Used Aircraft Maintenance & Marketability Analysis – December 2020

Asset Insight’s December 31, 2020 market analysis of 134 fixed-wing models, and 1,912 aircraft listed for sale revealed the sixth consecutive monthly contraction (9.4%) of Asset Insight’s tracked inventory fleet. Which models were impacted the most, though...?

While the statistics were mixed for the jet groups, ongoing buyer focus on lower quality assets (aircraft with more, and more costly, upcoming maintenance events) was evident for Turboprops.

The overall Quality Rating came down from November’s 12-month 5.371 high (best) figure to 5.348, but ensured the inventory stayed within the ‘Excellent’ range for the entirety of 2020 (per Asset Insight’s scale of -2.5 to 10).

December’s Aircraft Value Trends

The tracked fleet’s average Ask Price decreased for a second consecutive month, after increasing three months in a row. The 4.7% December decrease equated to a 2.4% value reduction for Q4, and a 3.9% decrease for the calendar year. By aircraft group:

• Large Jet average Ask Prices increased 0.8% during December, and 1.8% during Q4. However, the group’s Ask Price was down 11.9% for the calendar year.
• Mid-Size Jet prices fell another 8.4% in December; 10.4% in Q4; and 6.4% for 2020.
• Light Jet ask prices decreased 1.5% in December and 5.4% for Q4, but was the one group to post a gain for the year at 3.0%.
• Turboprop ask prices lost another 0.7% in December, and, although up 0.6% during Q4, lost 1.5% during 2020 calendar year.

December’s Fleet for Sale Trends

Following its peak in June, Asset Insight’s tracked fleet has posted six consecutive monthly availability decreases (-63 units in December), and, Year-to-Date (YTD), inventory was down by 12.4% (270 units) compared with December 2019.

• Large Jets: Inventory decreased 12.9% (64 units), ending the year with the exact same inventory figure as for December 2019.
• Mid-Size Jets: Recorded a 10.8% decrease (63 units), ending 2020 with a 20.9% decrease (138 units).
• Light Jets: Inventory decreased for the sixth consecutive month, this time 6.6% (39 units), leading to a YTD inventory decrease of 13.9% (89 units).
• Turboprop: Through its fifth consecutive monthly decrease, the group’s inventory decreased 7.5% in December (33 units), resulting in a YTD decrease of 9.6% (43 units).

December’s Maintenance Exposure Trends

Buyer focus on jets with lower levels of Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) raised/worsened figures for the remaining inventory. Meanwhile, turboprop buyers clearly focused on lower Quality assets, possibly due to their price. The resulting figures, by group, were as follows…

• Large Jets: Worsened/increased 1.2% during December to a figure slightly worse than the 12-month average (as well as 3.7% YoY).
• Mid-Size Jets: Rose 0.5% to a figure only slightly better/lower than the 12-month high/worst value, although the group’s YoY figure improved by 4.0%.
• Light Jets: Worsened/increased another 2.5% to post the group’s 12-month worst/highest value, while concurrently worsening the YoY figure by a massive 46.4%.
• Turboprops: Improved an additional 1.9% to post the group’s third consecutive 12-month low/best figure, while recording a Maintenance Exposure decrease/improvement of 17.7% during the year.

December’s ETP Ratio Trend

The overall tracked inventory’s ETP Ratio worsened/increased to 72.8%, only one point better than the 12-month worst/high figure. It compares negatively with October’s 69.8% and November’s 70.1% lower figures.

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

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

During Q4 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale 64% longer than assets with an ETP Ratio below 40% (277 days versus 454 days). How did each group fare during December?

