Refurbish Your Jet With Maximum Appeal - Part 2 see more
NAFA member, Gary Crichlow, Director of Aviation Finance with Arc & Co., discusses aircraft refurbishment investments.
Any investment into private aircraft needs to be looked at from the point of view of slowing the aircraft’s inherent depreciation as much as possible and extracting maximum utility, rather than expecting a positive financial return.
The most effective way to slow value loss is to make sure the aircraft is desirable to the market so that it sells quickly when you decide that it’s time to upgrade or generate some cash. Previously we discussed the impact that a well-executed interior, in top condition, can have on a sale.
Here, we consider the value of cabin refits from the perspectives of utility, history and transferability. Note: With our use of the term ‘value’, we encompass not only the actual return by way of an increased selling price (which tends to be the exception rather than the rule), but also we mean the impact on the time it takes to sell the aircraft, thereby minimizing the detrimental effects of depreciation and time on the market.
Refurbishing With Utility in Mind
The first consideration is, of course, to have an aircraft that does what you want it to do in terms of the cabin layout, amenities, entertainment, connectivity, privacy, etc. However, it’s also important to think about the end-buyer. How likely is it that your aircraft will be able to meet their needs as well?
The most value-enhancing upgrade options tend to be the ones that result in a demonstrable enhancement to utility. They will, for example:
• Enable the aircraft to fly longer distances;
• Certify the aircraft to land at certain airports, in certain countries or on more efficient routings;
• Allow full in-flight connectivity for all users including streaming live; or
• Have different zones for privacy/rest/work for principals, entourage and crew.
According to Celia Sawyer, who runs her own interior architecture and design firm and provides private and commercial clients with bespoke, luxury interiors for private jets and helicopters, the things that clients typically look for can differ significantly.
“It is different with every client,” she notes. “I had a Middle Eastern client who wanted a lot of gold inside and also wanted the interior to be very opulent, with only the best Italian leathers, a good boudoir to sleep in and a large shower room.
“Another client wanted no frills — just a contemporary, functional interior with good technology on board, more like a flying boardroom with a living area next to it that he could work from. So, it really is dependent on the client’s needs and their priorities.”
And yet there is more than just catering for the principal’s needs at play when considering the upgrade and refurbishment options for a private jet. Just how much of a selling point are amenities appealing to the buyer’s family or entourage?
These items might include private family suites on the much larger jets, catering facilities, showers, broadband allowing for the streaming of videos/gaming and additional baggage/stowage space.
According to Sawyer, “They all want the highest level of technology. That’s something that is always requested, whatever the size of the aircraft.” Having other amenities on board are very important to some clients. “If they have a family they travel with, they need to have everything available,” Sawyer adds.
“Of course, it will depend on the size of the aircraft as to whether they can have a shower, or what sort of catering facilities and how much additional baggage space is possible.
These design requirements will in turn be driven by what sort of trips they intend to make.” So, what are the top design trends that aircraft owners are choosing to help to maximize the appeal of their aircraft’s interior? “I am pleased that my clients are thinking of the environment,” Sawyer observes. “Many are requesting more fuel-efficient aircraft with lower emissions. New and upgraded engine and aerodynamic technology is key in this respect.
In keeping with this ‘green’ trend, on the aesthetic side Sawyer’s clients are insisting on lighter-weight interior furnishings and fittings than they may have done previously, “but they’re still choosing materials and designs that deliver on comfort, quality and style.”
The Role of History in an Attractive Aircraft Refurb
Ultimately, buyers prefer to purchase aircraft where the history of ownership, operation and maintenance is simple, well-documented and clear.
All the records – including the installation and certification of the interior, right down to the last detail – should be organized in such a way that a buyer can immediately see and take comfort that everything is in order.
According to Iain Houseman of Elit’Avia, “In an ideal world, all aircraft purchases would come with the correct documents, such as a comprehensive history of ownership and maintenance.” Interior installs from the factory are usually well documented, but problems can occur in service when an aircraft’s owner decides to change something and does it at their local facility for no other reason than that facility is the more convenient option.
“I’ve seen a number of aircraft that had work done where the paperwork wasn’t in order,” Houseman reflects. “This has meant the aircraft couldn’t be moved on to a different registry because you cannot show the history of modifications.
