Used Aircraft Maintenance Analysis – June 2020

During June 2020, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,360 aircraft listed for sale equated to a 1.5% inventory fleet increase compared to May, and a year-to-date (YTD) increase of 8.2%.

The fleet has remained within the ‘Excellent’ range during 2020 on Asset Insight’s objective grading scale of -2.5 to 10. In June, the fleet improved to 5.311 (a 12-month best figure) compared to May’s 5.301. Based on the inventory fleet’s latest composition, fewer near-term maintenance events are anticipated, and will cost below the tracked fleet’s 12-month average.

June’s Aircraft Value Trends

The average Ask Price for aircraft in the tracked fleet decreased 2.0% in June, while Q2 posted an overall 4.0% decrease. By comparison, H1 2020 saw a 3.6% value decline. Separated into aircraft groups, the figures were as follows:

• Large Jets: Ask Prices rose 2.9% for June, but lost 7.3% for Q2 and 9.6% YTD.
• Medium Jets: Ask Prices decreased 3.7% during June, 2.7% for Q2, and have fallen 5.2% YTD.
• Small Jets: Ask Prices increased 1.6% for June, 3.7% for Q2, and 8.8% YTD.
• Turboprops: Prices decreased 2.3% in June, 6.9% during Q2, and 5.1% YTD.

June’s Fleet for Sale Trends

The tracked fleet’s total number of aircraft listed for sale increased 1.5% in June (36 units), increasing inventory by 8.2% (178 units) YTD.

• Large Jet Inventory: Increased 1.6% (eight units), and 15.3% (66 units) YTD.
• Medium Jet Inventory: Rose an additional 1.8% (12 units) for June, and 2.9% (19 units) YTD.
• Small Jet Inventory: Experienced a minor 0.1% increase (one unit) in June, contributing to a YTD increase of 9.2% (59 units).
• Turboprop Inventory: Increased another 3.2% (15 units) during June, and the group is now up 7.6% (34 units) YTD.

June’s Maintenance Exposure Trends

Following May’s increase, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) fell (improved) 1.0% to $1.376m, signaling upcoming maintenance for the latest fleet mix would be lower than the 12-month average. Individual group results were as follows…

• Large Jets: Improved (decreased) 1.5% for the month to maintain a figure better than (below) the group’s 12-month average.
• Medium Jets: Improved by 1.1% to post a 12-month best figure.
• Small Jets: Improved a minimal 0.3%, leaving them just slightly better than (below) May’s 12-month worst (highest) figure.
• Turboprops: The only sector to post a worsening figure, Turboprops increased 1.7% but Maintenance Exposure remained only slightly worse than the group’s lowest (best) 12-month figure.

June’s ETP Ratio Trend

The tracked fleet’s ETP Ratio remained virtually unchanged at 69.9% for the third consecutive month, maintaining a figure about half-way between the worst (highest) 12-month figure and the 12-month average Ratio.

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 June?

• Turboprops: For the seventh consecutive month, Turboprops registered the lowest ETP Ratio at 45.9%, thereby maintaining the top (best) spot among the four groups.
• Large Jets: Improved to 64.0% from May’s 66.0% to remain in second place.
• Medium Jets: At 73.4%, Medium Jets registered a figure about half-way between their best (lowest) 12-month figure and their 12-month average rating.
• Small Jets: Improved for the third consecutive month by posting an ETP Ratio of 85.8% – lower than the group’s 12-month worst figure (90.2%) yet certainly not helpful to 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 June 2020.

Most Improved Models

All six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). The Gulfstream G100 registered no price change, while the remaining five models experienced the following price increases:

• Cessna Citation ISP (+$34,918)
• Gulfstream GIV (+$162,222)
• Bombardier Learjet 40XR (+$223,333)
• Beechcraft Hawker 800XP (+$26,268)
• Embraer Legacy 600 (+$100,000)

Gulfstream G100

Top spot on June’s ‘Most Improved’ list was captured by a model that posted no transactions during the month. In fact, the G100 saw no Ask Price change, but a Maintenance Exposure decrease exceeding $517k earned it its place on the list. (For those following our monthly Used Aircraft Maintenance Overviews, this is yet another example of big statistical swings when only a few aircraft are listed for sale.)

Only three units are presently on the market (14.3% of the active fleet), following an addition in June that posted no Ask Price, but whose Maintenance Exposure figure generated a 23.6% decrease in the average.

While technically the most improved of our tracked models, the G100’s ETP Ratio means that the average aircraft is sporting an embedded maintenance expense that exceeds its value…

Cessna Citation ISP

From its place on May’s ‘Most Deteriorated’ list to second place in June is an accomplishment for any model, and especially one who’s ETP Ratio is nearly 116%.

One Citation ISP transaction was noted in June, one aircraft was withdrawn from inventory, but five more joined the fray, creating a pool of 53 units, equating to 19.3% of the active fleet (a near-impossible negotiating position for sellers).

For those willing to chance ‘final owner’ status, there are plenty of options for a model that found its way onto this list through a Maintenance Exposure decrease approaching $86k and an aspirational Ask Price increase nearing $35k.

Gulfstream GIV

Two months ago, this model held the worst position on the ‘Most Deteriorated’ list. This month, it earned its position on the ‘Most Improved’ list through a Maintenance Exposure decrease exceeding $105k and an Ask Price increase exceeding $162k.

One aircraft transacted in June, four were added to the inventory, and the 23 listed units equate to 13.5% of the active fleet.

We have written about this model’s following in the past, and there are certainly buyers willing to risk acquisition of a disposable asset. However, with an ETP Ratio approaching 161%, prospective buyers would be wise to review the GIV’s total operating cost, with a particular focus on maintenance.

