Jack Prewitt & Associates, Inc. Joins National Aircraft Finance Association see more
FOR IMMEDIATE RELEASE
FORT LAUDERDALE, Fla.- Aug. 23, 2019 - National Aircraft Finance Association (NAFA) is pleased to announce that Jack Prewitt & Associates, Inc. has recently joined its professional network of aviation lenders.
“NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world. We’re excited to welcome Jack Prewitt to our growing organization as we head to our 50th anniversary,” said Jim Blessing, President of NAFA.
Jack Prewitt & Associates provides a comprehensive aircraft brokerage and acquisition service developed from extensive knowledge gained over the years of the aircraft markets, allowing them to effectively gauge the needs of their clients. The company prides itself on being an aviation partner with a track record of client success and satisfaction.
The company serves their clients by first establishing what the client’s mission is when acquiring an aircraft, then providing up to date insight into the worldwide aviation marketplace. Their team identifies the best aircraft that fits their customers’ mission and negotiates a fair market price, all while guiding them through the purchasing process from “tip to tail”.
Over the last 40 years, Jack Prewitt & Associates has bought and sold over 1000 aircraft, largely through their extensive, exclusive network of contacts. As an inventory dealer, the company are experienced buyers as well as sellers. Via their leasing subsidiary, AEI, they also own six aircraft, including five large cabin jets, all on long-term lease. The company believes this varied experience sets them apart from the rest of the field.
Much like NAFA, Jack Prewitt & Associates, Inc. has experience in all facets of aviation and provides accurate market knowledge. Jack Prewitt and NAFA are passionate about the aviation industry and promoting excellence in service.
For more information about Jack Prewitt & Associates, Inc., visit nafa.aero/companies/jack-prewitt-associates-inc.
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 NAFA.aero.
Aircraft Insurance Rates Take Off: Upward Trend in 2018, First in 16 Years see more
NAFA member Stephen P. Johns, CIC, President of LL Johns Aviation Insurance, discusses the upward trend in aircraft insurance rates.
In early 2018, most buyers began hearing that their aircraft insurance rates would be increasing for the first time in years. Rate increases of 3-5% for operators with clean loss records were common, and 15% for those who’d had claims. By the end of 2018, claims-free operators were seeing 10-15% rate increases, and those with claims history even higher.
What Precipitated the Rise?
After some upward movement in 2000-2001, the events of 9/11 had a significant impact on rates, especially on war-risk pricing and availability. One business jet operator watched premiums rise from $59,000 in December 2000 to more than $113,000 in December 2002.
By early 2003, rates began to plateau and then trend downward. For much of the aviation industry, the ensuing “soft market” – rate reductions and broadening of coverages – continued uninterrupted for almost 16 years.
From 2005 through 2010, the number of insurers providing aviation insurance in the U.S. grew from 9 to more than 20. These new entrants were not new to the insurance business – most were sizeable companies electing to enter the aviation segment. As new and longer-standing aviation insurers scrambled to gain and maintain market-share, rates fell, limits increased, contract language broadened, and underwriting disciplines relaxed.
Why the excess capacity in the aviation insurance market during the last decade? Is it the faltering economy and stock market that caused investors seeking a safe haven to infuse capital in the market? Is it that better technology and improved safety systems have resulted in safer operations and reduced claims?
Whatever the reasons, rates were reduced to artificially low levels, unsustainable over time. In 2018, six reinsurance companies and a number of underwriting companies pulled out of the market. Those remaining are consistently seeking rate increases, limit reductions, and tightening of underwriting standards.
And it’s not only the rates that are changing. Underwriters also are becoming more judicious with limits offered and other policy provisions. Since it’s now harder to hire and retain pilots, underwriters are giving more scrutiny to pilot experience and training. There’s a move back toward the “12 month motion based simulator” training requirements that were non-negotiable in the 80s and 90s.
What Can You Expect in 2019?
The hard market will remain and rates will continue to increase for most operators, at the rate of 15% or more. The potential loss of market share will begin to test the resolve of the insurance companies and determine whether these increases will continue throughout the year.
Back to that operator whose premium nearly doubled from 2000 to 2002. While he’d benefited from the “soft market,” by December 2018, he was paying less than $44,000 in premium for the same coverage limits. If this aircraft operator’s rate increases by the expected 15%, he still will be at only $50,600, approximately 15% below the rate level he paid in 2000.
What Can You Do?
Even top flight departments with no claims should expect some upward movement in rates, so budget accordingly. Particularly if your operation has a loss history, start the renewal process early – about 120 days before policy expiration – providing updated information on the aircraft, pilot hours and training, and evidence of the safety and professionalism of your operation. This gives your broker time to approach new markets on your behalf, or to suggest you stay long-term with one underwriter, as there are costs other than the premium to consider.
As Colin Powell once said, “Bad news isn’t wine. It doesn’t get better with age.” An experienced and trusted broker with good underwriter relationships will help you navigate the process.
Finally, keep the increases in perspective. While no buyer likes to see prices going up, it’s remarkable that aircraft insurance in 2019 may cost less than it did in 2000!
This article was originally published by Business Aviation Advisor on March 1, 2019.
Taxing Relationships - The New Tax Traffic Controller for Partnership/LLC Aircraft Owners see more
NAFA member David N. Corkern, J.D., LL.M., aviation attorney with Shackelford, Bowen, McKinley & Norton, LLP, shares information about the recent IRS changes made regarding partnerships and LLCs for aircraft owners.
Do you own an airplane through a limited liability company that is treated as a partnership to preserve privacy, or to minimize tax or other liability exposure? Or in which the airplane is held in a partnership of all “natural persons” (i.e. human beings)? Regardless of the reason, you’ll want to be aware of the recent changes made to the way those partnerships/limited liability companies (LLCs) are treated by the IRS during an audit.
