How to Know When It’s Time for a Private Jet Upgrade see more
NAFA member, Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services, shares what to look for when determining if you are ready for a jet upgrade.
If you’ve got a private jet, congrats. You’re one of a very select few people who do.
Having a private jet is a unique joy. Skipping TSA security checks, avoiding cramped quarters, and traveling on your own schedule are all perks that justify any expenditure.
But what if your experience is lacking? It might be time for a private jet upgrade.
If you’re thinking it’s time to revamp your jet but aren’t sure, look no further. VREF will show you a few signs that it’s time to refurbish that baby.
The Exterior Is Looking Rough
Considering planes regularly soar through the sky for long periods of time over great distances, it’s understandable that they’d accrue a significant amount of wear and tear over the years. The most obvious form that wear takes is cosmetic.
The day you bought your jet was probably a joyous occasion. A shiny, gleaming vehicle that was prepared to literally shoot you into the clouds. Only, these days, it might not be so shiny anymore.
If you’ve found yourself less enthralled with how your jet is looking, it might be time for a new paint job. Sometimes, the only thing you need to reignite that initial love affair is a fresh look. It’s one of the simplest ways to get your jet looking brand new again, so if it’s looking worse for the wear, don’t hesitate to slap a fresh coat of paint on it.
The Interior Isn’t Looking So Hot Either
When your jet takes a beating on the outside, it doesn’t have much practical effect on your experience. It might not be as great to look at as it once was, but your trip goes as planned, you won’t be looking at the exterior of your jet during the flight.
The interior of the jet is what really counts when it comes to having a positive flying experience. A rundown or outdated interior cabin can make travel a serious downer.
It might be something as simple as cosmetics. If you just don’t like the look of your cabin anymore, revamp it. A sleek, modern update can often do wonders.
That said, it might be an issue of actual convenience. After all, a private jet isn’t much fun without all the proper amenities.
If your jet’s tech seems like it’s been lifted straight from a 60s Bond film…Well, actually, that sounds pretty cool. But you know what we mean. Your jet’s features should feel modern.
Bluray players, up to date television technology and other little details can make or break a flying experience. Don’t let your jet live in the past. If it feels dated, it probably us. Give it a much-needed overhaul.
Invest in a Private Jet Upgrade
If you think you need a private jet upgrade, you most likely do. Don’t let your experience be ruined by an aging piece of equipment when all it would take is a fresh look to bring it into the modern age.
On the other hand, you might be looking to sell your jet and get something new. If so, make sure you’re getting the job done right. Get a top quality professional appraisal right here.
This article was originally published by VREF Aircraft Value Reference & Appraisal Services on April 22, 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.
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.
Airplane Acquisition Checklist Series: Part Two: Purchase and Delivery see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, follows up with part two of the Airplane Acquisition Checklist covering Purchase and Delivery.
In Part 1 of this series on airplane acquisition, we discussed the most efficient way to approach buying an aircraft by using three checklists—Pre-purchase, Purchase and Aircraft Delivery. We also detailed the Pre-purchase Checklist.
You're now staring at your ideal airplane on your screen. Time to run the Purchase Checklist:
- Escrow, Letter of Intent and Purchase Agreement
- Notify Lender
- Pre-purchase Inspection
- International Registry (if applicable)
- Title Search and Background Checks
Escrow, Letter of Intent and Purchase Agreement. Escrow appears in all three checklists. Before it was a reminder to get your down payment together. Now it triggers you to move money into an escrow account that you set up through your escrow agent. If you're unfamiliar, AOPA has a strategic partnership with Aerospace Reports and as a member you’ll get discounted pricing and we can help get things set up. Likewise, if you’re working with another escrow company AOPA Finance can help coordinate that too. Plan on a deposit of 5%-10% of the aircraft's asking price.
The letter of intent puts a clock on the deal, enables you to withdraw from it without penalty under certain conditions you and the seller negotiate, and establishes the parameters for the final price.
This is also time to have your aviation attorney to draw up a detailed purchase agreement. If you don't have one, AOPA has a sample purchase agreement you can view here. You may want to consider signing up for Pilot Protection Services which includes consultation with an attorney regarding your purchase of an aircraft specific to your state and the legal requirements there. What it covers includes, but is not limited to, purchase amount, refund terms, deadlines for the process, representations and warranties, even the location of aircraft delivery.
Notify Lender. The sooner you notify the lender, the sooner the lender can convert the pre-approval into an approval. Your lender will conduct background checks, damage history queries, etc. If the aircraft is missing logbooks, that may affect the stipulations of the pre-approval with the lender. Each has a set of tolerances for missing logbooks. Ask before you commit to a particular lender. AOPA Finance may be able to help.
Pre-purchase Inspection. Even before you go to the airplane, have the logbooks sent to you. Nowadays, most sellers have their airframe and engine logbooks scanned into PDF format for ease of emailing. Get your mechanic started perusing those logs. You and your lender will want to know whether the logbooks are complete as soon as possible. An incomplete set can frequently impact the final price, and it may also affect the plane's insurability.
In most instances, it's best that a mechanic other than the regular mechanic for that airplane perform the pre-purchase inspection. That may mean flying your assigned A&P to the airplane's location, with a hotel stay.
International Registry. If your plane is subject to the Cape Town Treaty (see here for more info), you should begin the International Registry process simultaneously with contacting your escrow agent. It's complex and time-consuming and may affect the timing of your closing date. Subject to some exceptions, an aircraft must be registered with an appropriate aviation authority before it can be legally operated in any country. Suffice it to say, better to have your team of experts handle this checklist item.
Insurance. As far as your lender is concerned, typically, they’ll require you to maintain full ground and flight insurance, as well as "Breach of Warranty Coverage" for the amount of the loan with a carrier acceptable to the lender.
