aircraft maintenance

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – January 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, discusses which business aircraft showed the most improvement and deterioration in terms of their maintenance exposure to ask price ratio during January 2020, and what the market factors impacting those models were. 

    During January 2020, the average Ask Price for aircraft in Asset Insight’s revised, and substantially expanded, tracked fleet increased 16.8%. Which models were impacted the most? Tony Kioussis explores.

    In January, Asset Insight expanded the number of aircraft in its tracked fleet of 134 fixed-wing models, and the new inventory mix posted a 1.6% unit decrease to 2,147 aircraft for sale, compared to the 2,182 assets comprising the same make/model list in December.

    Asset quality improved 1.3% during the month, from December’s 5.206 to 5.272, a 12-month best figure that moved the Quality Rating from ‘Very Good’ into the ‘Excellent’ range on our scale of -2.5 to 10.

    Additionally, at $1.332m, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the lowest (best) 12-month figure for the second consecutive month.

    January’s Aircraft Value Trends

    During January, the average Ask Price for aircraft in the expanded fleet increased 16.8%, with all four groups contributing.

    • Medium Jets led the way through an increase of 22.7%
    • Large Jets were a close second rising 22.4%
    • Turboprop Ask Prices increased 10.2%
    • Small Jets increased 1.6%.

    January’s Fleet for Sale Trends

    The total number of used aircraft listed for sale decreased 1.6%, although this comprised a larger overall fleet size by virtue of the increase in tracked models. Total tracked inventory decreased 35 units with individual group figures breaking down as follows:

    • Large Jet inventory: Increased 0.9% (+4 units since December 2019)
    • Medium Jet inventory: Decreased 7.0% (+46)
    • Small Jet Inventory: Increased 5.9% (+38) and
    • Turboprop inventory: Decreased 6.9% (+31)

    January’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased 1% to post a 12-month low figure in January. Individual results were as follows:

    • Large Jets: Increased (worsened) by 2%, based on January’s expanded fleet mix;
    • Medium Jets: Maintenance Exposure improved (decreased) 1.7%;
    • Small Jets: Worsened by increasing 6.5% due, in part, to the new fleet mix;
    • Turboprops: Improved by 10.5% as a result of the new models added in January.

    January’s ETP Ratio Trend

    The latest fleet mix increased (worsened) the average ETP Ratio to 72%, from December’s 64.8%, but Turboprops posted a respectable improvement (decrease).

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increase, in many cases by more than 30%.

    During Q4 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (215 versus 395 DoM). How did each group fare during January?

    • Turboprops held the top (best) spot by a wide margin posting the lowest ETP Ratio, 42.6% (a 12-month low/best figure for this group and a substantive improvement on December’s 52.1%);
    • Large Jets held on to second place, but the 70.7% Ratio represented the group’s record high (worst) figure;
    • Small Jets captured third position but worsened from December’s 67.3% to 76.8%;
    • Medium Jets took last place while posting the group’s record low (worst) figure of 87.4% compared to December’s 75.5%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during January 2020.

    Most Improved Models

    Four of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement), while the Hawker 1000A and the Falcon 900 experienced a Maintenance Exposure increase. Excepting the Citation VI, which had no Ask Price change, the remaining five models experienced price increases as follows:

    • Hawker 1000A $264,250
    • Beech King Air C90 $17,714
    • Cessna Citation ISP $14,409
    • Gulfstream GIV $189,141
    • Dassault Falcon 900 $1,700,000

    Asset Insight Most Improved Aircraft - January 2020

     

    Hawker 1000A

    The Hawker 1000A captured top spot on the ‘Most Improved’ list, following its third place showing on December’s list after occupying the ‘Most Deteriorated’ slot in November. No transactions were posted for January, but two transactions were confirmed for December after we closed out that month.

    There were nine assets listed for sale at the end of January, equating to 22.5% of the active fleet. The model earned its top spot via a 17.6% ETP Ratio improvement thanks to a Maintenance Exposure decrease approaching $13k, along with a substantial Ask Price ‘increase’, but only because the two least expensive aircraft were the ones that changed ownership.

    Seller Advice: With current listings averaging an Ask Price 53% higher than December’s average trading value, along with an average ETP Ratio of 91.4%, sellers should carefully consider offers that, on first blush, may appear to be low.

    Cessna Citation VI

    The Citation VI took second place on January’s ‘Most Improved’ list thanks to a Maintenance Exposure decrease exceeding $170k that played well with no change in the model’s Ask Price.

    One aircraft transacted in January, and the seven inventory units amount to 20% of the active fleet for sale. With an ETP Ratio exceeding 115%, sellers need to be sure before turning down any offers. Buyers are likely to be few and far between.

    Beechcraft King Air C90

    This model posted four transactions in January and 43 units remained for sale (10.8% of the active fleet). The King Air C90 joined the Most Improved list due to a 14.5% ETP Ratio improvement, and this was thanks to a Maintenance Exposure reduction approaching $53k and an Ask Price increase.

    Although the C90 fleet is between 38 and 49 years of age, this aircraft continues to enjoy a decent following. Its current ETP Ratio of 113.2% will create difficult decisions for some sellers, but there is sufficient market interest for most owners to find buyers, assuming they are realistic about the market’s view of their asset’s value.

    Cessna Citation ISP

    The Citation ISP found itself in this same position in November, and was on the ‘Most Deteriorated’ list in December. The 13.1% ETP Ratio improvement resulted from a near $66k decrease in Maintenance Exposure, along with an Ask Price increase exceeding $14k.

    Four transactions were posted in January, but 55 units were listed for sale at the end of the month (19.6% of the active fleet). The model’s current 94.3% ETP Ratio places buyers squarely in the driving seat.

    Gulfstream GIV

    Two aircraft joined the ‘for sale’ fleet in January, and with no transactions being posted, inventory rose to 25 units (14.3% of the active fleet). The model has demonstrated resilience over the past few years and earned its place on this list by virtue of an $18k Maintenance Exposure decrease along with an Ask Price increase exceeding $189k.

    However, at 27 to 34 years of age, and carrying an ETP Ratio of 131.5%, one wonders how much longer GIV aircraft that are not covered by an engine Hourly Cost Maintenance Program will be truly marketable.

    Dassault Falcon 900

    The final model joined this month’s ‘Most Improved’ list on technical grounds and proved, yet again, why small fleets can create misleading statistics. No Falcon 900s transacted in January, the lone December inventory aircraft was withdrawn, and two other units entered the for-sale fleet.

    These changes led to a $338k Maintenance Exposure increase, but a whopping $1.7m Ask Price increase helped secure a place for the Falcon 900 on the list. The problem is, the latest listings are priced over 60% higher than the withdrawn aircraft, making the Ask Pricing difficult to achieve while also artificially enhancing the group’s ETP Ratio.

    Hope is never a well-founded strategy.

    Most Deteriorated Models

    All six models on January’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Cessna Citation II and the Gulfstream GV posted an Ask Price increase of $5,504 and $249,167, respectively. The remaining models registered the following decreases:

    • Hawker 800A   -$64,968
    • Bombardier Global Express -$426,250
    • Piaggio P-180   -$58,696
    • Dassault Falcon 900B -$367,500

    Asset Insight Most Deteriorated Aircraft - January 2020

     

    Hawker 800A

    January’s ‘Most Deteriorated’ model posted no transactions during the month, and the 33 units listed for sale accounted for 14.3% of the active fleet. To achieve its position on this list, the Hawker 800A posted a Maintenance Exposure increase approaching $149k, and an Ask Price reduction approaching $65k.

    With a listed fleet ETP Ratio of 191%, any seller whose aircraft engines are not enrolled on an Hourly Cost Maintenance Program is likely to keep flying their aircraft until it reaches the salvage yard.

    Cessna Citation II

    The Citation II was second-best on the ‘Most Improved’ list in December, so how did it get here one month on? A Maintenance Exposure increase exceeding $93k was the primary culprit, but its problems do not stop there.

    Two units transacted in January, one was withdrawn from inventory, and five more aircraft joined the fleet to offer buyers a selection of 95 assets (18.5% of the active fleet) sporting an ETP Ratio of 108.8%.

    Seller Advice: If an offer comes your way, consider it a gift no matter how small!

    Bombardier Global Express

    This model occupied top spot on our ‘Most Improved’ list last month, but inventory changes through additions and withdrawals increased Maintenance Exposure over $1.1m, and an Ask Price reduction exceeding $426k certainly didn’t help.

    On a positive note, the model’s 13 listings equate to only 9% of the active fleet, and its ETP Ratio of 68.8% will make many of these aircraft quite marketable, especially if they are enrolled on an engine Hourly Cost Maintenance Program.

    Note: As we pointed out last month, the Bombardier Global Express still has plenty of financial and operating life remaining, along with a strong following. For this reason, many current and potential owners are considering upgrading their asset utilizing the JANUS Modernization Program, a decision that could add substantial value to the aircraft while making it virtually indistinguishable from a new production unit, particularly with respect to passenger amenities.

