Need for Speed see more
NAFA member, Brad Harris, Founder, President and CEO of Dallas Jet International, discusses the shrinking volumes in the pre-owned market.
AH: When we spoke back in January this year, you were pretty optimistic. Now that we are heading into the final quarter of 2018, how are things looking?
BH: 2018 is probably going to be the best year that Dallas Jet International has ever had. In speaking with my friendly competitors and colleagues in the aircraft brokering business,
they are all echoing the same sentiment. Starting in October 2016, our business took off and has not slowed down. It started before the Presidential election in the US, before Trump was even elected as a candidate. We are seeing tremendous activity in the United States and are now seeing Europe, the Middle East and China heating up. In addition, charter hours in the US and Europe continue to be strong. Deals are happening in the US, Europe proper, Russia, the Middle East and China. It is all very encouraging.
AH: How are the tax changes introduced by President Trump’s December 2017 Tax Cuts and Jobs Act, impacting aircraft sales and purchases? I am thinking specifically of the fact that the Act withdrew the Section 1031 “like-kind exchange” rules, that allowed someone to sell an aircraft and buy a new aircraft while deferring the recapture of depreciation.
BH: I thought the elimination of the 1031 like-kind exchange provisions in the Act would show up as a negative impact on aircraft sales; however, in reality, the fact that the Act brought in 100 percent expensing of not only new aircraft but now, pre-owned aircraft has been very positive. We have had a number of our buyers wanting to get an aircraft deal done by year-end so that they can take advantage of Trump’s 100 percent expensing. I see this having a real impact for closing numerous deals before the end of the year. We are currently telling our clients that if they plan on selling their aircraft or purchasing an aircraft, prior to year-end, they need to engage us now so that we have enough time to complete their aircraft transaction before December 31, 2018. Since there is no longer the 1031 like-kind exchange, in order to offset any recapture on an aircraft sale, the new or used aircraft would need to purchased and expensed all in within the same year of 2018.
AH: How long does it take to close deals in this kind of environment?
BH: It really depends on the type of aircraft you’re trying to close. A typical transaction takes between five and six weeks to complete. We tend to deal with larger aircraft, which translates to longer transaction timeframes. In this scenario, and depending on the complexity of the transaction, it can take upwards of six to twelve weeks to close. As a result, by the time it gets to mid-October, the purchaser or seller runs the risk of not closing by year-end. However, as the broker, we would most likely recommend to close the transaction by year-end for tax purposes and leave holdback money in escrow to be disbursed as needed for pre-buy discrepancy costs, test flight costs or any other transaction-related expenses.
AH: Determining the amount to be left in escrow could be a difficult conversation!
BH: Absolutely. For example, we recently had a transaction where the buyer wanted to close early on a Gulfstream G450. Our seller agreed to close early and we negotiated to leave
$200,000 in escrow for post-closing expenses. However, the post-closing expenses ended up being $346,000. In this rare situation, the buyer ended up having to come out of pocket the additional $146,000 because our agreement of the holdback was final at $200,000. Since December 2018 will likely yield higher-than-normal closing numbers with Trump’s tax law, a
holdback may be necessary if the aircraft is not returned to service before December 31, 2018. As brokers, we need to be mindful of the holdback amount and make sure it is enough to cover any estimated expense plus any unknown expense. I would recommend a higher holdback amount and make sure you protect your client.
AH: How is the supply and prices of the pre-owned aircraft market?