The lender must be named as "loss payee" and be protected by a "lien holder's endorsement." Once you have been placed with the appropriate lender, we will send you the specific insurance requirements for that lender.
Title Search and Background Checks. Usually, this will be a straightforward process. If a plane has been in an incident, involved in an estate dispute or part of a bankruptcy, though, then things could get complicated. Your prospective insurer, your lender and your escrow agent may all play a part in these searches and checks. We've heard too many stories of airplane deals falling through at the last minute because of lack of due diligence by the buyer, so be thorough.
All that complete, what's left is to take delivery. There's one last checklist to run—the Aircraft Delivery Checklist:
- Punch List
- Technical Acceptance
- Closing and Delivery
Punch List. Here's where the due diligence of your title, escrow or insurance representatives pays off. They'll work with you to clear up any liens or estate claims. Similarly, the list of deficiencies and discrepancies your mechanic delivered will have been either rectified or negotiated into a lower price.
Technical Acceptance. Once the Punch List is complete, the buyer then executes and delivers a Technical Acceptance Certificate to the seller. This says the buyer accepts the condition of the aircraft, subject to "no material damage and/or total loss affecting the aircraft upon or prior to arrival of the aircraft at the delivery location." The deposit usually becomes non-refundable at this stage.
Escrow. The remaining purchase price is deposited into the escrow account, and the seller is paid.
Closing and Delivery. The title is transferred and the aircraft is registered to the new owner, once the new owner insures it. Finally, the aircraft is turned over or delivered to you. Congratulations.
Considering aircraft ownership? AOPA Aviation Finance will make your purchase experience as smooth as possible. For information about aircraft financing, please visit the website (www.aopafinance.com) or call 1-800-62-PLANE (75263).
This article was originally published by AOPA Aviation Finance Company on March 5, 2019.
Arc&Co shares top private jet interior recommendations for maximising aircraft resale value. see more
NAFA member, Arc&Co, shares their top private jet interior trends and recommendations for condition, utility, history and transferability, with the view to maximise re-sale value.
Refurbishing or upgrading an aircraft is a very different investment proposition compared to refurbishing a property. Property generally appreciates in value over time, whereas aircraft are fundamentally depreciating assets: outside of very specific and often unpredictable market conditions, aircraft will lose value as they age. Any investment into private aviation 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 that natural depreciation is to make sure the aircraft is desirable to the market, so that it sells quickly when the client decides that he/she wants 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).
As a potential seller, it’s critical to realise that aircraft that languish with a “for sale” sign for a prolonged period of time tend to be increasingly penalised when it comes to their net realisable sale proceeds. This happens for a number of reasons:
1/ Your aircraft becomes “marked”: potential buyers take note of how long the aircraft is on the market. They may start to question whether you are serious about doing a deal, or (worse) whether there is something wrong with the aircraft that the sales brochure is glossing over. They may also presume that you will be under time pressure to conclude a deal. The ramifications quickly compound: in order to put their suspicions to rest the buyer will then be more likely to insist on a more comprehensive and detailed pre-purchase inspection scope than they otherwise might have. This will then almost inevitably lead to more findings that need to be rectified (at your expense), and the buyer will probably be less willing to compromise and more prone to demand price concessions to get the deal done.
2/ Your aircraft will be led by, rather than lead, the market: if comparable aircraft sell ahead of yours, their selling prices will tend to set the maximum price expectation for your machine in the mind of potential buyers – regardless
of whether your aircraft is, in fact, of higher quality. You should also keep in mind the fact that like cars, the model year of an aircraft matters. The market may view your aircraft on 1 January differently to how it viewed your aircraft 24 hours earlier.
3/ Your aircraft continues to incur costs for its upkeep:even while your aircraft remains grounded, it needs to be hangared and looked after. A full mothballing exercise to suspend the aircraft’s scheduled maintenance is generally not practical, because of the time and effort required to de-mothball for a pre-purchase or test flight, so the aircraft needs to be kept flight-ready. This means performing scheduled maintenance, running the engines and systems, undertaking flights regularly and documenting those activities diligently – all of which rack up costs that eat into your aircraft’s net sale proceeds.
AN APPEALING INTERIOR
So, when considering how to fit out the cabin of a private jet, it is crucial to make choices that not only align with your current needs and desires, but also take into account 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 visualise 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.
We have highlighted four 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. Bear in mind that 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 we also mean the impact on the time it takes to sell the aircraft, thereby minimising the detrimental effects of depreciation and time on the market.
We approached leading experts in the aviation industry and asked them to comment on each theme.
Generally speaking, aircraft in better condition tend to be easier to sell (all other things being equal). A relatively new interior that is in a good condition can markedly increase an aircraft’s appeal, but its impact will be very much subservient to the basic aircraft “metal”: the aircraft’s age, hours and maintenance condition.
We asked Tobias Laps from Comlux Management AG – a leader in business aviation, transaction and completion services – for his thoughts on the importance of condition.
Q/ Do you agree with our view on aircraft condition or does the interior become more of a driver of value for large jets and biz-liners?
A/ 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 where interiors are pretty much pre-determined by the manufacturer with limited scope of individualisation. 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. 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” compared with 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 is what will tend to drive the buyer’s decision-making.
But it’s important to bear in mind that this interplay between the technical and the cosmetic depends very much on the specific details of the aircraft.
Q/ What are the most important points that a prospective seller should be aware of to give a buyer a first-class impression of the aircraft’s condition?
A/ Ideally, you would have chosen an interior layout with resale value in mind well before the actual sale: mainstream colour and veneer choices. In terms of specification, wireless connectivity is a trend, whereby passengers can connect their own devices while on board – an added bonus is that upgrading a wireless entertainment system is easier because the interior does not have to be removed to re-wire components.
