used aircraft maintenance analysis

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

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

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

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

     

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

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

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

     

    July’s Aircraft Value Trends

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

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

     

    July’s Fleet for Sale Trends

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

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

     

    July’s Maintenance Exposure Trends

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

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

     

    July’s ETP Ratio Trend

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

    Why is this information important? The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increase, in many cases by more than 30%.

    How did each group fare during the month of July?

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

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual business jet and turboprop models fared the best and worst during July 2019.

     

    Asset Insight Most Improved Jet Models - July 2019

     

    Most Improved Models

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

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

     

    Hawker 800A

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

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

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

     

    Bombardier Challenger 601-3R

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

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

     

    Cessna Citation V 560

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

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

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

     

    Beechcraft King Air 350 (Post-2000 Models)

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

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

     

    Bombardier Global Express

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

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

     

    Beechcraft Premier 1A

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

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

     

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

     

    Most Deteriorated Models

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

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

     

    Asset Insight Most Deteriorated Jet Models - July 2019

     

    Gulfstream G100

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

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

     

    Gulfstream GIV

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

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

     

    Bombardier Learjet 55

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

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

     

    Dassault Falcon 900B

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

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

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

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

     

    Beechcraft Premier 1

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

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

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

     

    Gulfstream GV

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

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

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

     

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on an HCMP.

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

    More information from www.assetinsight.com.

    This article was originally published by AvBuyer on August 20, 2019.

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

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

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

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

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

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

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

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

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

    ETP Ratios Explained…

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price. As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price).

    ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%).

    So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2018 were listed for sale an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively), while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 34% longer to sell (280 versus 374 Days on Market).

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

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

    Most Improved Models

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

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

    Most Improved Business Aircraft in October


    Gulfstream GIV-SP (MSG-3)

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

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

    Bombardier Learjet 35A

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

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

    Hawker Beechjet 400A

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

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

    Hawker Beechjet 400A

    Beechcraft King Air 350 Pre-2001

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

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

    Beechcraft King Air 350

    Bombardier Learjet 45

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

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

    Embraer Legacy 600 

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

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

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

    Embraer Legacy 600 Jet

     

    Most Deteriorated Models

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

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

    Most Deteriorated Business Aircraft in October


    Gulfstream G100

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

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

    Hawker Beechjet 400

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

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

    Bombardier Learjet 31

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

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

    Cessna Citation VI

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

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

    Cessna Citation VI

    Cessna Citation CJ2

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

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

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

    Beechcraft King Air 300

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

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

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

    The Seller’s Challenge

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

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

    It is also important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s Ask Price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on HCMP.

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

    More information from www.assetinsight.com.

    This article was originally published by AvBuyer on November 13, 2018.