BH: As little as a year ago, brokers and dealers were complaining that there was an overabundance of pre-owned aircraft on the marketplace. However, in the last 12 months there has been a significant change in regards to low-time, well-equipped US aircraft aged fifteen-years and newer in the pre-owned aircraft marketplace. Which results in a limited supply of good and available pre-owned aircraft. Historically, ten percent of fleet for sale dictates a buyer’s or seller’s market. For example, if there is more than 10 percent of the fleet for sale, then it’s a buyer’s market. If there is less than 10 percent of the fleet for sale, it’s a seller’s market. Today, the percentage of pre-owned Falcon 2000’s on the market is 4.1 percent of the fleet, G450’s for sale are at 6.8 percent of the fleet and shrinking. There are only ten G650 aircraft available on the market today, which is just 3.2 percent of the fleet. The Global 5000 pre-owned market is down to 5.6 percent and the Global 6000 pre-owned market is at 3.6 percent. There are currently no Embraer Legacy 450/500’s on the market for sale. As stated
above, the historic norm for all categories is around 10 percent which is a significant Seller’s market. So, the tightening of the pre-owned market is very visible. I recently spoke at Embraer’s Industry Collaborators Summit in August 2018 and one of the points I made is that our customers need to grasp just how dramatically the market has changed. If you find an aircraft that meets your needs, the client needs to be prepared to act immediately and the buyer has to be ready to pay a reasonable price. As stated above, it is no longer a buyer’s market. We as brokers and dealers need to be smart about how we communicate with our clients. It is okay to tell our clients that the market is tightening up but that there are still good
deals out there and they should be patient but also be ready to move quickly when we send them the right deal. This is an exciting time to be an aircraft broker.
The original article was written and published by Noel Barton with Business Aviation Magazine, Issue 7, Autumn 2018, p. 48.
Shift to Sellers Market Expected as Business Aircraft Demand and Ask Prices Increasing see more
NAFA member, Asset Insight, releases third quarter 2018 market report.
October 31, 2018 – According to Asset Insight’s quarterly Market Report (AI2 Market Report), the third quarter of 2018 saw strong demand for younger models of for-sale aircraft, contribute to the increased value for that group of inventory. Conversely, older models spend considerably more time on the market and is impacting the average pricing data.
The 3Q 2018 AI2 Market Report analyzes values for every production year of every modern make and model Business Class aircraft, while the Report’s maintenance analytics cover 93 fixed-wing models and 1,553 aircraft listed for sale.
Other trends detailed in the 3Q 2018 Market Report include:
Younger jet aircraft demand, and low availability, is raising their values; older models continue to linger and negatively impact average pricing figures;
Ask versus final Transaction Value gap narrowed substantively during 3Q;
Demand strong for younger models; overall down slightly due to Small Jets;
For sale fleet attains "Excellent" Asset Quality Rating posts a 12-month best;
Excellent Asset Quality improves inventory fleet's Maintenance Exposure;
Maintenance Exposure to Ask Price Ratio ("ETP Ratio") continues to hinder sales of older aircraft.
“With a low number of young aircraft for sale on the market, and a very high demand for those limited aircraft, the value for those excellent quality aircraft increased in Q3” said Tony Kioussis, president of Asset Insight, LLC. “The seller's market in the recent model aircraft category does not translate to older for-sale inventory, however. In fact, we saw older, aircraft with higher Maintenance Exposure to Ask Price ratios spend 58% longer on the market than their younger counterparts. We forecast that average prices for lower-time aircraft will continue to increase over the next 90-days, and the price of higher-time units will continue to decline, albeit more slowly, through the end of 2018.”
Note to editors, managers and owners: Please see the bottom right corner of each category page for a concise summary of the results and conditions in that specific market segment.
Exclusively available from Asset Insight, the AI2 Market Report includes eTrendTM, a 90-day forecast for aircraft value by make and model. This tool is especially helpful to sellers who are evaluating offers on their aircraft while concurrently considering if their prospects are likely to improve.
Statistically, Asset Insight's eTrendTM forecasts are based on some of the most robust data analytics in the industry and have been thoroughly back-tested to confirm a significant degree of accuracy.
This press release was originally published Asset Insight on October 31, 2018.
What You Should Know Before Purchasing a New Aircraft see more
NAFA member, Essex Aviation Group shares what you should know before purchasing a new aircraft.
