Used Aircraft Maintenance & Marketability Analysis – July 2021

Asset Insight’s July 30th, 2021 market analysis covering 134 fixed-wing models revealed another 5.5% decline in availability, with all four groups contributing. Our pool of 134 tracked models totaled 1,345 aircraft, representing a year-to-date (YTD) decrease of 29.7% (567 units), and a 42.3% year-over-year (YoY) decline.

The Quality Rating for listed assets continued to decrease, as buyers continue to demonstrate a preference for higher quality aircraft, with the Rating dropping 0.3% to post a 12-month low (worst) figure at 5.265.

July’s Quality Rating kept the fleet within the ‘Excellent’ range, on Asset Insight’s scale of -2.5 to 10, but signaled that aircraft within the inventory would require more near-term maintenance to be completed.

July’s Aircraft Value Trends

The average Ask Price for Asset Insight’s tracked, listed fleet decreased another 0.8% in July – to a figure about half-way between the 12-month low and average values. The protagonists of the decrease were the Large and Light Jet categories, as young, low-time, higher priced inventory continues to decrease.

Overall prices were down 0.1% YTD in July, while YoY prices remained 1.0% higher. Actual Transaction Values are at – or near – the Ask Price for younger, lower-time aircraft, while demand for older aircraft is clearly not to be found.

• Large Jet average Ask Price decreased an additional 4.0%, and is now down 0.8% YTD, as well as YoY.
• Mid-Size Jet pricing increased 0.4% in July, but the figure is below the 12-month average, and down 5.3% YTD.
• Light Jet average Ask Price was down another 2.5% in July, resulting in a new record-low figure, and, yet again, one below the average Ask Price posted by Turboprops. The group’s figure is now down 14.8% YTD and 19.8% YoY.
• Turboprop Ask Prices increased 1.9% in July, and are now up 6.2% YTD, and 7.5% YoY.

July’s Fleet for Sale Trends

Inventory continues to decrease, with just 6.2% of the active fleet now available for Asset Insight’s tracked models, compared to 10.7% during July 2020. Availability decreased by 105 units (5.5%) in July, and buyer options have shrunk by 567 units YTD (29.7%). Over 42% fewer units were available in July compared to a year ago.

The lack of younger, lower-time assets, is becoming quite alarming, and may well impact the number of transactions closing during H2 2021. Buyers and sellers seeking to close an aircraft transaction by year-end are strongly advised to start their acquisition or sale efforts as soon as possible.

If they’re fortunate, buyers may identify their preferred aircraft quickly. However, supply chain issues are likely to affect where, and how soon, buyers and sellers may be able to complete a pre-purchase inspection, and whether sufficient components and personnel will be available to complete any required maintenance or desired upgrades.

• Large Jets: Availability for our 43 tracked models is now down to 5.4% of the active fleet, equating to a YTD availability decrease of 27.8% (120 fewer units) and a YoY decrease of 37.2%.
• Mid-Size Jets: Only 7.7% of our 45-model tracked fleet was listed for sale, as opposed to 12.3% at this time in 2020. By decreasing 158 units, availability was down 30.3% YTD, and 45% YoY.
• Light Jets: While a large number of the listed aircraft are quite old, Light Jets have been actively selling, posting the largest YTD decrease (34.5%), the largest unit availability decrease (191 units), and the largest YoY decrease (47%). All this activity has left only 5.5% of the tracked active fleet (totaling 29 models) listed for sale, compared to 9.9% one year ago.
• Turboprops: Inventory for the 17 Turboprop models tracked equated to 5.1% of the active fleet, having decreased 24.1% YTD (98 units) and 37.3% YoY.

July’s Maintenance Exposure Trends

Maintenance Exposure (defined as an aircraft’s accumulated/embedded maintenance expense) worsened (increased) 0.4% to $1.492m in July. The figure was slightly higher (worse) than the 12-month average, and signaled upcoming maintenance event completion cost for inventory units will be higher.

By individual group, Maintenance Exposure results were as follows:

• Large Jets: Worsened (increased) 1.4% to post the group’s second consecutive 12-month high (worst) figure, statistically articulating the picked-over fleet’s higher near-term maintenance cost. The figure was also 7.9% worse YoY.
• Mid-Size Jets: Maintenance Exposure rose (worsened) 2.9% to a figure worse than the 12-month average. Exposure was up 3.2% YTD, but 0.1% lower (better) YoY.
• Light Jets: Decreased (improved) to a second consecutive 12-month low (best) figure by decreasing 2.4%, and improved 1.3% YTD, and 5.7% YoY.
• Turboprops: Proving that high quality aircraft are being acquired, Maintenance Exposure for the remaining inventory worsened to a 12-month high figure through a 2.1% increase, while YTD and YoY figures increased 3.7% and 4.1%, respectively.

July’s ETP Ratio Trend

The inventory fleet’s ETP Ratio improved/decreased to 71.9% from June’s 73.5% and May’s all-time high of 76.3%. (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 its price. ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market increases, in many cases by more than 30%.

