NAFA member, Arc&Co, shares their top private jet interior trends and recommendations for condition, utility, history and transferability, with the view to maximise re-sale value.
Refurbishing or upgrading an aircraft is a very different investment proposition compared to refurbishing a property. Property generally appreciates in value over time, whereas aircraft are fundamentally depreciating assets: outside of very specific and often unpredictable market conditions, aircraft will lose value as they age. Any investment into private aviation needs to be looked at from the point of view of slowing that value loss as much as possible and extracting maximum utility, rather than expecting a positive financial return.
The most effective way to slow that natural depreciation is to make sure the aircraft is desirable to the market, so that it sells quickly when the client decides that he/she wants to upgrade or generate some cash. Mainstream, sought-after aircraft models in top maintenance condition that have undergone a high-quality cabin refit don’t tend to stay on the market for long (unless they’re unrealistically priced).
As a potential seller, it’s critical to realise that aircraft that languish with a “for sale” sign for a prolonged period of time tend to be increasingly penalised when it comes to their net realisable sale proceeds. This happens for a number of reasons:
1/ Your aircraft becomes “marked”: potential buyers take note of how long the aircraft is on the market. They may start to question whether you are serious about doing a deal, or (worse) whether there is something wrong with the aircraft that the sales brochure is glossing over. They may also presume that you will be under time pressure to conclude a deal. The ramifications quickly compound: in order to put their suspicions to rest the buyer will then be more likely to insist on a more comprehensive and detailed pre-purchase inspection scope than they otherwise might have. This will then almost inevitably lead to more findings that need to be rectified (at your expense), and the buyer will probably be less willing to compromise and more prone to demand price concessions to get the deal done.
2/ Your aircraft will be led by, rather than lead, the market: if comparable aircraft sell ahead of yours, their selling prices will tend to set the maximum price expectation for your machine in the mind of potential buyers – regardless
of whether your aircraft is, in fact, of higher quality. You should also keep in mind the fact that like cars, the model year of an aircraft matters. The market may view your aircraft on 1 January differently to how it viewed your aircraft 24 hours earlier.
3/ Your aircraft continues to incur costs for its upkeep:even while your aircraft remains grounded, it needs to be hangared and looked after. A full mothballing exercise to suspend the aircraft’s scheduled maintenance is generally not practical, because of the time and effort required to de-mothball for a pre-purchase or test flight, so the aircraft needs to be kept flight-ready. This means performing scheduled maintenance, running the engines and systems, undertaking flights regularly and documenting those activities diligently – all of which rack up costs that eat into your aircraft’s net sale proceeds.
AN APPEALING INTERIOR
So, when considering how to fit out the cabin of a private jet, it is crucial to make choices that not only align with your current needs and desires, but also take into account your future buyer’s mindset as much as possible. Decisions made now often have a sizeable impact on the future point of sale. The one similarity with selling property is that a well-executed interior should enable the buyer to visualise himself or herself in the cabin with little or no change, rather than having to consider the cost of ripping it all out and starting again.
We have highlighted four themes that are important to consider when it comes to the perceived value that a well- executed cabin refit generates at the point of sale from
a buyer’s perspective. Bear in mind that 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 we also mean the impact on the time it takes to sell the aircraft, thereby minimising the detrimental effects of depreciation and time on the market.
We approached leading experts in the aviation industry and asked them to comment on each theme.
Generally speaking, aircraft in better condition tend to be easier to sell (all other things being equal). A relatively new interior that is in a good condition can markedly increase an aircraft’s appeal, but its impact will be very much subservient to the basic aircraft “metal”: the aircraft’s age, hours and maintenance condition.
We asked Tobias Laps from Comlux Management AG – a leader in business aviation, transaction and completion services – for his thoughts on the importance of condition.
Q/ Do you agree with our view on aircraft condition or does the interior become more of a driver of value for large jets and biz-liners?