    Piaggio P-180

    The market has not been kind to this model, which is unfortunate considering its cabin size, low interior noise level, and speed for a turboprop. No transactions were reported in January, while the three additions to inventory increased buyer selection to 14 units, or 16.7% of the active fleet.

    The aircraft’s 115.9% ETP Ratio, created through a Maintenance Exposure increase approaching $75k and an Ask Price drop of nearly $59k, is undoubtedly challenging sellers. Buyers are firmly in the driving seat here as well.

    Dassault Falcon 900B

    One aircraft transacted in January and two were withdrawn from inventory, leaving 12 units listed for sale (8% of the active fleet). Unfortunately, those inventory changes increased Maintenance Exposure by nearly $247k, while Ask Price fell approximately $368k, landing the model on this list.

    With an ETP Ratio of 45%, most of these aircraft are infinitely marketable, especially if their engines are enrolled on HCMP.

    Gulfstream GV

    Even though the GV posted an Ask Price increase in January, the model could not overcome a Maintenance Exposure increase approaching $1.1m, created through the withdrawal from inventory of two assets and no sales transactions. The GV thereby found its way to this list after occupying sixth place on the ‘Most Improved’ group in December.

    With only 12 units listed for sale (6.3% of the active fleet), an ETP Ratio averaging 41.4%, the aircraft’s superb operating capabilities, and the market following for this model, most sellers should have the ability to extract good value from the sale of their asset.

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.

    This report was originally published by AvBuyer on February 17, 2020.

  • Tracey Cheek posted an article
    Over and Above - Hourly Cost Maintenance Programs Offer Unexpected Benefits see more

    NAFA member, Anthony Kioussis, President of Asset Insight, LLC, discusses the benefits of Hourly Cost Maintenance Programs.

    As OEMs sought to expand aircraft deliveries to Business and General Aviation (B&GA) during the early ’80s, they encountered two hurdles. One was the perceived, if not real, inability of certain engines to achieve their published maintenance intervals, thereby increasing operating costs. The other was operator perception that certain airframes and engines were more expensive to maintain than advertised.

    To address both concerns, numerous OEMs modified offerings already available to the airlines, and Hourly Cost Maintenance Programs (HCMP) were born. Initially viewed as expensive, the idea of “guaranteed operating costs” soon was embraced by B&GA operators. And once lenders and lessors began relying on their value to securitize their assets, HCMP coverage became an industry staple.

    Today, aircraft owners routinely experience enhanced value when their Program-enrolled aircraft is sold. In fact, not enrolling some models on HCMP may result in a valuation reduction to the aircraft, since the majority of certain models are so enrolled. However, some new and used aircraft buyers may not consider that HCMP offers benefits over and above the value increase to the aircraft. These are quantifiable and can provide value directly to the owner. For example:

    • Additional Coverage While Under Warranty – Certain “related expenses” are not covered by warranty, such as the cost for shipping the affected component to the maintenance facility, shipping a rental component to the aircraft, installing the component, the cost of the rental component during the repair period, removing the rental part once the original component has been repaired, return shipping for the rental, shipping cost to the maintenance facility for the original component, and logistical support associated with these tasks – including the cost to transport and house personnel at an unscheduled maintenance event site. That is not to say the warranty is not valuable, but its coverage often is limited to the cost of repairing the affected component.
    • Exposure at Resale – Depending on market conditions, an owner may choose to pay to enroll an uncovered aircraft on HCMP rather than having to discount its sale price in excess of that enrollment fee. While incurring the expense at the time of sale, they have enjoyed none of the HCMP coverage benefits.
    • Days on Market – Detailed analytics from resale organizations show that an in-service aircraft will take longer to sell absent HCMP coverage. This could mean a substantial loss in value as aircraft are depreciating assets.
    • Rental Component Expense – Many owners fail to account for the true cost of rental components, the potential difference in their travel experience when chartering aircraft, the total cost of charters during their asset’s downtime, and storage as well as other fees for their grounded aircraft.
    • Freight and Shipping Charges – The cost to ship “Aircraft on Ground” parts, and the freight charges and logistical challenges to transport a component from wherever the event occurred to the service facility, as well as the cost to ship a rental component to the site of the maintenance event, should not be underestimated.
    • Financing Benefits – Each aircraft financing entity has its own way of valuing Hourly Cost Maintenance Programs, so it’s difficult to determine the exact value that any one financier may place on HCMP coverage. However, the savings differential over the term of a loan or lease could be substantial.

    In addition to the OEMs, HCMP coverage is available from independent sources. Their advantage is the ability to cover components produced by more than one OEM, making them a one-stop-shop. However, some firms may not be acceptable to financing entities, may not offer coverage equivalent to the OEM, and their program may not be transferable – making its value questionable.

    Hourly Cost Maintenance Programs are by no means free, but the additional value they can provide to the aircraft’s owner, can make them a wise investment. 

    This article was originally published by Business Aviation Advisor on January 1, 2020.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – December 2019 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the December 2019 Used Aircraft Maintenance Analysis.  

    Average Ask Price for aircraft in Asset Insight’s tracked fleet decreased 0.7% in December, but value changes varied substantively based on model size. Which models were impacted the most? 

    During December, the number of inventory aircraft comprising Asset Insight’s tracked fleet of 96 fixed-wing models decreased 1.6% to 1,748 units.

    Asset quality improved 0.2% during the month, but worsened overall during Q4 by the same amount, and by 1.8% during the calendar year. Still, at 5.206, the ‘for sale’ fleet’s Quality Rating remained within the ‘Very Good’ range on Asset Insight’s scale of -2.5 to 10

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the best (lowest) figure for 2019 during December at $1.345m, equating to an improvement of 1% for the month, 0.9% for Q4, and 4.9% year-over-year.

    December’s Aircraft Value Trends

    Asset Insight’s tracked fleet closed out 2019 by losing an additional 0.7% of asset value in December and, even though pricing increased 0.8% during Q4, the average aircraft in our tracked fleet lost 3.1% of its value year-over-year. Group performance varied as follows:

      December 2019 Q4 2019 Since December 2018
    Large Jets -1.2% -1.6% -9.1%
    Medium Jets -3.0% 0.4% 11.0%
    Small Jets -2.9% -1.8% -5.7%
    Turboprops 2.0% 4.7% -2.2%

     

    December’s Fleet for Sale Trends

    The total number of used aircraft listed for sale within Asset Insight’s tracked fleet decreased 1.6% following six consecutive monthly increases, reducing inventory by 28 units during the December transaction frenzy while resulting in an increase in ‘for sale’ fleet of 9.9% during 2019 (157 units).

    All four groups ended the year with higher availability:

    • Large Jet inventory: Unchanged for the month, and up 8.7% year-over-year (30 units);
    • Medium Jet inventory: Decreased 1.7% (nine units) in December, but gained 9.8% (48 units) during 2019;
    • Small Jet Inventory: Receded an additional 2.8% (16 units) in December, but gained 15.4% (73 units) throughout the year; and
    • Turboprop inventory: Decreased 1% (three units) for the month while increasing 2.1% (six units) since December 2018.

    December’s Maintenance Exposure Trends

    Graphically, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) traveled a sawtooth journey in 2019. It improved 1% in December (to post the year’s best figure); 0.9% during Q4; and 4.9% for the calendar year. Individual results were as follows…

    • Large Jets: Posted their lowest (best) maintenance exposure of 2019 during the month of December through a 2% decrease (improvement) for the month, along with a decrease of 3.6% during Q4, and a 15% year-over-year improvement;
    • Medium Jet: Exposure improved (decreased) 1.1% in December, but worsened 2.7% during Q4 and 6.9% since the start of 2019;
    • Small Jets: Suffered a couple of costly spikes during the year, but fell (improved) by 1.4% in December, 1.9% during Q4, and 3.5% for the year;
    • Turboprops: Maintenance exposure improved a bit during Q4, decreasing 4.2% (with 0.8% coming in December), but lost ground for the year by increasing (worsening) over 4.8% since last December.

    December’s ETP Ratio Trend

    The latest fleet mix increased (worsened) the average ETP Ratio slightly to 64.8%, from November’s 64.3%. While the year ranged from a low of 63.6% up to 70.9%, the tracked fleet posted the same figure in January 2019 as it did in December 2019.

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increase, in many cases by more than 30%.

    During Q4 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (215 versus 395 DoM). How did each group fare during December?

    • Turboprops recaptured the top (best) spot with the lowest ETP Ratio, 52.1% (compared to November’s 54.1% and December 2018’s 51.1%);
    • Large Jets moved down into second place with a Ratio of 55.1% (versus November’s 53.9% and December 2018’s 58.8%;
    • Small Jets captured third position by remaining unchanged for the month at 67.3%. But the group’s figure increased a bit from December 2018’s 66.4%;
    • Medium Jets took last place at 75.5% (compared to November’s 73.6% and December 2018’s 77.8%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during December 2019.