In 2015, with the passage of the Bipartisan Budget Act, the U.S. Congress significantly revised the manner in which partnerships/LLCs are audited. (While LLCs differ from partnerships under state law, they are treated and taxed as partnerships by the IRS, unless they have elected to be taxed as corporations. All references to “partnerships” in this article refer to such LLCs as well.)
The IRS has issued regulations known as the Centralized Partnership Audit Regime (“CPAR”), effective for audits of partnership tax years beginning on or after January 1, 2018. The CPAR requires that all partnerships designate a “partnership representative.”
This designation must be made for each tax year of the partnership and replaces the “tax matters partner” under the old rules. Unlike the tax matters partner, the partnership representative may be someone other than a partner. Do exercise caution when choosing your new partnership representative, since the IRS will not deal with any other person or entity in case of a tax audit. In addition, the CPAR gives the partnership representative greater powers than the former tax matters partner – to bind the partnership and all of its partners in negotiations with the IRS, notwithstanding any contrary provision in the partnership agreement.
CPAR also changes the way in which tax adjustments are made. Prior to CPAR, if an audit resulted in additional taxes, penalties, and interest due for the audited tax year, those adjustments would have been made at the partnership level and each partner’s return also was adjusted. The net result of the pre-CPAR audit was that taxes, penalties, and interest were collected from those who were partners in the audited tax years.
Now under CPAR, the IRS will assess all taxes, penalties, and interest against the partnership, which shifts the burden to current partners, and not to those who were partners for the years under review.
For example, assume that “High-Flying, LLC” owns an aircraft. From 2012 through 2016, individuals A, B, and C were equal partners in High-Flying, LLC. When C sold his interest to D in January, 2017, D became an equal partner with A and B in High-Flying, LLC. If, after audit, the IRS determines that additional taxes are owed by High-Flying, LLC for tax year 2016, High-Flying, LLC will bear that cost, and D must pick up the tax tab for the former partner, C, absent an “opt-out” or “push-out election” discussed below.
How can a new partner be protected from bearing someone else’s tax liability under CPAR? There are two ways to do so:
First, a partnership with fewer than 100 partners and no ineligible partners (e.g., partnerships, trusts, and LLCs taxed as partnerships) may elect out of CPAR. This “opt-out” election is made yearly on the partnership’s tax return.
Second, a partnership may use a “push-out” election to shift the tax audit adjustments to former partners. The “push-out” election also must be made yearly on the partnership’s tax return.
If you are thinking of buying or selling an interest in a partnership or limited liability company that owns an aircraft, pay close attention to the shifting tax liability created by CPAR. These rules are somewhat complicated and it’s always a good idea to consult an expert before amending any partnership agreement to comply with CPAR.
This article was originally published in Business Aviation Advisor on July 1, 2019.
Business Aviation Industry Set To Grow In Size, Scale And Strength Over The Next Five Years see more
NAFA member Chad Anderson, President of Jetcraft, discusses the two major differences between this year's market forecast and those from previous years.
Last month we released our 5-Year New & Pre-Owned Business Aviation Market Forecast – the first report of its kind to take a precise, comparative and quantified look at both types of aircraft transactions.
Aside from introducing pre-owned market predictions, we’ve updated our overarching methodology as compared to previous reports, making it even more precise. We’ve shifted to a five-year rather than a 10-year outlook, to better reflect the current aircraft ownership experience, and adjusted the overall population of aircraft analyzed to more closely align with our expertise. Furthermore, we’ve classified new deliveries as transactions only from date of entry into service and retrospectively normalized classifications prior to 2012, when all aircraft built were considered new deliveries. Finally, we’ve leveraged more of our own transaction data for a truly consolidated outline of how we see the industry behaving.
The findings show that our industry will continue to grow in size, scale and strength over the next five years, hitting nearly $30bn per year in revenue by 2023 – a remarkable figure. This is the first time a value like this has ever been assigned to the industry. We also expect to see the business aviation fleet grow by 12.1% in that time frame.
The forecast predicts continued and significant growth in the pre-owned industry, with an expected 11,765 transactions over the next five years, totaling $61bn in value. By 2023, we forecast four times as many pre-owned transactions vs. new deliveries, primarily due to the growing value proposition of these aircraft. Maintenance capabilities are increasing, and we are seeing greater accessibility, rapidity and cost-efficiency of high-quality refurbishment. This is resulting in higher demand for older or out-of-production aircraft, including amongst buyers who previously exclusively bought new models. Our forecast reveals that the average aircraft retirement age is now 32 years – nearly a decade older than previously thought.
We continue to see a shift towards large aircraft types in both new and pre-owned markets worldwide. Buyers are looking for larger and longer-range models and as a result of this, manufacturers are focusing on producing aircraft almost entirely in the midsize segment and above.
New unit deliveries are predicted to stay flat throughout the forecast period whilst generating higher revenues, due to the increase in large aircraft transactions. Over the next five years, we’ll see many more customers turn towards large jets rather than light jets, as the needs of business travelers evolve on a more global scale.
On behalf of the team at Jetcraft, I am honored and excited to have produced the very first new and pre-owned business aviation market forecast, stemming from our 55 years’ experience in connecting buyers and sellers across the world. We hope you find it useful, interesting and insightful and we welcome your comments, questions and feedback.
To download the full 2019 5-Year New & Pre-Owned Business Aviation Market Forecast, visit www.jetcraft.com/knowledge/market-forecast.
View video here.
This article was originally published by Jetcraft on June 28, 2019.
Used Jet Market Opinion: Chris Brenner, Jetcraft see more
NAFA member, Chris Brenner, Senior Vice President of Sales at Jetcraft, discusses the used jet market.
Whether it's buyer uncertainty or a lack of premium inventory, some analysts have noted a dip in the used jet market in the opening months of 2019. Rebecca Applegarth asks how Jetcraft’s Chris Brenner reads the situation.