Regardless of layout and specification, the first thing you must do when it comes to selling is prepare to impress the principal’s technical representatives. Make sure the maintenance records are up to date, well-organised and presentable and the aircraft is clean and fully serviceable. It is 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 been satisfied will the principal typically come to assess the interior and overall cosmetic condition and make the final decision.
The next step to be taken, once the aircraft has satisfied the technical expert, is to prepare for the principal: the exterior should be spotless, and the flight deck and cabin should be deep-cleaned, including the galley, lavatories, carpet and sidewalls; everything should look fresh and up-to-date. Soft goods and furnishings should invite the principal to visualise himself or herself using the aircraft.
We also asked Iain Houseman from Elit’Avia – a private jet company specialising in aircraft sales, management, charter and lease as well as lifestyle concierge and travel booking – for his thoughts on the importance of condition.
Q/ How important is the quality of the interior to an aircraft acquisition vs the aircraft’s age, hours and maintenance condition?
A/ I think it depends; 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. If the interior has been designed in a way that appeals to a limited group of people (e.g. red leather seats or a carbon fibre interior instead of veneer) this 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. 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 $1.1 million and got the cost down to just under $800,000 – and managed to include some key avionics upgrades, internal improvements, and soundproofing enhancement. This proved very useful in getting the aircraft ready for sale.
To conclude, yes the interior is important, but increasingly so are the technological communication suites and entertainment systems, as well as the cabin’s in-flight environment.
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 is 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: for example, they enable the aircraft to fly longer distances; they certify the aircraft to land at certain airports, in certain countries or on more efficient routings; they allow full in-flight connectivity for all users including streaming live; or they have different zones for privacy/ rest/work for principals, entourage and crew.
We asked 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 – for her thoughts on utility.
Q/ What are the things that clients typically look for, from a layout and design point of view, when it comes to evaluating whether an aircraft meets their needs?
A/ It is different with every client. My Middle Eastern client 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. A client’s aircraft would be adjusted internally to suit the individual if it was not purchased from new and designed for them personally from the off. Another client of mine wanted no frills, just a contemporary, functional interior with good technology on board; more like a flying board room 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.
Q/ How much of a selling point are amenities that might not be for the principal, but strongly appeal to the buyer’s spouse/family/ entourage, such as private family suites, catering facilities, showers, broadband that can accommodate streaming videos/ gaming, additional baggage/stowage space, etc?
A/ They all want the highest level of technology: that’s something that is always requested, whatever the size of the aircraft. The other amenities on your list are very important to some clients – if they have a family they travel with, they need to have everything available. 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.
Q/ What are the top design trends that aircraft owners are choosing?
A/ I am pleased that my clients are thinking of the environment, with many of them 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 my clients are insisting on lighter-weight interior furnishings and fittings than they may have done previously, but still choosing materials and designs that deliver on comfort, quality and style.
Buyers prefer to purchase aircraft where the history of ownership, operation and maintenance is simple, well-documented and clear. All of the records – including the installation and certification of the interior, right down to the last detail – should be organised in such a way that a buyer can immediately see and take comfort that everything is in order.
We spoke to Mr Houseman of Elit’Avia about his views on the history of aircraft and the impact of aircraft records on a sale, asking about his experience in situations where details of the aircraft’s history were poorly organised, as well as situations where a comprehensive and clear suite of documents made for smooth sailing. Mr Houseman comments:
“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 occur in service when the owner decides to change something and does it at their local facility"
I have seen a number of aircraft that had work done where the paperwork wasn’t in order. This has meant the aircraft could not be moved onto a different registry because you cannot show the history of modifications.
This is why it is so important for the owner to have an approved operator with quality maintenance and care processes in place to ensure paperwork is properly kept.
The clarity and completeness of the records are key to the aircraft’s transferability when the time comes to sell, especially if the buyer intends to re-register the aircraft in a different jurisdiction. Different countries have different certification regimes and requirements that do not always overlap: an interior that has been outfitted on a German- registered aircraft under EASA regulations, for example, needs to have the necessary paperwork to allow it to be accepted onto the USA’s aircraft registry under the FAA’s oversight.
We again spoke to Mr Houseman from Elit’Avia about transferability and asked him the following questions:
Q/ Is dual certification/release from the major regulatory authorities (FAA/EASA) at the point of installation possible and a practical risk mitigant? How do you go about ensuring that it happens and is it typically more expensive?
Q/ Is retrospective certification possible and, if so, is it practical?
Q/ What advice can you give a client who wants to sell an aircraft with, say, an FAA-certified interior, to a European buyer who wants to transfer it to an EASA register?
Given that the vast majority of private aircraft are built and operated in the US, most will have installations that are FAA-approved. On the flip side, many will have no foreign certification. Therefore, when you go to switch a US aircraft to another jurisdiction such as EASA, it cannot easily be done because the modifications are not EASA- approved – and this can take months to resolve. I saw one case where modifications were done in the US, but the EASA application was not filed, so the aircraft sat for six months getting work done.
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.
I had another situation where 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 from the seat manufacturer. In total, it took eight weeks for a one-week install!
In terms of 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. There is usually an upcharge for EASA, but from a seller’s perspective, it could make sense to get this for resale purposes.
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 – 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. 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. For example, on a Global 6000 requires a $300,000 Crew Force Measurement System to operate under FAA commercial Part 135 rules.
Upgrading and refurbishing of an aircraft is a significant investment that can strongly enhance your experience whilst on board. It’s important, when planning for the investment, to have a realistic view of the value it creates – a well-executed cabin refit will meet your needs in terms of space, aesthetics, utility and connectivity, as well as have the benefit of appealing to the broadest possible range of potential buyers when the time comes to move the aircraft on. 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, investing in a quality operator is crucial to make sure that paperwork is properly organised and maintained.
