Excellent "For Sale" Asset Quality, Ask Prices Generally Lower - Exceptional Opportunity Now for Buyers
April 20, 2016 – AMISSVILLE, Virginia. Asset Insight today published its First Quarter 2016 issue of the Asset Insight Index Market Report (AI2 Market Report) covering the pre-owned aircraft market for the first three months of 2016. This AI2 Market Report evaluates 91 fixed wing aircraft models, totaling 1,919 aircraft listed "for sale" as of March 31, 2016. Overall, comparing Q1 2016 to Q1 2015, most indicators showed improvement – Asset Quality posted the best figure recorded to date; Maintenance Exposure improved substantially and is at its 12-month low; and, the ETP Ratio (Maintenance Exposure to Ask Price Ratio) improved to post the lowest figure since December 2014. However, quarter over quarter, the markets did experience mostly lower Ask Prices.
Aircraft Prices may be at a low point, but Asset Quality of the "for sale" fleet has not been this good since we began keeping records – in January 2013,
said Tony Kioussis, Asset Insight President & CEO.
While it is understandable for Sellers to be concerned about the value of their asset, it should be evident to Buyers that they have an opportunity to acquire aircraft in exceptional maintenance condition for some of the lowest prices – ever.
The chart comparing the ETP Ratio versus the average Days on the Market before an aircraft trades illustrates a clear relationship: the lower the ETP Ratio, the less time an aircraft will likely spend on the market. Specifically, Asset Insight’s analysis indicates that if an aircraft has an ETP Ratio below 40% it is, on average, presently spending 302 days on the market (up from 207 days in Q4 2015). Aircraft whose ETP Ratio is 40% or greater will, on average, spend 463 days on the market (up from 281 days in Q4 2015).
The price spread between the Ask Price vs. the ultimate selling price (Used Aircraft Ask Price vs. Transactional Price Spread) was generally narrower during the first quarter of 2016, primarily due to lower Ask Prices - or asking prices that more closely reflected what Buyers were willing to pay. Actual selling prices, or Sales Transaction Values, remained relatively constant.
Of real concern to Buyers and Sellers should be residual value deterioration, and the initial steepening slope of aircraft depreciation curves – making detailed due diligence an imperative
said John Spoor, CEO of SAI Valuations, LLC.
We expect each sector to continually search for the Ask vs. Transaction spread "sweet spot" but it is unlikely that the market will settle on one for too long.
By specific market sector, the Q1 2016 analysis reflected the following:
• Large Jets – This sector registered the best asset quality among the 4 aircraft groups, while concurrently posting the lowest/best ETP Ratio, along with low Ask Prices. Indicators suggest that there continue to be great value and excellent quality aircraft available for Buyers in the Large Jet segment.
• Medium Jets – All indicators in this segment signal that prospective Buyers of Medium size jets should, following detailed due-diligence, make their purchase! With asset quality remaining Excellent (the group posted a 12-month high Quality Rating), Ask Prices below the group’s 12-month average, and improved Maintenance Exposure rating, now is an excellent time for Buyers to move on their considered purchase of a Medium size jet.
• Small Jets – This segment posted a new record-high Ask Price to end Q1 2016, Asset Quality remained Excellent and Asset Exposure improved. However, based upon the widening spread between Ask Prices and Transactional Prices, demand for a number of popular models may be abating and we could see a pricing adjustment in Q2 2016.
• Turboprops – Since our December analysis, asset quality remained Very Good in the Turboprop segment, while concurrently improving versus Q1 2015 aircraft. Turboprop Ask Prices fell slightly while Average Days on the Market increased more than 50%, with Buyers favoring aircraft carrying lower Maintenance Exposure.
Asset Insight’s proprietary Asset Grading System ProcessTM (AGSP) analyzed the average maintenance condition of jet and turboprop aircraft listed for sale as of March 30, 2016 (Source: AMSTAT) to generate the AI2 Market Report. The AGSP derives the Asset Insight Index, whose components are the Maintenance Rating (ATC Score), Financial Rating (ATFC Score), and Asset Exposure Value (ATFE Value). Dividing the Asset Exposure Value by the aircraft’s Ask Price derives the Asset Exposure to Ask Price Ratio (ETP Ratio) – a quantitative view of the aircraft’s current marketability. The AGSP is based on patented algorithms that examine 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.