aircraft valuation

  • 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
    What Is the Income Approach to Aircraft Appraisal? see more

    NAFA member Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services, writes about the income approach method when determining the value of an aircraft.

    It can be difficult to find out the process that goes into learning the value of an aircraft, and that leaves many aircraft owners confused as to what steps they should take, especially when they need to know the income approach.

    Luckily, the actual process isn’t very challenging at all to do. In fact, we’ve managed to break it down for you and place it into this article for you to learn the proper steps for the appraisal. Keep reading to learn more.

    Learn the Income Approach by Knowing Your Definitions

    For every piece of personal property, there is an official way of determining its appraisal or value. The ASA Personal Property Committee is the one that determines the value of personal aircraft.

    There are three ways to determine aircraft value are known as definitions. These are the sales comparison approach, the cost approach, and the income approach.

    We will be focusing on the income approach definition in this article.

    Determining Aircraft Appraisal Through Income

    The income approach method is unique in comparison to the other two definitions.

    Whereas the sales comparison approach and the cost approach determine value through the property price of a similar property or through the cost of the materials it takes to build the property, income appraisal does things differently.

    By appraisal through income, one doesn’t determine value through the property itself. Instead, they look at the anticipated monetary benefits of the property.

    Let’s break it down. Every piece of property comes with a certain amount of value attached to it. In this manner, each of these properties has the ability to bring in a certain amount of income based off of its current value.

    There a number of things that factor under these anticipated monetary benefits, such as the current market price, the expected increase or decrease in value over the years, and the stream of income.

    If we were to summarize this appraisal method, it’s basically looking into the future to determine the value of the property and how much money it could bring to the owner using mathematical and statistical calculations.

    Though it’s an indirect way of gauging the value of your aircraft, this method of appraisal still serves as one of the most popular ways to find property value.

    Get the Right Appraisal

    In order to get your income approach appraisal done right, you need to go to the people who have the knowledge and experience to do it right the first time. You won’t have to look any further than us.

    At VREF, we take our valuations seriously. We’ve helped to appraise thousands of personal aircraft and know everything there is to know about determining the value of each and every aircraft.

    Make sure to get one of our valuation guides so you can determine the price of your aircraft. We look forward to helping you with your appraisal!

    This article was originaly published by VREF on May 17, 2019.

  • Tracey Cheek posted an article
    Appraising the Truth - Why Business Aviation Needs Accurate Aircraft Valuations and Appraisals see more

    NAFA member, Jason Zilberbrand, President of Vref, writes about why business aviation needs accurate aircraft valuations and appraisals. 

    Q: How did Vref get started down the road of providing prices and supporting data on aircraft?

    A:  The Vref story began roughly 25 years ago. The first Vref guide was published in January 1994. Vref was first published by Fletcher Aldredge, a former analyst at Aircraft Blue Book. He was unhappy with how information and data were being published, collected and updated so he started his own Guide. Fletcher created a platform that was ahead of its time and has the most trusted data in the industry. Vref is used by every bank, financial 
    institution, broker and aviation professional as one of the trusted resources they can depend on for accurate information on aircraft. By providing up to date real time values for helicopters, all fixed wing aircraft, and now engines and commercial narrow bodies; Vref is the predominant force in aircraft value data. 

    Q: So how did you and Ken Dufour, the CEO of Vref, get involved? 

    A: Ken and I were brought in to oversee the day-to-day business operations,  run  the  company  and  implement  new  services.  Ken and I have very different skill sets and backgrounds. I have spent the better part of my life in aviation, having come into the business when I  was  still in  college,  when  my  father  started  Jet  Support Services Inc. (JSSI), which we sold in 2008. For the last 15 years I ran an international aircraft dealership and brokerage. 
    My time at JSSI was invaluable in preparing me for what I now do at Vref, in that we were myopically focused on maintenance events and costs, and I was introduced to an amazingly diverse network of people in the MRO shops, the OEM community and in the aircraft financing and banking sectors.  Buying and selling aircraft further honed my skills, and by applying my maintenance and engine knowledge base to brokerage it created opportunities 
    that I might not have ever been able to identify. However, when the crash hit on 29 September 2008, a day I will remember forever since it was also the day my eldest daughter was born, we were holding some $320 million in aircraft inventory, in the form of 23 aircraft that we suddenly had no buyers for those were harsh times for many in the sector as deals dried up all over the place. We were able to reach fair solutions to those positions and moved on. However, what happened over the next few years as companies started shedding jobs was that large numbers of people decided to reinvent themselves as aircraft brokers. Simply by selling one aircraft a year they found they were doubling whatever they had been paid in their old jobs. What was once a career that you were lucky enough to get into or in most cases born into, was now nothing more then a cell phone, website and access to classifieds.  In that environment, being a broker no longer held out much interest for me. I was much more interested in the challenge of how one could go about gathering the data required to put a realistic and accurate value on particular aircraft. I was spending more and more of my time trying to determine where forecasts of values were going and appraising aircraft. It was apparent when I started doing more aircraft appraisals that Vref would be the perfect company for me to grow my career.  