Whether it’s for business or personal use, there are many benefits to private aviation. However, there are several factors to take into consideration as you evaluate your options.
New vs. pre-owned
There are benefits to purchasing both a new or pre-owned aircraft. A pre-owned aircraft can be more affordable while offering you the option of refurbishing, upgrading or customizing certain parts to fit your needs. If you’re acquiring a new aircraft, it can also be fully customized but the delivery could take anywhere from 12 to 18 months longer than if you purchased a pre-owned aircraft.
Start the financing process early
If you choose to finance your aircraft, beginning the process early will leave yourself enough time to compare rates and request proposals from potential lenders. It’s important to understand that getting a loan or lease for an aircraft is a complex process, so researching your financing options sooner rather than later is advised.
How will you be using the aircraft?
Are you going to be using the aircraft for business or pleasure? If it’s for business, you may be able to receive certain tax benefits. An aviation advisor will be able to recommend a legal or tax advisor who can work with you to maximize any possible benefits.
Determine which features are important to you
It’s easy to say, “I want it all” but this isn’t always feasible. Most aircraft can meet many needs and desires of the purchaser but some may not be able to meet all of your necessities. An aviation advisor can help you evaluate your aircraft model options and assist you in finding one that meets your requirements. They will also be available to help you navigate all of the available information so that you can fully understand the pros and cons of each option.
The 80/20 rule
Overbuying can be tempting when shopping for an aircraft. It’s important to consider exactly how you will be using the aircraft to avoid purchasing one that includes more than you need. Will you only be traveling for meetings a few states away? Or will you need the aircraft for international, monthly trips? Your aircraft should meet your requirements 80 percent of the time. If you will only be traveling overseas occasionally but will have monthly business trips, an aircraft for business trips will be most ideal.
Bring your aviation advisor on demo flights
There are often many opportunities for demo flights on different types of aircraft to help you make a purchase decision. Bringing your aviation advisor along for the flight can help you make a decision, as long as they are professional and unbiased.
The process of acquiring a new aircraft
When purchasing a new aircraft, the process typically involves:
The initial evaluation
When purchasing a new aircraft, you’ll have many decisions to make. These can include selecting the floorplan and any specifications or materials that are also needed. You can also choose a “white-tale” aircraft, which is one that has already been produced but gives you very limited opportunities to change things.
When you’ve selected an aircraft for purchase, you will enter the layout and design phase. An aviation advisor can help you through the series of specification meetings.
Aircraft production begins once there is a final and approved design in place. Production can take up to a year or longer, depending on several variables.
Once the aircraft is ready for final delivery, your aviation advisor and the existing flight crew will work through a formal delivery and acceptance process.
Acquiring an aircraft can become complicated since there are several parties involved. Working with an unbiased aviation advisor will offer value and comfort throughout the process, and will help you find the aircraft that’s right for you.
Essex Aviation Group, Inc. was founded in 2013 with the primary goal of providing clients with the most current industry knowledge and experience, a vital component in evaluating business and private aviation transportation needs.
Representing clients in a wide range of services, Essex builds client relationships through dedication to trust, integrity and a level of responsiveness not found anywhere else. Services include new or pre-owned aircraft acquisitions, new aircraft completion management, pre-owned aircraft refurbishment and upgrade management, block and ad hoc charter services, and much more.
This article was originally published by Essex Aviation Group.
Who pays for what? Splitting aircraft sales costs is about fairness. see more
NAFA board member and President of AOPA Aviation Finance Company, Adam Meredith writes about how to fairly split the costs of buying an aircraft.
You finally found it—that first turboprop. The aircraft looks good, but there are inspections, demonstration flights, and paperwork prior to any sale. Who pays for what as the purchase proceeds? The answer is all about fairness.