During Q2 2021, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 89% longer than assets with an ETP Ratio below 40% (281 days versus 530 days). In July, each group fared as follows…

• Turboprops: For 20 consecutive months Turboprops have posted the lowest/best ETP Ratio. July’s 41.8% was lower (better) than June’s 42.3%, and was only slightly worse (higher) than the 12-month average of 41.5%.
• Large Jets: The group’s 60.6% ETP Ratio represented an improvement over June’s 61.1% and May’s 63.6%, and was about half-way between the 12-month average and low (best) figures.
• Mid-Size Jets: Worsened for the second consecutive month to 69.4%, compared to June’s 68.8% and May’s 12-month low (best) 68.6%.
• Light Jets: In an ongoing effort to post a figure below triple digits, the group’s ETP Ratio decreased to 110% in July, compared to June’s 113.5%, and May’s record high (worst) 118.4%.

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 July 2021.

Most Improved Models

All six ‘Most Improved’ models experienced a Maintenance Exposure decrease (improvement). The Cessna Citation ISP and CJ1 registered an Ask Price decrease of $9,400 and $5,762, respectively, while the remaining four models posted the following price increases:

• Gulfstream GIV-SP: +$755,000
• Hawker Beechjet 400: +$66,167
• Cessna Citation V Ultra: +$235,163
• Dassault Falcon 50EX: +$903,500

Gulfstream GIV-SP

After capturing the next-to-last position on June’s ‘Most Deteriorated’ list, the Gulfstream GIV-SP earned the top spot this month, and its seventh appearance on one of these two lists, through the sale of one aircraft, the withdrawal of two from inventory, and the addition of three units to the ‘for sale’ fleet.

Availability remained unchanged with the nine listed units equating to 4.4% of the active fleet. The new mix lowered Maintenance Exposure by nearly $602k, while increasing Ask Price by $755k. However, the average ETP Ratio of 87.4% is likely to pose challenges for sellers whose aircraft are not covered by an engine Hourly Cost Maintenance Program (HCMP).

Still, considering its industry following and the current lack of availability, sellers should find opportunities to trade their aircraft, assuming their pricing expectations are in line with market realities.

Hawker Beechjet 400

Earning second position, while making its tenth appearance on one of these two lists, is the Hawker Beechjet 400 – a model that saw no trades, and no changes to the inventory mix. The four listings, representing 15.4% of the active fleet, posted a Maintenance Exposure decrease of $178 (yes, you read that correctly).

However, one lower priced aircraft’s owner elected to re-list their asset as “Make Offer” and, as is often the case with a small pool statistically, the model’s average Ask Price rose substantively – by over $66k in this case.

With an ETP Ratio of 118.5%, sellers of this 32 to 35-year-old jet are facing some serious pricing challenges, considering the aircraft’s embedded maintenance exceeds their asset’s desired transaction value.

Cessna Citation V Ultra

The Cessna Citation V Ultra made July’s Most Improved list through a Maintenance Exposure decrease exceeding $191k and an Ask Price increase exceeding $235k.

Five aircraft transacted in July, two were withdrawn, one joined the inventory pool and, when the jockeying ended, 12 aircraft were listed for sale, representing 4.5% of the active fleet.

With an ETP Ratio of 37.4%, this 22 to 27-year-old model continues to offer a great opportunity for value-based transactions, whether you are buying or selling, especially if the aircraft’s engines are enrolled on HCMP.

Dassault Falcon 50EX

Appearing on the ‘Most Improved’ list for the very first time is the 14 to 24-year-old Dassault Falcon 50EX, whose prospects are also quite bright, considering its 37.7% ETP Ratio.

This highly capable machine did not record a sale in July, but one inventory withdrawal and four additions created a new mix of 11 assets (11% of the active fleet) that lowered Maintenance Exposure by nearly $124k while increasing the average Ask Price by approximately $904k.

The Falcon 50EX is something of a niche aircraft, but we anticipate buyers requiring its operating capabilities will find reasonable sellers, and structure value-based transactions.

Cessna Citation ISP

The Cessna Citation ISP has pin-balled between these two lists for more than half the number of publications. Two transactions and two inventory withdrawals decreased the model’s Maintenance Exposure sufficiently to make July’s ‘Most Improved’ list, even with an Ask Price drop exceeding $9k.

Regrettably, with 43 listed units (15.9% of the active fleet), and an ETP Ratio approaching 130%, prospects for sellers are not very bright. Buyers have a large selection to choose from, assuming they wish to invest in a 36 to 44-year-old aircraft.

Cessna Citation CJ1

Rounding out July’s ‘Most Improved’ models is the Cessna Citation CJ1, which occupied the top spot on the ‘Most Deteriorated’ list in June. The CJ1 rose to this position through a Maintenance Exposure decrease approaching $163k that overshadowed an Ask Price decrease approaching $6k.

