aircraft maintenance

NAFA member, Tony Kioussis, President of Asset Insight, shares Asset Insight’s July 2020 market analysis.

Asset Insight's Juluy 31, 2020 market analysis revealed a 1.2% inventory decrease to the tracked business aircraft fleet – the first monthly reduction since January – along with an Ask Price decrease of 1.5%. Which models were impacted the most?

As July ended, Asset Insight’s tracked fleet of 134 fixed-wing business aircraft, and 2,331 aircraft listed for sale equated to a 1.2% inventory fleet decrease compared to June, and a year-to-date (YTD) increase of 6.8%.

The tracked fleet’s Quality Rating dipped a bit from June’s 12-month best figure, and the latest ‘for sale’ fleet mix increased the anticipated cost for upcoming maintenance events close to the 12-month high (worst) figure. However, July’s 5.293 Quality Rating kept the inventory within the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.

July’s Aircraft Value Trends

Average Ask Price decreased 1.5% in July, leading to a 5.0% value decline since the start of 2020. By aircraft group, the figures were as follows:

• Large Jets: This group fueled the loss with a reduction of 2.4%, and a total value loss during 2020 of 11.8%.
• Medium Jets: Ask Prices increased 1.5% during July but were still down 3.7% YTD.
• Small Jets: The group posted a 12-month high figure through a 0.3% gain in value and is now up 9.2% for the year.
• Turboprops: Ask Prices gained 2.8% but are still off by 2.4% during 2020.

July’s Fleet for Sale Trends

The tracked fleet’s total number of aircraft listed for sale decreased 1.2% in July (29 units), reflecting a YTD inventory increase equating to 6.8% (149 units).

• Large Jet Inventory: Decreased slightly by 0.4% (two units), but remains up 14.8% (64 units) YTD.
• Medium Jet Inventory: Availability was down a substantial 2.7% (18 units) for July, bringing the YTD increase down to a single unit (0.2%).
• Small Jet Inventory: Decreased 2.6% (18 units) in July but was still up 6.4% YTD (41 units).
• Turboprop Inventory: The only group to post an increase, Turboprops were up 1.2% (nine units) for the month, and inventory has now grown 9.6% (43 units) YTD.

July’s Maintenance Exposure Trends

Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (deteriorated) 3.1% in July to $1.419m, signaling upcoming maintenance for the latest fleet mix would be close to the 12-month high (worst) figure. The last time our tracked fleet posted a higher (worse) Maintenance Exposure figure was in October 2019. Individual group results were as follows:

• Large Jets: Worsened (increased) 1.0% for the month, but the figure was better than the group’s 12-month average.
• Medium Jets: Worsened by 0.7%, but the figure was only slightly above (worse) than last month’s 12-month best number.
• Small Jets: Suffered greatly from the reconstituted inventory, increasing 15.3% to set a 12-month worst (high) figure.
• Turboprops: At the other end of the spectrum, Turboprops posted a 12-month low (best) figure through a 3.6% decrease.

July’s ETP Ratio Trend

The inventory’s ETP Ratio rose (worsened) to 71.2%, from June’s 69.9%, following three consecutive monthly improvements (decreases), bringing our tracked fleet to just below its worst (highest) 12-month figure.

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 July?

• Turboprops: For the eighth consecutive month, Turboprops registered the lowest ETP Ratio at 41.8%, a 12-month low (best) figure that continued earning them the top spot among the four groups.
• Large Jets: Improved for the third straight month, this time to 61.4% from June’s 64.0%, thereby remaining in second place.
• Medium Jets: Deteriorated (rose) slightly to 73.7% from June’s 73.4%, with the figure remaining better (lower) than the group’s 12-month average.
• Small Jets: Made the environment for many sellers even more challenging through a Ratio increase to 96.5%, a 12-month high figure that was substantially worse than June’s 85.8%.

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 2020.

Most Improved Models

All six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Ask Price, on the other hand, was not as uniform, with the Beechcraft King Air C90, Bombardier Global Express, and Cessna Citation II, posting decreases of $5,976, $101,143, and $23,789, respectively. The remaining models experienced the following price increases:

• Gulfstream GIV-SP (MSG3): +$2,102,500
• Dassault Falcon 50: +$84,286
• Beechcraft King Air B200 (pre-2001): +$9,247

Gulfstream GIV-SP (MSG3)

Eclipsing all models in July is the one that occupied the ‘Most Deteriorated’ spot during our June analysis. It earned the top position through a Maintenance Exposure decrease exceeding $852k, along with an Ask Price increase exceeded $2.1m. But that does not bring visibility to the full story.