Know in advance
Have a consensus gathering meeting with the seller before the pre-buy inspection about how you are going to handle any problems found with the aircraft. What will happen if there are so many squawks that you no longer want to continue with the purchase? When you agree, put that information in the purchase-and-sale agreement. It’s much better than getting halfway through the purchase and discovering problems without a plan for addressing them.
If the pre-purchase inspection is also an annual inspection, include that in the purchase-and-sale agreement, adding who is responsible for the costs in the event the sale falls through.
Who pays what?
Obviously, the buyer pays for a pre-purchase inspection. Any airworthiness directives that need to be complied with are almost always the responsibility of the seller. Nice-to-have items that don’t affect the aircraft’s airworthiness—especially those that are expensive—usually end up getting negotiated. However, if there’s a service bulletin item, those too are generally the seller’s responsibility. In general, if something needs to be done, the seller pays. If it would be nice to repair or replace something, the buyer pays.
Here’s an example. Maybe the emergency quick-donning oxygen masks for the pilot and copilot could use an upgrade, the old ones work but are looking a bit tattered. The buyer may pay for that. But if the aircraft is approaching a limit for a landing gear overhaul, the seller will likely reduce the price to reflect the future cost. Alternatively, the buyer could just request the landing gear be overhauled as part of the inspection. In the end, negotiations tend to ebb and flow based on not only the personalities of the buyer and seller but also the supply and demand of the particular make and model aircraft.
Title and escrow costs
Not everyone recognizes the benefits to both the seller and buyer of closing a transaction with a title and escrow company. Both parties have a vested interest in making sure the documents are properly filed and thus should split that cost. Here’s a scenario that should give pause to the value from a seller’s perspective: Your buyer flies off on a “pink slip,” nothing is filed with the FAA and there’s an incident with the aircraft. Who do you think the attorneys are going to come after? Whoever has the deepest pockets! Even if it’s meritless, you may have to defend yourself and it’s going to come out of your pocket.
If the buyer is going to the seller’s location for a demonstration flight, generally the seller won’t charge the buyer for the fuel, but may limit the flight time. However, if the buyer is requesting to meet the seller away from the aircraft’s home airport, the buyer should expect to pay fuel costs. If the buyer wants to use his or her own shop for the pre-purchase inspection, same thing, the buyer should expect to pay for the fuel to get it there, and to get it home if the buyer declines the purchase. These are a few of the issues facing buyer and seller expenses, but the answer in all cases comes from asking, “Does it seem fair?”
NAFA member David Mayer gives tips on buying a jet outside the US. see more
NAFA member David Mayer gives tips on buying a jet outside the US.
The recent buyer’s market for preowned business aircraft has become a seller’s market. U.S. buyers recognize this phenomenal change and, consequently, search the globe to buy the right preowned aircraft among an estimated 900 saleable units left for purchase.
New aircraft sales aside, there are several points to consider when buying an aircraft outside the U.S. primarily for return and registration of the aircraft in the U.S.:
- Select the right aircraft with the support of experienced broker-advisors.
Not long ago, a client traded aircraft twice in a year; and, while the third time was the charm in that case, today’s global market might not offer such choices. To improve the chances initially to make the right purchase, a buyer should hire a quality aircraft broker or independent consultant with global market experience. This professional can support a buyer in all aspects of the purchase process and guide negotiations with sellers, including sellers emboldened by a strong market in their favor.
- Inspect the aircraft thoroughly using well-qualified, technical experts.
These experts should develop a list of delivery conditions and oversee repairs needed to fulfill them. U.S.registrants should focus on obtaining a U.S. Standard Airworthiness Certificate (SAC). A private aircraft inspector authorized by the FAA—called a Designated Airworthiness Representative (DAR)—determines whether to issue the SAC. This approval is an indispensable precondition to U.S. registration.
Sellers typically pay for airworthiness repairs found in pre-buy inspections as determined by the inspection facility. The DAR and the inspection facility should confer and reach the same conclusion as to repairs needed to issue the SAC. In the seller’s market, sellers might insist on a narrow definition of “airworthiness” repairs as those specified by the DAR or inspection facility.