    Q: I believe Ken came into it from an entirely different route?

    A: Absolutely. Ken is without question the foremost expert appraiser of aircraft in the US. He is a Accredited Senior Appraiser with the ASA and he has appeared as an expert witness in over fifty cases and has helped his side to win them all. I should mention that he has been mentoring me as far as becoming an expert witness is concerned, and I have now appeared as an expert witness in two cases, both of which we won. We now offer expert witness services as part of the Vref portfolio of services, be it via actual court appearances and testimony, or via deposition. 

    Q: Can you give us something of a flavour of the kinds of cases involving business aviation aircraft that call for expert witness testimony?

    A: A very common scenario is where you are acting either for the owner of an aircraft that has sustained damage, or for the insurance company or OEM. What you are trying to determine is what the value of the undamaged aircraft would have been at that point in time, and what its value is now that the damage has been sustained. It is a hugely complicated calculation, with a lot of moving parts. Ken is an absolute master at producing an evidence-based appraisal and his work has never been successfully challenged. That is part of the skill we bring to Vref.

    Click here to read the full article.

    This article was originally published in Business Aviation Magazine, Summer 2018, p. 78. 

  • Tracey Cheek posted an article
    Why an On-Site Jet Appraisal Is So Important - The Certified Appraisal versus a Desktop Valuation see more

    NAFA member, Jeremy Cox, Vice President of JetBrokers, discusses the importance of on-site jet appraisals and certified appraisals versus desktop valuations.

    There are real dangers in cutting corners on an aircraft appraisal.  Jeremy Cox draws on some of his real-life appraisal experiences to highlight the value of getting the job done properly.

    There are multiple reasons why an aircraft owner might need to know what his aircraft is worth on a specific date, including:  Making the decision to sell; wishing to put the aircraft up as collateral against a loan; divorce settlement; an estate sale; tax settlement; insurance claim; or charitable donation.

    Except for the situation of making a ‘sales decision’, all the other events listed require that the selected appraiser provide the owner with a certified appraisal instead of merely a market valuation.

    The Essence of a Certified Appraisal

    When an aircraft is being donated, a certified appraisal submitted to the US Internal Revenue Service (IRS) must meet specific requirements for it to be accepted. IRS Publication No. 561 states:

    “The weight given an appraisal depends on the completeness of the report, the qualifications of the appraiser, and the appraiser’s demonstrated knowledge of the donated property. An appraisal must give all the facts on which to base an intelligent judgement of the value of the property.

    “The appraisal will not be given much weight if:

    • All the factors that apply are not considered;
    • The opinion is not supported with facts, such as purchase price and comparable sales; or
    • The opinion is not consistent with known facts.

    “The appraiser’s opinion is never more valid than the facts on which it is based; without these facts, it is simply a guess.  “The opinion of a person claiming to be an expert is not binding on the Internal Revenue Service.”

    To prove ‘demonstrated knowledge’ of the aircraft that is the subject of the appraisal, the appraiser must physically see and evaluate the aircraft and all its logbooks, on-site and in person. In the unfortunate instance where the subject aircraft will be written-off by an insurance company due to the total-loss of the aircraft, it is still required that all logbooks are reviewed before an appraisal report can be written.

    The National Aircraft Appraisers Association (NAAA) asserts that “The walk around examination, and inventory of the aircraft, followed by the thorough study of the logbooks, and records, contribute approximately 85-90% of the data in our written report. The other 10-15% of our work is outside research.”

    A sales specification that has updated hours, landings and equipment hand scrawled on it, along with a handful of images, does not come close to being a suitable substitute for an on-site inspection. It is impossible to apply a rating to the condition of the paint and interior by only examining an on- screen, or printed image, in-place of seeing the actual aircraft in person.

    Why Have an Inspection?

    Rarely will a sales specification ever mention the existence of any damage history, or accurately assess current maintenance and inspection status. The only sure way to determine the overall condition of an aircraft, and ultimately its value, is by inspection. The logbooks are a critical part of the determination process.

    An excellent example of why an on-site inspection and log book audit is so vital to accurately report on an aircraft happened in an audit of a Dassault Falcon 900B I was involved with recently. The Falcon 900B was in the late stages of a work scope at a major MRO, and I was provided with a sales specification that was produced by an aircraft broker who had sold this aircraft a little over a year before the date of my audit.

    I also downloaded a CAMP Status Report after being granted ‘read-only’ access through my CAMP-Online account. If I had utilized this supplied specification and CAMP Report instead of creating my own, I would have been very wrong on multiple equipment and inspection status issues.