There were two aircraft listed ‘for sale’ in June carrying Ask Prices. When the asset carrying an Ask Price approximately one-third lower than the remaining one sold, the figure naturally shifted dramatically.

Still, there’s no getting around the model’s substantial improvement in Maintenance Exposure, derived through the single July transaction and three additions to inventory. With an ETP Ratio of 55%, and with inventory at only five units (5.6% of the active fleet), sellers should have some realistic opportunities to trade their aircraft, assuming price expectations are sensible.

Beechcraft King Air C90

Our research uncovered two aircraft trades in July, and the 47 units comprising the latest inventory mix equated to 12.1% of the active King Air C90 fleet – hardly the stuff of legend.

While the model’s Maintenance Exposure decrease of $71k far exceeded its Ask Price reduction, the resulting 116.6% ETP Ratio does not hold much promise for sellers. Buyers, on the other hand, have their pick of the litter.

Dassault Falcon 50

Two units found new owners in July. The remaining inventory of 23 aircraft equated to 12.3% of the active fleet. While the ‘for sale’ fleet saw Maintenance Exposure decrease over $33k and Ask Price increase more than $84k, the resulting ETP Ratio still exceeded 126%.

Although statistically deserving of its spot on the ‘Most Improved’ list, it is doubtful that sellers will experience a dramatic change in fortune although, for some buyers, this may still be the perfect solution for their geographic operating environment.

Beechcraft King Air B200 (Pre-2001 Models)

The second King Air model to occupy a spot on this month’s ‘Most Improved’ list definitely belongs here. Four units traded in July, and the 55 aircraft listed for sale create good selection for buyers, while sellers can benefit from availability only equating to 7.1% of the active fleet.

The model’s ETP Ratio, at 46.2%, is also a great deal more conducive to deal-making and resulted from a Maintenance Exposure drop exceeding $70k and a slight Ask Price increase.

Bombardier Global Express

By no means a stranger to this list, the Global Express gained its position in July following a Maintenance Exposure decrease approaching $393k that was overshadowed an Ask Price decrease exceeding $101k.

We did not record a sale during July, and the model’s 21 listed units equate to 14.6% of the active fleet. However, with an ETP Ratio of 67%, and considering the aircraft’s capabilities and industry following, sellers should have more opportunities than sellers of many other models posting such figures.

Cessna Citation II

Occupying the final slot on July’s ‘Most Improved’ list is a model whose constituents range in age from 25 to 42 years, and whose 83 inventory units equate to 16.5% of the active fleet. For buyers not afraid to become the final owner of an asset within the Small Jet range, the Citation II might be worth considering, as Ask Price fell nearly $24k in July while Maintenance Exposure improved (decreased) over $55k.

Of course, the aircraft’s actual Maintenance Exposure could make your acquisition a bit more expensive that planned, considering the ETP Ratio stood at nearly 128% when last calculated.

Most Deteriorated Models

All six models on July’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Bombardier Learjet 36A posted no Ask Price change, while the remaining models experienced the following decreases:

• Cessna Citation ISP: -$58,192
• Bombardier Learjet 55: -$26,071
• Gulfstream GIV-SP: -$348,000
• Hawker Beechjet 40: -$75,000
• Gulfstream GIV: -$11,111

Cessna Citation ISP

The best aircraft among July’s ‘Most Deteriorated’ assets held the second-highest position on June’s ‘Most Improved’ list. Its dramatic change in stature came from a $7k Maintenance Exposure increase, along with a $58k drop in Ask Price.

As if the model’s 128.5% ETP Ratio posed an insufficient challenge for sellers, inventory stood at 20% of the active fleet (55 units) as we closed out July. Three aircraft did trade last month, but this model’s fleet is aged between 35 and 43 years of age, so prospective buyers need to keep in mind that any future resale is unlikely to generate a price much above salvage value.

Bombardier Learjet 55

First the good news: One asset transacted last month and we did not record any additions to the Learjet 55 inventory.

