Q1 2015 Asset Insight Market Report Shows Severe Increase in Maintenance Risk Exposure Across For Sale Fleet
April 14, 2015 - AMISSVILE, Virginia, USA. Asset Insight, Inc. today published its First Quarter 2015 issue of the Asset Insight Index Market Report (AI2 Market Report). While buyers and sellers will be pleased with the quality of aircraft listed "for sale," they should be very cautious when researching aircraft they are considering for purchase, or when determining selling price. On balance, Ask Prices for tracked aircraft increased by over $70,000 since year-end 2014, and are now at a 12-month high. However, rising maintenance costs (as captured by our semi-annual cost update) and aging of the "for sale" fleet, have increased maintenance cost exposure across the board.
"The big story for Q1 2015 is the Asset Exposure to Ask Price Ratios, or ETP Ratios (an aircraft's maintenance exposure divided by its Ask Price), we are seeing across the fleet of available assets," stated Tony Kioussis, president of Asset Insight. "While it is true that Ask Prices are at a 12-month high and asset quality ratings have improved, the latest industry maintenance cost figures combined with aging of the fleet pose serious aircraft valuation hazards. It is more important than ever for buyers and sellers alike to do their homework and be well informed when structuring transactions. Quality assets are indeed readily available, but increasing maintenance costs are accelerating financial obsolescence for many aircraft. One simply must know the aircraft and the maintenance cost risk with which they are dealing with, so they don’t unexpectedly find themselves as an aircraft’s final owner."
Throughout the industry, increasing maintenance costs (updated semi-annually in the Asset Insight database) and aging aircraft contributed to a 61.6% average ETP Ratio across the "for sale" fleet (a 21.8% increase over Q1 2014). In Q1 2015, the ETP Ratio worsened for all market segments, with the impact most severely felt in the Small Jets category where this quarter’s average reached 92.7%. We believe aircraft whose ETP Ratio exceeds 40% are burdened with an excessive level of maintenance Asset Exposure in relation to their Ask Price. By specific market sector:
Large Jets – the average quarterly ETP Ratio increased from 25.6% in Q1 2014 to 40% in Q1 2015, but Large Jets remain the best-rated asset class in the market. An opportunity exists for buyers in this segment as, with an overall quality rating of Excellent, Large Jets remain atop all groups, while the average Ask Price is $1M below its 12-month average.
Medium Jets – The ETP Ratio increased from 44.1% during Q1 2014 to 63.3% in Q1 2015. However, asset quality in the Medium Jet segment remains Excellent and Ask Prices are above average while still recording a slight decrease over the last 90-days.
Small Jets – Recording the largest jump in Asset Exposure, the Small Jet segment registered an increase from 50% during Q1 2014 to 92.7% in Q1 2015. Small Jet quality is still Very Good, affording prospective buyers the opportunity to identify good deals, and sellers to secure a good price.
Turboprops – Turboprops recorded the second best ETP Ratio among all the segments, but still saw an increase from 36.9% in Q1 2014 to 59.3% in Q1 2015. The group's Ask Price posted an increase of $100k over year-end 2014, but remained below the 12-month average.
Tony Kioussis summarized the Q1 2015 report by saying, "There are excellent aircraft listed for sale in the marketplace today, but buyers and sellers must have real maintenance exposure awareness when it comes to narrowing down their selected aircraft or in setting their Ask Price. They need to understand each aircraft’s specific market and maintenance condition, and understand their options for improving their position, such as obtaining Hourly Cost Maintenance Program coverage. Failure to have complete information in this marketplace could be very costly."
Using Asset Insight’s proprietary Asset Grading System ProcessTM (AGSP) to analyze the average maintenance condition of jet and turboprop aircraft listed for sale as of March 31, 2015 (Source: AMSTAT), the AI2 Market Report analyzes the Maintenance Rating (ATC Score), Financial Rating (ATFC Score), the Asset Exposure Value (ATFE Value) and the Asset Exposure to Ask Price Ratio (ETP Ratio). The AGSP is based on patented algorithms analyzing current age, flight hours and cycles on an aircraft's systems and major sectors – airframe, engine(s), propeller(s), APU, paint, and passenger interior – as well as the typical cost to repair or replace parts with no defined life.
About Asset Insight: Asset Insight, Inc. (www.assetinsightinc.com) provides aircraft asset evaluation and financial optimization services. The company's "Asset Grading System Standard" (Patent Pending), and related analyses, provides the ability to translate the asset's technical condition into easy-to-understand, actionable financial information. Asset Insight is independent of any manufacturer, appraisal firm, financial services firm, or technical services facility, enabling it to provide an unbiased view of an asset's condition with respect to its technical status and related financial exposure. The company, founded in 2012, is headquartered in Amissville, Virginia (southwest of Washington, DC) and is managed by business, technical and financial professionals with significant experience in aviation asset management.