     

    Asset Insight - Most Improved Business Jets and Turboprops (December 2019)

     

    Most Improved Models

    Five of the ‘Most Improved’ models revealed a Maintenance Exposure decrease (improvement), while the King Air 300’s Exposure increased. Two aircraft – the Bombardier Global Express and Gulfstream GV – posted no price change, while the Cessna Citation II posted a price decrease of $4,596. The remaining three models experienced price increases as follows:

    • Hawker 1000A  $88,000
    • Beech King Air 300  $219,090
    • Bombardier Learjet 45XR $292,500

     

    Bombardier Global Express

    The Bombardier Global Express captured top spot on the ‘Most Improved’ list as a single sale, an aircraft’s withdrawal from inventory and two additions to the ‘for sale’ fleet lowered the group’s Maintenance Exposure by nearly $1.6m.

    The 14 listed aircraft represent 10.3% of the active fleet and, while that percentage may be a little high, many of those aircraft are enrolled on an engine Hourly Cost Maintenance Program (HCMP) that should bring the 55.1% ETP Ratio to below 40% once adjusted for HCMP coverage.

    Note: The Bombardier Global Express still has plenty of financial and operating life remaining, along with a strong following. For this reason, many current and potential owners are considering upgrading their asset utilizing the JANUS Modernization Program, a decision that could add substantial value to the aircraft while making it virtually indistinguishable from a new production unit, particularly with respect to passenger amenities. Some owners are also contemplating upgrading their avionics suite.

     

    Cessna Citation II

    The Cessna Citation II placed second on November’s ‘Most Improved’ list and earned the same position in December thanks to a Maintenance Exposure decrease approaching $97k (even though its Ask Price actually dropped in December).

    Two aircraft transacted in December, two were withdrawn from inventory, while two more entered the ‘for sale’ pool. The 93 units currently available represent 18.5% of an aging fleet, and the model’s near 94% ETP Ratio make this a potential ‘buy it to keep it’ asset for prospective owners.

     

    Hawker 1000A

    The Hawker 1000A moved from occupying the ‘Most Deteriorated’ position in November, to third best on the ‘Most Improved’ list in December thanks to a Maintenance Exposure decrease exceeding $30k and a respectable Ask Price increase by virtue of a single repriced inventory aircraft.

    The seller’s repriced unit perhaps notwithstanding, this model’s ETP Ratio suggests that the average buyer should count on incurring Maintenance Exposure equivalent to the price of the aircraft they’re purchasing, and that’s not the type of asset sought by most buyers, especially a model sporting a limited production run.

    Seller Advice: Consider any offer that comes your way. Another proposal may not come any time soon.

     

    Beechcraft King Air 300

    Two aircraft transacted in December, but three more entered inventory raising availability to 18 units, approximately 8% of the active fleet. The King Air 300 made this list primarily due to an Ask Price increase exceeding $219k that overrode a Maintenance Exposure increase exceeding $11k.

    With few such models enrolled on engine HCMP, the King Air 300’s 54.8% ETP Ratio might require some sellers to accept a lower price than they’d like. However, even an ETP Ratio slightly above 40% should not be a serious impediment to mutually beneficial transactions, in view of the model’s fan base.

     

    Bombardier Learjet 45XR

    Three sales and one lease were completed in December, but with four additions to inventory the number of units for sale remained at 18, representing 8.8% of the active fleet.

    The model’s ETP Ratio of 33.7% makes this aircraft readily marketable, especially if the asset’s engines are covered by HCMP. Whether the Ask Price increase can be supported remains to be seen.

     

    Gulfstream GV

    The final model on this month’s ‘Most Improved’ list experienced no average Ask Price change in December, but a single transaction and two additions to inventory lowered the average Maintenance Exposure by more than $658k.

    The 14 inventory units equate to 7.3% of the active fleet for sale. With an ETP Ratio of 31.5%, and with more than half of this fleet enrolled on engine HCMPs, sellers of HCMP-covered assets should experience less trouble securing an acceptable offer than the current 260 Days on Market would suggest.

    Asset Insight - Most Deteriorated Business Jets and Turboprops (December 2019)

     

    Most Deteriorated Models

    Five of the six models on December’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase, while the Dassault Falcon 50 posted a decrease. The Bombardier Learjet 55C posted no Ask Price change; the Challenger 601-3R Ask Price rose by $50,000; and the remaining models registered the following decreases:

    • Dassault Falcon 50  -$185,909
    • Cessna Citation ISP  -$38,461
    • Dassault Falcon 900EX -$316,667
    • Bombardier Learjet 35A -$1,455

     

    Bombardier Learjet 55C

    December’s ‘Most Deteriorated’ model posted no transactions in December, and only two inventory aircraft remained after one of the ‘for sale’ units was withdrawn. The Learjet 55C’s Maintenance Exposure increase exceeded $189k that, along with no Ask Price change, earned the jet its position on this list.

    This Learjet’s problem is two-fold: First, it’s an aging asset with limited market following. Second, with an ETP Ratio approaching 109%, buyer offers are unlikely to be appealing for sellers.

     

    Dassault Falcon 50

    The second ‘Most Deteriorated’ asset to make this list registered two transactions in December, two aircraft were withdrawn from inventory, three were added to the ‘for sale’ fleet, and the 30-unit availability equated to 15.7% of the active fleet.

    The model earned its spot on this list through a Maintenance Exposure increase approaching $16k, along with an Ask Price decrease approaching $186k that combined to create an ETP Ratio approaching 126%.

    Considering the aircraft’s age, the only surprise is the model’s relatively short remarketing period of approximately six months, which speaks to the aircraft’s operating capabilities that continue to create followers.

     

    Bombardier Challenger 601-3R

    Those of you following these monthly reviews may recall that this aircraft led all models on November’s ‘Most Improved’ list. How quickly an asset’s fortune changes as it approaches financial obsolescence.

    One asset sold in December, but two more entered inventory and the six available units represented 9.8% of the active fleet. That statistic is not the problem. The 601-3R’s ETP Ratio of 125% (created by a Maintenance Exposure increase nearing $394k, and the fleet’s age) are this asset’s greatest challenges.

     

    Cessna Citation ISP

    As we closed out December, there were 53 Citation ISP units listed for sale (19.3% of the active fleet). With this level of competition, singling out their aircraft’s value is a serious challenge for sellers. Nevertheless, some were able to do so and four sold in December.

    Unfortunately, two other units entered the fleet, and the change in availability resulted in a Maintenance Exposure increase exceeding $17k, along with an Ask Price drop of more than $38k. The model’s ETP Ratio (which now exceeds 107%) makes this a buyer’s paradise, assuming they’re willing to risk becoming the aircraft’s final owner.

     

    Dassault Falcon 900EX

    This model earned its place on the ‘Most Deteriorated’ list for technical reasons. Its ETP Ratio of 34.9% should cause few challenges for sellers who understand their aircraft’s value relative to comparable assets listed for sale.

    Three aircraft transacted in December and one new asset joined the inventory. The seven available units equate to only 5.9% of the active fleet.

    The technical figures creating the model’s ETP Ratio deterioration were a Maintenance Exposure increase approaching $479k, along with an Ask Price decrease of nearly $317k (thanks to the latest entry to inventory). These aircraft continue to be financially and operationally viable assets.

     

    Bombardier Learjet 35A

    This is yet another example of a model nearing financial, and probably operational, obsolescence. And yet one aircraft sold during December (and another was withdrawn from inventory), leaving 43 units, or 10.1% of the active fleet, listed for sale.

    When a model offers this much selection to buyers, along with an ETP Ratio exceeding 181%, complements of a Maintenance Exposure increase nearing $46k and a nominal Ask Price decrease, sellers are at a severe disadvantage. The one thing buyers should ensure they consider is if they truly wish to own an asset of this age.

     

    ADS-B Equipage and Values

    The new year could result in some dramatic price decreases for older aircraft that have not met the January 2020 ADS-B equipage mandate. While we do not believe non-equipped turbine assets will be ‘worthless’, their values will be negatively impacted.

    For aging assets, especially those with little time left before their recommended engine overhaul point, Salvage Value is a very real possibility, although actual transaction figures will be the true determinant.

     

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure

    This article was originally published by AvBuyer on January 10, 2020.

  • Tracey Cheek posted an article
    Vinci Aeronautica Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

    EDGEWATER, Md.Feb. 13, 2018 - National Aircraft Finance Association (NAFA) is pleased to announce that Vinci Aeronatucia has recently joined its professional network of aviation lenders. “NAFA members proudly finance - support or enable the financing of - general and business aviation aircraft throughout the world, and we’re happy to add Vinci to our association,” said Ford von Weise, President of NAFA.