Now the bad news: The 14 units listed for sale equate to 14.6% of the active fleet for an asset whose ETP Ratio is 188% (by virtue of Maintenance Exposure increase exceeding $55k and an Ask Price decrease of more than $26k).

Ask Prices for this model range between just below $500k to just below $1.0m. For an aircraft aged 33 to 39 years, even the low end of the pricing spectrum will be challenging for sellers to achieve, unless they can effectively monetize their aircraft’s Maintenance Equity.

Gulfstream GIV-SP

Three transactions took place in July proving, yet again, this model’s strong following. However, with a Maintenance Exposure increase approaching $487k, along with an Ask Price decrease of $348k, the GIV-SP, unlike those operated under MSG3 Maintenance rules (see above), found its way onto the ‘Most Deteriorated’ list.

While the 19 aircraft listed for sale represent only 9.1% of the active fleet, the model’s 97% ETP Ratio will make selling against its MSG3 brethren challenging for most existing owners, especially if the aircraft’s engines are not enrolled on an Hourly Cost Maintenance Program.

Hawker Beechjet 400

This 31 to 34-year-old model joined the ‘Most Deteriorated’ list having completed no transactions during July. It did so on its Maintenance Exposure weakness which increased (worsened) over $25k, along with a $75k reduction in Ask Price.

Only four units are listed for sale. Unfortunately for sellers, that equates to 12.1% of the active fleet, while the model’s average ETP Ratio, at over 131%, equates to a challenging selling environment.

Gulfstream GIV

The third Gulfstream model to make either list finds itself in the second worst position among July’s ‘Most Deteriorated’ group.

Two aircraft transacted in July to lower the number available for sale to 21 units (12.4% of the active fleet). Unfortunately, at the ripe old age of 27 to 34 years, this superb aircraft is beginning to reach its financial obsolescence through an ETP Ratio approaching 185%, due to a Maintenance Exposure increase exceeding $477k, along with another Ask Price reduction.

Bombardier Learjet 36A

With an ETP Ratio approaching 185%, and units that are as much as 44 years old, it is not difficult to understand why this model occupied the most deteriorated spot on July’s list. What might be surprising is that one aircraft did trade in July, and only four are listed for sale.

Unfortunately, those listings equate to 10.8% of the active fleet whose Maintenance Exposure increased by more that $306k by virtue of the latest inventory mix.

While air ambulance work has kept this model flying, it, too, is staring at financial obsolescence with some units probably already at that destination.

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.

More information from www.assetinsight.com.

This article was originally published by AvBuyer on August 14, 2020.

FOR IMMEDIATE RELEASE

EDGEWATER, Md. - Feb. 13, 2018 - National Aircraft Finance Association (NAFA) is pleased to announce that Vinci Aeronatucia has recently joined its professional network of aviation lenders. “NAFA members proudly finance - support or enable the financing of - general and business aviation aircraft throughout the world, and we’re happy to add Vinci to our association,” said Ford von Weise, President of NAFA.

Vinci Aeronautica specialists have more than 20 years of experience in the aviation industry, providing aircraft recurrent, pre-buy, redelivery and compliance inspections services for the finance and legal sectors. The company has an extensive background in maintenance management, operations, finance, regulatory compliance and sales/purchases of aircraft. The Vinci team works with the Civil Aviation Authority and several air operators to provide focused and tailored services to their valued clients. 

With experienced inspectors, Vinci has carried out more than 2000 inspections ofa wide variety of aircraft – both fixed and rotary wings– and assisted numerous air companies – both large and small. The company has also trained and worked with many authorities worldwide, gaining significant knowledge and expertise with different compliance systems, including EASA and FAA systems.

Vinci Aeronautica prides itself on having a global reach while providing local knowledge. Their inspectors and audit teams are fluent in English, Spanish, Portuguese and French, forming the biggest dedicated aircraft inspection company in Latin America. They are a team of highly specialized professionals with formal training on aviation rulemaking and a strong technical background. Along with the company’s proprietary asset management system, Vinci has the experience, knowledge and technology to take the utmost care of their clients’ assets.

Much like NAFA, Vinci Aeronautica is committed to providing the highest level of service in the aviation industry. Vinci and NAFA establish strong business relationships worldwide, fostering a network of knowledgeable aviation professionals.

For more information about Vinci Aeronautica, visit vinciaero.com.  

