NAFA member, Gary Crichlow, Director of Aviation Finance with Arc & Co., discusses aircraft refurbishment investments.
Any investment into private aircraft needs to be looked at from the point of view of slowing the aircraft’s inherent depreciation as much as possible and extracting maximum utility, rather than expecting a positive financial return.
The most effective way to slow value loss is to make sure the aircraft is desirable to the market so that it sells quickly when you decide that it’s time to upgrade or generate some cash. Previously we discussed the impact that a well-executed interior, in top condition, can have on a sale.
Here, we consider the value of cabin refits from the perspectives of utility, history and transferability. Note: With our use of the term ‘value’, we encompass not only the actual return by way of an increased selling price (which tends to be the exception rather than the rule), but also we mean the impact on the time it takes to sell the aircraft, thereby minimizing the detrimental effects of depreciation and time on the market.
Refurbishing With Utility in Mind
The first consideration is, of course, to have an aircraft that does what you want it to do in terms of the cabin layout, amenities, entertainment, connectivity, privacy, etc. However, it’s also important to think about the end-buyer. How likely is it that your aircraft will be able to meet their needs as well?
The most value-enhancing upgrade options tend to be the ones that result in a demonstrable enhancement to utility. They will, for example:
• Enable the aircraft to fly longer distances;
• Certify the aircraft to land at certain airports, in certain countries or on more efficient routings;
• Allow full in-flight connectivity for all users including streaming live; or
• Have different zones for privacy/rest/work for principals, entourage and crew.
According to Celia Sawyer, who runs her own interior architecture and design firm and provides private and commercial clients with bespoke, luxury interiors for private jets and helicopters, the things that clients typically look for can differ significantly.
“It is different with every client,” she notes. “I had a Middle Eastern client who wanted a lot of gold inside and also wanted the interior to be very opulent, with only the best Italian leathers, a good boudoir to sleep in and a large shower room.
“Another client wanted no frills — just a contemporary, functional interior with good technology on board, more like a flying boardroom with a living area next to it that he could work from. So, it really is dependent on the client’s needs and their priorities.”
And yet there is more than just catering for the principal’s needs at play when considering the upgrade and refurbishment options for a private jet. Just how much of a selling point are amenities appealing to the buyer’s family or entourage?
These items might include private family suites on the much larger jets, catering facilities, showers, broadband allowing for the streaming of videos/gaming and additional baggage/stowage space.
According to Sawyer, “They all want the highest level of technology. That’s something that is always requested, whatever the size of the aircraft.” Having other amenities on board are very important to some clients. “If they have a family they travel with, they need to have everything available,” Sawyer adds.
“Of course, it will depend on the size of the aircraft as to whether they can have a shower, or what sort of catering facilities and how much additional baggage space is possible.
These design requirements will in turn be driven by what sort of trips they intend to make.” So, what are the top design trends that aircraft owners are choosing to help to maximize the appeal of their aircraft’s interior? “I am pleased that my clients are thinking of the environment,” Sawyer observes. “Many are requesting more fuel-efficient aircraft with lower emissions. New and upgraded engine and aerodynamic technology is key in this respect.
In keeping with this ‘green’ trend, on the aesthetic side Sawyer’s clients are insisting on lighter-weight interior furnishings and fittings than they may have done previously, “but they’re still choosing materials and designs that deliver on comfort, quality and style.”
The Role of History in an Attractive Aircraft Refurb
Ultimately, buyers prefer to purchase aircraft where the history of ownership, operation and maintenance is simple, well-documented and clear.
All the records – including the installation and certification of the interior, right down to the last detail – should be organized in such a way that a buyer can immediately see and take comfort that everything is in order.
According to Iain Houseman of Elit’Avia, “In an ideal world, all aircraft purchases would come with the correct documents, such as a comprehensive history of ownership and maintenance.” Interior installs from the factory are usually well documented, but problems can occur in service when an aircraft’s owner decides to change something and does it at their local facility for no other reason than that facility is the more convenient option.
“I’ve seen a number of aircraft that had work done where the paperwork wasn’t in order,” Houseman reflects. “This has meant the aircraft couldn’t be moved on to a different registry because you cannot show the history of modifications.
“That’s why it’s so important for the owner to have an approved operator with quality maintenance and care processes in place to ensure paperwork is properly kept.”
Elaborating further on the owner who was unable to move their airplane to a different registry, Houseman adds, “When the owner wanted to put it on an EASA registration, he couldn’t because the EASA approval for the modifications was not complete. He had to put the aircraft on the Isle of Man registry (which accepts both FAA and EASA certifications) and wait a further six months for the EASA approvals to come through.
“In another situation, a client decided to replace the carpet. It sounds easy, but the carpet was also attached to the seat bases. Burn certification paperwork is required, not only for the carpet, but also for the glue to attach it to the seat base and approval is needed from the seat manufacturer.
In total, it took eight weeks for a one-week install!” So, what are the lessons learned for interiors being installed on new aircraft? “You can usually pay the manufacturer to provide EASA certification alongside the FAA’s, because pretty much all the aircraft being built will come with FAA approval on the interior in the form of an STC,” Houseman explains.
“There is usually an upcharge for EASA, but from a seller’s perspective, it could make sense to get this for resale purposes,” he suggests. “It also depends on the model: larger aircraft with an international market would more obviously benefit from more certification to help with resale.
However, for smaller aircraft that are predominantly sold in the US, foreign certification may be a ‘nice-to-have’ rather than a ‘must-have’. “Multiple certification can be important in older aircraft, too. If an aircraft has spent its entire life in the US and has had modifications done under FAA STCs that are not EASA-approved, then all of the STCs would need EASA approval to import the aircraft onto an EASA registry.
It’s also important to make the distinction between private or commercial use, Houseman notes.
The requirements for commercial use vary between countries, so an aircraft that has EASA-only approved modifications could still go on the US registry for Part 91 private operations, but if it’s missing certain equipment mandated specifically by the FAA, it cannot do Part 135 commercial operations.
Upgrading and refurbishing an aircraft is a significant investment that can strongly enhance your experience whilst on board. But it’s vital, when planning for the investment, to have a realistic view of the value it creates and the other challenges that could arise.
A well-executed cabin refit should meet your needs in terms of space, aesthetics, utility and connectivity, and have the added benefit of appealing to the broadest possible range of potential buyers when the time comes to move the aircraft on.
As established at the start of this article, a well- executed cabin refit will not generally result in a positive financial return outside of a very narrow and oft-unpredictable set of market circumstances.
Doing your homework and enlisting competent expertise is key: an interior refit is a complex project that requires detailed planning and oversight, and strict adherence to a plethora of regulations. Delays and mistakes can be costly and time- consuming. You should keep potential future buyers for your aircraft in mind; not just in terms of aesthetics and technology, but also in terms of certification, with the aim being to ensure maximum transferability with minimum headache.
Finally, a reminder that investing in a quality operator is crucial to make sure that paperwork is properly organized and maintained.
This article was originally published by AvBuyer on September 27, 2019.