    Vinci Aeronautica specialists have more than 20 years of experience in the aviation industry, providing aircraft recurrent, pre-buy, redelivery and compliance inspections services for the finance and legal sectors. The company has an extensive background in maintenance management, operations, finance, regulatory compliance and sales/purchases of aircraft. The Vinci team works with the Civil Aviation Authority and several air operators to provide focused and tailored services to their valued clients. 

    With experienced inspectors, Vinci has carried out more than 2000 inspections ofa wide variety of aircraft – both fixed and rotary wings– and assisted numerous air companies – both large and small. The company has also trained and worked with many authorities worldwide, gaining significant knowledge and expertise with different compliance systems, including EASA and FAA systems.

    Vinci Aeronautica prides itself on having a global reach while providing local knowledge. Their inspectors and audit teams are fluent in English, Spanish, Portuguese and French, forming the biggest dedicated aircraft inspection company in Latin America. They are a team of highly specialized professionals with formal training on aviation rulemaking and a strong technical background. Along with the company’s proprietary asset management system, Vinci has the experience, knowledge and technology to take the utmost care of their clients’ assets.

    Much like NAFA, Vinci Aeronautica is committed to providing the highest level of service in the aviation industry. Vinci and NAFA establish strong business relationships worldwide, fostering a network of knowledgeable aviation professionals.

    For more information about Vinci Aeronautica, visit vinciaero.com.  

    About NAFA: 

    The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – June 2019 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the June 2019 Used Aircraft Maintenance Analysis.

    Average Ask Prices for Asset Insight’s tracked fleet decreased in June to just above the 12-month low figure while asset availability rose near to April’s YTD high. Tony Kioussis explores which models were impacted most.

    Asset Insight’s June 30, 2019 market analysis covering 96 fixed-wing models and 1,680 aircraft listed for sale, revealed a Quality Rating only slightly better than the 12-month worst figure, but remained within the ‘Very Good’ range after decreasing from 5.212 to 5.196 on a scale of -2.5 to 10.

    At the same time, our tracked fleet’s Maintenance Exposure figure (an aircraft’s accumulated/embedded maintenance expense) improved 3.1% last month, and 1.1% for the second quarter of 2019.

    June’s Aircraft Value Trends

    The average Ask Price for Asset Insight’s tracked fleet fell 1.1% in June, as all four groups lost ground:

    • Large Jet values posted a new record low figure, decreasing 5.5% in June and 8% during Q2;
    • Medium Jets lost 1.3% over the last 30 days but registered a 7.5% overall increase during Q2;
    • Small Jet values decreased 1.2% for the month and 1.8% for Q2; and 
    • Turboprops suffered their third consecutive monthly Ask Price decrease, posting a record-low figure with a 1.6% reduction, and a total decrease of 2.4% during Q2.

    June’s Fleet for Sale Trends

    The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased by 27 units in June.

    • Large Jet inventory increased 5.9% (21 units);
    • Medium Jet inventory increased 1.2% (6 units);
    • Small Jets was the only group whose inventory decreased (0.5%, or 3 units); and
    • Turboprops increased 1.2% (3 units).

    June’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for June’s inventory fleet mix improved 3.1%, decreasing to $1.4m from May’s $1.45m. Results for each of the four groups were as follows:

    • Large Jet maintenance exposure rose (worsened) 0.2% to remain just above the 12-month low figure. For Q2 the maintenance exposure improved 7.1%;
    • Medium Jet exposure fell (improved) 4% in June and 1.4% during Q2;
    • Small Jets posted a dramatic 11.4% reduction (improvement), but maintenance exposure ended Q2 6.7% higher;
    • Turboprop maintenance exposure increased (worsened) 2.5% in June and 6.3% during Q2.

    June’s ETP Ratio Trend

    Based on June’s maintenance exposure and ask price changes, the average ETP Ratio figure decreased (improved) to 65.4%% from May’s 69.8%, with all but the Turboprop group contributing to the improvement. Why is this information important…?

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%).

    So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2019 were listed for sale an average 71% longer than aircraft whose Ratio was below 40% (226 days versus 386 days on the market, respectively).

    By comparison, during Q1 2019 aircraft whose ETP Ratio exceeded 40% took 62% longer to sell (237 versus 384 Days on Market).

    How did each group fare during the month of June?

    • For the first time ever, Large Jets posted the lowest (best) ETP Ratio at 52.5% (which was also the group’s 12-month best figure);
    • Turboprops were not in first place for the first time since Asset Insight has been keeping records, due to the group’s all-time highest (worst) ETP Ratio at 56.6%;
    • Small Jets were third with a Ratio of 68.8%; and
    • Medium Jets improved slightly by decreasing to 75.2%.

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual business jet and turboprop models fared the best and worst during June 2019.

    Most Improved Models

    All of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Interestingly, the Bombardier Learjet 31 did not experience an Ask Price change, while the Bombardier Learjet 35A, Cessna Citation ISP and Cessna Citation II experienced decreases of -$46,073, -$1,690 and -$30,399, respectively. Only two models posted price increases. They were:

    • Cessna Citation V Ultra   +$179,385
    • Bombardier Learjet 45 (APU equipped) +$395,875

    Most Improved Business Jets and Turboprops - June 2019

     

    Bombardier Learjet 31

    The Learjet 31 leads our ‘Most Improved’ list after placing second from the bottom on May’s ‘Most Deteriorated’ list. Although no aircraft traded in June, the model captured this spot complements of a Maintenance Exposure decrease (improvement) for the listed fleet that exceeded $226k.

     

    Nevertheless, while only four aircraft (11.5% of the active fleet) are listed for sale, the asset’s 118.6% ETP Ratio holds about the same minimal hope for sellers during the coming months as it did in June.

    Bombardier Learjet 35A

    In terms of a statistical recovery, it doesn’t get much better than the Learjet 35A’s leap from worst on May’s ‘Most Deteriorated’ list to the model’s ranking in June – and it’s all thanks to a Maintenance Exposure decrease exceeding $265k (a figure that overshadowed a substantive ask price decrease).

    One aircraft transacted in June, and two joined the inventory fleet to increase that number to 43. That only represents 8.6% of the active fleet, but the aircraft’s ETP Ratio (170.3%) is unlikely to find buyers for too many sellers.

    Cessna Citation ISP

    Three aircraft transacted in June, three were withdrawn from the market, and three were added to an inventory mix that now totals 53 units (19.9% of the active fleet). The model earned its way onto the ‘Most Improved’ list through a Maintenance Exposure reduction exceeding $131k, and the inventory fleet also posted a slight Ask Price decrease.

    The resulting ETP Ratio – approaching 102% - combined with high availability of this well-aged fleet is unlikely to generate sudden purchasing exuberance.

    Cessna Citation II Private Jet

     

    Cessna Citation II

    From May’s ‘Most Deteriorated’ list to June’s ‘Most Improved’ grouping, the Citation II’s reversal of fortune appears impressive – until you start to peel back the technical onion: No trades occurred during the month of June; the asset’s Ask Price dropped over $30k; 94 aircraft are listed for sale (16.8% of the active fleet); and the ETP Ratio stood at 109.1%, even after a Maintenance Exposure decrease approaching $148k.

    While a 17.7% one-month ETP Ratio decrease technically earned the model a place on this list, it’s unlikely to aid sellers seeking to dispose of a Citation II.

    Seller Advice: Carefully consider all offers, as prospective buyers will be few in number and are unlikely to be negotiation motivated.

    Cessna Citation V Ultra

    Sellers of this model have some opportunities, especially if their aircraft’s engines are enrolled on an Hourly Cost Maintenance Program. No aircraft transactions were posted for the Citation V Ultra in June, but one unit was withdrawn from the inventory and three were added, resulting in 26 aircraft listed for sale (8.4% of the active fleet).

    With the model’s average ETP Ratio falling below 65% by virtue of a Maintenance Exposure decrease exceeding $89k and an Ask Price increase exceeding $179k, both buyers and sellers have an opportunity to structure transactions offering good value.

    Bombardier Learjet 45 (APU-equipped)

    As with three other models on June’s ‘Most Improved’ list, we captured no transactions during the month of June. The 17 aircraft in inventory, when added to listed Learjet 45 units that are not APU-equipped, represent approximately 10.8% of the model’s active fleet.

    With the model experiencing a Maintenance Exposure decrease exceeding $67k, along with a sizeable Ask Price increase, the resulting average ETP Ratio should make many listed units (especially those enrolled on an engine HCMP) quite marketable – assuming a willing buyer can be located.