So far, 2019 has been a year of global uncertainty on many fronts, whether due to talk of potential Sino-American trade wars, Brexit, or political restiveness in Europe.
Has the political instability impacted the global used business jet sales arena? What else has affected used aircraft sales trends in the early part of the year? Various reports on the used jet marketplace indicated a slight slowing Year-over- Year for used aircraft transactions during the first quarter of 2019.
Having been trading in the pre-owned Business Aviation marketplace since 1962, today Jetcraft has offices around the world, and in 2018 the company facilitated more than 100 aircraft transactions for the first time in its history. Understandably, the health of the market in 2019 is of special interest.
“Several of the strongest markets for Business Aviation are currently experiencing political uncertainty,” Chris Brenner explains, “so naturally this is making buyers and sellers more cautious.”
Brenner has been in the Business Aviation industry for the past twelve years, having originally joined Jetcraft as sales and marketing coordinator in 2009 from a small aircraft dealership that specialized in piston and light turbine aircraft.
He has since held various sales positions within the organization and was appointed senior vice president, sales for the Americas in 2017.
“Taking a longer-term view,” he elaborates, “we are still in a period of steady growth - so if there is a slight slowing, it is all part of the cycle.”
Impacts of an Evaporating Pool of Inventory
An additional consideration as to what brought about the slowing in sales during early 2019 is that less than 10% of the world’s fleet of jets is currently on the market, which historically is very low.
The expectation is that with the leading aircraft manufacturers due to deliver some attractive newly-certified jets to customers later this year, some of those new aircraft owners will release their current jets onto the used market, thereby replenishing it somewhat.
Until that happens, though, there remains an unusually low percentage of newer used jets in the market.
A recent report from Hagerty Jet Group highlighted the resulting buyer frustration as a reason for an increase in off-market transactions (specifically in the Gulfstream G550 market, in the case of Hagerty’s analysis).
But is this something that is being seen in the wider used aircraft marketplace – and if so, should it be of concern to anybody? “It has been widely reported that there is a lack of younger inventory, and buyers are having to turn to older aircraft,” Brenner reflects.
“Many sales do take place before an aircraft has been marketed, which you could define as being ‘off-market’. However, this serves to demonstrate the demand for pre-owned aircraft in today’s market.
“It should also highlight the need to work with consultants that have inventory visibility and can provide you with up-to-the-minute market insights,” Brenner explains.
Though a buyer might like to find an off-market ‘deal’, the reality is that they may be less likely to find sellers prepared to accept an offer in keeping with the realities of the on-market aircraft values.
“Buyers and sellers need to do their due diligence. Then transparency is not an issue,” Brenner says of selecting the best consultant to represent your interests in an aircraft transaction, whether it’s on or off the market.
Stable, Sensible Pricing Essential
So, what will be important if the market is to continue to thrive when the pace of transactions picks up again and the anticipated replenishment of inventory occurs?
Speaking for both the near- and mid-term, Brenner concludes, “It is important that the market remains stable. For that to happen, pricing needs to remain sensible to avoid over-supply and maintain this period of steady, healthy growth.”
More information from www.jetcraft.com.
This article was originally written by Rebecca Applegarth and published in AvBuyer Magazine, Vol. 23, Issue 6, 2019, p. 48.
Supplemental Lift - What's Best For You? see more
NAFA member David Wyndham, Vice President with Conklin & de Decker, shares what supplemental lift is and how it can benefit you.
Are there some business travel needs your aircraft can’t fulfill? David Wyndham explores the option of supplemental lift. What is supplemental lift, and how can you use it as an appropriate add-on in your current aircraft operations?
Supplemental lift may be a logical alternative to your current aircraft. As the term implies, supplemental lift is an add-on to your current operation – it is not a replacement for your current aircraft. What it does is to achieve a means of expanding your operation without adding another aircraft, extra crew, and support.
It may be that you have a specific need for short-term lift if an aircraft in your operation is undergoing a major maintenance event. Or you may need extra flight hours beyond what your current aircraft can support.
Alternatively, there may be several unique missions on the horizon for which your current aircraft is unsuitable. Perhaps you simply wish to bridge the gap before acquiring another aircraft as your flight operation grows. Thankfully, there is a range of supplemental lift options available that offer a modest number of additional flight hours without the costs associated with actually owning an extra aircraft.
Within this article, we will consider the following questions:
- What are aircraft charter, jet cards and fractional ownership?
- When does supplemental lift make sense?
What are Aircraft Charter, Jet Cards and Fractional Ownership?
Aircraft charter enables you to rent an aircraft for a trip. With charter, you pay the entire time the aircraft is flying (including any unoccupied i.e. ‘deadhead’ legs without you aboard). Therefore, charter costs are minimized with round-trip travel. Aircraft charter tends to work particularly well if one or more well-qualified providers operate the aircraft type you need close to your location.
Jet cards are a form of pre-purchased charter. Some jet card programs are aligned with a major fractional ownership company (such as NetJets).
Other providers offer a broker arrangement where they sell you the time and find the qualified operator for you. Most jet card providers offer both one-way and round-trip pricing.
Fractional ownership enables you to purchase or lease a share of an aircraft in proportion to the additional flying that you plan to do. This may be a good way to bridge the gap between insufficient current aircraft availability and developing sufficient need to justify buying an additional aircraft outright. Operators who purchase a fractional share can choose to sell it back to the provider at the end of the contract.
When Does Supplemental Lift Make Sense?
As highlighted through the different options, supplemental lift can be a short- or long-term solution. The hours can vary with your needs. To illustrate, and also highlight how and when supplemental lift makes sense, following are some real-life examples.