A/ On large jets and bizliners, the design of the interior, the layout and materials tend to have a much bigger impact on the buyer’s decision-making than on smaller aircraft where interiors are pretty much pre-determined by the manufacturer with limited scope of individualisation. In our experience, when buyers walk onto an aircraft, they typically know within the first few minutes whether the interior will work for them or not. If they don’t like the interior at all, they will often walk away from the deal. If there are only certain aspects of the interior that they don’t like, they will then have to decide whether changing those aspects would be worthwhile. It is at this point that they weigh up their view of the basic aircraft, the “metal” compared with the cost of changing the interior to better suit their needs: if the “metal” is relatively new, in good condition, and is worth significantly more to the buyer than the cost of the interior upgrade then that is what will tend to drive the buyer’s decision-making.
But it’s important to bear in mind that this interplay between the technical and the cosmetic depends very much on the specific details of the aircraft.
Q/ What are the most important points that a prospective seller should be aware of to give a buyer a first-class impression of the aircraft’s condition?
A/ Ideally, you would have chosen an interior layout with resale value in mind well before the actual sale: mainstream colour and veneer choices. In terms of specification, wireless connectivity is a trend, whereby passengers can connect their own devices while on board – an added bonus is that upgrading a wireless entertainment system is easier because the interior does not have to be removed to re-wire components.
Regardless of layout and specification, the first thing you must do when it comes to selling is prepare to impress the principal’s technical representatives. Make sure the maintenance records are up to date, well-organised and presentable and the aircraft is clean and fully serviceable. It is a very good idea to clean the landing gear, bays and externally-accessed compartments. Only after the representative has examined the technical condition of the aircraft and records and been satisfied will the principal typically come to assess the interior and overall cosmetic condition and make the final decision.
The next step to be taken, once the aircraft has satisfied the technical expert, is to prepare for the principal: the exterior should be spotless, and the flight deck and cabin should be deep-cleaned, including the galley, lavatories, carpet and sidewalls; everything should look fresh and up-to-date. Soft goods and furnishings should invite the principal to visualise himself or herself using the aircraft.
We also asked Iain Houseman from Elit’Avia – a private jet company specialising in aircraft sales, management, charter and lease as well as lifestyle concierge and travel booking – for his thoughts on the importance of condition.
Q/ How important is the quality of the interior to an aircraft acquisition vs the aircraft’s age, hours and maintenance condition?
A/ I think it depends; the interior will be a lot more important if the aircraft is older. If it’s a newer aircraft, then the interior is usually still in pretty good shape and, in that case, it comes down to how appealing it looks to the buyer. If the interior has been designed in a way that appeals to a limited group of people (e.g. red leather seats or a carbon fibre interior instead of veneer) this can be a deal breaker, because buyers will have to spend time and money to change it.
For older aircraft, the interior condition can be important for the same reasons – if the interior has recently been redone or is in good condition then the aircraft is more appealing, because it doesn’t need significant rework. Additionally, there is a need to understand the current technology systems and the proximity of major inspections for the aircraft that will allow upgrades to be incorporated and save considerable costs. For example, we estimated a major inspection for
an owner’s aircraft of $1.1 million and got the cost down to just under $800,000 – and managed to include some key avionics upgrades, internal improvements, and soundproofing enhancement. This proved very useful in getting the aircraft ready for sale.
To conclude, yes the interior is important, but increasingly so are the technological communication suites and entertainment systems, as well as the cabin’s in-flight environment.
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 is 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: for example, they enable the aircraft to fly longer distances; they certify the aircraft to land at certain airports, in certain countries or on more efficient routings; they allow full in-flight connectivity for all users including streaming live; or they have different zones for privacy/ rest/work for principals, entourage and crew.
We asked 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 – for her thoughts on utility.
Q/ What are the things that clients typically look for, from a layout and design point of view, when it comes to evaluating whether an aircraft meets their needs?
A/ It is different with every client. My Middle Eastern client 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. A client’s aircraft would be adjusted internally to suit the individual if it was not purchased from new and designed for them personally from the off. Another client of mine wanted no frills, just a contemporary, functional interior with good technology on board; more like a flying board room 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.
Q/ How much of a selling point are amenities that might not be for the principal, but strongly appeal to the buyer’s spouse/family/ entourage, such as private family suites, catering facilities, showers, broadband that can accommodate streaming videos/ gaming, additional baggage/stowage space, etc?
A/ They all want the highest level of technology: that’s something that is always requested, whatever the size of the aircraft. The other amenities on your list are very important to some clients – if they have a family they travel with, they need to have everything available. 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.