    Most Deteriorated Models

    All but two models on June’s ‘Most Deteriorated’ list (the Hawker Beechjet 400 and Hawker 800A) experienced a Maintenance Exposure increase (deterioration), and all six asset types posted Ask Price decrease, as follows:

    • Hawker Beechjet 400   -$125,250
    • Gulfstream GIV-SP (MSG3)  -$947,500
    • Cessna Citation V 560  -$7,538
    • Hawker 800A    -$73,714
    • Beechcraft King Air 350 (Pre 2001) -$97,019
    • Beechcraft King Air C90  -$21,228

    Most Deteriorated Business Jets and Turboprops - June 2019

     

    Hawker Beechjet 400

    The model earned the ‘Most Deteriorated’ position for June through a Maintenance Exposure increase exceeding $11k and an Ask Price reduction exceeding $125k. Only four aircraft are presently listed for sale (10.1% of the active fleet), and two aircraft traded during the past 90 days.

    However, at nearly 152%, the model’s ETP Ratio is too high for even engine Hourly Cost Maintenance Program coverage to help much on the valuation front – although it may make the asset slightly more appealing.

    Gulfstream GIV-SP (MSG3)

    We were somewhat surprised to find this model on the ‘Most Deteriorated’ list, but it earned its way here through a $570k Maintenance Exposure increase along with an Ask Price decrease approaching $945k. One aircraft traded in June and the seven remaining in inventory represent only 8.6% of the entire GIV-SP active fleet.

    As we have cautioned in previous reports, whenever a limited number of units are listed for sale, changes to one or two assets can radically alter the view. In this case, only two aircraft are posting an Ask Price and one asset dropped its price by nearly 22% in June.

    This model may be on the ‘Most Deteriorated’ list, but with an ETP Ratio of 60.3%, and with many units enrolled on engine HCMP, many sellers should have the opportunity to entertain reasonable offers.

    Gulfstream GIV-SP Private Jet

     

    Cessna Citation V 560

    Two units transacted in June, and the 27 inventory assets represent 10.2% of the active fleet. The model’s Maintenance Exposure increased nearly $117k in June, while value decreased as a result of two sellers lowering their Ask Price.

    The problem here is the aircraft’s economic usefulness and its ETP Ratio – neither of which is assisting its marketability.

    Hawker 800A

    The single trade we uncovered during the month of June left 40 aircraft listed for sale (16.4% of the active fleet). The model actually posted an almost $33k maintenance exposure decrease in June, but that was overshadowed by an Ask Price decrease of more than twice that magnitude.

    The real problem affecting sellers of these assets is how far prices have fallen leading to the model’s 188.1% ETP Ratio. Since most of this fleet is enrolled on engine HCMP, there few levers (other than price) that sellers can engage to help them compete for the limited number of buyers.

    Beechcraft King Air 350 (Pre 2001)

    The King Air 350 was another model we were surprised to see on this list, especially since its ETP Ratio is 44.4%. However, price reductions to a couple of listed assets, along with a Maintenance Exposure increase approaching $138k earned the asset its recognition.

    Three units traded in June and the 21 aircraft listed for sale now represents 5.3% of the active fleet. Many sellers should be well-positioned to negotiate a decent price, while many buyers will find sufficient selection to maintain the model’s fairly robust trading environment.

    Beechcraft King Air C90

    The story is a little different for the King Air C90, and we recorded no trades for the month of June with one addition to inventory. With 50 aircraft listed for sale (13.1% of the active fleet), buyers hold the stronger hand.

    The King Air C90 earned its spot on this list through a Maintenance Exposure increase approaching $18k and an Ask Price drop exceeding $21k that, combined, raised the model’s ETP Ratio past 124%.

    Considering that we’re dealing with aircraft aged between 37 and 48 years, the ETP Ratio is unsurprising. What is surprising is the sudden deterioration this relatively popular model has experienced.

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on HCMP.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com

    This article was originally published in AvBuyer on July 17, 2019.

  • Tracey Cheek posted an article
    Maintaining Objectivity in a Subjective World see more

    NAFA member Tony Kioussis, President of Asset Insight, discusses an appraiser's function in the valuation of an aircraft.

    We occasionally receive telephone calls that start with (what we call) the famous 4 words: "This can't be right." The caller then proceeds to explain why the figures displayed by eValues, our automated valuation system, do not match their view of the world, and the implied - if not stated - expectation is that we will correct the transgression. Knowing the artificial intelligence program running eValues is not infallible, we try to listen very carefully to ensure we understand the caller's issue. We then point out the objective path that led to our system's conclusion. 

    Most people understand that an automated system looks at everything with complete objectivity, yet some clients cannot help but "feel" that our conclusions are wrong. Feelings are fine. The problem is they provide a subjective viewpoint. Our goal is to minimize the subjectivity to the maximum extent possible, and we have programed eValues to think the same way. Subjectivity is a very slippery slope that an appraiser can follow to an unsupportable conclusion. We know. We have encountered some of these folks during expert witness testimony and their 'feel" did not serve them, or their clients, well. 

    Take, for example, aircraft exterior paint. The Asset Insight Maintenance Rating scale ranges from -2.500 to 10.000, and the rating for new paint objectively depreciates to 0.000 over 7 years. Why? Because in speaking with numerous paint facilities, that has ben the average life expectancy of aircraft paint and styling. The paint on any specific aircraft could (and many times does) exceed 7 years of service, but odds are that a buyer will adjust their offer price for the cost to repaint the aircraft if its paint looks marginal, or if the paint scheme is dated.

    We once had a discussion with an owner who believed his aircraft's paint should be rated at an 8, even though more than 15 years had elapsed since the aircraft was last painted, because the aircraft had been kept in a hangar. Well, the aircraft didn't do any of its flying inside of the hangar, but it certainly experienced the elements that affect paint, such as rain, sleet, hail and UV rays from the sun each time it flew a mission.

    Next is the issue of an aircraft's interior condition. Again, there are those who will rate their aircraft's interior much higher than the 0.000 it achieves when it has aged more than 8 years. The interior's condition could be good, but styles change, and interior colors and schemes become dated. The colors that were prevalent some years ago are probably out of fashion today, and even the TV monitors may need to be replaced with high-definition units. 

    Notice that we are not suggesting that the paint was peeling, the interior fabrics were torn, the leather was worn, or the wood on sidewalls and table-tops was damaged. In fact, the paint and interior may be perfectly acceptable to the current owner and the prospective buyer. However, unless transaction prices allow us to value the asset higher, the only objective basis that intelligence, human or artificial, can rely on is the facts. 

    Another client valuation angst is the market depreciation pace of cockpit and passenger cabin "technology," which is often valued lower than some people "feel" it should be. What many are not considering is the pace of technology obsolescence. Avionics manufacturers, along with cabin communication system OEMs, are introducing new equipment every few years. Considering capability and dependability - not to mention safety - improve with each iteration, values of aircraft not equipped with the latest technology can depreciate more rapidly than "feels" fair. But is that not to be expected? 

    Consider a scenario where you install a new avionics suite after its technology has been available for some time. A couple of months later a more advanced system is introduced, and many aircraft owners adopt it for the make/model aircraft you operate. While perhaps unfair, sellers of these newly-equipped aircraft are likely to expect more (and buyers are likely to pay more) for those assets, at the expense of aircraft equipped with your less capable system.

    One item with the potential to dramatically alter an aircraft’s value is Hourly Cost Maintenance Program (HCMP) enrollment, and the amount of value change can be influenced by several factors, and the specific level of coverage the program provides is certainly an important one. More than one level of coverage is often made available by the OEM, and there are independent companies offering such programs with differing levels of coverage. Another important factor is a program’s transferability. If it cannot be transferred at time of sale, the program holds no value for the purchaser.

    However, the primary HCMP value driver is the actual differential between what buyers are willing to pay, by make/model, for aircraft enrolled on HCMP compared to those not enrolled on a program. Also, if only 20% of your make/model fleet is enrolled on a program, don’t expect the value increase to be dramatic. On the other hand, if 80% of your make/model fleet is enrolled on a program and your aircraft is not, expect a value deduction on your asset. Why? Because your aircraft’s specification relative to HCMP coverage is clearly not preferred by most buyers. You may find a buyer who does not wish to acquire a HCMP-covered aircraft, just like you may find a buyer willing to acquire an aircraft sporting an outlandish paint scheme. However, rest assured, if they are an experienced buyer, their offer will more than likely reflect your asset’s HCMP coverage status.

    By way of seeking an increase in their aircraft’s valuation, some HCMP-covered aircraft owners point to the higher Ask Prices often sought by sellers whose aircraft are enrolled on a specific level of HCMP coverage. Regrettably, higher Ask Prices do not always translate into higher Transaction Values – the only relevant figure when it comes to valuing an aircraft.

    Lastly, maintenance condition can be a serious value driver – particularly following a major airframe inspection or engine work. While some owners “feel” that an aircraft’s valuation should increase by an amount equal to the average cost of a major maintenance event, that is usually not possible. In fact, the value applied to maintenance events will decrease over time, as will the value applied to the other items mentioned in this article, including HCMP coverage.