Extended Downtime: One operator I work with has an aircraft that’s almost 12 years old. They fly regularly and the aircraft is fast approaching a major maintenance check and engine overhauls. The avionics suite is outdated and the principal wants to add in-flight cabin connectivity. Additionally, the paint and interior are in need of a refresh.
Having conducted a financial analysis, the operator concluded that the aircraft value prior to the work being done is lower than they would sell it for. Moreover, the cost of a newer replacement aircraft is more than they wish to spend. The plan, therefore, is for them to complete the overhauls and upgrades at the same time, with an expected downtime of at least four months. This means a temporary solution is required that effectively replaces their aircraft for the time it will take to complete the maintenance and upgrades.
An estimated 120 flight hours will be needed over those four months, and the operator has chosen aircraft charter as the right option to fulfill this demand.
Fortunately, they’re located in a city with several large charter operators nearby and were able to negotiate a block of hours with a local provider with a top safety rating.
Expanding Mission Need: A different corporate client recently expanded operations to a distant city and their current aircraft cannot make that trip non-stop. The client estimates flying one trip per month for approximately eight flight hours, representing a 20% increase in their flying activity. To upsize to a larger aircraft would increase the operating budget by almost 90%.
The cost to buy the larger business jet is nearly three times what their current jet is worth. Over the course of a year, the client would need less than 100 hours flying a longer-range jet and their demand analysis indicates this utilization is likely to remain steady and long-term. In addition, avoiding a fuel stop on 20% of the trips wouldn’t be worth the added investment in a new, larger jet.
But what if the client were to supplement their operations with added lift?
The client was able to find a fractional ownership solution to meet their needs at a fraction of the cost of replacing their current aircraft. When they near the end of their current contract, they will reassess their need and budget, revisiting the question of acquiring a larger business jet.
Growing Operation: One last example is of a flight operation growing at 15% per year. Corporate projections indicate that this rate of growth will continue and there are new departments asking for use of the aircraft.
In their analysis, the client’s aviation department estimates that they can meet the additional demand for the next 18–24 months by hiring a new pilot and combining a few trips each month. Acquiring another aircraft may take between six and nine months.
The company hired a consultant who performed an aircraft needs analysis. The report confirmed the aviation department’s internal findings and recommended that a second aircraft be purchased within the year. The report also recommended adding supplemental lift within the next six months to maintain the department’s ability to meet trip requests without any disruption.
Accordingly, they purchased a jet card offering them the additional projected flight hours. The card program includes price guarantees for 12 months with the initial purchase.
Simultaneous Travel Needs: One more consideration might be the scenario where you occasionally need simultaneous aircraft. If you anticipate multiple overlapping requests for the aircraft, a supplemental option, such as a charter, jet card or fractional ownership might make sense.
Next month we will continue our discussion with consideration of how to choose the right aircraft, and then manage the supplemental lift as you grow into another aircraft.
This article was originally published in AvBuyer Magazine, Volume 23, Issue 6, 2019, p. 76.
Back to the Future - 35 Years see more
NAFA member Bill de Decker, Co-Founder of Conklin & de Decker, shares his thoughts on business aviation.
Nobody could deny Business Aviation has come a long way in the last 35 years. Looking back to 1984, NetJets was only a vision of Richard Santulli who had just purchased Executive Jet Aviation.
The most popular business jet model was the Learjet 35A and Cessna was in the lead with the most combined deliveries of its Citation line of Light and Mid-size Jets. In the Long-Range category, the Falcon 50 was the leader for Dassault and the Gulfstream GIII was having a strong year.
Meanwhile, Bombardier’s Challenger was the first entry in the new Super Mid-size Jet class. What’s more, we were all looking forward to the all-new GIV, which was nearing its first flight. Impressively, many of these aircraft are still flying today, which is a testament to the quality of manufacturing, technology and years of proper maintenance.
But away from the manufacturing side, the launch of several entrepreneurial Business Aviation start-ups also took place at that time, including a company called Conklin & de Decker.
Al Conklin and I met while working at Falcon Jet in the early 1970s and we went on to publish the first Aircraft Cost Evaluator in 1972. Our combined experience spanned the military, aircraft sales, engineering and c ost analysis, and we had a passion for business jets. We recognized a demand for accurate, trustworthy, directly comparable aircraft cost and performance data that could help businesses and individuals make more informed decisions when buying an aircraft.
Since then, Conklin & de Decker has become a leader in that field and also consults on a wide range of subjects, including fleet planning, acquisitions and taxes. A little
over a year ago, we announced that Jet Support Services, Inc. (JSSI) had acquired our company. As JSSI added programs, expanded into parts and leasing, and introduced advisory services such as overhaul management, inspections and appraisals, it was a logical step to acquire our data, tax and consulting business in 2018.
The result is that JSSI and Conklin & de Decker are positioned for the future and no longer just provide hourly
maintenance programs or databases but support the entire life cycle of owning and operating an aircraft. Our two companies have many things in common but the most important, in my opinion, is our dedication to our customers.
What’s Changed in BizAv?
One of the great things about Business Aviation is the constant pursuit of innovation. In 1984, the push was for more range, more speed, better performance, lower fuel consumption, less noise, lower maintenance costs and better avionics. And that has not changed one bit today!
So what has changed? It’s the sheer amount of information that’s available to consumers. People consume vastly more data today and depend on it to make decisions. This was a big motivation for the creation of the Conklin & de Decker Report, ba sed on our flagship Aircraft Cost Evaluator that is now easily accessed via the web or mobile app.
Another change has been the globalization of Business Aviation with its Ultra-Long-Range Jets and worldwide operations. To address this, we’re expanding our research to accurately depict regional variations in operating costs, starting with the Asia-Pacific and European regions.
Meanwhile, the one area that hasn’t changed since 1984 is the importance of great customer service. Even with increased automation and digital access to our products I don’t foresee the personal level of our service we believe in going out of style.