About NAFA: 

The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.

NAFA member, Tony Kioussis, President of Asset Insight, shares who the movers and shakers were in the September 2018 Used Aircraft Maintenance Analysis.

As we enter Q4 2018, sellers appear to be more focused than ever on moving their aircraft. Which business jets and turboprops were the movers and shakers in September’s used aircraft marketplace?

Asset Insight’s market analysis on September 28, 2018 covering 93 fixed-wing models and 1,553 aircraft listed ‘For Sale’, revealed an Ask Price drop of 5%. By group:

• Large Jet values decreased 1.2% (combined loss of 9.7% during Q3);
• Medium Jets gained 2.2% to finish Q3 up 0.9%;
• Small Jet values lost a nominal 0.2%, but posted a 4.1% pricing gain in Q3;
• Turboprops fell 1.1% to a 12-month low and recorded a Q3 loss of 3.4%.

The total number of used aircraft listed ‘For Sale’ for Asset Insight’s tracked fleet decreased by 2.4% (39 units), as Large, Medium and Small Jet inventories decreased 4.7% (16 units), 4.2% (11 units) and 1.3% (six units), respectively, while Turboprops increased by 1.4% (four units).

Average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) 4.8%, as the inventory fleet’s upcoming maintenance events are expected to be less expensive.

• Large Jets increased (worsened) 4.9% as higher-quality aircraft transacted;
• Medium Jet Maintenance Exposure remained unchanged as the quality of aircraft transacting was mixed;
• Small Jet Exposure decreased (improved) a dramatic 15.8%;
• Turboprops posted a 10.7% drop to an amount marginally worse than the group’s best (lowest) 12-month figure.

All this led to a Maintenance Exposure to Price (ETP) Ratio decrease (improvement) of 7.2% during September that – at 67.1% - remained virtually unchanged for the quarter.

ETP Ratios Explained

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 Market increase (in many cases by more than 30%).

So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2018 were listed ‘For Sale’ an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively) while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 34% longer to sell (280 versus 374 Days on Market).

• Turboprops yet again posted the lowest (best) ETP Ratio at 50.1%, reflecting a 4.4% improvement for the quarter;
• Large Jets followed with 64.2% (but that figure reflected a 7.4% degradation during Q3 and was the group’s highest (worst) ETP Ratio ever recorded);
• With an impressive 18.7% reduction during September, and an 8.3% reduction during Q3, Small Jets posted the group’s best 12-month figure at 68.3%;
• Medium Jets improved 2.5% during September, but with an ETP Ratio of 78% the group worsened by 8.2% during Q3.

Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in September 2018.

Read full report here.

The original article was published by AvBuyer on October 16, 2018.

NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses the details when it comes to purchasing an aircraft with maintenance programs and subscriptions.

Aircraft that are enrolled in maintenance and subscription programs, such as those covering airframes, engines, and maintenance tracking, are often more marketable, and sometimes more valuable, than comparable aircraft that are not covered by such programs and subscriptions. There is real value to an aircraft buyer in having the programs and subscriptions on the aircraft when purchased. As a result, it is important that the programs and subscriptions are transferrable as part of the acquisition process. Each third-party provider is different in how they handle the transfer or assignment of programs and subscriptions. Some providers simply allow the seller to assign the current contract to the buyer but many require the buyer enter into a new agreement. It is important that the buyer understand the cost of the programs and subscriptions when putting together the budget for the ownership and operation of the aircraft. It is also important that all of the necessary paperwork be handled in a timely manner. Some providers will not send out the transfer paperwork until the purchase of the aircraft has been completed. When progressing through the aircraft purchase process, the buyer should consider the following:

1. Purchase Agreement Requirements

1. Prior to the execution of the purchase agreement, request copies of the current maintenance program agreements. Confirm that the advertised programs are in place at the rates previously provided.
2. If the program provider(s) will not complete the transfers until after closing, make sure the purchase agreement requires the transfer obligations of Seller extend beyond the closing.
3. For annual maintenance or subscription payments, make sure the contract is clear that the payment will be prorated based on the closing date or as otherwise agreed upon between the parties.
4. If the buyer elects not to continue with a program or subscription, make sure the purchase agreement allows the buyer to terminate the program or subscription upon closing and stipulates which party must pay any fees associated with the termination.

