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Reviewing 2021 aircraft transactions

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By Anthony Kioussis
President, Asset Insight

Pre-owned aircraft availability decreased by 63% following the June 2020 peak inventory figure, and by 54% during CY2021.
From a statistical perspective, 2021 was a difficult period to rationalize. Demand ended the year at a record high level, pre-owned aircraft sales exceeded 2020 by over 40%, aircraft availability reached a record low level, new aircraft orders pushed deliveries out as much as 24 months, and yet average used aircraft Ask Price fell to a record low figure.

While the final 2021 sales statistics will take some time to tally, the year’s preliminary numbers for the 134 aircraft models tracked by Asset Insight point to an ongoing, vibrant market, with more entities understanding, and taking advantage of, private aviation’s benefits and value than ever before.

Availability

After peaking in June 2020, turbine aircraft availability declined steadily, with inventory dropping nearly 54% during 2021 and nearly 63% since June 2020 (see Table A).

All 4 groups were affected by the decrease throughout 2021 – large jets -61.0%, midsize jets -55.7%, light jets -51.7%, and turboprops -46.4%.

Corporate operators continued to represent a smaller percentage of buyers than in years past. First-time purchasers stepped in to fill the void and, consequently, expand the market. But they also had a negative impact on availability, as they owned no aircraft to resell.

Initial figures show fewer transactions during Q4 2021 compared to Q4 2020, but annual sales have already recorded an increase in excess of 41%.

Approximately 4.1% of our tracked active fleet was listed for sale at the end of 2021, compared to 9.2% on the same day one year ago. Statistically, year-end availability epitomizes a sellers’ market.

The problem is that too many sellers are offering assets whose technology and age make them unappealing to prospective buyers, while some models have likely reached their financial obsolescence.

Transactions

Total transactions during 2021 increased by more than 41% over 2020. Table B details the total quarterly sales figures for our 134 tracked models, and also breaks down sales by aircraft group. The number of transactions followed the traditional decrease between Q4 and Q1.

However, sales were higher than Q1 2020, and continued to climb for the rest of 2021. This was significant, as the pre-owned market had historically experienced lower sales during the summer months, whereas the only hurdle to sales during the past year appeared to be availability of desirable assets.

Aircraft Demand based on the percentage of each make/model’s active fleet listed for sale and its Days on Market. Scale: 0.00 (lowest demand) to 5.00 (highest demand).

Demand

Table C details Aircraft Demand, which was computed by Asset Insight using the percentage of each make/model’s active fleet listed for sale and that fleet’s Days on Market, with the scale running from 0.00 (lowest demand) to 5.00 (highest demand).

Put succinctly, demand skyrocketed during the second half of 2021, ending the year with the highest demand figures we have ever recorded.

Quality Rating & Maintenance Exposure

Quality Rating calculates the remaining useful life associated with each aircraft component and individual maintenance event, while also accounting for the cost to replace each part and/or complete each maintenance event, compared to the aircraft’s condition the day it came off the OEM’s production line.

After spending 2020 within the “Excellent” range (5.250 to 5.499), 2021 saw our tracked inventory fleet’s Quality Rating start the year within the “Excellent” range, but then decrease steadily to end the year as “Very Good” (5.000 to 5.249) at 5.146, which is 3.8% lower than 2020 (see Table D).

After spending 2020 within the “Excellent” range (5.250 to 5.499), 2021 saw the Quality Rating decrease steadily to end the year within the “Very Good” range (5.000 to 5.249).

With buyer preference focused mainly on the best available aircraft, Quality Rating decrease was to be expected, and signifies that listed aircraft are facing more near-term maintenance events.

Maintenance Exposure measures an aircraft’s embedded/accrued maintenance, and takes into account the cost of each component and maintenance event completion cost. Therefore, if an aircraft is 75% toward an event, and the event averages $1000 to complete, the asset’s Maintenance Exposure for that specific event would be $750.

The listed fleet’s Maintenance Exposure increased (worsened) by a substantive 6% as we closed out 2021, compliments of a major December spike. As a result, buyers should expect maintenance events (for the limited inventory) to cost more to complete.

Values

To understand aircraft values requires an explanation of the difference between Ask Prices and Transaction Values. Average Ask Price for the substantially decreased and heavily picked-over tracked fleet decreased by nearly 19% during 2021, ending at a record low figure.

However, it is imperative to separate the listed fleet from younger, lower-time assets. The latter moved quickly during the past year, often without a public listing, and sometimes at a Transaction Value that exceeded the seller’s expectation, due primarily to buyer demand.

Therefore, to assume that values have decreased for desirable aircraft would be incorrect. A couple of figures in Table E are worth noting. Large Jet Ask Price increased during Q4 2021, demonstrating market interest in such models. On the other hand, note that Light Jets, a group whose average age is quite high, posted an average Ask Price during 2021 below that of turboprops.

Average Ask Price for inventory fleet at the end of each quarter.

Marketability

We measure Aircraft Marketability through the Maintenance Exposure to Ask Price ratio, or ETP ratio, which is calculated by dividing an aircraft’s Maintenance Exposure by its 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 Market increases – in many cases by more than 30%.

The year closed with the ETP ratio at 81% – a record high ratio, albeit unsurprising, considering the 12-month high Maintenance Exposure and record low Ask Price figures. All 4 groups were affected negatively, some more than others.

The ETP ratio for most of 2021 provides statistical evidence of the difficulty sellers are encountering in remarketing their aircraft. During Q4 2021, the listed fleet’s average Days on Market increased by 11% to 452 – the highest figure we have ever recorded.

In addition, assets with ETP ratios at 40% or higher were listed for sale more than 59% longer (on average) than aircraft with ratios below 40% (340 versus 541 Days on Market). It is also worth noting that nearly 59% of our tracked models (and more than 64% of all aircraft) posted an ETP ratio above the 40% excessive mark.

As Table F details, turboprops have maintained the lowest (best) ETP ratio for the past 24 months, posting a 42.7% figure to end 2021. Large Jets ended the year a distant second at 65.7%, while Medium Jets scored 83.6% – the group’s 12-month high (worst) value. Light Jets occupied a very distant 4th position, as the group’s 118% (while better than the 121.7% record worst figure it posted at the end of October) clearly evidenced the high average age of the group’s listed fleet.

Turboprops have maintained the lowest (best) ETP ratio for the past 24 months.

Market summary

With new aircraft positions not available for up to 24 months, production figures unlikely to increase during the first half of 2022, along with an inventory that includes too many undesirable assets, private aviation is in uncharted territory.

But the news is generally positive. As 2020 ended, 9.2% of the active fleet was listed for sale, generally creating equilibrium in the market between buyers and sellers. One year later, sellers of young, low-time aircraft have been able to dictate price and terms, but neither buyers nor sellers have been able to overcome the supply chain hurdles affecting the routine elements required to complete a timely transaction, such as a pre-purchase inspection.

Recent comments by airframe OEMs point to an increase in production figures that could lead to an availability increase in the pre-owned fleet. But, until that happens, many prospective buyers will continue to use charter services, maintaining charter’s strong demand for some time to come.

While this represents revenue for aircraft owners, it also increases their aircraft’s utilization, so it is likely to reflect negatively on their asset’s value at time of sale.


Anthony Kioussis is president of Asset Insight, which offers aircraft valuation and aviation consulting services. His 40-plus years of experience in aviation include GE Capital Corporate Aircraft Finance, Jet Aviation, and JSSI.