DEFINITIONS: FAA: Federal Aviation Administration, the national aviation authority of the United States, responsible for regulating all activities pertinent to civil aviation in the US, including certifying aircraft for operation and approving modifications to those aircraft. EASA: European Union Aviation Safety Agency, the supranational aviation authority for 32 states including all EU members, Switzerland, Norway, Iceland and Liechtenstein. STC: Supplemental Type Certificate – the certificate issued by an aviation authority certifying that a major modification to the aircraft e.g. a complete cabin refit has been approved. It is a regulatory requirement to have the correct approval in place that aligns with the aircraft’s registration e.g. EASA-registered aircraft must have EASA approvals. Part 91/Part 135: FAA rules that govern aircraft operations for general non-commercial private (Part 91) and commercial charter (Part 135) use. Most countries defer to either these rules or parallel EASA rules.
This article was originally published by Arc&Co on June 10, 2019.
Why You Should Involve a Professional Aircraft Appraiser During Purchase see more
NAFA member, Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services, shares his tips on using a professional aircraft appraiser when making your next aircraft purchase.
Depending on the type, an aircraft can cost as much as $21,000,000.
That’s a heck a lot of money!
So why would you want to risk all that for an aircraft with hidden damages?
Getting an aircraft appraiser is the best way to ensure that you get value for your money. You get to avoid overpaying for insurance and other related taxes. The appraiser will also help you better understand the type of aircraft you want to buy and what you can expect in terms of performance.
That aside, here are more reasons why you should seek an appraiser’s professional help during purchase.
1. Appraisers Have a Better Understanding of the Market
Appraisers are well-versed with the aircraft market. They’ll analyze the market and give comprehensive findings on the actual market value of an aircraft. This is something you’ll hardly find in most publications or websites.
Additionally, an appraisal report can provide a basis for negotiating the price. It’ll vividly highlight the issues to be addressed before making any transaction.
2. Aircraft Appraisers Are Experts in What They Do
Determining an aircraft value involves more than plunging the model, make, and manufacture year of an aircraft into a publication or web tool.
Before an appraiser can attain the accredited member designation, they’ll need to have a college degree or its equivalent and at least two years’ experience.
Appraisers with more than five years of experience qualify for an accredited senior appraiser designation. With such experience, you can expect better appraisals for your big investment.
3. Aircraft Appraisers are Certified
Before appraisers are able to give any report to the public, they should have undergone special training. They also have to meet the minimum requirement for certification set out by the ASA.
This organization is one of the oldest and largest global institutions that focuses on documentation and evaluation of aviation aircrafts including helicopters, business jets, and turboprops.
Members of this association work on a strict code of conduct to ensure that they act in an unbiased manner. These requirements are unique and vital in the appraisal industry. They make the difference between an accurate valuation and an estimate.
What’s more, members who receive training as “buyer’s agents” help buyers with the selection of aircrafts that are in line with their requirements and budget. While at it, they maintain impartiality in their analysis. This isn’t the case with most traditional dealer/brokerage agreements.
Choosing an Aircraft Appraiser: Final Thoughts
Considering the benefits above, an aircraft appraiser will certainly help you make a good buying decision on your huge investment. Without an appraiser, you may spend money on a faulty aircraft, which is not only a loss of money but also a safety hazard.
If you’re looking for professional appraisal services, look no further than VREF. We offer USPAP-complaint aircraft appraisals and full inspections to ensure you get value for your money.
This article was originally published by VREF Aircraft Value Reference on May 13, 2019.
Embraer Bizjet Deliveries Hold Steady in Q1 see more
NAFA member, Embraer announces steady business jet deliveries in the first quarter.
Embraer delivered 11 executive jets in the first quarter, remaining on par with 2018 shipments. As in the first quarter of 2018, the Brazilian manufacturer handed over eight "light" jets (Phenoms) and three "large" jets (Legacys/Lineages) in the first three months of the year. Embraer, which delivered 91 executive jets last year, has projected shipments to fall between 90 and 110 executive jets this year.
While its business jet deliveries held steady in the quarter, Embraer's commercial aircraft shipments slid by three units to 11. Backlog, meanwhile, dipped slightly from $16.3 billion at the end of 2018 to $16 billion by the end of March.
The first quarter marked the 500th delivery of the Phenom 300, a milestone reached in less than 10 years after the aircraft first entered service in 2009—and one of the few current business jets to reach that delivery level. One of the most-delivered aircraft over the last decade, the Phenom 300 is in operation in more than 30 countries and has accumulated more than 780,000 flight hours.
Also in the quarter, Embraer announced it had captured the first Phenom 300E and Praetor 600 business jet sales to Brazilian customers. Its delivery lineup is slated to expand this year with Embraer recently receiving Brazilian ANAC approval for the Praetor 600.
Click here to download the 1st Quarter 2019 report.
This article was originally published by AINonline on May 6, 2019.
Tip to Tail—Buying New vs. Used Bizjets see more
Purchasing a new business jet from the manufacturer (OEM) is a far different transaction than buying a used aircraft from a private third party. And planning for aircraft ownership is also part of this story.
The contrast in new versus used aircraft is especially pronounced when the used aircraft does not comply with the FAA’s January 1, 2020 Automatic Dependent Surveillance-Broadcast (ADS-B Out) mandate. The lack of ADS-B Out compliance almost certainly will alter the negotiation for such used aircraft and, if the aircraft is not compliant by 2020, it could morph into a fancy paperweight. New OEM aircraft already comply with ADS-B Out requirements.