• Turboprops: For the past 13 months, Turboprops have registered the best/lowest ETP Ratio. In December, the group’s 39.5% (its fourth consecutive best 12-month Ratio) represented the first time in years that any group posted a figure below the 40% excessive Maintenance Exposure point.
• Large Jets: Maintaining second position with an ETP Ratio of 61.0% – yet again better/lower than the group’s 12-month average – the Large Jets’ ETP Ratio was, nevertheless, worse than November’s 59.4%.
• Mid-Size Jets: Posting a better-than-average figure, the Mid-Size Jets’ ETP still rose/worsened to 71.8% from October’s 12-month low/best 68.9% and November’s 69.0%.
• Light Jets: Continued making history by registering a second consecutive record high/worst figure, this time 106.8%, compared to November’s 102%.

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 2020.

Most Improved Models

Five of the six ‘Most Improved’ models posted Maintenance Exposure decreases (improvements) in December. While three models – the Beechcraft King Air C90, Hawker 1000A, and Bombardier Learjet 45 – did not register a price change, the remaining three experienced the following price increases:

• Bombardier Learjet 40: +$402,500
• Hawker Beechjet 400: +$5,114
• Cessna Citation CJ1+: +$137,500

Beechcraft King Air C90

An ETP Ratio decrease of more than 21% helped the Beechcraft King Air C90 to top honors on December’s ‘Most Improved’ list. Nevertheless, with an ETP Ratio of 101.5%, thanks to a Maintenance Exposure decrease exceeding $100k, sellers have little cause for celebration.

No additions to the fleet or closed transactions were recorded in December, so the lack of a price change is unsurprising. There is a bright spot in terms of the model’s inventory. The 35 units represent only 9.5% of the active fleet, offering buyers decent selection and sellers some hope.

Bombardier Learjet 40

The next model to make this list posted one transaction as December closed. The three remaining Bombardier Learjet 40 jets that are listed represent only 7.9% of the active fleet, so the news is good.

Add a Maintenance Exposure decrease exceeding $256k, and an Ask Price increase of $402,500, and the result is a model whose 34.2% ETP Ratio makes it quite marketable, and worthy of its position within the ‘Most Improved’ group.

Hawker Beechjet 400

No transactions were recorded during the month, but one Hawker Beechjet 400 aircraft was written-off, decreasing inventory to three units (or 10.3% of the active fleet). This single-unit inventory change actually served to increase the model’s Maintenance Exposure by more than $5k. However, a drop of $75,000 in the average Ask Price earned the Beechjet 400 its spot on this list.

Unfortunately, with an ETP Ratio of 107.7% there exists little to increase the marketability of these assets – including Hourly Cost Maintenance Program (HCMP) engine coverage.

Cessna Citation CJ1+

We noted one Cessna Citation CJ1+ sale during December, and, while three units joined the inventory, the eight listed aircraft represent only 7.8% of the active fleet. While the model occupied a spot on our ‘Most Deteriorated’ list last month, an ETP Ratio of 34.3% in December should make most of the listed units quite marketable.

The model rightfully earned its position on the ‘Most Improved’ list thanks to a Maintenance Exposure decrease approaching $156k, along with an Ask Price increase approaching $138k.

Hawker 1000A

The Hawker 1000A had a limited production run, with most assets initially operating within the NetJets system, so it is not surprising the nine listed units represent 27.3% of the active fleet.

Neither should the model’s ETP Ratio be a surprise: 98.6% in December, even with a Maintenance Exposure decrease approaching $108k, and no price change. Ultimately, this model’s characteristics will appeal to a select few buyers, so sellers would be well-advised to carefully consider any offer they receive.

Bombardier Learjet 45

Rounding out December’s ‘Most Improved’ list is a second Learjet model. The Bombardier Learjet 45 earned its place in December, complements of a Maintenance Exposure decrease exceeding $97k, and no price change (even though one aircraft was withdrawn from the ‘for sale’ pool).

The remaining 16 units ‘for sale’ represent 10.7% of the active fleet, which is a balanced inventory for both buyers and sellers. Unfortunately, its 82.3% ETP Ratio will undoubtedly pose challenges for sellers.