    For example, Collins TDR-94 Transponders had reportedly been installed, when in reality Honeywell MST-67 Transponders were the actual units onboard (installed over 10 years before). Furthermore, the ‘C Check’ date reported was later than the actual sign-off and release for return to service (another potentially very costly error). And while doing the audit, I even found two engine logbooks among the archives that did not belong to the subject aircraft...and never did at any time in its history...

    This was not an isolated incident. Other examples over the years have included:

    • A Learjet ‘wide’ cargo door (reported) versus the narrower executive door (actual);
    • Citation CJ2 ‘3-tube EFIS’ (reported) versus ‘2- tube’ (actual);
    • Falcon 20-5 thrust reversers (reported) versus ‘none’ (actual);
    • Gulfstream GV crew-rest compartment (reported) versus ‘none’ (actual);
    • Global Express with a ‘heads-up guidance system’ (reported) versus ‘provisions-only’, i.e. an empty box above the #1 pilots’ head (actual).

    I could go on, and on with tales of aircraft that were reported as ‘perfect’, only to find otherwise in the aircraft’s logs.

    The bottom-line: if the certified appraisal that you paid for and used to satisfy an official requirement was created without an on-site inspection and audit by an appraiser, even with disclaimers, it is questionable and probably unreliable.

    This article was originally published in the January 2017 issue of AvBuyer Magazine, p. 137.

  • Tracey Cheek posted an article
    Deepening Your Understanding of an Aircraft's Value see more

    NAFA member Anthony Kioussis, with Asset Insight, LLC, wrote an article for this month’s AvBuyer Magazine on understanding aircraft value.

    Let’s assume you spot an aircraft of interest while perusing AvBuyer. After obtaining more details you determine it’s one you wish to examine closely. What are the metrics you

    need to consider if your plan is to own this asset for as many as five years?

    The aircraft’s flight hours and cycles would be important in determining your offer price, but what else should play a role in your valuation, or even your offer for this aircraft?

    1. Maintenance Requirements

    You should begin by examining the asset’s upcoming maintenance requirements. How many scheduled maintenance events will be due based on your planned utilization and how much will those events cost? Calculating such detail using a standardized measurement process would allow you to compare this aircraft’s maintenance to any other unit you might be considering.

    2. Maintenance Equity

    Next, how much Maintenance Equity does this aircraft have left? Maintenance Equity represents the embedded value of maintenance an aircraft has available to fly on. Every aircraft’s maximum available Maintenance Equity value is achieved the day it comes off the production line.

    As an aircraft is utilized, Maintenance Equity decreases. As scheduled maintenance is completed, Maintenance Equity increases. Accordingly, knowing how many dollars are available to fly on would help you determine an appropriate, and justifiable offer price.

    3. Maintenance Exposure

    Conversely, how much Maintenance Exposure is burdening this asset? Maintenance Exposure represents the aircraft’s financial liability accrued with respect to future scheduled maintenance events. Again, every aircraft’s lowest Maintenance Exposure value is achieved the day it comes off the production line.

    As the aircraft is utilized, Maintenance Expense is incurred. As scheduled maintenance is completed, Maintenance Exposure decreases. Knowing an aircraft’s Maintenance Exposure can also help you determine an appropriate offer price.

    4. ETP Ratio

    But perhaps more importantly, computing the aircraft’s Maintenance Exposure would allow you to determine the asset’s Maintenance Exposure to Ask Price Ratio (ETP Ratio). The ETP Ratio is a useful indicator of an aircraft’s marketability.

    ‘Days on Market’ analysis has proven that when an aircraft’s ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%). By way of example, aircraft whose ETP Ratio exceeded 40% during Q2 2018 were listed ‘For Sale’ 72% longer (on average) than aircraft whose Ratio was below 40% (that’s 169 days versus 291 days on the market).

    Application to a Prospective Aircraft

    Computing an aircraft’s current and future ETP Ratio (the latter is based on its estimated Residual Value) can help you determine if this unit represents ‘good value’. Keeping in mind that an aircraft is a depreciating asset, an ETP Ratio exceeding 40% today is likely to result in an ETP Ratio substantially over 40% when you plan to replace it in five years’ time.

    So, what might appear to be a ‘low price’ today could actually make you this unit’s final owner (absent finding a buyer seeking a disposable aircraft five years hence).

    Of course, deriving these metrics on your own can be time-consuming and challenging to complete, but there are numerous entities that can help, some at a nominal fee. It’s well worth paying a little now to research the right aircraft to acquire, rather than spending a great deal more in the future, having purchased the wrong one. 

    Tony Kioussis has over 40 years of aviation industry experience within Business and General Aviation, major airlines, fixed-wing & rotary OEMs, technical services providers and financial services companies. Prior to spearheading the launch of Asset Insight, he served as VP, Strategic Marketing with GE Capital’s Corporate Aircraft Finance group. He contributes a monthly online blog to and market analysis for the Business Aviation Market Overview section of this publication.

    Contact him via

    To view the entire article, click here.

    This article was originally published by AvBuyer Magazine in August 2018.