And on to the Next Generation in BizAv...
As we look to the next generation of Business Aviation, we see supersonic transportation (SST) making a comeback; not the 1980s SST version but with new, efficient engines that will burn the latest sustainable alternative jet fuel blend and with no perceptible sonic boom. We see futuristic eVTOL designs and talk of autonomous aircraft.
However, one vital element to our industry’s longevity is its ability to attract and retain young talent—pilots, maintainers, design engineers, software developers and sales reps who share the same passion for aviation that led many of us to devote our entire careers to this industry.
With them we will continue the legacy of business aviation for many years into the future. More information from www.conklindd.com.
Bill de Decker is the Co-Founder of Conklin & de Decker, where he is responsible for consulting studies and developing new programs. His areas of expertise include financial management, business and fleet planning, certification issues, life cycle cost and operations. Prior to founding Conklin & de Decker, Bill managed the Falcon and Bell Learning Centers, as well as the Communications Systems Division for FlightSafety International.
This article was originally published in AvBuyer Magazine, Volume 23, Issue 6, 2019, p. 4.
In-Service Aircraft Values & Maintenance Condition see more
NAFA member, Tony Kioussis, President of Asset Insight, shares the latest market analysis.
Asset Insight’s April 30, 2019 market analysis covering 96 fixed-wing models and 1,684 aircraft listed for sale, revealed a 1.7% inventory increase to the tracked fleet. Large Jets experienced the greatest percentage inventory increase (a 4.6% gain), followed by Small Jets (3.5% inventory increase). Meanwhile Medium Jet and Turboprop inventory decreased 0.5% and 1.1%, respectively.
Average aircraft value for the tracked fleet increased just under 1% to post a figure just over $60k higher than the record low value.
While Medium Jets posted a 12-month high figure and Small Jet values remained above their 12-month average, these increases could not overcome ask price decreases posted by Large Jets and Turboprops.
Inventory Fleet Maintenance Condition
Fleet asset quality improved nearly 1.2% in April while Maintenance Exposure also improved 1.4%. Overall, the tracked inventory posted the following:
Quality Rating was below the 12-month average, but it did manage to skirt into the ‘Excellent’ range, increasing from 5.191 in March to 5.251 for April, on Asset Insight’s scale of -2.5 to 10.
- Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense), although below the 12-month average, improved (decreased) to $1.4m from March’s $1.42m.
Maintenance Exposure to Ask Price (ETP) Ratio
The ETP Ratio is a useful indicator of an aircraft’s marketability. It’s computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price.
‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time for sale on the market increases, usually by more than 30%. During Q1 2019, assets whose ETP Ratio was 40% or more were listed for sale over 62% longer (on average) than aircraft whose Ratio was below 40% (i.e. 237 days versus 384 days on the market).
April’s analysis also noted that 55% of all tracked models and nearly 63% of the tracked fleet posted an ETP Ratio above 40% (see Table B).
Our tracked fleet’s ETP Ratio posted another improvement in April, decreasing to 63.6% from March’s 66%.
Turboprops posted the lowest (best) ETP Ratio at 54.9% (although that reflected a worsening from last month’s 52.9% and a 12-month worst figure;
Large Jets improved from 62.2% to 60.2%;
Small Jets improved from 62% to 61.5%; and
- Medium Jets improved from 79.5% to 72.9%.
The continued increase to the inventory fleet must be worrisome for Large Jet sellers as final transaction values have shown a noticeable drop during the past few weeks.
Small Jets also experienced an increase to the fleet for sale, but the impact on their pricing has not been as dramatic... at least, not yet.
Large Jets April Market Summary
Large Jet inventory increased by another 16 units, with April’s fleet mix change seeing a large number of higher quality assets enter inventory.
Better asset quality ought to command higher pricing, but that does not appear to be the case as values are under supply pressure and there is an apparent desire by many sellers to transact while the trading climate is still favorable.
Ask Prices decreased another 2.5% in April and are now
down 8.2% for the year. While the group’s ETP Ratio improved due to higher quality assets entering the fleet for sale, the improved selection is creating downward pricing pressure.
Medium Jets April Market Summary
Inventory for the tracked fleet decreased by three units in April, and asset quality improved an impressive 3.7% while Maintenance Exposure improved (decreased) 2.1%. If you combine those figures with a 4% price increase in April (a 12- month high figure and a 7.5% increase for the year) the result is an ETP Ratio of 72.9%, the group’s best figure since July 2018.
Buyers and sellers are clearly finding common ground and, since 11.6% of the tracked inventory fleet is listed for sale, Asset Insight believes the traditional 10% transition point between a buyer’s and seller’s market may be shifting to a higher number.
This article was originally published in AvBuyer Magazine, Volume 23, Issue 6, p. 30.
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.
Preparing for an Aircraft Purchase: How to Become the Most Prepared and Qualified Buyer see more
NAFA member, Amanda Applegate, Partner at Aerlex Law Group, shares tips on how you can become the most prepared and qualified buyer when purchasing an aircraft.
As the supply for quality pre-owned aircraft inventory has begun to shrink (especially in certain large cabin models), I see more buyers devoting time to advance preparations to ensure that they are perceived by sellers as the most qualified, attractive buyer. If you are in the market for an aircraft and want to expedite your purchase and closing, consider taking the following steps prior to making your first offer.
BUILD YOUR ACQUISITION TEAM EARLY & PRIOR TO THE FIRST OFFER
Aircraft Broker/Consultant – Select a consultant or broker who knows the global market for the aircraft type you are purchasing. The broker/consultant must also be respected among his peers. There are certainly instances when an offer is not taken as seriously if the broker representing the buyer lacks experience with the particular category of aircraft being sought or has had previous conflicts with the broker on the other side.
