CJI Town Hall: Business aircraft prices ‘fall 7% over past 12 months’

The price of business aircraft has fallen by 6.9% over the past 12 months, Tony Kioussis, president and CEO Asset Insight, told delegates at Corporate Jet Investor’s Town Hall online meeting yesterday. But there have been significant variations in the price reductions for various aircraft types and, with low inventory levels, prospective buyers should beware the hidden costs of embedded maintenance, he added.

Large jet prices have fallen by more than 11%, which Kioussis described as “pretty scary”. The price of mid-size jets fell by about 12%. At the other end of the scale, the price of light jets dropped by only 1.3% and turbo props were down by 2.3%.

“The fact that pricing is down is a positive thing,” Kioussis told delegates. “You are looking at some really good assets from a technical condition standpoint and very low pricing. It doesn’t get any better than that.”

Asset Insight detected significant variation in the quality of aircraft buyers wanted to acquire. Buyers interested in acquiring large aircraft were targeting the higher quality assets. That contrasted with preferences for lower quality assets in the mid-size, light jet or turbo prop categories.

‘Left us scratching our head’

“At first, that left us scratching our head,” he acknowledged. “But it looks like most of the buyers of larger aircraft are using an experienced broker for the deal. Whereas, those buying mid-size, light jets and turbo props are not – that may account for it.”

Whatever the size of the aircraft under consideration, Kioussis warned prospective buyers to beware the hidden costs of embedded maintenance. While the lower quality assets could not all be classed as ‘bad aircraft’ and good prices might be available, unexpected maintenance could add significantly to the overall cost.

“We counsel new buyers on the difference between low price and good value,” he explained. “You can buy an aircraft for a low price but find it has an incredible amount of embedded maintenance.

“So, if you submit $500,000 for a light jet, you could expect [in some circumstances] to have another $500,000 of embedded maintenance costs in that aircraft. That’s pretty scary.”

‘That’s pretty scary’

Overall, the near term embedded maintenance costs of business aircraft is “fairly reasonable”, but again with some very wide variations. Industry-wide embedded maintenance costs have risen by 5.3% compared with last year’s level. For mid-size jets, embedded maintenance is 3.7% lower than it was last year. For turbo props, the maintenance exposure is 8.6% lower than last year, according to the company.

But in the small jet category, embedded maintenance is up about 41%. “That gives you an idea of how much maintenance is embedded in these older aircraft. Some of these planes on the market are 35 to 40 years old and the embedded maintenance cost is really quite high.”

Despite inventory at “extremely low levels” some business aircraft have been on the market for two years. “I don’t know how they will move – unless the seller wants to dispose of them for them for, what I term, the square root of zero,” said Kioussis. “If you have got an asset that is worth $400,000 and it’s got another $600,000 of embedded maintenance costs, where do you go from there [in terms of price reductions]?”

Steve McManus, GE Aviation sales director, said private aviation flight activity in December 2020 had achieved 80% of the flight hours recorded in the previous December. “We are seeing shorter legs and fewer flight hours but there is good utilisation of aircraft.” Activity was strongest in North America. “These jets have the legs and when the borders open up, we will see them being used.”

The Town Hall online meeting took place on Wednesday February 17th and was supported by Citadel Completions.

Meanwhile, there are now new ways to watch and listen to this Town Hall and all our other online meetings. Listen to podcasts here or find the meetings on Spotify here or via our video channel here.

Business aircraft prices fall – at a glance

-Overall: -6.9%

-Large jets: over 11%

-Mid-size jets: about -12%

-Light jets: -1.3%

-Turbo props: -2.3%.

Source: Asset Insight