This blog covers a few significant strategic, legal, and negotiating differences relating to new and preowned aircraft sale deals and briefly touches on ownership tax planning, risk management, regulatory compliance, and financing/leasing. This blog also briefly touches on OEMs’ perspectives on negotiation and dispute resolution.
WHAT'S FOR SALE?
The big-money aspects of a new aircraft deal start by selecting the right aircraft from the OEM and negotiating the aircraft purchase price. Unlike used aircraft deals, OEM agreements include terms on such items as upgrades, installment payment amounts, and pilot and technician training.
The used aircraft market enjoyed a record year of sales in 2018 that depleted much of the desirable inventory. However, some experts suggest that the cost of ADS-B equipage and a slowing global economy may cause more used aircraft to come to market in the near term; and the lack of ADS-B Out technology may prolong or complicate buy/sell negotiations even if more aircraft become available.
When purchasing a new or used aircraft, the parties should engage a team of knowledgeable business aviation experts, consisting primarily of an experienced aircraft broker, a technical inspector/analyst, accounting tax advisor, aviation counsel, aircraft management company, insurance broker, and capable title company or special FAA counsel. A non-aviation participant on the buy or sell side can make transactions more difficult or inefficient for experienced buy/sell teams and their principals.
Every used aircraft should (but surprisingly does not always) undergo a “pre-buy” inspection before a purchase occurs. The inspection should involve technical experts that delve into the records of the aircraft, ADS-B Out compliance, and the physical/mechanical condition of and required repairs to the aircraft. Counsel should conduct or order title, lien, and other searches at the FAA and on the International Registry with a focus on understanding the domestic and any international ownership since birth of the aircraft.
For new OEM aircraft, the pre-buy inspection process is dissimilar to preowned aircraft, so much so that OEMs often say that an independent inspection of a factory-new aircraft is unnecessary and the OEM can handle everything from contract to delivery.
Although some purchasers accept exclusive OEM oversight, all purchasers should still consider engaging a technical expert to interact with the OEM’s teams and inspect the aircraft during construction, knowing that OEMs usually will facilitate such inspections but with appropriate limits. Fundamentally, the expert can assure the purchaser that the aircraft conforms to the agreed specifications and the OEM delivers the aircraft in pristine condition. Also, the parties should always conduct legal diligence similar to a used aircraft sale.
CONTRACT NEGOTIATIONS AND DISPUTE RESOLUTION
Contractual provisions for used and OEM purchases have some common terms as well as major differences. OEMs believe the form of purchase and sale agreement they provide to their customers works well with few changes. Consequently, the extent of document revisions negotiated and accepted by an OEM may, but not always, pale in comparison to extensive changes drafted into used aircraft purchase agreements.
OEM contracts personnel, most of whom are not lawyers, have flexibility to make reasonable contract revisions, but their authority has well-honed limits. For example, their authority probably does not extend to accepting unusual revisions, settling a dispute, or altering fundamental OEM liability protections. Accordingly, purchasers should expect these contracts people to seek authority from senior managers or general counsel for revisions to obtain policy or legal guidance on an acceptable contract revision or dispute management.
For OEMs, each customer and its sale agreement is unique. As such, OEMs uniformly frown on aviation counsel using as precedent sale agreement provisions negotiated in other unrelated transactions with the selling OEM or other OEMs. However, aviation counsel can add value in serving their clients by using their prior experiences to negotiate appropriate terms in the current deal.
If a customer alleges material breaches by or makes serious litigious claims against the OEM, most OEM general counsel or his/her inside litigation counsel step in and try to reach an accommodation or, if necessary, circle the wagons to protect the OEM’s interests.
Under the Tax Cuts and Jobs Act of 2017, buyers of new aircraft, like used aircraft buyers, may use 100 percent bonus depreciation if the aircraft buyer qualifies for the tax benefit. Planning for ownership is critical to successful tax structuring. For more, read AINsight: 100% Depreciation and Aircraft Personal Use and AINsight: Maximize Aircraft Bonus Depreciation in 2019.
A purchaser of a new aircraft can potentially obtain a financing benefit that does not apply to used aircraft. Lenders and lessors often agree to fund installment payments to the OEM as the OEM invoices the customer during construction and upon delivery of the aircraft. In addition, these lenders or lessors are often willing to convert the installment payment arrangement into a long-term loan or lease. Either financing or leasing provides substantial benefits to the parties but requires some additional effort to negotiate the agreements. For more, read AINsight: Should You Finance or Lease a Bizjet?.
Business aviation insurance brokers not only place appropriate insurance coverage but also can negotiate effectively with aviation underwriters. Purchasers of used and new aircraft generally understand that insurance is a crucial piece of protecting themselves from liability and property damage. However, they may not fully appreciate that a limited liability company (LLC) that buys the aircraft may not provide the LLC owner with the anticipated liability protection. For more, read AINsight: Piercing the Aircraft LLC Veil.
Operations of private aircraft under Part 91 (private use) or Part 135 (charter use) in the U.S. demand compliance with the applicable regulations by owners and operators of all aircraft. For example, owners of all aircraft must keep their aircraft in the condition required by the applicable regulations for flight operations, not conduct illegal charter operations, and meet technology requirements, including ADS-B Out. Importantly, the FAAis looking for violators of the regulations, in part as described in AINsight: FAA Actively Pursues Illegal Flight Ops.
Although purchase transactions of new and used aircraft share certain similar elements, they differ in significant respects. Assisted by knowledgeable professionals, a purchaser can and should address business, tax, financing/leasing, risk management, and regulatory issues as part of each deal. A reasonable and pragmatic approach to these transactions should foster amicable negotiations and ultimately produce the right travel solution for the purchaser.
This article was originally published by AINonline on May 9, 2019.
Aircraft Broker Hagerty Jet Group Sees Gulfstream G550 Boost see more
NAFA member Hagerty Jet Group discusses boost in Gulfstream G550 transactions.