“That’s why it’s so important for the owner to have an approved operator with quality maintenance and care processes in place to ensure paperwork is properly kept.”
Elaborating further on the owner who was unable to move their airplane to a different registry, Houseman adds, “When the owner wanted to put it on an EASA registration, he couldn’t because the EASA approval for the modifications was not complete. He had to put the aircraft on the Isle of Man registry (which accepts both FAA and EASA certifications) and wait a further six months for the EASA approvals to come through.
“In another situation, a client decided to replace the carpet. It sounds easy, but the carpet was also attached to the seat bases. Burn certification paperwork is required, not only for the carpet, but also for the glue to attach it to the seat base and approval is needed from the seat manufacturer.
In total, it took eight weeks for a one-week install!” So, what are the lessons learned for interiors being installed on new aircraft? “You can usually pay the manufacturer to provide EASA certification alongside the FAA’s, because pretty much all the aircraft being built will come with FAA approval on the interior in the form of an STC,” Houseman explains.
“There is usually an upcharge for EASA, but from a seller’s perspective, it could make sense to get this for resale purposes,” he suggests. “It also depends on the model: larger aircraft with an international market would more obviously benefit from more certification to help with resale.
However, for smaller aircraft that are predominantly sold in the US, foreign certification may be a ‘nice-to-have’ rather than a ‘must-have’. “Multiple certification can be important in older aircraft, too. If an aircraft has spent its entire life in the US and has had modifications done under FAA STCs that are not EASA-approved, then all of the STCs would need EASA approval to import the aircraft onto an EASA registry.
It’s also important to make the distinction between private or commercial use, Houseman notes.
The requirements for commercial use vary between countries, so an aircraft that has EASA-only approved modifications could still go on the US registry for Part 91 private operations, but if it’s missing certain equipment mandated specifically by the FAA, it cannot do Part 135 commercial operations.
Upgrading and refurbishing an aircraft is a significant investment that can strongly enhance your experience whilst on board. But it’s vital, when planning for the investment, to have a realistic view of the value it creates and the other challenges that could arise.
A well-executed cabin refit should meet your needs in terms of space, aesthetics, utility and connectivity, and have the added benefit of appealing to the broadest possible range of potential buyers when the time comes to move the aircraft on.
As established at the start of this article, a well- executed cabin refit will not generally result in a positive financial return outside of a very narrow and oft-unpredictable set of market circumstances.
Doing your homework and enlisting competent expertise is key: an interior refit is a complex project that requires detailed planning and oversight, and strict adherence to a plethora of regulations. Delays and mistakes can be costly and time- consuming. You should keep potential future buyers for your aircraft in mind; not just in terms of aesthetics and technology, but also in terms of certification, with the aim being to ensure maximum transferability with minimum headache.
Finally, a reminder that investing in a quality operator is crucial to make sure that paperwork is properly organized and maintained.
This article was originally published by AvBuyer on September 27, 2019.
Arc & Co. Joins National Aircraft Finance Association see more
FOR IMMEDIATE RELEASE
EDGEWATER, Md. – Feb. 18, 2019 - National Aircraft Finance Association (NAFA) is pleased to announce that Arc & Co. 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 Arc & Co. to our association,” said Ford von Weise, President of NAFA.
Arc & Co. is a specialist debt advisory providing advice on real estate, marine and aviation assets, with offices in Mayfair, London and Oxfordshire. Arc & Co. Structured Finance advises on senior debt and equity packages on all sizes of residential development, commercial development and long-term income producing assets. Arc & Co. Private Finance has an unrivaled record advising on mortgages for residential and investment purposes and finance for superyachts and business aircrafts for both UK and international clients.
The company’s added value is their breadth of experience and knowledge of the marketplace. Their keen understanding of lenders' expectations allows them to advise and structure debt based on criteria such as registry, operator, type of aircraft and UBO jurisdiction.TheArc & Co. team addresses the needs of individuals, corporations and government entities, enabling them to achieve a greater return on equity for their investment strategies.