2. If the aircraft is being financed, make sure the lender documents allow sufficient time to get the transfers in place. Since the process is controlled by a third-party provider, it is difficult for the buyer to dictate to the provider a timeline put in place by the aircraft lender.

3. If there is a minimum flight hour requirements under the program, make sure the minimums can be met by the buyer and if not, see if the program requirements can be revised.

4. During the inspection process, contact each maintenance provider and subscription service and inform them of the pending purchase and request a balance on each of the accounts and what date they have been paid through. Often the maintenance provider or subscription service requires seller’s approval to disclose account information.

5. Confirm with the maintenance or subscription service providers how the agreements will be transferred and when. Since each provider may have their own process, it is a good idea to create a document that tracks the process for each program and subscription.

6. Closing should only take place after third party confirmation that all programs and subscriptions are paid through closing or otherwise in accordance with the purchase agreement.

7. Once the closing has occurred, promptly send notification of the closing to the program and subscription service providers. Some providers will want a copy of the delivery receipt showing the number of hours on the aircraft/engine(s) at the time of closing. They may also want a copy of the bill of sale and perhaps additional documentation regarding the buying entity. Be sure to provide all required documents without delay.

8. Continue to follow up with the providers until the transfer of all applicable programs and subscriptions are complete.

Since there is real value to the aircraft programs and subscriptions associated with the aircraft, it is important that all of the paperwork is completed in a timely manner, so the aircraft remains enrolled on the programs and subscriptions bargained for as part of the aircraft purchase.

The original article was published in Business Air Magazine.

NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses the risks and benefits of doing aircraft upgrades prior to closing. 

For the past decade, the preowned aircraft market has been a buyer’s market. There has been an ample supply of inventory to choose from in all categories. After the first quarter of 2018, we are now seeing a more balanced market in most categories, and some categories are actually shifting further toward a seller’s market. In certain aircraft categories, it is difficult to find high-quality aircraft. The lack of high-quality aircraft has resulted in more buyers planning immediate and extensive upgrades to the aircraft they are purchasing.

If the aircraft being purchased is undergoing a major inspection as part of the pre-buy inspection, or if the discrepancies found during inspection will take a significant amount of time to repair, then there may be an opportunity for the buyer to perform some of the planned upgrades simultaneously, prior to closing. However, with this opportunity there are also risks.

The benefit to the buyer of doing the planned upgrades on the aircraft prior to closing is to decrease the down time of the aircraft so that the buyer can start flying on the aircraft sooner rather than later. The buyer will pay for the upgrades on an aircraft he does not own on the assumption that the closing of the aircraft will be finalized.

Prior to upgrading the aircraft in advance of ownership, the following items should be considered:

1. What happens if the purchase does not close? If the seller defaults, does the seller get the benefit of the upgrades completed at buyer’s expense? If significant problems with the aircraft are discovered during the inspection process that make it impossible or impractical for the aircraft to ever meet the delivery conditions for the sale, does buyer still have to pay for the upgrades?
2. If the aircraft is damaged in the course of performing the upgrades, who is responsible for the damage? Does buyer have insurance in place if buyer is assuming this responsibility?
3. If additional discrepancies are discovered during the installation of the upgrades, who is responsible for paying to repair the discrepancies?

If, after considering the risks, the buyer still wants to proceed with the upgrades prior to closing, then the seller will need to consent to such work. If consent is given, completing the upgrades would require an amendment to the purchase agreement, unless the upgrades were previously addressed in the original purchase agreement. When possible, it is advantageous to consider the upgrades during the drafting of the purchase agreement in order to ensure there is a meeting of the minds on this issue prior to execution of the purchase agreement.

After reviewing the risks, if the buyer does not want to move forward or the seller will not agree to allow the upgrades prior to closing, an alternative approach might be to close before the completion of the inspection and/or the repair of all of the discrepancies. Under this scenario, the parties would need to estimate the outstanding costs for the inspection and discrepancy repairs and agree that seller will pay for such repair costs post-closing. For protection, the buyer could request a certain amount of money be left in escrow from the sale proceeds as a holdback until the inspection and discrepancy repairs are complete.

The original article was posted by Aerlex Law Group on April 25, 2018 and published in BusinessAir Magazine, April 2018, Volume 28, No. 4.