Bombardier Learjet 40XR

From its ‘Most Deteriorated’ list appearance last month, to June’s ‘Most Improved’ list, the 40XR’s 57.4% ETP Ratio appears to offer, on the surface at least, some owners the opportunity to structure transactions with rational values – especially those that have enrolled their aircraft’s engines on an Hourly Cost Maintenance Program (HCMP).

However, a deeper look may not be as comforting, since the model’s Ask Price increase was created by a new seller posting an Ask Price nearly 83% higher than the average of all other posted Ask Prices.

The 12 inventory units (13.0% of the active fleet) should provide ample negotiating opportunities for buyers, while the $64k Maintenance Exposure decrease is also in their favor.

Beechcraft Hawker 800XP

The Hawker 800XP found itself in this exact position on April’s ‘Most Improved’ list, and its June reprise is due to a Maintenance Exposure decrease approaching $105k along with an Ask Price increase exceeding $26k. Two aircraft transacted last month, but five were added increasing the inventory to 62 units (15.5% of the active fleet).

With an average ETP Ratio exceeding 83%, any seller whose engines are not enrolled on an HCMP is at a severe disadvantage, since approximately 80% of the fleet is enrolled on one.

Embraer Legacy 600

The final member of June’s ‘Most Improved’ list is an aircraft that most definitely belongs on this this list, earning its position through a Maintenance Exposure decrease exceeding $323k and an Ask Price increase of $100k.

Two Legacy 600 aircraft transacted in June, and the 10 remaining listings represent only 5.8% of the active fleet, creating a healthy trading environment for both buyers and sellers, especially with an ETP Ratio below 36%.

Most Deteriorated Models

All six models on June’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Bombardier Learjet 55C posted no Ask Price change, while the remaining models experienced the following decreases:

• Daher TBM 700A (-$44,600)
• Hawker Beechjet 400A (-$99,563)
• Dassault Falcon 900B (-$451,667)
• Beechcraft Hawker 800A (-$34,308)
• Gulfstream GIV-SP (MSG3) (-$2,102,500)

Daher TBM 700A

The best aircraft among June’s ‘Most Deteriorated’ assets is a model making its first appearance on either list, the TBM 700A. This was the result of Maintenance Exposure increasing more than $54k and Ask Price dropping nearly $45k.

The resulting ETP Ratio of 66.6% may create pricing challenges for some seller. However, the eight aircraft listed for sale (following no transactions in June and two inventory withdrawals) represent only 7.8% of the active fleet for an asset with a strong client base.

Bombardier Learjet 55C

The news for any model whose inventory rises 50% in a month while posting no transactions during that time period should be dire. However, when viewed as two listed units increasing to three, the prospects for sellers ‘appear’ better…

Until, that is, you realize those three units represent over 23% of the active fleet for a model aged between 30 and 31 years…

To add insult to injury, the aircraft’s Maintenance exposure increase of more than $125k boosted the model’s ETP Ratio past 116%. The lack of an Ask Price change was due to only one of the three aircraft posting an Ask Price during the past two months.

Hawker Beechjet 400A

Two months ago, this model occupied the final slot on our ‘Most Improved’ list. In June, its near $100k Ask Price decrease, along with a nominal $2k Maintenance Exposure increase helped the asset achieve an ETP Ratio approaching 86% and its ‘Most Deteriorated’ list standing.

One aircraft did manage to trade in June, while another was withdrawn from inventory, but the 58 units listed for sale amount to 21.6% of the existing fleet. With selection favoring buyers, low pricing confronts sellers, especially those whose engines are not enrolled on an HCMP.

Dassault Falcon 900B

One asset traded in June, and the 16 remaining inventory units amount to 10.4% of a fleet with a strong following. Essentially, the model earned its place on this list by way of a Maintenance Exposure increase approaching $163k, along with an Ask Price decrease nearing $452k.

However, the news is not at all bad. The 900B’s 52.5% ETP Ratio should create decent pricing opportunities for many sellers, particularly those whose aircraft are enrolled on engine HCMPs.

Beechcraft Hawker 800A

The Hawker 800A has yo-yoed from top model on March’s ‘Most Improved’ list to April’s ‘Most Deteriorated’ list, back to the ‘Most Improved’ roll in May, only to find itself in second worst position on June’s ‘Most Deteriorated’ list.

Ten aircraft traded during that four-month period, with 40% of those transactions occurring in June. Along with two additions, that left 23 aircraft (12.9% of the active fleet) listed for sale.

With aircraft of higher quality trading, the model registered an ETP Ratio of 170.6% thanks to a Maintenance Exposure increase exceeding $117k, and an Ask Price drop of over $34k. While the Hawker 800A continues to have a strong following, these 25- to 37-year-old assets are approaching financial obsolescence.

Gulfstream GIV-SP (MSG3)

In April, this model sported an ETP Ratio of 59.6% and occupied the least deteriorated spot on this list with four aircraft listed for sale. This month, the aircraft’s ETP Ratio climbed to 100.7%, while the number of inventory assets dropped to three, equating to 3.4% of the active, combined, MSG3 and non-MSG3 fleet.

As you might guess, the problem here is the limited number of assets. With only three aircraft listed for sale, the average ETP Ratio was dramatically impacted when one of the two priced assets was newly listed at an Ask Price 65% below the previously-listed asset.

The sharp increase in ETP Ratio, and the aircraft’s position on this list is due to the combined effect of a Maintenance Exposure increase nearing $497k and an Ask Price decrease exceeding $2.1m. Such dramatic swings are not common for those two values, even for a fleet aged between 18 and 28 years.

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.

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