Most Deteriorated Models

Five of the six models on December’s ‘Most Deteriorated’ list posted a Maintenance Exposure increase. The Gulfstream GIV-SP (operated under MSG3 maintenance rules) registered no Ask Price change, while the Cessna Citation CJ1 showed an Ask Price increase of $42,014. The remaining models experienced the following price decreases…

• Hawker 800XP: -$116,366
• Cessna Caravan 208: -$305,000
• Bombardier Learjet 40XR: -$120,500
• Cessna Citation VI: -$5,714

Hawker 800XP

Four Hawker 800XP sales were recorded in December, two more were withdrawn from inventory, and two other assets joined the ‘for sale’ fleet. When the dust had settled, the new mix of 37 jets represented 9.4% of the active fleet, and carried an average ETP Ratio of 104%.

With a Maintenance Exposure increase nearing $9k, and an average Ask Price around $1.2m, the average buyer would be acquiring embedded maintenance costs of another $1.2m, bringing their real acquisition cost up to around $2.4m.

The Hawker 800XP has retained a well-deserved industry following. But, without engine HCMP coverage, the average aircraft’s embedded maintenance expense makes its acquisition hard to justify, and a $1.2m ask price difficult for sellers to achieve.

Gulfstream GIV-SP (MSG3)

This industry workhorse is no stranger to either of these two lists. The Gulfstream GIV-SP (MSG3) earned its place in December through a Maintenance Exposure increase exceeding $535k and no change in Ask Price.

Following two December trades and one addition to inventory, the eight listed units represent 9.0% of the active fleet. While the model’s 73.1% ETP Ratio is likely to present challenges for sellers whose aircraft do not have engine HCMP coverage, program-enrolled sellers should benefit from the industry’s continued affinity for this very capable, large cabin airplane.

Cessna Caravan 208

As was the case with the model occupying this spot last month (the Global 5000), the Cessna Caravan 208 found its way here for ‘technical reasons’. We noted one transaction during December, along with two additions to the fleet, making a total inventory of six units (just 2.5% of the active fleet).

The asset even recorded a Maintenance Exposure decrease exceeding $12k. Alas, the two additions to the ‘for sale’ pool posted prices far below the other listed assets, lowering the average Ask Price by $305k to generate a 51.5% ETP Ratio.

Nevertheless, with limited availability, and the model’s unique characteristics, sellers should be able to create value-based deals for their assets.

Bombardier Learjet 40XR

If you believe that you saw the Bombardier Learjet 40XR on November’s ‘Most Improved’ list you are correct. A Maintenance Exposure increase approaching $156k, along with an Ask Price drop of nearly $121k is what created the model’s 71.0% ETP Ratio for December, and its placement on a rather less auspicious list.

Two aircraft trades were recorded for December, along with one inventory withdrawal, leaving nine assets for buyers’ selection (equating to 9.8% of the active fleet). With many of these aircraft enrolled on engine HCMP, at least some of the sellers should be able to trade at reasonable prices.

Cessna Citation VI

There were only seven Cessna Citation VI jets listed for sale as we closed December, with one aircraft trading that month. However, this inventory level represents 20% of the active fleet.

This aircraft earned its place on the Most Deteriorated list through a Maintenance Exposure increase exceeding $137k, along with a slight price decrease of approximately $6k. With an ETP Ratio approaching 130%, sellers of this limited production, 25- to 30-year-old aircraft are likely to find the ‘pricing hill’ a very difficult slope to climb.

Cessna Citation CJ1

With four transactions to its credit, and one addition to the ‘for sale’ fleet, the Cessna Citation CJ1 captured December’s ‘Most Deteriorated’ spot through a Maintenance Exposure increase approaching $404k, which overshadowed an Ask Price increase exceeding $42k.

However, the news is not all bad. The 18 inventory units equate to only 9.2% of the active fleet, and the model’s 71.6% ETP Ratio, while challenging, should provide many sellers with sufficient leeway to structure reasonably priced deals.

The Seller’s Challenge

It is important to understand that an aircraft’s 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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