The model’s improved fortune resulted from two sales and one withdrawal from inventory, with the remaining 13 listings representing 6.7% of the active fleet.

The ETP Ratio stood at 59.6% as we closed out July. However, considering these assets are anywhere from 16 to 21 years old, and buyers have a reasonable number of assets to choose from, value-based transactions are still possibly able to benefit both sides.

Most Deteriorated Models

At the other end of the spectrum, four of the six ‘Most Deteriorated’ models posted a Maintenance Exposure increase in July, while the Cessna Citation VI and Bombardier Learjet 45 registered an improvement (decrease).

The Gulfstream G100 posted no change in Ask Price, while the remaining five models experienced the following price decreases:

• Cessna Citation VI: -$131,250
• Hawker 800A: -$55,833
• Bombardier Challenger 604: -$251,000
• Bombardier Learjet 45: -$247,500
• Gulfstream GIV: -427,500

Cessna Citation VI

Sporting an ETP Ratio approaching 121%, the Cessna Citation VI fell from the top spot of June’s ‘Most Improved’ list through the sale of one asset and the withdrawal from inventory of another. The changes in fleet mix resulted in Maintenance Exposure decreasing (improving) by more than $46k, but Ask Price dropped a substantive $131k leading to the model’s serious change in fortune.

Only six aircraft were listed for sale as we closed out July, but that figure equated to 17.1% of the active fleet due to the model’s limited five-year production run.

These units are now between 26 and 30 years of age, so prospective buyers need to consider the possibility they may become the jet’s final owner.

Hawker 800A

From third place on June’s ‘Most Improved’ list to here in just one month is not uncommon for the Hawker 800A, having attended one of these two lists 50% of the time we’ve published this report.

Two sales and one inventory addition left ten inventory assets (6% of the active fleet) for buyers to pursue, and interest in this model continues to be strong, even though its ETP Ratio ended July at 146.2%.

Maintenance Exposure increased over $30k, while Ask Price decreased nearly $56k, and most Hawker 800As are enrolled on HCMP. Between the aircraft’s strong following and the lack of availability, sellers have a better chance of securing a deal than some of the model’s statistics might appear to indicate.

Bombardier Challenger 604

Making its first appearance on either of these two lists is the Bombardier Challenger 604, thanks to a Maintenance Exposure increase exceeding $326k, along with an Ask Price decrease of $251k. One transaction was recorded in July, along with one inventory withdrawal, and the remaining 17 listed units equated to 4.8% of the active fleet.

The model’s ETP Ratio ended July at 74.5%, but a large number of these assets are covered by engine HCMP. Accordingly, the HCMP-adjusted ETP Ratio for enrolled aircraft should provide ample opportunity for buyers and sellers to negotiate some value-based deals.

Bombardier Learjet 45

The Bombardier Learjet 45 was in this same position in June, and the four transactions recorded in July allowed it to recapture the spot for its tenth appearance on either list. That is not a track record likely to please sellers, and neither is a drop of almost $248k in Ask Price that overwhelmed a Maintenance Exposure decrease (improvement) exceeding $54k.

While only eight aircraft were listed for sale (5.4% of the active fleet) as July closed, a 138.7% ETP Ratio is likely to make offers received by sellers difficult to accept.

Gulfstream GIV

The Gulfstream GIV has occupied a spot on one of these lists 21 times to date, more than half of those on the ‘Most Improved’ grouping. In fact, it held fourth position on June’s ‘Most Improved’ list, while its younger sibling, the GIV-SP, occupied this slot. But that was last month…

In July, three inventory withdrawals and three additions sufficiently altered the fleet mix to increase (worsen) the model’s Maintenance Exposure by nearly $406k, while decreasing (worsening) the average Ask Price by about $428k.

No trades occurred during the month, and the six inventory units amount to only 3.8% of the active fleet. The challenge for sellers is the near 150% ETP Ratio, as the average aircraft not enrolled on engine HCMP carries embedded maintenance expense that is 1.5 times the asset’s value.

While these assets have historically held strong industry interest, the model’s statistics are starting to become more than a little challenging for sellers and buyers.

Gulfstream G100

The Gulfstream G100 has occupied one of these two lists almost one-third of the time, but this is the first time it has earned the ‘Most Deteriorated’ position for two months in a row. It did so through a Maintenance Exposure increase exceeding $658k, and no Ask Price change, following the sale of one aircraft and the withdrawal from inventory of another.

Three listed units may appear to improve opportunities for sellers, but those few listings represent 14.3% of a 15 to 20-year-old fleet whose ETP Ratio stood at 172% in July.

With average Ask Price exceeding $1.7m, average Maintenance Exposure will add more than $2.9m to an acquisition, bringing the buyer’s total aircraft cost up to around $4.6m. Even assuming engine HCMP coverage, reaching a deal that makes sense for both buyer and seller will require some financial gymnastics.

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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