Q/ What are the top design trends that aircraft owners are choosing?
A/ I am pleased that my clients are thinking of the environment, with many of them 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 my clients are insisting on lighter-weight interior furnishings and fittings than they may have done previously, but still choosing materials and designs that deliver on comfort, quality and style.
Buyers prefer to purchase aircraft where the history of ownership, operation and maintenance is simple, well-documented and clear. All of the records – including the installation and certification of the interior, right down to the last detail – should be organised in such a way that a buyer can immediately see and take comfort that everything is in order.
We spoke to Mr Houseman of Elit’Avia about his views on the history of aircraft and the impact of aircraft records on a sale, asking about his experience in situations where details of the aircraft’s history were poorly organised, as well as situations where a comprehensive and clear suite of documents made for smooth sailing. Mr Houseman comments:
“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 occur in service when the owner decides to change something and does it at their local facility"
I have seen a number of aircraft that had work done where the paperwork wasn’t in order. This has meant the aircraft could not be moved onto a different registry because you cannot show the history of modifications.
This is why it is so important for the owner to have an approved operator with quality maintenance and care processes in place to ensure paperwork is properly kept.
The clarity and completeness of the records are key to the aircraft’s transferability when the time comes to sell, especially if the buyer intends to re-register the aircraft in a different jurisdiction. Different countries have different certification regimes and requirements that do not always overlap: an interior that has been outfitted on a German- registered aircraft under EASA regulations, for example, needs to have the necessary paperwork to allow it to be accepted onto the USA’s aircraft registry under the FAA’s oversight.
We again spoke to Mr Houseman from Elit’Avia about transferability and asked him the following questions:
Q/ Is dual certification/release from the major regulatory authorities (FAA/EASA) at the point of installation possible and a practical risk mitigant? How do you go about ensuring that it happens and is it typically more expensive?
Q/ Is retrospective certification possible and, if so, is it practical?
Q/ What advice can you give a client who wants to sell an aircraft with, say, an FAA-certified interior, to a European buyer who wants to transfer it to an EASA register?
Given that the vast majority of private aircraft are built and operated in the US, most will have installations that are FAA-approved. On the flip side, many will have no foreign certification. Therefore, when you go to switch a US aircraft to another jurisdiction such as EASA, it cannot easily be done because the modifications are not EASA- approved – and this can take months to resolve. I saw one case where modifications were done in the US, but the EASA application was not filed, so the aircraft sat for six months getting work done.
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.
I had another situation where 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 from the seat manufacturer. In total, it took eight weeks for a one-week install!
In terms of 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. There is usually an upcharge for EASA, but from a seller’s perspective, it could make sense to get this for resale purposes.
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 – 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. 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. For example, on a Global 6000 requires a $300,000 Crew Force Measurement System to operate under FAA commercial Part 135 rules.
Upgrading and refurbishing of an aircraft is a significant investment that can strongly enhance your experience whilst on board. It’s important, when planning for the investment, to have a realistic view of the value it creates – a well-executed cabin refit will meet your needs in terms of space, aesthetics, utility and connectivity, as well as have the benefit of appealing to the broadest possible range of potential buyers when the time comes to move the aircraft on. 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, investing in a quality operator is crucial to make sure that paperwork is properly organised and maintained.
DEFINITIONS: FAA: Federal Aviation Administration, the national aviation authority of the United States, responsible for regulating all activities pertinent to civil aviation in the US, including certifying aircraft for operation and approving modifications to those aircraft. EASA: European Union Aviation Safety Agency, the supranational aviation authority for 32 states including all EU members, Switzerland, Norway, Iceland and Liechtenstein. STC: Supplemental Type Certificate – the certificate issued by an aviation authority certifying that a major modification to the aircraft e.g. a complete cabin refit has been approved. It is a regulatory requirement to have the correct approval in place that aligns with the aircraft’s registration e.g. EASA-registered aircraft must have EASA approvals. Part 91/Part 135: FAA rules that govern aircraft operations for general non-commercial private (Part 91) and commercial charter (Part 135) use. Most countries defer to either these rules or parallel EASA rules.
This article was originally published by Arc&Co on June 10, 2019.