Used Aircraft Maintenance & Marketability Analysis – March 2021

Asset Insight’s March 31, 2021 market analysis covering 134 fixed-wing models, and 1,661 aircraft listed for sale, revealed a 4.0% inventory fleet decrease during the month, and an overall inventory drop of 13.1% YTD...

Market Demand (defined by Asset Insight as the percentage of each Make/Model’s active fleet listed for sale and the fleet’s average Days on the Market), ended Q1 unchanged at 2.27, on Asset Insight’s scale of 0.00 (lowest Demand) to 5.00 (highest Demand). As might be expected, though, results varied by group:

• Large Jet demand decreased from 2.99 to 2.83;
• Mid-Size Jets improved to 2.35 (compared with 2.29 in December);
• Light Jets improved to 1.82, versus 1.71 at the end of 2020; and
• Turboprops slipped to 2.00, compared to December’s 2.05.

Strong transaction figures to end Q1 2021 lowered the Quality Rating for the remaining inventory to 5.312, from February’s 5.354. But the ‘for sale’ fleet continued to be within the ‘Excellent’ range for the fourteenth consecutive month, based on Asset Insight’s scale of -2.5 to 10).

March’s Aircraft Value Trends

The tracked fleet’s average Ask Price dropped 0.8% in March, 1.5% for the quarter, and was down 5.9% year-over-year (YoY), reflecting the fourth value reduction during the past five months. By category, values produced mixed results.

• Large Jet average Ask Prices remained unchanged for the month at the group’s 12-month low, while losing 3.3% during Q1 and 12.6% YoY.
• Mid-Size Jet Ask Prices rose a very slight 0.1% during March, and in Q1 2021 – but pricing was down YoY by 4.0%.
• Light Jet Ask Prices declined 4.3% on average during March (to a new record low), while also falling 8.7% during Q1, and 10.2% YoY.
• Turboprop Ask Prices increased 0.5% for the month and 1.0% during Q1, but were down 2.1% YoY.

March’s Fleet for Sale Trends

For the ninth consecutive month, Asset Insight’s tracked fleet posted a decrease, this time dropping a significant 4.0% (76 units), while leaving only 8.1% of the active fleet listed for sale. Inventory decreased 13.1% during Q1 (-251 units) and 15.1% YoY, substantially limiting the available selection in the younger, lower-time aircraft.

• Large Jets: Inventory decreased by 2.5% (10 units) in March, was down 10% (43 units) during Q1, and down 16.6% YoY. Of the active fleet, 7.1% was listed for sale at the end of March.
• Mid-Size Jets: Posted an inventory decrease of 4.4% for March (23 units), 13.8% during Q1 (72 units), and there are 28.4% fewer Mid-Size Jets listed for sale YoY, equating to 9.8% of the active fleet.
• Light Jets: Inventory decreased 4.9% during the last month (27 units), 15.2% during Q1 (84 units), and 32.0% YoY. A total of 8.2% of the active Light Jet fleet is listed for sale.
• Turboprops: Only 6.4% of the active Turboprop fleet was listed for sale, as the group’s inventory contracted 3.9% in March (16 units), 12.8% during Q1 (52 units), and 18.6% YoY.

March’s Maintenance Exposure Trends

Maintenance Exposure, an aircraft accumulated/embedded maintenance expense, worsened (increased) by 3.2% to $1.492m during March and Q1, while also increasing (worsening) 6.7% YoY.

All four groups were impacted, and the figures indicate that upcoming maintenance events for the listed fleet will be more expensive.

• Large Jets: Increased/worsened 3.8% in March to a 12-month high (worst) value. They also worsened 4.1% for Q1, and 1.5% YoY.
• Mid-Size Jets: Increased 2.0% for the month to a 12-month high/worst value. Mid-Size Jets worsened 1.0% in Q1, and 1.2% YoY.
• Light Jets: Worsened 1.7% in March to remain worse than the 12-month average, but Light Jets were down 3.1% during Q1. These figures reflect a 16.0% increase (worsening) YoY, statistically proving that higher quality assets have been the ones transacting.
• Turboprops: Increased by 2.6% following February’s 12-month low/best figure. The group’s Maintenance Exposure also rose 1.6% during Q1 – but YoY the figure decreased 5.3%, reflecting the current inventory fleet’s improvement over the assets that were listed for sale in March 2020.

March’s ETP Ratio Trend

Our tracked fleet’s inventory’s ETP Ratio increased/worsened to an all-time high of 74.4%. 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 increases, in many cases by more than 30%.

During Q1 2021, aircraft whose ETP Ratio was 40% or greater were listed for sale 69% longer than assets with an ETP Ratio below 40% (285 days versus 482 days). So, how did each group fare during March?

