now present in the Super-Mid-Size sector; jets with capacity to fly eight passengers over 3,500 miles at a fraction of the capital and operating costs of the Large Jet market. There’s some tremendous value all around.

What do I see ahead for 2019?

Our enjoyment of favorable conditions remains very closely tied to domestic and global environments. So we’re keeping a careful eye on a stock market that has been on an almost eight-year bull run.

In addition, with US mid-term elections that just can’t seem to settle, tariffs being shuffled between global super-powers and ADS-B mandates that are now just 13 months away – there are many factors at play that could influence the pre-owned market for better or worse in 2019.

More information from www.ogarajets.com

This article was originally written and published by Rebecca Applegarth with AvBuyer on November 12, 2018.

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.

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.

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.

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 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.