- 13 Dec 2019
- Tony Kioussis
- BizAv Market Insight
Used Aircraft Maintenance Analysis – December 2019
In terms of maintenance exposure to ask price ratio, which were the most improved and deteriorated business jets and turboprops in December 2019, and what factors impacted them? Asset Insight's Tony Kioussis analyses...
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Tony Kioussis
As President, Asset Insight, LLC, Tony provides valuations, audits, analytics and consulting services,...
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? Tony Kioussis explores…
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 2019 | Q4 2019 | Since December 2018 | |
| Large Jets | -1.2% | -1.6% | -9.1% |
| Medium Jets | -3.0% | 0.4% | 11.0% |
| Small Jets | -2.9% | -1.8% | -5.7% |
| Turboprops | 2.0% | 4.7% | -2.2% |
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.
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Tony Kioussis
As President, Asset Insight, Tony provides valuations, audits, analytics and consulting services, and a uniform methodology for grading an aircraft’s maintenance condition.
Asset Insight is owned by JETNET LLC, and has devised a uniform methodology for grading an aircraft’s maintenance condition allowing it to provide timely current and residual aircraft values, projected maintenance costs, and future marketability information.
Previously Tony worked with GE Capital’s Corporate Aircraft Finance group; Jet Aviation; and JSSI, developing the ‘Tip-to-Tail’ airframe maintenance program.