Aircraft brokerage Hagerty Jet Group has seen stronger-than-expected transaction volume for preowned Gulfstream jets in the first quarter of the year. The Savannah, Georgia-based Gulfstream specialist observed higher transaction volumes in the past quarter than in the previous 12 months, particularly for the airframer’s G550. In the first quarter of the year, there were 16 sales of the long-range twinjet, nearly double the average of the past three years.
Hagerty also noted a spike in off-market aircraft transactions, as six of those 16 G550 sales were not publicly advertised, or were unknown by market participants. The company believes this is an indication that many buyers are frustrated by the lack of good available inventory and sought out direct purchasing opportunities with unlisted aircraft.
That could cause sellers on the market to adjust their pricing to move their aircraft. In its just-released Quarterly Market Update for Gulfstream aircraft, Hagerty expects prices to soften in the second quarter, based on the 14 price reductions seen in the first quarter on the G550, with an average decrease of 9 percent. It also anticipates a decrease in overall demand as global economic uncertainty lingers, led by fears of a 2020 recession, Brexit and U.S./China trade relations. As the impact of the so-called “Trump-Bump” from a year ago fades, Hagarty believes the industry is normalizing again.
View Quarterly Market Update for Gulfstream Aircraft Q1 2019 here.
This article was originally published in AINalerts on April 5, 2019.
In-Service Aircraft Values & Maintenance Condition see more
NAFA member, Anthony Kioussis, President of Asset Insight, shares report on In-Service Aircraft Values and Maintenance Condition.
Asset Insight’s market analysis on December 31, 2018 (covering 94 fixed-wing models and 1,591 aircraft listed for sale) revealed a 4.3% decrease to the tracked inventory fleet (71 units), with all four groups contributing to the reduction...
Small Jets led the way with a 6% decrease, Medium Jets were next at 5.1%, Turboprops decreased 4.3%, while Large Jets posted the smallest inventory fleet decrease at 2.8%.
Sales transactions put a serious dent in the inventory fleet during the last month of 2018. Large Jets won the 2018 value competition, while Medium Jet sellers absorbed the largest value loss. Small Jets and Turboprops experienced a minor value change – the former an improvement and the latter a decline.
Inventory Fleet Maintenance Condition
Fleet asset quality remained steady as 2018 closed. Large Jet transactions focused on lower quality, and higher priced assets (presumably due to good values) while the asset quality of Medium Jets sold was mixed.
Higher quality assets traded among the Small Jet group, while Turboprop inventory quality recorded a 12-month best with respect to the number of upcoming maintenance events for the remaining fleet, although these will, on average, be more expensive to complete. Overall, the tracked inventory posted the following:
The Quality Rating remained in the ‘Excellent’ range, although it decreased a bit to 5.300 on Asset Insight’s scale of -2.5 to 10.
The year ended with Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) remaining virtually unchanged since November and, at $1.415m, the figure was slightly better (lower) than the 12-month average.
Maintenance Exposure to Ask Price (ETP) Ratio
The ETP Ratio is a useful indicator of an aircraft’s marketability. It is 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 on the market increases, usually by more than 30% and, during Q4 2018, assets whose ETP Ratio was 40% or more were listed for sale over 57% longer on average than aircraft whose Ratio was below 40% (246 versus 386 Days on Market).
December’s analysis revealed that nearly 53% of all tracked models and over 62% of the tracked fleet posted an ETP Ratio above 40%. The tracked fleet’s ETP Ratio worsened slightly to finish 2018, increasing to 65.6% from November’s 65.1%.
Click here to read the full article.
This article was originally published in AvBuyer, Vol. 23, Issue 2 2019, p. 22.
What’s the Case for Becoming a Jet’s Last Owner? see more
NAFA member, David Wyndham, VP and Director of Business Strategy with Conklin & de Decker, discusses options for a specialized aircraft buyer and how the operator justifies the decision to buy with a view to becoming an aircraft’s last owner.
As aircraft age, they cost more to maintain and support. Spare parts for aging aircraft can be harder to come by as fewer of these models remain in service today and the OEMs shift focus to their in-production aircraft.
Parts suppliers may ‘build to order’ certain spares when demand levels no longer justify keeping a production line running. Be aware that the cost of these spares can fluctuate greatly as the effects of supply and demand take hold. Finding airworthy used spares is often only possible if there were enough aircraft built for salvage companies to tear down and use as sources.
These incremental maintenance costs and procurement hurdles can render an old aircraft unsuitable for a regular schedule of frequent flying. Nevertheless, for the savvy buyer with specific needs and managed expectations, there may be some value left in these airworthy but aged aircraft.
How Old is too Old?
If an aircraft is well cared for, it can have an almost unlimited life with respect to safety and airworthiness. There are DC-3 aircraft that were in service in the late 1930s still flying today. While not much more than the pilots’ control wheels and OEM’s data plate may be “original equipment”, they are still airborne.
Such aircraft are in the hands of loving and dedicated teams who fly for the joy of keeping them flying, not for transportation or business use.
What ends the life of most aircraft is economics—when the cost of flying them becomes more than the cost of replacing them. This is called the economic useful life, which is defined by the International Society of Transport Aircraft Trading (ISTAT) as follows:
“As it pertains to an aircraft or engine, the economic useful life is the period of time over which it is (or is expected to be) physically and economically feasible to operate in its intended role. Periodic maintenance and repair will usually be required in order to preserve safety and efficiency during the economic useful life.”
This age is contextual. An airliner flying 2,000–3,000 hours per year in short-haul trips will reach its end of life much sooner than a long-range business jet flying 300–400 hours annually. For a piston airplane flying 100 hours per year, its end-of-life can easily extend past a half-century. Age is a factor of calendar time and utilization, or flight time.