    As an aircraft ages, there will come a time when an engine overhaul, or even a major airframe inspection, will be more expensive than the aircraft market value. The asset’s owner may elect to invest $1 million for a double-engine overhaul, and prospective buyers may become preferentially fond of this aircraft, but that does not mean a “willing buyer” will be found who will pay $1 million above the $300k to $400k transaction price range achieved by aircraft of this make/model.

    Individually, most of these items are likely to have a negligible effect on an aircraft’s value – excepting HCMP coverage. As a group, however, even if only some of them are misinterpreted or computed by “feel,” the consequences can be an illogical and erroneous conclusion.

    An appraiser’s function is to provide “an opinion of value.” Thus, valuing an aircraft higher or lower for some specific reason is well within their job description, and their purview. At Asset Insight, when computing a figure (except in the case of an eValues calculation), we try to ensure that “reason” is based on objective factors to the maximum degree possible, just in case we’re asked to support our conclusion through expert witness testimony.

    This article was originally published in Professional Pilot Magazine, May 2019, p. 14

  • Tracey Cheek posted an article
    Aircraft Maintenance: Three Money-Saving Tips see more

    NAFA member, Mike Saathoff, Director of Sales Operations & Engine and Accessory Sales with Elliott Aviation, shares three money-saving aircraft maintenance tips.

    At a busy time of limited capacity for the aircraft maintenance industry, how does a business jet operator keep its maintenance costs down? Elliott Aviation’s Mike Saathoff offers three cost-saving tips…

    The current aircraft maintenance market can create a tough environment for customers trying to schedule maintenance items.

    From the supply side, the industry as a whole faces declining workforce availability. From a demand perspective, the market economy has driven flight hours up, which has increased the amount of aircraft maintenance needed.

    The demand is further exacerbated by the upcoming mandate for operators to equip with ADS-B and an economy-driven upturn in discretionary spending, putting more capital toward major modifications and large-scope paint and interior upgrades.

    In this market shortage, however, there are a few things you can do to make sure that you can save, over the longer-term, on your aircraft maintenance costs. Following is our top three…

    1. Plan Ahead

    In the environment we’ve just outlined, and with demand at a premium, most top-tier maintenance facilities have a backlog of at least six to 10 weeks. Talk through your event with your maintenance provider and book your slots early.

    The increase in demand for maintenance, combined with the limited supply of facilities likely means that the sales team has a large backlog of quotes, so it could take longer than expected to receive your quote.

    ADS-B installations are not anticipated to slow until mid-2020, based on projections of the remaining non-compliant aircraft paired with the industry’s capacity to complete them, and the majority of aircraft owners are doing their ADS-B upgrades in conjunction with a major maintenance event.

    Properly planning your maintenance events can also help you to take full advantage of your downtime and avoid having to return to the shop for small items.

    In addition to your planned maintenance event, a reputable maintenance provider should go over any other items that could be coming due in the next six months, as well as common discrepancies found on your aircraft.

    When forecasting your maintenance event it is recommended that you plan as far in advance as possible. This includes developing a full understanding of your upcoming events, including utilizing a maintenance-due/forecasting list such as a Corporate Aircraft Maintenance Planning (CAMP) due list.

    2. Understanding Your Requirements

    Understanding how your aircraft is utilized and what items are required for your category can help you plan maintenance events. For instance, depending on how many hours you fly you could be categorized as ‘light utilization’, which could mean you qualify for a less-stringent maintenance plan.

    Pay close attention to the terms and conditions of any warranty or power-by-the-hour programs to fully understand what they cover.

    The other major issue that could impact your requirements is the difference between Part 91 and Part 135 operators. Part 91 operators are only personally flying their aircraft, and the mandatory maintenance requirements can be less. As operators providing charter flights, Part 135 operators have increased requirements and increased need.

    As an example, a particular Part 135 operation specification may dictate additional requirements, such as compliance with an OEM’s Service Bulletins (SB) where those same SBs might be optional for Part 91 operators.

    3. Maintenance Facility

    Selecting the right service center for your aircraft can be a critical component to save you long-term costs. Shopping each maintenance event can lead to inefficiencies and a frustrating experience.

    In some cases, selecting a facility that may appear to save you money could only be doing so in the short-term.

    For instance, if a shop is only doing the minimum to win an upcoming event, you could experience many unexpected discrepancies – particularly during your next major inspection – which can come as a frustrating surprise to customers, who may have believed their aircraft was being maintained well when, in reality, items that could have saved long-term costs were being overlooked.

    Moreover, a facility’s reputation during an aircraft transaction logbook review can also help maximize an aircraft’s selling price.

    In Summary…

    Ultimately, the above three points should help operators see the part they play in keeping maintenance costs as close to expected as possible. At this busy time for the maintenance industry, taking the time to build proactive relationships is as important as ever.

    A proactive operator will identify and build relationships with their maintenance shop, working alongside them to identify and schedule maintenance needs, in many cases before they arise.

    More information from www.elliottaviation.com.

    This article was originally published in AvBuyer on November 9, 2018.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – October 2018 see more

    NAFA member, Tony Kioussis, President of Asset Insight, discusses which models were the big movers and shakers in October’s used aircraft marketplace. 

    With inventory asset quality at a 12-month high, and maintenance exposure at a near 12-month best, it would be difficult to conceive a better environment for aircraft trades. So which models were the big movers and shakers in October’s used aircraft marketplace?

    Asset Insight’s market analysis on October 31, 2018 covering 93 fixed-wing models and 1,589 aircraft listed for sale revealed an Ask Price increase of 3.4%.

    • Large Jet values improved 5.3%, and prices are now up nearly 12% since December 2017;
    • Medium Jets lost 1.5%, and are now down 16.4% since December 2017;
    • Small Jet values gained 7% to post a 12-month high and a 7.5% gain in 2018;
    • Turboprops remained virtually unchanged, having lost 2.3% this year.

    The total number of used aircraft listed for sale for Asset Insight’s tracked fleet increased 2.3% (36 units). Large Jet inventory did not change, Medium Jet inventory increased 3.7% (18 units) and Small Jet inventories increased 5.5% (25 units). Turboprop inventory was the only one to experience a reduction, 2.4%, equating to seven aircraft.

    As the inventory fleet’s upcoming maintenance events are expected to be less expensive, average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) slightly, nearly matching the 12-month best figure.

    • Large Jets increased (worsened) 0.5% as younger, higher-quality aircraft transacted;
    • Medium Jet transactions were of mixed asset quality, causing Maintenance Exposure to increase 1.3%;
    • Small Jet trades and fleet additions helped improve (decrease) Maintenance Exposure 1.1%;
    • Turboprops (possibly due to seller pricing concessions) helped improve the group’s Maintenance Exposure 5.9% to a 12-month best (lowest) figure.

    All this led to a Maintenance Exposure to Price (ETP) Ratio decrease (improvement) of 3% during October that, at 65.1%, was slightly better than the average figure for the past 12 months. Why is this information important?

    ETP Ratios Explained…

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price. As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price).

    ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%).

    So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2018 were listed for sale an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively), while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 34% longer to sell (280 versus 374 Days on Market).

    • Turboprops continued to post the lowest (best) ETP Ratio at 49.1%, reflecting a 7% improvement during the past 90 days;
    • Large Jets followed with 62.7%, a 2.3% improvement from last month but still 10.6% higher for the year;
    • With an impressive 18.7% reduction during September, and an additional 7.2% improvement in October (the group’s best figure during the past 12 months), Small Jet ETP Ratio has improved nearly 21% this year;
    • Medium Jets improved slightly in October, but the group’s ETP Ratio, at 77.5%, reflects a 19% increase during 2018 and quantifies the challenges faced by sellers within this highly competitive market sector.

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in October 2018…

    Most Improved Models

    All of the ‘Most Improved Models’ experienced a Maintenance Exposure reduction (improvement). The Gulfstream GIV-SP (MSG-3) and Bombardier Learjet 45 experienced an Ask Price reduction of $77,000 and $72,000, respectively, while the remaining models posted the following price increases:

    • Bombardier Learjet 35A (+$16,400)
    • Hawker Beechjet 400A (+$17,815)
    • Beechcraft King Air 350 Pre-2001 (+$1,071)
    • Embraer Legacy 600 (+$1,566,667)
       

    Most Improved Business Aircraft in October


    Gulfstream GIV-SP (MSG-3)

    Three retail transactions and two additions to the inventory fleet led to the model posting a near $778k Maintenance Exposure reduction (improvement) that overtook (by a factor of ten) an Ask Price decrease to earn top honor among the Most Improved models in October.

    With only 3.6% of the active fleet listed for sale, aircraft with engines enrolled on an Hourly Cost Maintenance Program (HCMP) could easily generate an HCMP-adjusted ETP Ratio below the 40% mark, improving their selling environment.