• Turboprops: This group has registered the best/lowest ETP Ratio for sixteen consecutive months. March’s 41.5% reflected the first month that Turboprops were above the 40% excessive Maintenance Exposure point (after three consecutive months below that demarcation).
• Large Jets: Continued to maintain second position through a Ratio of 61.3% - a figure half way between the group’s 12-month best, and 12-month average figures.
• Mid-Size Jets: Following two consecutive monthly improvements (decreases) Mid-Size Jets rose to 70.5%, a figure that was, nevertheless, better than the 12-month average.
• Light Jets: Given the group’s increased Maintenance Exposure and record low Ask Price, an ETP Ratio reaching a new record high (worst) figure of 113.6% was no surprise.

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 March 2021.

Most Improved Models

All six ‘Most Improved’ models for March posted Maintenance Exposure decreases (improvements). The Bombardier Learjet 40XR recorded an Ask Price decrease of $48,167, while the other five models posted the following price increases:

• Hawker 800A: +$87,943
• Piaggio P-180:  +$69,000
• Gulfstream GIV: +$276,250
• Bombardier Challenger 601-3R: +$198,333
• Beechcraft Premier 1A: +$71,143

Hawker 800A

Replacing its younger Hawker 800XP sibling in March’s top spot, the Hawker 800A occupied the next-to-last position on February’s ‘Most Deteriorated’ list. So what caused this swing? Four transactions were recorded during March, and as a result, the inventory pool’s Maintenance Exposure decreased by nearly $76k. The Ask Price increased by nearly $88k, meanwhile.

The average Ask Price for this model continues to hover around the $1m mark, and the inventory is quite lean at 5.4% of the active fleet (nine units).

Nevertheless, obtaining the $1m Ask Price may prove challenging for any seller whose engines are not enrolled on an Hourly Cost Maintenance Program (HCMP), since 80% of the active fleet is currently enrolled, and the average ETP Ratio for uncovered Hawker 800As is nearly 145%.

Piaggio P-180

Through one transaction and two additions to inventory fleet, the high performance, large cabin Piaggio P-180 turboprop captured second position on March’s Most Improved list. That’s because the revised fleet mix saw a lowering of its Maintenance Exposure by almost $108k, while the Ask Pricing rose by $69k.

Although only 9.8% of the active fleet is listed for sale (eight units), an ETP Ratio currently approaching 117% is unlikely to make sales easy for existing owners – at least, at unrealistic prices…

Gulfstream GIV

Improving from the best position on February’s ‘Most Deteriorated’ list is the Gulfstream GIV, complements of a Maintenance Exposure decrease that exceeded $102k, and an Ask Price increase exceeding $276k.

Four aircraft were sold in March, with one also withdrawn from inventory. That left 11 units listed for sale (6.8% of the active fleet).

All these figures look good, until the model’s ETP Ratio – which exceeds 125% - is factored. Moreover, the average Ask Price increase had substantial help by one seller listing their asset for nearly 60% above the average Ask Price for the remaining fleet for sale.

Buyer advice: A low price may not equate to good value, and neither may an above average price. The only way to know is by delving into a particular aircraft’s details.

Bombardier Challenger 601-3R

We were surprised to find the Bombardier Challenger 601-3R model on the ‘Most Improved’ list, considering that no aircraft transacted in March. In total, 12.5% (seven units) of the active fleet remains listed for sale, and the ETP Ratio exceeds 116%. So what happened…?

A Maintenance Exposure decrease exceeding $9k, and an Ask Price increase exceeding $198k, created the necessary leverage. But before we get carried away, the Ask Price increase was created by three aircraft posting an Ask Price in March, compared to only one priced unit in February. Both new Ask Prices being substantially higher than the existing one from the previous month.

While some sellers think that pricing is likely to increase due to inventory constraints, this is rarely the case – especially with models that are approaching 30 years of age.

Bombardier Learjet 40XR

Two Bombardier Learjet 40XR units transacted last month, and a third was withdrawn, leaving seven aircraft listed for sale (7.6% of the active fleet).

Interestingly, this model earned its place on this list through a Maintenance Exposure decrease approaching $199k and an Ask Price decrease exceeding $48k (thanks to an above-average asset trading in March).

For buyers seeking a Learjet 40XR, the selection is clearly limited. For many sellers, the model’s near-50% ETP Ratio will be manageable, especially if the engines are already enrolled on an HCMP.

Beechcraft Premier 1A

Rounding out March’s ‘Most Improved’ list is a model whose main challenge for sellers may be the 20 assets listed for sale, equating to 13.0% of the active Beechcraft Premier 1A fleet. On the other hand, buyers have a reasonable inventory pool to select from, and two aircraft traded in March – while two more entered the inventory.