Research from Boeing Commercial Airplanes published in an article titled ‘Key Findings on Aircraft Economic Life’ (March 2013) found that while no exact definition exists, their data on over 31,000 airliners suggest that this economic life can be expressed in two general ways:
- The average age of airplanes when they are permanently withdrawn from service;
- The interval of time between delivery of a cohort of airplanes and the date when 50% (or some other fraction) of the cohort has been retired.
But what is a typical useful economic life for a business jet?
Data from JETNET showing the business jet retirements from 2011 to 2015 notes that 144 business jets retire each year on average. The vast majority of these are over 30 years of age. Meanwhile, AMSTAT data shows that today, of the more than 7,300 business jets built before 1998, about 46% of the fleet has been removed from service. This data suggests the useful economic life for a business jet is just over 30 years.
When Does an Aircraft Reach Salvage?
An aircraft at the end of its useful economic life can be sold for parts for salvage or scrap value. The Machinery & Technical Specialties Committee of the American Society of Appraisers (July 2010) defines scrap, or salvage, value as follows:
“An opinion of the amount, expressed in terms of money that could be realized for the property if it were sold for its material content, not for a productive use, as of a specific date.”
So, when does the scrap or salvage value of an aircraft exceed its ‘retail’ value as a flying asset?
If the maintenance to be done exceeds the retail value of the aircraft and, if accomplished, does not return enough retail value to cover the cost of the maintenance, then your aircraft is at salvage. In summary, an aircraft would reach salvage when the upcoming maintenance costs exceed the value of the airplane. That can be any maintenance, be it airframe, engines or avionics.
Combining all the above information leads to the following conclusion: If you are the owner of an airworthy aircraft aged 25 years or older, you could be its final owner.
Nevertheless, there may be aircraft younger than 25 that, owing to limited production runs and a lack of product support, will not be economically feasible to fly for much longer than a few years. Meanwhile, for some of the more popular aircraft with a long production run, you may see 40-year-old aircraft still in the air in sufficient numbers to make supporting them economically feasible.
So why would anyone want to become the last owner of a business jet?
If you understand the limitations, your value proposition is likely to be something like this:
You buy a very old business jet for $2m, spending $3.5m operating it for four years, before selling it for salvage at $500k. The net cost to you is $5m. The owner of a new business jet that paid $30m, meanwhile, will see more than that in market depreciation alone.
However, keep in mind that these older jets spend a lot of time in maintenance and there is a higher chance that you will not be able to “call when needed”, but if your flying needs are infrequent and predictable, you may find there is enough value left in these older jets to make the case for buying one.
Next month, we will illustrate with a case study. Stay tuned!
This article was originally published by AvBuyer on November 5, 2018.
Top Five Jet Maintenance Thoughts (Before You Buy) see more
NAFA member, Brendan Lodge, Advisory Services & Aircraft Specialist at Jet Support Services, Inc. (JSSI), offers tips on how to understand an aircraft’s maintenance costs, and budget accordingly - before buying.
Purchasing the wrong aircraft has potential to be economically and operationally disastrous.
Whether new or used, different models should be considered like knives in a chef’s drawer—they each have different capabilities depending on the budget and mission profile of the buyer.
Once a decision is made to purchase a used aircraft, most buyers start narrowing down the models that will meet their needs. However, many may not focus on how operating costs can vary greatly depending on the aircraft.
The ongoing maintenance costs (scheduled and unscheduled) are the most significant operating cost after fuel and can be a real budget-breaker. A thorough examination is therefore required before buying an aircraft, and appropriate management is necessary thereafter.
Following are five critical areas from a maintenance perspective that should be understood and budgeted adequately for before purchasing a used aircraft.
Firstly, hire expert advice. Whether it’s a professional broker that you mandate exclusively to work for you without conflict, or a recognized industry consultant to support your Flight Department, you should budget for this expense. The investment will be worth every penny! Crucially, the advice needs to be independent, and entirely unbiased.
There are also helpful software tools available from independent sources that can help you compare aircraft and develop a thorough budget. Input should include an analysis of the maintenance status of the aircraft to evaluate and appraise the maintenance adjusted value, as well as to account for any challenges or costs associated with the potential transfer of registration to another country or state.
#2: Engine Status
Know the condition or status of the engines and their value and be informed of where the engines are in their maintenance cycles.
If the engines are on a “hard-time” inspection program, you need to know how long it is until the next major maintenance event and whether it is a hot section inspection or an overhaul. If the engines are on an “on-condition” inspection program, you need to know when the next borescope inspections are due and account for these in the budget.
Are the engines covered by a maintenance program and, if so, what exactly is covered by that program? These programs vary and it’s best to contact the program provider to understand the details of the coverage. Some programs can be sold with the pre-enrolled aircraft and some cannot.
Sometimes owners want to take the equity in the maintenance program and transfer it to a new aircraft, so those benefits would not be available to the aircraft with the sale.
In addition, you should know what provisions are in place for payment or coverage of loaner engines whenever off-wing maintenance events are required. Most operators do not want the airplane grounded while major engine maintenance is happening.
Accordingly, loaner engines are common practice, but sometimes there is limited availability for specific engine models, which could drive the costs up. It’s always better to plan and budget for these events in advance.
#3: Airframe Inspections
All aircraft will be subject to frequent airframe inspections and, for larger cabin aircraft, the major airframe inspections can easily exceed $1m. It is crucial that you know when the next major inspection is due as part of the due diligence before making an offer on an aircraft.
When significant expenditure is due it will affect the aircraft value.
Other considerations include the time it will take to do the inspections. Unlike engines that can be removed and replaced with loaners, the aircraft is not available while major airframe inspections are in progress and many owners will make plans to charter or contract supplemental lift during this time. This is another item to add to the budget.