If delivery conditions in the aircraft purchase agreement specify more repairs than the DAR’s items, it seems plausible that sellers might make extra repairs to meet the aircraft delivery conditions, but only if the buyer pays for them. In other words, sellers might try to reallocate inspection costs to buyers more often than in the recent past.
- Negotiate the timing of deregistration from the seller’s country’s registry and registration in the U.S.
The timing of the DAR inspection deserves close attention as a pacing item in the transaction. It plays into tricky timing of deregistering the aircraft as a condition of registering it in the U.S. The Chicago Convention allows only one registration at a time per aircraft.
The technical expert and the broker-advisor together can assist the buyer in finding and arranging an aircraft inspection by the DAR in a timely manner. They can coordinate with the DAR to deregister the aircraft at the seller’s national aviation authority (NAA) and register in the U.S. Buyers should be alert to sellers who try to shift deregistration timing risk to the buyers, though joint solutions exist that should minimize this negotiation.
- Conduct extensive diligence to avoid disputes.
Absent credit support, the limited liability companies-sellers (LLCs) or the equivalent entities worldwide, generally have zero financial ability to defend the titles they transfer to buyers against anyone who has filed a lien or makes other claims against the aircraft being sold. Seeking such title defense outside the U.S. against an LLC or a creditworthy seller might be even more problematic in a dispute, depending on, among other factors, which laws govern the deal.
To help evaluate and mitigate these risks, the seller and the buyer should each engage lawyers in the NAAcountry. Diligence starts with typical searches of the NAA registry. For signatory countries to the Cape Town Convention, called “Contracting States,” the buyer should also search the “International Registry” for outstanding “international interests” of financiers such as security interests or leases, any “non-consensual right or interest,” where permitted, such as repair liens, and a clean title history that shows no gaps in the chain of title.
In addition, the lawyers should search filing offices and other NAA registries in countries frequented by the seller for filings by tax authorities, operators, and repair facilities. Ideally, at or before closing, the seller will pay all bills, discharge any adverse claim or interest and deliver documents that the buyer’s and seller’s lawyers concur will protect their respective clients from future disputes.
- Export with assistance.
Aircraft operations, sales, and re-registration attract customs, tax, NAA, and other governmental authorities. Neither the seller nor buyer should tangle with any of these authorities as they have broad authority that can disrupt an aircraft purchase. Timing is important. A buyer can and should seek export guidance from an export specialist before signing the purchase agreement and making errors that result in paying avoidable taxes, duties, and penalties.
Plan ahead for state and federal taxes in the U.S. U.S. buyers (and others) might think that, when the buyer flies away from the delivery location exempt from value added tax (VAT) or other sales-type taxes, the buyer will likewise be exempt from sales tax in the state of the permanent U.S. base of the aircraft. This assumption may be wrong and, in certain states, expose a buyer to substantial use taxes such as in Texas where use taxes may amount to 8.25 percent of the purchase price.
One of the most frequently asked questions by clients since the inception of the new tax law in September 2017 has been: Can I use 100 percent “bonus depreciation” despite my anticipated personal use of the aircraft? That question requires in-depth analysis. The results have directly affected the choice of aircraft. Accordingly, federal income tax, as well as state tax planning should begin before, not after, an aircraft purchase generally without delay to complete international transactions.
- Structure your flight operations documents before your flight to the U.S.
Purchasing an aircraft outside the U.S. does not change the buyer’s obligations to comply with the FARs in the U.S. For example, an owner should designate qualified “operators” to exercise “operational control” of the aircraft typically under FARs Part 91 or Part 135. Also, the buyer should avoid falling into the “flight department company” trap by letting an LLC or other owner with no other business activity illegally act as the “operator.” Buyers should, therefore, carefully structure and execute appropriate agreements that comply with the FARs before their first flight to the U.S.