The model’s ETP Ratio was created by a Maintenance Exposure decrease exceeding $106k, along with an Ask Price increase exceeding $71k. As with the Learjet 40XR, the model’s ETP Ratio of nearly 51% will be manageable for those whose engines are enrolled on HCMP. For those that are not, the number of listings is likely to create an expensive hurdle.

Most Deteriorated Models

Two of the six models on March’s ‘Most Deteriorated’ list posted a Maintenance Exposure decrease. The Gulfstream GIV-SP (operated under MSG3 maintenance rules) and the Hawker Beechjet 400 posted no Ask Price change. The remaining four models experienced the following price decreases:

• Cessna Citation ISP: -$36,657
• Bombardier Learjet 60: -$69,442
• Gulfstream G200: -$78,000
• Gulfstream G100: -$225,833

Gulfstream GIV-SP (MSG3)

No sales were detected during March for the Gulfstream GIV-SP (MSG3), but one inventory withdrawal and one addition to the fleet for sale increased its Maintenance Exposure more than $399k, placing it in this position even without an Ask Price reduction.

The eight available aircraft represent 9.0% of the active fleet – a figure that is reasonable. What many sellers are likely to find unreasonable is the offer prices they receive due to the model’s ETP Ratio, which is currently almost 75%.

Still, as we repeatedly state, the Gulfstream GIV-SP has a strong industry following and transactions can be structured, so long as both buyer and seller appreciate current market pricing realities.

Cessna Citation ISP

After occupying February’s ‘Most Deteriorated’ slot, the Cessna Citation ISP’s move up to the middle of this list might be viewed as positive – except that it was generated from no sales in March, and six additions to an already bloated inventory comprised of 52 units (nearly 20% of the active fleet).

Maintenance Exposure actually decreased over $2k, but that figure was trounced by an Ask Price decrease approaching $37k, creating an ETP Ratio of nearly 155%. Considering the youngest aircraft is 36 years old, hope, and perhaps a buyer seeking a disposable aircraft are the primary sales strategies for sellers…

Bombardier Learjet 60

Worsening by one place on March’s ‘Most Deteriorated’ list is the Bombardier Learjet 60, whose two sales, one withdrawal, and two inventory additions created a pool of 29 aircraft (10.1% of the active fleet) for prospective buyers.

To say that the model’s 132.3% ETP Ratio, resulting from a Maintenance Exposure increase approaching $101k and an Ask Price decrease exceeding $69k, will challenge sellers is to state the obvious.

What is less obvious is how well the model will be able to hold its value, considering the cessation of all Learjet production. Bombardier has, however, promised to continue its support for Learjet products for the foreseeable future.

Gulfstream G200

After occupying the fourth position on February’s ‘Most Improved’ list, the Gulfstream G200 tumbled here in March, tripped by a Maintenance Exposure increase approaching $408k, and an Ask Price reduction of $78k that combined to inflate the ETP Ratio to 61.9%.

The G200 continues to hold respectable market interest and, by virtue of its operating capabilities and economics, has held decent value.

Two units transacted and one joined the inventory in March. The 19 available assets represent only 8.0% of the active fleet. The level of inventory represents decent selection for buyers, while the group’s ETP Ratio provides ample opportunity for many sellers to attain a good price for their aircraft.

Gulfstream G100

Unlike its younger, larger G200, the Gulfstream G100 occupies the penultimate ‘Most Deteriorated’ slot in March for many reasons, none of them helpful to sellers.

The model posted an ETP Ratio approaching 168% thanks to an Ask Price decrease nearing $225k that significantly overshadowed a Maintenance Exposure decrease of nearly $9k.

The nominal change in Maintenance Exposure reflects an inventory pool that didn’t change. The Ask Price alteration resulted from one asset posting an Ask Price that was more than 21% below the average of the other two priced units, again proving how superficial analytics can be misleading!

Hawker Beechjet 400

In February, the Hawker Beechjet 400 occupied the second-best position on the ‘Most Improved’ list. In March, it held the ‘Most Deteriorated’ position. (As a matter of fact, the Beechjet 400 occupied the ‘Most Deteriorated’ slot in January too, after placing third on the ‘Most Improved’ list in December. Talk about instability!)

No units transacted in March, but one asset joined the inventory, and the three listings represent 10.3% of an active fleet that is between 32 and 35 years of age. The single addition to the fleet was the primary driver of the $103k Maintenance Exposure increase.

The Ask Price for the two previously listed assets remained unchanged in March, but the more expensive of these two aircraft is priced nearly 70% higher.

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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