Aviation Counsel – Retain counsel in advance so she is ready to jump into a deal once the aircraft is selected. This will save valuable time later. Including a provision in the Letter of Intent (“LOI”) that the buyer will have an initial purchase agreement to the seller within three days of signing of the LOI will be very appealing to a seller. But this can only happen if aviation counsel has already been identified, retained, and is up-to-speed on the specifics of the deal.
Technical Representative – Hire the right technical expert so that he is ready to start immediately once the aircraft is identified. The technical representative will review aircraft maintenance records and identify any inspection items that must be rectified. The technical representative can also help determine which aircraft is the best aircraft to make an offer on, based on aircraft pedigree.
Lender – As in all transactions, sellers prefer cash deals. But if the aircraft is going to be financed, contact lenders and select a lending partner before a specific aircraft is chosen so that lenders are able to close quickly once the aircraft is identified.
Management Company – Is the aircraft going to be managed by a third-party provider? Will charter be allowed on the aircraft when not being used by the aircraft owner? Selection of a management company early in the process means you will have the management company acting as your advocate throughout the acquisition. Many management companies don’t start charging management fees until the aircraft is acquired, so there is valuable advice available at little cost by selecting early.
Insurance Broker – Decide if the insurance will be procured through the management company or if you need an insurance broker to provide the comprehensive coverage to diminish liability concerns.
Escrow Agent – Identify your escrow agent and obtain their wire instructions so you are ready to send a deposit as soon as you have an accepted LOI. This demonstrates to the seller that you are a committed buyer.
ESTABLISH YOUR OWNERSHIP STRUCTURE
Your aviation counsel can help you determine the following: What entity will own the aircraft? Does the proposed structure make the most sense, based on the intended use of the aircraft and the potential tax implications for those who will use the aircraft? Is the ownership structure legal under the Federal Aviation Regulations?
Retain a qualified aviation tax attorney and CPA who can review the ownership structure to make sure it is the best tax-plan available.
What are the sales and use tax consequences of the ownership structure?
Are there adequate liability protections under the ownership structure or at least adequate insurance for all parties involved in the ownership structure?
DON’T SWEAT THE SMALL STUFF
There are a number of miscellaneous items that often get negotiated in the LOI and purchase agreement. These items comprise a small amount of the overall transaction cost, and having flexibility on them may make your offer stand out. Understanding the cost of these items and your position on them before the LOI may allow your offer to appear more competitive than another offer. One approach is to have the seller pay all of these costs and then adjust the purchase price higher since that is the number the seller will most likely focus on. Some of the small items are Escrow Fees, Aircraft Movement Costs, Customs and Registration Change Fees (if applicable), and Registration Number Change Fees.
Spending time and effort at the beginning of the aircraft acquisition process to prepare as much as possible, can lower the naturally-occurring stressors related to aircraft transactions.
Please contact Amanda Applegate at 310-392-5200 or email@example.com.
This article was originally published in BusinessAir Magazine, May 2019, Volume 29, No. 5.
5 Things That Significantly Matter in An USPAP Appraisal see more
NAFA member, Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services, discusses what you should look for in USPAP Appraisals.
Imagine that you’re trying to buy an aircraft and you get an appraisal that looks great. Then, you acquire the aircraft and you realize the valuation was way too high. This is a huge problem, especially when planes can cost upwards of $700,000!
For most people, this would be enough to boil their blood. This is why it’s so important to understand your USPAP appraisal and why it matters in this process.
To avoid this, we’ve created a guide to USPAP appraisals so you don’t have to do the research on your own.
Let’s talk about what really matters in an aircraft appraisal.
The 5 Most Important Factors in a USPAP Appraisal
Remember: there are no actual rules regarding the value of aircraft. This means that anyone selling an aircraft can apply a price point to the craft regardless of what the actual value “should” be.
Because of this, it’s important to be highly aware in your judgment, so we’ve compiled some great tips here to help you do just that.
1. Your Purpose
Each USPAP appraisal is slightly different because the contents of the report depend on the purpose of the consumer. This makes knowing your purpose very important so you can convey this information to your appraiser.
Doing so will make sure that your appraisal report is as accurate as possible.
2. Your Appraiser
Much like your realtor, your doctor, and your lawyer, you only want the best people helping you, especially when your money is on the line.
Know who your appraiser is, what kind of business they do, and their overall reputation. They should be able to assist you in reading the aircraft’s history and evaluating risk factors – it could mean the difference between a successful and terrible USPAP appraisal.
3. An Understanding of the Aircraft
Like we stated above, it’s important for you and your appraiser to understand the aircraft and its history.
Depending on its environment, how much it’s been flown, and where it’s kept, there could be issues that are hidden even from initial inspections. Be wary of people who are too quick to close.
4. The Aircraft Logbook
The logbook is kind of like the roadmap to the aircraft. In a USPAP appraisal, this is one of the most important documents you can have at your disposal.
Use it as a diagnosis for the aircraft – was the owner proactive in fixing problems? Were there a lot of unfixed issues?
5. Taking Your Time
Finally, don’t rush the process.
You wouldn’t jump on a car just because you want a car – you should always evaluate accident history, features, and technical information that matters to how the car operates. The same is true of aircraft.
In your USPAP appraisal process, never rush to a conclusion before you know the full picture.
Now that you know what to look for in a USPAP appraisal, you might be asking, “Ok, where do I start?”
Check out our other blog posts – we offer trusted valuation guides to aircraft, like how the value of aircraft can fluctuate, so you can make the most educated decision with your money.
This article was originally published by VREF on May 6, 2019.
A Decade of Aircraft Finance Evolution see more
NAFA member, Ford von Weise, Global Head of Aircraft Finance at CIti Private Bank, shares why now is a good time to buy your business aircraft.