Cross-border purchases of preowned aircraft produce complex issues for buyers and sellers. Although buyers might accept some increase in their risks or costs compared to long-standing norms, taking prudent risks differs from making avoidable mistakes. Still, buyers can purchase quality preowned aircraft outside the U.S. with confidence and success by hiring experienced, competent, and objective brokers or independent consultants, technical experts, export specialists, and lawyers to help them navigate through the international seller’s market.
This article was originally published in AIN on July 13, 2018.
AMSTAT releases latest Business Aircraft Resale Market Update Report showing slightly slower
Busine see more
AMSTAT releases latest Business Aircraft Resale Market Update Report showing slightly slower Business Jet resale transaction activity so far in 2016.
Tinton Falls, NJ – October 24, 2016: According to AMSTAT, the first three quarters of 2016 saw a slightly
lower percentage of the Business Jets and about the same percentage of Business Turbo‐Props turning
over as resale transactions versus the same period in 2015.
In the first three quarters of 2016, 7.1% of the global Business Jet fleet turned over. This percentage
was down versus 7.4% in the same period in 2015. By comparison, 5.8% of the Business Turbo‐Prop
fleet turned over versus 5.7% for the same period in 2015.
Resale Retail Transaction activity year to date was up for Heavy Jets with 5.9% of the fleet turning over
in the first 3 quarters of the year, compared to 5.5% for the same period in 2015. In contrast,
transaction activity for the Medium Jets resulted in 7.1% of the fleet turning over versus 8.2% for the
same period in 2015. For Light Jets and Turbo‐Props, Resale Retail Transaction activity was largely flat
for the first 3 quarters of the year compared to the same three quarter period in 2015 (7.8% versus 7.9%
and 5.8% versus 5.7% respectively).
The report also shows that business aircraft inventory levels continue to climb but with some evidence
of a recent plateauing in certain market segments. 10.8% of the Heavy Jet fleet is now for sale. This
percentage is up from 10.4% at the start of 2016. Over the last 24 months more of this inventory has
come from Newer Heavy Jets, with 10% of that fleet for sale today versus 8% in 2015. Today 11.6% of
the Medium Jets fleet is available for sale versus 11.2% at the start of the year. As with Heavy Jets, it is
the Newer Medium Jet models that are seeing their inventory increase the most. The Light Jet inventory
is currently 11.8% of the active fleet. This up since the start of the year but flat compared to the same
time last year. 8.5% of the Turbo‐Prop fleet is for sale, up since the start of 2016 but down from 8.7% a
Average Asking Price trends have been a mixed bag so far in 2016. The Average Asking Price for a Heavy
Jets is $13.9M down 6.6% year over year. The increase in Heavy Jet Resale Retail Transactions so far in
2016 has not been enough to raise Average Asking Prices. The Average Asking Price for a Medium Jet is
$3.4M, down 7.8% from a year ago which is consistent with falling Resale Retail Transaction activity and
increasing inventory in this market segment. The Average Asking Price for Light Jets is $1.7M up 6.7%
versus a year ago and $1.4M for Turbo‐Props up 5.5% versus a year ago. These are curious trends given
that transaction activity and inventory levels are essentially flat in these markets.
For a full copy of the report go to: http://www.amstatcorp.com/docs/APR‐MUR‐1024‐2016.pdf
About AMSTAT, Inc.
AMSTAT is the leading provider of market research information and services to the corporate aviation industry. Founded in 1982, and based in Tinton Falls, NJ, AMSTAT introduced the concept of providing researched information to corporate aviation professionals.
AMSTAT’s mission is to provide timely, accurate, and objective market information to its customers. AMSTAT products and services provide aviation market and statistical information that generates revenue and delivers competitive advantage to brokers/dealers, finance companies, fractional providers, and suppliers of aircraft parts and services.
New Jersey: (732) 530-6400 x147 / email@example.com / www.amstatcorp.com