    Bombardier Learjet 35A

    The Bombardier Learjet 35A made this list for a second consecutive month by virtue of a $60k Maintenance Exposure reduction and an increased Ask Price.

    Actually achieving the price increase may be the real challenge, judging by the two October transaction, the group’s ETP Ratio, and the 36-unit inventory level (even though it represents less than 7% of the active Learjet 35A/36A fleet).

    Hawker Beechjet 400A

    The 59-unit inventory level remained unchanged in October, as one aircraft transacted, one was withdrawn, and two more assets were listed for sale. The model joined the ‘Most Improved’ list due to a $100k Maintenance Exposure reduction along with a price increase.

    However, with 18.4% of the active fleet on the market, sellers whose aircraft are not enrolled on HCMP are on the wrong side of the model’s 52.3% average ETP Ratio and must come to terms with market pricing reality if they hope to structure a deal before year-end.

    Hawker Beechjet 400A

    Beechcraft King Air 350 Pre-2001

    Only 20 units were listed for sale at the end of October, and with five units trading during the month the pre-2001 King Air 350 trading environment is very active. With only 7% of the active fleet listed for sale and considering the ETP Ratio ended October at 27.9%, sellers are definitely well-placed to secure good value.

    Interestingly, the model’s Maintenance Exposure dropped nearly $173k in October due to lower quality assets transacting, so good value is also available for buyers, assuming they understand the maintenance condition of aircraft they are considering.

    Beechcraft King Air 350

    Bombardier Learjet 45

    One aircraft sold in October and one joined the inventory to maintain the eight-unit fleet for sale. The changes reduced Maintenance Expense by a substantive $189k. More importantly, the $72k ask price reduction resulted from pricing reductions on previously listed aircraft; it was not affected by either the single unit sale or the new addition to the fleet.

    It would appear that at least some Learjet 45 owners are focused on selling their aircraft prior to year-end.

    Embraer Legacy 600 

    We were a little surprised to find the Legacy 600 on this list, but detailed analytics provide plenty of explanation. Only three inventory aircraft listed an actual selling price in September, and two of them traded in October (a third one was withdrawn from inventory).

    Of the ten listings that were left (5.3% of the active fleet), only one posted an actual Ask Price, and it was substantially higher than those posted for the two traded assets.

    Between the model’s relatively low ETP Ratio, the limited listings, and a Maintenance Exposure reduction exceeding $241k, this aircraft might have made the list even without the ‘technical Ask Price reduction’, but it goes to show how figures can be misleading without the benefit of interpretation.

    Embraer Legacy 600 Jet

     

    Most Deteriorated Models

    All of the ‘Most Deteriorated Models’ experienced a Maintenance Exposure increase, while Ask Price changes were as follows:

    • Gulfstream G100 (No change)
    • Hawker Beechjet 400 (No change)
    • Bombardier Learjet 31 (No change)
    • Cessna Citation VI (+$2,000)
    • Cessna Citation CJ2 (+$63,214)
    • Beechcraft King Air 300 (-$36,111)
       

    Most Deteriorated Business Aircraft in October


    Gulfstream G100

    No Gulfstream G100 transactions closed in October, and with one addition to the fleet the inventory stands at only three units. This might sound positive, but with production totaling only 22 units that means 13.6% of the fleet (aged between 12-17 years) is listed for sale.

    A Maintenance Exposure increase exceeding $1m is unlikely to invite buyers, let alone help sellers. The best opportunity for sellers to market their aircraft lies in identifying a ‘disposable aircraft buyer’ and coming to terms with the true (read, ‘low’) value of their asset.

    Hawker Beechjet 400

    To understand how quickly marketing opportunities can go from bad to worse, readers might recall that this model was on the ‘Most Improved’ list for September. One model transacted in October, but another joined the inventory to keep the total at five units (9.3% of the active fleet).

    The issue challenging sellers is their aging aircraft’s value since ask prices (ranging from $195k to $550k) have little negotiating room. Couple an $87k Maintenance Exposure increase to an already high ETP Ratio and it becomes clear why the Beechjet 400 is on this list.

    Bombardier Learjet 31

    One transaction closed in October, and the four remaining units represent 11.4% of the active fleet. Similar to the previous two models on this list, Learjet 31 sellers are hobbled by a lack of negotiating room when it comes to their aircraft’s value.

    Add a $76k Maintenance Exposure increase to the model’s ETP Ratio and the situation becomes virtually irrational, even if a seller is able to locate someone willing to become the asset’s final owner.

    Cessna Citation VI

    With only 36 aircraft in the active fleet, the nine listed for sale represent too large a competitive fleet for sellers to benefit. The addition of one lesser quality aircraft increased fleet Maintenance Exposure by over $100k, and the nominal Ask Price increase could not prevent the Citation VI from joining the Most Deteriorated list.

    Unlike the previous three models, sellers have some pricing room to maneuver but generating interest in this well-aged fleet will be difficult.

    Cessna Citation VI

    Cessna Citation CJ2

    Sales were non-existent during the month of August, and the listed fleet increased by over 50%. The additions increased Maintenance Exposure by over $238k, not a minor figure for this model, nor a number that a $63k average Ask Price increase could overcome.

    On the surface, opportunities for sellers do not appear good. However, the 23 aircraft available for sale represent only 9.7% of the active fleet.

    With an ETP Ratio averaging 35.1% we believe sales figures will increase once October’s newly-listed eight aircraft have had some market visibility. Prospective buyers are encouraged to act, as CJ2s representing good value are unlikely to enter 2019 as inventory.

    Beechcraft King Air 300

    No transactions closed in October, and the fleet saw three more aircraft enter inventory, raising the total to 14 units (7.6% of the active fleet). While the King Air 300 is a well-aged model, it continues to experience decent sales due to its operating performance and characteristics.

    A Maintenance Exposure increase exceeding $78k and an Ask Price reduction (due to a couple of lower priced units entering inventory) helped secure the model’s place on this list, but several inventory assets offer good value and should be quite marketable.

    Since most King Air 300 engines are not enrolled on Hourly Cost Maintenance Programs, owners marketing (or considering selling) non-HCMP aircraft nearing major engine events should be aware that the financial penalty buyers will assess is likely to exceed the cost for each overhaul.

    The Seller’s Challenge

    Aircraft are, and will continue to be, depreciating assets, making it illogical to think of how one can profit through the sale of an asset acquired five years earlier. However, one can ‘optimize’ their aircraft investment by:

    • Acquiring an aircraft, at a reasonable price, able to perform the mission requirements;
    • Correctly projecting maintenance costs during the ownership period, perhaps through Hourly Cost Maintenance Program enrollment;
    • Limiting scheduled maintenance expense (not covered through HCMP) through detailed analytics of the aircraft’s future maintenance requirement when considering its purchase;
    • Securing science-based, objective, Residual Value analyses on an ongoing and regular basis; and
    • Remarketing the aircraft at a point in time when its ETP Ratio is below 40%.

    It is also important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s Ask Price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on HCMP.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com.

    This article was originally published by AvBuyer on November 13, 2018.

     

     

  • Tracey Cheek posted an article
    Global Aircraft Maintenance Requirements see more

    NAFA member, Aircraft Guaranty Corporation, discusses global aircraft maintenance requirements.

    Global Aircraft Maintenance Requirements

    The goal of any good government is to protect the population. Most safety and maintenance requirements that governments create, therefore, are designed to protect the masses. Furthermore, many registries around the globe have limited financial resources and limited manpower. For these reasons, safety and maintenance requirements tend to focus on the aircraft that transport the largest number of passengers at any given time – the commercial airliners.

    As an example, a particular country may have a condition stating that an aircraft engine has to be replaced when it reaches a certain number of operating hours. Imagine the difference in operating hours between a commercial jet liner and a private, owner/operated turbo prop. The same hourly condition would not be practical for both aircraft, but there are often not separate requirements for the different aircraft types. Thus, the requirements made for commercial airliners are cumbersome, and often nonsensical to the private aircraft industry, making it difficult and expensive for small aircraft owners to experience the joys of owning and operating a private plane.

    FAA Maintenance Requirements

    The FAA’s regulations and maintenance requirements are friendlier towards small aircraft and the general aviation population. This may be because of sheer volume. The FAA has more aircraft registered on its registry than most other countries. Private aviation is very popular in America, so the US is more open to creating laws that are favorable to the general aviation community.

    Many foreign aircraft owners will agree that registration in the US is simpler, cleaner, and more affordable. Moreover, its laws have a sufficient concern for safety, without being cumbersome to the private aircraft owner community. Many also believe that US registered aircraft are easier to sell. In order to reap these many benefits, foreign private aircraft owners are often motivated to register their aircraft in trust in the US.

    US Trust Registrations

    There are, of course, many other reasons to register aircraft in trust in the US. Our blog, 8 Benefits of Registering an Aircraft in Trust, lists some of the most common. And while resale value cannot be guaranteed, and other countries are working to make registration easier on the general aviation community, the popularity of registering in trust in the US does not seem to be waning.