Ongoing airworthiness directives (ADs) and service bulletins (SBs) that may be issued for your aircraft can also impact the budget. You must check for these before purchasing a used aircraft. It is always wise to ask if there is an airframe maintenance program enrollment and if it covers any of these costs.
#4: Unscheduled Maintenance
Unexpected maintenance events will happen no matter what type of aircraft you choose and can be a difficult expense to calculate over the lifecycle of the aircraft. Your advisor or trusted consultant will give you a budget estimate based on factors including make, model, and time on the engines and airframe.
Keep in mind that the OEM’s warranties do not cover all the unexpected costly repairs that may be needed in the first 5–10 years of a business jet’s life. Once again, enrolling the aircraft onto a maintenance program could be the best way to budget for such expenses.
#5: Regulatory Requirements
In addition to current airworthiness regulatory requirements, there are future mandates that come along and require upgrades or changes to the aircraft that will impact your budget.
In the US, many aircraft on the market are not yet compliant with the new Automatic Dependent Surveillance-Broadcast (ADS-B) or Future Air Navigation System (FANS) 1/A requirements.
As we approach the January 1, 2020 deadline, slots at maintenance shops are filling up fast and, just like any other supply and demand cycle, the cost of getting this work done rises with each passing week.
It is undoubtedly a good idea to look for an aircraft that is already compliant, or at least budget for a premium cost for any aircraft that is not yet compliant.
Supplemental Type Certificates (STC) are usually required for aftermarket equipment upgrades and these associated costs should also be accounted for, including the acceptability of existing STCs between different aircraft. When an STC is not acceptable to the new register the solution can be very costly in terms of both time and money.
There are countless items to consider when purchasing an aircraft but with the right tools and expertise, you can ensure the right aircraft is purchased for your mission profile and budget.
More information from www.jetsupport.com.
This article was originally published in AvBuyer on July 20, 2018.
Tips To Get The Best From Your Business Jet see more
NAFA member David Wyndham with Conklin & de Decker offers advice on three things to keep in mind that will help you get the full benefits of a business jet.
Though it’s impossible to prepare for every situation, it is possible to prepare for things to change and to learn what’s needed for adapting and managing those changes.
The business aircraft is one of the tools that enables and enhances your ability to act, manage and react to the changes within your business. To get the full benefits of a business aircraft, however, it pays to keep the following three things in mind…
1. Different Aircraft for Different Missions
Throughout my career as a consultant, the 100% solution (that is, the aircraft capable of flying all the missions you may need) is most often the costliest. Over the long run, it may also be one of the least effective solutions too.
To illustrate, I once had a client who was looking at a Mid-size jet.
- This jet had the runway performance to manage the required short trips into smaller airfields, but with a light passenger load.
- It had the seats for the handful of longer trips with six or seven people.
- With full seats, however, its range was limited.
One larger cabin business jet offered the short runway performance and the range with full seats the client wanted, but the acquisition and operating budget was beyond what the board would approve.
What proved to be a better fit for the client was a turboprop for the short-range, short-runway trips and a fractional share of a Mid-size jet for the longer-range missions. That Mid-size jet fractional share could also be upgraded to a Large jet for the two or three trips annually that required eight to ten seats.
It’s vital to remember that owning your business aircraft does not prevent you from using other options (such as charter, jet cards and fractional). These lower utilization alternatives can give you the second aircraft for the few times its needed or expand the capability when occasionally needed.
2. Re-evaluate Your Options Regularly
How does the business aircraft you use support your current strategies for managing your business and your time? You will need to regularly re-evaluate your options. Planning is necessary for your company, and that includes forward-planning with regards to the aircraft.
It may be running nicely and not costing a lot of money to operate currently, but you should not wait for a major expense to arise before evaluating your options.
- Are you looking to grow into new markets in the next five years?
- Are you in the Mergers and Acquisitions market?
- Can the current aircraft support the future company?
An aircraft replacement can take 12-18 months to plan and execute, especially if you’re acquiring an aircraft that will need to be outfitted to your specifications. It’s advisable to have a written plan for when, and how to upgrade or replace your aircraft. Review the plan and revise it as your company changes, grows or develops into new markets.
3. Numbers Don’t Tell the Whole Story
While they can help you make an informed decision, a spreadsheet alone should not make the decision for you. So, what are the other factors that need to be considered in the decision? I’ve had several clients where the optics of owning the aircraft were a concern.
One was a defense department supplier of technology. My analysis showed them that a Light jet was the most efficient for their travel in terms of cost and speed, but they chose to purchase a slower single-engine turboprop that lacked the non-stop range for about 40% of their trips.
Their decision was based upon appearances. If the Generals saw the supplier with a turboprop single, they believed it would give the impression of frugality in their business and that their technology solution would also be judged as the cost-effective choice.
Another client upgrading from a Turboprop chose a Mid-size jet over a Large-Cabin jet. The lower cost Mid-size jet would still meet 85% of their needs but also look appropriate to their shareholders.
But it’s about more than just optics. Comfort plays a role, too. Another client evaluating Large-Cabin jets preferred the slightly smaller cabin alternative as it offered more cabin width, which felt roomier.
The costs of the applicable options were similar, but in addition to having the slightly wider cabin his choice also had less range. Nevertheless, as the client was going to spend 400 hours per year on board, this was the right choice for him. Comfort was the deciding factor in this case.
Business aircraft owners and operators all have slightly different criteria that they use for evaluating subjective qualities like comfort. When evaluating different aircraft, it’s important to decide in advance what criterion are important to you.
Remember that numbers are very helpful but leave some room for the subjective.
This article was originally published on AvBuyer on August 23, 2018.