A decade ago, the question of whether or not you could finance your business aircraft acquisition had a complicated answer. With the economic crash of ’08, the bubble burst and the lending industry became harsh, especially for what were deemed illiquid investments, including business assets such as aircraft. Unless you met the significantly increased financial requirements, encompassing net worth and capital liquidity, as well as having “investment grade” credit and a well-established relationship with the bank, then financing an aircraft likely wasn’t an option for you.
Many banks raised interest rates across the board or got out of aircraft lending completely. This move was due to much tighter regulations that more than doubled the capital reserves requirement (new Basel III loan reserves), along with the quickly declining market value of both new and used aircraft. With these developments, coupled with heightened loan covenants (restrictions on borrower activities that could jeopardize their ability to repay), lending decreased and fewer transactions resulted. If you still pursued that aircraft investment, you either paid with cash, or waited for the aircraft market to shift again.
That shift began taking place with the recovering economy. The demand for light and mid-size aircraft increased. New (non-bank) lenders began filling the space in the middle of the aircraft market, capital started flowing back into aircraft finance, and loans on aircraft once again became an appealing investment. The diversity in lenders brought diversity in financing options, and opened up the aircraft market to older models (although mandatory avionics technology upgrades – cost-prohibitive for some – now had to be considered).
More customized financing, in the form of capital leases, operating leases, or traditional loans with varied terms, became available. The big banks leaned toward financing new or “like new” aircraft with secured loans, while non-bank lenders trended toward more varied aircraft and types of loans. Credit quality, along with the aircraft’s residual value, still were big factors for both. However, credit requirements lessened and residual values rose, preparing the aircraft lending market to take off. It wasn’t an awful time to buy a business aircraft anymore, but it also wasn’t the best, yet.
The big variable in financing terms had to do with the unpredictability of aircraft residual values. While it became easier to know what an aircraft was worth (compared to the years following the recession), residual values still were inconsistent. This situation was largely informed by the increasingly faster technology cycles in avionics, combined with new manufacturers’ discounting. Because banks look at an aircraft as an asset and need to secure collateral for its underlying worth, the make, model, and technology with which it is equipped (among other factors) influenced residual value and financing terms accordingly.
Demand for business aircraft continued to grow, along with financing capital in the aircraft finance market. Combined with more varied loan options and increasingly favorable terms, competition in the space soared. Banks revised their risk acceptance criteria in order to buy more volume, reducing financial requirements even more. Now, with lower interest rates, lower market values for business aircraft, mostly stable residual values, and an increasing number of buyers, “covenant light” transactions are increasing.
The developments in the aircraft finance market during the last decade may be complicated. Yet the question of whether or not to buy a business aircraft no longer is complicated: there’s no better time to buy! While we’re not back to the crazy deals of non-recourse lending seen prior to ’08, there’s little reason to wait to make an investment in business aircraft. However, borrow with caution. If you’re on the verge of acquiring a business aircraft, be sure to seek a lender with aviation specialization.
This article was written by Ford von Weise and originally appeared in Business Aviation Advisor May/June 2019.
Tax Requirements on an Aircraft Purchase see more
NAFA member Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about tax requirements when purchasing an aircraft.
Question: I purchased a plane last year utilizing AOPA. One thing I was not made aware of until later in the process is that required sales tax (I live in TX) could not be included in the loan so I had to give up almost $7k which I was going to use ADS-B compliance. No one seems to talk about that. Is that normal?
Answer: The tax requirements on an aircraft purchase can vary drastically from state to state. Since lenders do not roll taxes into the financing, AOPA Aviation Finance does not typically get involved with tax questions. Often times the selling broker will account for sales tax but we always recommend consulting your CPA or a tax attorney. AOPA’s Pilot Protection Services has attorneys on staff and panel attorneys throughout the country that can assist members with such questions. Members of the PPS plan receive a free 30-minute consultation annually along with a number of other benefits.
Have questions for Adam? He is happy to answer them. Submit your questions here. Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.
This article was originally published by AOPA Aviation Finance Company on March 28, 2019.
Key Factors for Classifying Aircraft Travel for Federal Income Tax Purposes see more
NAFA member, Ryan Swirsky, Associate with GKG Law, discusses factors for classifying aircraft travel for tax deductions.
Many aircraft owners use their aircraft for both business and non-business purposes during the same trip. This practice can often make categorization of a particular trip more difficult, as the “primary purpose” of the trip must be for business in order to be tax deductible. Further, this categorization must be made for each passenger for each leg of a trip. GKG Law would like to remind aircraft owners of the “substantiation requirement” for taxpayers and discuss factors that will cause the Internal Revenue Service (“IRS”) to more heavily scrutinize the classification of a particular trip. One of these factors happens to be travel around holidays, such as the Fourth of July.
An aircraft owner is required to make the initial determination of how to categorize its aircraft-related travel for purposes of tax deductibility (e.g., business, entertainment, personal non-entertainment, commuting). However, the aircraft owner must also be able to adequately substantiate with detailed records its classification of the primary purpose of a particular flight in order to support its deductions for the business use of its aircraft. If this requirement is not met, the IRS is able to reclassify the aircraft owner’s initial categorization, thereby potentially disallowing the aircraft owner’s deduction of expenses relating to the flight.
Certain factors that make a particular trip look more like it was undertaken in connection with entertainment, which would make those expenses non-deductible, can raise “red flags” for an IRS auditor and cause the auditor to scrutinize the trip more closely. As previously mentioned, one such factor is travel around holidays. Other factors include:
- Travel itineraries that include a weekend (e.g., flying to the destination on a Friday and leaving on a Monday);
- A longer period of time spent at the destination than is necessary for the business purpose;
- Travel with multiple passengers of the same last name aboard the flight (e.g., husband/wife, family members);
- Travel to a “resort type” destination (e.g. – a location known for skiing, golf, or the beach);
- Travel with many passengers on board a particular flight when it is not clear that all of the passengers are traveling for the business purpose; and
- Travel where fewer passengers are on the return leg of a round trip, or on later legs of a multi-leg flight.