    This article was originally published by Aircraft Guaranty Corporation on October 25, 2018.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis - September 2018 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares who the movers and shakers were in the September 2018 Used Aircraft Maintenance Analysis.

    As we enter Q4 2018, sellers appear to be more focused than ever on moving their aircraft. Which business jets and turboprops were the movers and shakers in September’s used aircraft marketplace?

    Asset Insight’s market analysis on September 28, 2018 covering 93 fixed-wing models and 1,553 aircraft listed ‘For Sale’, revealed an Ask Price drop of 5%. By group:

    • Large Jet values decreased 1.2% (combined loss of 9.7% during Q3);
    • Medium Jets gained 2.2% to finish Q3 up 0.9%;
    • Small Jet values lost a nominal 0.2%, but posted a 4.1% pricing gain in Q3;
    • Turboprops fell 1.1% to a 12-month low and recorded a Q3 loss of 3.4%.

    The total number of used aircraft listed ‘For Sale’ for Asset Insight’s tracked fleet decreased by 2.4% (39 units), as Large, Medium and Small Jet inventories decreased 4.7% (16 units), 4.2% (11 units) and 1.3% (six units), respectively, while Turboprops increased by 1.4% (four units).

    Average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) 4.8%, as the inventory fleet’s upcoming maintenance events are expected to be less expensive.

    • Large Jets increased (worsened) 4.9% as higher-quality aircraft transacted;
    • Medium Jet Maintenance Exposure remained unchanged as the quality of aircraft transacting was mixed;
    • Small Jet Exposure decreased (improved) a dramatic 15.8%;
    • Turboprops posted a 10.7% drop to an amount marginally worse than the group’s best (lowest) 12-month figure.

    All this led to a Maintenance Exposure to Price (ETP) Ratio decrease (improvement) of 7.2% during September that – at 67.1% - remained virtually unchanged for the quarter.

    ETP Ratios Explained

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price. As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price).

    ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%).

    So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2018 were listed ‘For Sale’ an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively) while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 34% longer to sell (280 versus 374 Days on Market).

    • Turboprops yet again posted the lowest (best) ETP Ratio at 50.1%, reflecting a 4.4% improvement for the quarter;
    • Large Jets followed with 64.2% (but that figure reflected a 7.4% degradation during Q3 and was the group’s highest (worst) ETP Ratio ever recorded);
    • With an impressive 18.7% reduction during September, and an 8.3% reduction during Q3, Small Jets posted the group’s best 12-month figure at 68.3%;
    • Medium Jets improved 2.5% during September, but with an ETP Ratio of 78% the group worsened by 8.2% during Q3.

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in September 2018.

    Read full report here.

    The original article was published by AvBuyer on October 16, 2018.

  • Tracey Cheek posted an article
    Purchasing an Aircraft with Maintenance Programs and Subscriptions: The Details Matter see more

    NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses the details when it comes to purchasing an aircraft with maintenance programs and subscriptions.

    Aircraft that are enrolled in maintenance and subscription programs, such as those covering airframes, engines, and maintenance tracking, are often more marketable, and sometimes more valuable, than comparable aircraft that are not covered by such programs and subscriptions. There is real value to an aircraft buyer in having the programs and subscriptions on the aircraft when purchased. As a result, it is important that the programs and subscriptions are transferrable as part of the acquisition process. Each third-party provider is different in how they handle the transfer or assignment of programs and subscriptions. Some providers simply allow the seller to assign the current contract to the buyer but many require the buyer enter into a new agreement. It is important that the buyer understand the cost of the programs and subscriptions when putting together the budget for the ownership and operation of the aircraft. It is also important that all of the necessary paperwork be handled in a timely manner. Some providers will not send out the transfer paperwork until the purchase of the aircraft has been completed. When progressing through the aircraft purchase process, the buyer should consider the following:

    1. Purchase Agreement Requirements

    1. Prior to the execution of the purchase agreement, request copies of the current maintenance program agreements. Confirm that the advertised programs are in place at the rates previously provided.
    2. If the program provider(s) will not complete the transfers until after closing, make sure the purchase agreement requires the transfer obligations of Seller extend beyond the closing.
    3. For annual maintenance or subscription payments, make sure the contract is clear that the payment will be prorated based on the closing date or as otherwise agreed upon between the parties.
    4. If the buyer elects not to continue with a program or subscription, make sure the purchase agreement allows the buyer to terminate the program or subscription upon closing and stipulates which party must pay any fees associated with the termination.

    2. If the aircraft is being financed, make sure the lender documents allow sufficient time to get the transfers in place. Since the process is controlled by a third-party provider, it is difficult for the buyer to dictate to the provider a timeline put in place by the aircraft lender.

    3. If there is a minimum flight hour requirements under the program, make sure the minimums can be met by the buyer and if not, see if the program requirements can be revised.

    4. During the inspection process, contact each maintenance provider and subscription service and inform them of the pending purchase and request a balance on each of the accounts and what date they have been paid through. Often the maintenance provider or subscription service requires seller’s approval to disclose account information.

    5. Confirm with the maintenance or subscription service providers how the agreements will be transferred and when. Since each provider may have their own process, it is a good idea to create a document that tracks the process for each program and subscription.

    6. Closing should only take place after third party confirmation that all programs and subscriptions are paid through closing or otherwise in accordance with the purchase agreement.

    7. Once the closing has occurred, promptly send notification of the closing to the program and subscription service providers. Some providers will want a copy of the delivery receipt showing the number of hours on the aircraft/engine(s) at the time of closing. They may also want a copy of the bill of sale and perhaps additional documentation regarding the buying entity. Be sure to provide all required documents without delay.

    8. Continue to follow up with the providers until the transfer of all applicable programs and subscriptions are complete.

    Since there is real value to the aircraft programs and subscriptions associated with the aircraft, it is important that all of the paperwork is completed in a timely manner, so the aircraft remains enrolled on the programs and subscriptions bargained for as part of the aircraft purchase.

    The original article was published in Business Air Magazine.

     

  • Tracey Cheek posted an article
    Risks and benefits of doing aircraft upgrades prior to closing. see more

    NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses the risks and benefits of doing aircraft upgrades prior to closing. 

    For the past decade, the preowned aircraft market has been a buyer’s market. There has been an ample supply of inventory to choose from in all categories. After the first quarter of 2018, we are now seeing a more balanced market in most categories, and some categories are actually shifting further toward a seller’s market. In certain aircraft categories, it is difficult to find high-quality aircraft. The lack of high-quality aircraft has resulted in more buyers planning immediate and extensive upgrades to the aircraft they are purchasing.

    If the aircraft being purchased is undergoing a major inspection as part of the pre-buy inspection, or if the discrepancies found during inspection will take a significant amount of time to repair, then there may be an opportunity for the buyer to perform some of the planned upgrades simultaneously, prior to closing. However, with this opportunity there are also risks.

    The benefit to the buyer of doing the planned upgrades on the aircraft prior to closing is to decrease the down time of the aircraft so that the buyer can start flying on the aircraft sooner rather than later. The buyer will pay for the upgrades on an aircraft he does not own on the assumption that the closing of the aircraft will be finalized.

    Prior to upgrading the aircraft in advance of ownership, the following items should be considered:

    1. What happens if the purchase does not close? If the seller defaults, does the seller get the benefit of the upgrades completed at buyer’s expense? If significant problems with the aircraft are discovered during the inspection process that make it impossible or impractical for the aircraft to ever meet the delivery conditions for the sale, does buyer still have to pay for the upgrades?
    2. If the aircraft is damaged in the course of performing the upgrades, who is responsible for the damage? Does buyer have insurance in place if buyer is assuming this responsibility?
    3. If additional discrepancies are discovered during the installation of the upgrades, who is responsible for paying to repair the discrepancies?

    If, after considering the risks, the buyer still wants to proceed with the upgrades prior to closing, then the seller will need to consent to such work. If consent is given, completing the upgrades would require an amendment to the purchase agreement, unless the upgrades were previously addressed in the original purchase agreement. When possible, it is advantageous to consider the upgrades during the drafting of the purchase agreement in order to ensure there is a meeting of the minds on this issue prior to execution of the purchase agreement.

    After reviewing the risks, if the buyer does not want to move forward or the seller will not agree to allow the upgrades prior to closing, an alternative approach might be to close before the completion of the inspection and/or the repair of all of the discrepancies. Under this scenario, the parties would need to estimate the outstanding costs for the inspection and discrepancy repairs and agree that seller will pay for such repair costs post-closing. For protection, the buyer could request a certain amount of money be left in escrow from the sale proceeds as a holdback until the inspection and discrepancy repairs are complete.

    The original article was posted by Aerlex Law Group on April 25, 2018 and published in BusinessAir Magazine, April 2018, Volume 28, No. 4.