Since 2008, Arc & Co. has strived to offer the best possible service to clients, developing a reputation for finding solutions even in the most challenging of circumstances.Withover 75% of their business each year coming from repeat clients, the company prides itself on understanding each client’s long-term business plan and structuring a financing package that is relevant to their current and future needs. They have helped clients secure in excess of £2 billion of finance in the last 5 years, and restructure £450m of debt in the last year.
Much like NAFA, Arc & Co. has built a team that is knowledgeable and passionate about finance and deeply committed to getting clients the right result. Arc & Co. and NAFA develop strong business relationships worldwide,promoting the highest standards of excellence throughout the finance and aviation industries.
For more information about Arc & Co., visit arcandco.com/.
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.
How to Refurbish Your Jet With Maximum Appeal (Part 1) see more
NAFA member, Gary Crichlow, Director of Aviation Finance with Arc & Co., discusses business jet refurbishment.
How would you upgrade your jet to optimize appeal on the resale market?
When refurbishing your business jet, how far should you go? How can you anticipate appealing to future buyers, and what should be the priorities with a sale in mind? Arc & Co’s Gary Crichlow shares the insights of Tobias Laps and Iain Houseman.
Refurbishing or upgrading an aircraft is a very different investment proposition compared to refurbishing a property. While property generally appreciates in value over time, aircraft are fundamentally depreciating assets. Outside of very specific, often unpredictable market conditions, aircraft will lose value as they age.
Any investment into a business aircraft therefore needs to be looked at from the point of view of slowing that value loss as much as possible and extracting maximum utility, rather than expecting a positive financial return.
The most effective way to slow natural depreciation is to ensure the aircraft is desirable to the market so it sells quickly when the owner decides they want to upgrade or generate some cash.
Mainstream, sought-after aircraft models in top maintenance condition that have undergone a high-quality cabin refit don’t tend to stay on the market for long (unless they’re unrealistically priced).
What Makes an Appealing Interior?
Naturally, when considering how to fit out the cabin of a private jet, it’s crucial to make choices that not only align with your current needs and desires, but also account for your future buyer’s mindset as much as possible.
Decisions made now often have a sizeable impact on the future point of sale. The one similarity with selling property is that a well-executed interior should enable the buyer to visualize himself or herself in the cabin with little or no change rather than having to consider the cost of ripping it all out and starting again.
Following are several themes that are important to consider when it comes to the perceived value that a well-executed cabin refit generates at the point of sale from a buyer’s perspective.
Note: With our use of the term ‘value’, we encompass not only the actual return by way of an increased sale price (which tends to be the exception rather than the rule), but also the impact on the time it takes to sell the aircraft, thereby minimizing the detrimental effects of depreciation and time on the market.
Aircraft Condition Over Aircraft Style
Generally, aircraft in better condition tend to be easier to sell. A relatively new interior that’s in good condition can markedly increase an aircraft’s appeal, but its impact will be very much dependent on the basic aircraft ‘metal’, i.e. its age, hours and maintenance condition.
Tobias Laps from Comlux Management AG notes that on Large Jets and Bizliners, the design of the interior, the layout and materials tend to have a much bigger impact on the buyer’s decision-making than on smaller aircraft.
“In our experience, when buyers walk onto an aircraft, they typically know within the first few minutes whether the interior will work for them or not,” Laps explains.
“If they don’t like the interior at all, they will often walk away from the deal. If there are only certain aspects of the interior that they don’t like, they will then have to decide whether changing those aspects would be worthwhile.
“It is at this point that they weigh up their view of the basic aircraft, the metal versus the cost of changing the interior to better suit their needs. If the metal is relatively new, in good condition, and is worth significantly more to the buyer than the cost of the interior upgrade, then that’s what will tend to drive the decision,” Laps continues.
It is therefore of key importance for a seller to understand the interplay between the technical and the cosmetic, which will depend heavily on the specific details of the aircraft.
Do Cabin Cosmetics Matter?
There are important aspects of the cabin prospective sellers can address to give buyers a first-class impression of the aircraft’s condition, and according to Laps that begins with choosing an interior layout with resale value in mind well before the actual sale, including “mainstream” color and veneer choices.
“In terms of specification, wireless connectivity is a trend whereby passengers can connect their own devices while on board,” he adds. “Upgrading a wireless entertainment system is easier because the interior does not have to be removed to rewire components.”