Take the recent Fourth of July holiday, for example, where an aircraft owner has a business meeting in Miami, Florida on Friday, July 5th. The aircraft owner flies to Miami on Thursday, July 4th and returns home on Monday, July 8th. In an income tax audit, it is likely that the IRS would scrutinize the business classification of such a flight. The IRS may recategorize it as a personal entertainment flight unless the aircraft owner can produce adequate documentation to prove otherwise. The aircraft owner will need to produce sufficient documentation, created contemporaneously with the travel (as records created after a tax audit is initiated are usually deemed to be less credible), proving that the primary purpose of the travel was for business. For example, records or correspondences showing that the business meeting was planned before any subsequent entertainment activities were planned would be helpful to show the primary purpose of the trip was business related.
Categorization of the reason for travel on board a company aircraft is decided on a case-by-case basis using a facts and circumstances analysis. Certain trips can be more difficult to categorize than others or contain taxpayer adverse facts that accompany legitimate business travel. The business aviation tax attorneys at GKG Law regularly advise clients regarding these issues and the types of records that an aircraft owner should keep to maximize the taxpayer’s ability to deduct legitimate aircraft-related business travel expenses. GKG Law also regularly represents aircraft owners in IRS income tax audits involving these issues. For more information, please contact Ryan Swirsky (firstname.lastname@example.org or 202.342.5282).
This article was originally published by GKG Law on July 9, 2019.
Preparing Your Aircraft For Sale see more
NAFA member Amanda Applegate, Partner with Aerlex Law Group, discusses the pre-emptive steps you should take for a smoother aircraft sales process.
Once a decision has been made to sell an aircraft, there are certain steps that should be taken in order to make sure the aircraft is ready to be sold. By taking these steps in advance, you will make the sales process easier and will avoid losing a potential sale.
1. Company Status. A business search should be done on the secretary of state website where the selling entity is registered. The selling entity needs to be active and in good standing. If it is not, the selling entity will need to take steps to bring the entity back to an active and good standing status with the state of registration. A sale agreement should not be signed unless the entity is in good standing, since most sales agreements contain a representation that the selling entity is in good standing.
2. Title Searches. For a few hundred dollars, a title search (for both the Federal Aviation Administration (“FAA”) and International Registry (“IR”)) can be prepared by any of the law firms or aircraft title companies in Oklahoma City, where the FAA registry is located. More often than you might expect, there are liens on an aircraft that the seller did not know about. Clearing an aircraft title of old liens can be time consuming, especially when the lienholder no longer exists, has changed names, or has been acquired by another company.
3. Aircraft Records Organization (paper and electronic). The keeper of the aircraft records should be tasked with making sure all entries in the log books and computerized maintenance tracking system are complete and up to date. The paper aircraft records should be organized and reviewed to make sure there are no missing entries. All aircraft records should be gathered and centralized so that when it is time to ship the aircraft records for the pre-purchase inspection, there won’t be a delay.
4. Specifications Sheet. When the aircraft is listed for sale a specification sheet which describes the aircraft will be developed for marketing purposes. It is imperative that this specification sheet is reviewed by technical experts to make sure the aircraft is being advertised correctly. In some instances, the specification sheet is added to the sale agreement as an exhibit and the seller agrees that the aircraft will be in the condition detailed in the specification sheet at the time of closing. If the specification sheet is not accurate, it could cause the buyer to negotiate a lower purchase price, demand the aircraft be as advertised, or terminate the sale.
5. Loose Equipment. A list should be prepared showing all of the loose equipment being sold with the aircraft. This way there is no debate as to which loose equipment is being sold with the aircraft and which items the seller is allowed to keep.
6. Inspections. All upcoming inspections should be performed and if there is any deferred maintenance it should be brought current. During the sale process, the buyer may request that seller handle all inspections through a certain future date. Therefore it is a good idea to understand what inspections are coming due in order to understand the economic impact of the item being requested.
7. Registration Number. It is important to decide if the registration number currently on the aircraft is going to be retained for future use by the seller. If so, I recommend starting the process to change the registration number and retain the old number even before listing the aircraft for sale, or as you are listing the aircraft for sale. It can take 6-8 weeks for the FAA registry to process the change request and issue the 8050-64 form which allows the registration number to be changed. Therefore the change request should be made early in the process in order to complete the process prior to sale.
8. Loaner Equipment. If there is any loaner equipment on the aircraft it should be disclosed as part of the sale process. For example, if an engine overhaul is taking place and a loaner engine is currently on the aircraft, arrangements need to be made with the service provider to transfer all agreements to the new owner as part of the sale process.
9. Maintenance Programs. If the aircraft is on any parts programs, APU, engine programs, or the like, the program provider should be contacted to confirm that the programs are paid current and there are no deferments or deficits on any programs. Any deferments or deficiencies will need to be resolved by the seller.
10. Building the Sales Team. When you are ready to list the aircraft for sale, you should hire an aircraft broker/consultant to handle the listing for you who has a good understanding of the market for your particular aircraft. This aircraft broker/consultant will be able to help you set a realistic sale price, market the aircraft and handle the logistics of the sale for you. Additionally, you should also have an aviation attorney on retainer who is ready to immediately review a letter of intent or draft a sale agreement when an offer arrives.
By taking the steps above, including building the right sales team, buyers will find less fault with the aircraft and be more willing to buy your aircraft. A properly pre-planned and organized aircraft sale can help make the sales process straightforward and more efficient.
Please contact Amanda Applegate at 310-392-5200 or email@example.com.
This article was originally published by Aerlex Law Group on May 8, 2019.