How Low Inventory Levels for Pre-Owned Aircraft Affect Business Aviation Maintenance

There has been much talk in the industry about the rise in business aviation use, fueled by the slow return of commercial aviation schedules since Covid-19, and increased health concerns during travel as users seek to protect their ‘bubble’ in flight. In the United States, this is leading to a surge in air charter activity. According to data from JSSI’s Business Aviation Index, which tracks the global flight activity and utilization of approximately 2,000 business aircraft, monthly charter flight hours have risen dramatically since the pandemic, up 31 percent between May 2019 and May 2021.

The pent-up demand for aircraft is however, coupled with a pandemic-induced decline in new jet deliveries and shrinking supply in the market. Today, the number of pre-owned private jets for sale is at an all-time low – just 5.99 percent of the overall fleet according to AMSTAT, the business aircraft research company. If these conditions persist, there will likely be an impact on aircraft values and MRO and parts segments.

Extending Aircraft Life

As the scarcity of for sale business jets impacts asset prices further out the age curve, maintenance that would previously not be justifiable is now supported by market values. Many are now considering creative ways to keep their older jets flying for longer.

Take the Bombardier Global Express, built from the turn of the century, with many examples now approaching a 20-year maintenance inspection. Pre-Covid-19, this would have been an appropriate time for many owners to consider aircraft retirement as the inspection, at a potential cost of US$2 million, fails to balance with the aircraft’s residual value. However, if low inventory levels lead to rising values in the market, we may see an extension of life for larger jets such as this, particularly if borders begin to open up around the world to facilitate cross-continental travel.

We are still early on in this phenomenon, and we are not yet seeing owners proceed with maintenance they wouldn’t have considered before the pandemic. However, if values of older business jets increase over the next 6-12 months, maintenance providers could find their workload rising. At JSSI, we’re also seeing corporate owners considering running two business aircraft at the same time. While before Covid-19 their ownership model was focused on swapping to a newer airplane every few years, today’s corporate owners are looking to also keep their existing aircraft as a backup until it needs to be retired. With regional airline connectivity still down, corporates are utilizing their airplanes more, and giving a larger part of their executive team access to their jets for health reasons. Corporate flight departments are also considering this option as an alternative to increased charter use, which is increasingly difficult to find.

The Impact on Aircraft Maintenance

Maintenance in business aviation is largely hours driven, but with the near grounding of all private jets in Q2 of 2020 due to lockdowns, many major maintenance events were pushed out. Today in Q3 2021, utilization is rising fast, particularly in the US. Therefore, we expect to see a large increase in maintenance requirements from the final quarter of this year into early 2022, particularly from larger-cabin aircraft once border restrictions ease and intercontinental travel again becomes common place. With such a spike in demand, maintenance costs may rise, and operators could face longer lead times to get their aircraft back.

This challenge is coupled with other factors, including the rising costs of labor. Throughout the pandemic, staffing has also often been restricted due to social distancing requirements, affecting shop productivity. Meanwhile, with slower parts production during 2020, supply chains are still impacted. If a part cannot be found straight away during an engine repair, for example, that engine will stay out of service for an extended period. This may force operators to lease an alternative engine for longer, creating a backlog of maintenance for the shop. The challenge for maintenance providers is to work around these problems to shorten this downtime period and find new opportunities to keep aircraft flying.

Used Serviceable Material

As certain business aircraft extend their useful life, we will continue to see growing demand for Used Serviceable Material (USM), a trend which bodes well for the parts aftermarket. For legacy platforms, USM parts are often lower in cost than those provided by the OEMs, which reduce ownership costs, justifying keeping an older aircraft in service for longer. As charter operators increase their fleets and flying hours, they will turn to USM parts to complement their cost-sensitive mindset, leading to increased demand in this space. However, if aircraft are kept in service for longer than in pre-Covid times, there may be a short-term lull in teardowns and part-outs which could limit the pool of available USM parts. It will be interesting to track which platforms maintain a robust aftermarket during this period.

Owning an Older Business Jet

For Ultra High Net Worth Individuals (UHNWIs) and corporate buyers, there is much to evaluate when owning an older ‘legacy’ business jet. Your jet may be out of production which limits parts availability, or it may have a major airframe inspection pending. Age has a significant impact on the depreciation curve of a business aircraft and the asset’s residual value must be assessed closely prior to purchase, or when deciding the right time for retirement. Owners also need to be mindful of the maintenance events due in the term of ownership, so those costs don’t exceed the majority of the aircraft’s value. Despite this negative picture, older platforms benefit from an excess of material and parts in the aftermarket which can lower maintenance costs.

A Crisis Comparison

Inventory levels in 2021 are a far cry from those seen during the last global crisis, the financial crash of 2007/8. Back then, prices fell dramatically in the aftermarket as large fleets were released, dropping as much as 60 percent. New jet deliveries remained on the ramp. The Covid-19 crisis has had a very different impact, with owners holding firm to their aircraft to date, and a surge in first-time charter users and aircraft owners serving to keep supply tight. In addition, availability of financing is currently much more readily available than in the wake of the financial crisis.

With the order books for new delivery jets full for the next 12 months plus, the pre-owned business jet market is set to remain hot. Maintenance providers will be watching the speed of OEM production closely over the next year, to understand where new supply will emerge and the resulting impact on aircraft values and costs. If production discipline is maintained, pre-owned values may slightly climb. If production is ramped up and supply increased, pre-owned values are likely to decline. And against this context, the delicate balance between value and maintenance costs must be weighed up by every aircraft owner whether a UHNWI or charter operator. It is a new reality, but one in which there are many opportunities for the aftermarket.

Francisco Zozaya is Vice President, Global Business Development, at Jet Support Services, Inc. and Ben Hockenberg is President of JSSI Parts & Leasing.