Know Who You’re Trying to Impress
Regardless of the layout and specification, Laps emphasizes that the first thing you must do when selling your jet is to prepare to impress the principal’s technical representatives.
“Make sure the maintenance records are up to date, well-organized and presentable and the aircraft is clean and fully serviceable,” he details. “It’s a very good idea to clean the landing gear, bays and externally-accessed compartments.
“Only after the representative has examined the technical condition of the aircraft and records and is satisfied will the principal typically come to assess the interior and overall cosmetic condition and make the final decision.”
In preparing for the principal to come and view the aircraft, it will need to be cleaned. “The exterior should be spotless, and the flight deck and cabin should be deep-cleaned, including the galley, lavatories, carpet and sidewalls,” Laps concludes.
“Everything should look fresh and up-to-date. Soft goods and furnishings should invite the principal to visualise himself or herself using the aircraft.”
Age Before Beauty?
Iain Houseman of Elit’Avia, meanwhile, believes the interior will be a lot more important if the aircraft is older. “If it’s a newer aircraft, then the interior is usually still in pretty good shape and, in that case, it comes down to how appealing it looks to the buyer,” he notes.
“If the interior has been designed in a way that appeals to a limited group of people (as an example, red leather seats or a carbon fibre interior instead of veneer) that can be a deal-breaker, because buyers will have to spend time and money to change it.
“For older aircraft, the interior condition can be important for the same reasons – if the interior has recently been redone or is in good condition then the aircraft is more appealing because it doesn’t need significant rework,” Houseman observes.
“Additionally, there is a need to understand the current technology systems and the proximity of major inspections for the aircraft that will allow upgrades to be incorporated and save considerable costs.
"For example, we estimated a major inspection for an owner’s aircraft of $1.1m and got the cost down to just under $800k – and managed to include some key avionics upgrades, internal improvements and soundproofing enhancement, which proved very useful in getting the aircraft ready for sale.”
Upgrading and refurbishing an aircraft is a significant investment that can strongly enhance your experience while on board. Nevertheless, when planning for the investment, it’s important to have a realistic view of the value a refurbishment creates.
A well-executed cabin refit should not only meet your immediate needs in terms of space, aesthetics, utility and connectivity. It should appeal to the broadest possible range of potential buyers when the time comes to move the aircraft on.
In ‘Part 2’ we’ll explore the current trends in cabin design as owners seek to maximize utility, comfort and style, gaining input from renowned interior designer Celia Sawyer, while also considering the importance of maintaining paperwork and ensuring the design is properly certificated to enhance the chance of selling your aircraft at the best price. Stay tuned…
More information from www.arcandco.com
This article was originally published by AvBuyer on August 12, 2019.
Private Aviation Finance - Why Cash Isn't Always King When It Comes to Acquiring a Private Jet see more
ARC & CO. IN CONVERSATION WITH ELIT'AVIA
The world of financing can seem a complex arena to navigate to get the best deal and, as such, the majority of private aircraft transactions are in cash. There are a number of reasons for this, including that aviation finance is often seen as too much of a hassle, too expensive, restrictive, invasive, complicated, not transparent or all of the above. It’s true that putting a finance deal together is a complex undertaking. But there is a key benefit
that makes finance worth considering:
YOUR CASH ISN’T TIED UP IN A DEPRECIATING ASSET
Having such a large capital investment in an asset that depreciates in value over time makes financing an attractive option. Linking financing to the different tax regulations and exemptions makes it an even more approachable option when maximising the value of retaining capital for investment in other areas.
Of course, there are always exceptions to this depreciating-asset rule: sometimes the market dynamics can be such that specific aircraft types and models become particularly sought after and appreciate
in value as a result (e.g. the Gulfstream G550). But these are exceptions, with limited durability of demand and the dynamics are volatile: value bumps are often unpredictable, sudden and short-lived.
Speculative buyers looking to buy low and sell high need to know what they’re doing, have a high risk tolerance and be willing to
go through the complexities of the buying and selling process at a moment’s notice in order to capitalise. Whether you’re buying the aircraft for use or speculation (or both), accessing finance preserves your cash – allowing you to invest it elsewhere.
Click here to read the full article.