Global Jet Capital’s Q4 2019 Quarterly Business Aviation Market Report see more
NAFA member, Global Jet Capital, shares their quarterly business jet market briefing.
Global Jet Capital’s Q4 2019 Quarterly Market Briefing covers the state of the aviation market for new and pre-owned business jets in 2019. Additionally, this report provides an overview of overall economic conditions, business jet flight operations, pre-owned and new market conditions, business jet transactions, and changes in aircraft residual values.
This report includes the following insights:
- Led by new deliveries, the business jet transaction market stabilized in the second half of 2019 after a weak first half
- Despite threats to trade, economic growth remained slow and steady while consumer confidence and low unemployment served to reassure many business jet market participants
- New deliveries refreshed a jet fleet that has been aging since the end of the financial crisis
- As the overall market stabilized, inventories continued to increase, but at lower rates in Q4 than earlier in the year
- Overall average residual values remained stable in 2018 and 2019, but model by model volatility continued, particularly in the heavy jet segment towards the end of 2019
- Sustainability will become increasingly important to the industry, which is now developing new techniques and technologies to offset and reduce carbon emissions
Click here to download the full report.
This report was originally published by Global Jet Capital on February 11, 2020.
Holstein Aviation Joins National Aircraft Finance Association, aviation finance, see moreEDGEWATER, Md. – Feb. 27, 2020 – National Aircraft Finance Association (NAFA) is pleased to announce that Holstein Aviation has recently joined its professional network of aviation service providers.
“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 Holstein Aviation to our growing organization as we head to our 50th anniversary,” said Jim Blessing, president of NAFA.
Holstein Aviation is a full service aircraft brokerage and acquisition firm. The company’s leaders and team are talented and seasoned – representing more than 300 years of domestic and international experience with knowledge, expertise and success as aircraft brokers and acquisition specialists.
The team’s success includes approximately 4,700 business aviation transactions valued in excess of 10 billion dollars, along with 66,000 combined flight hours, with light, medium and heavy jet type ratings from nearly all major aircraft manufacturers. Their extensive knowledge and in-depth experience as aircraft brokers and acquisition specialists is invaluable to their clients in negotiations.
Holstein Aviation offers experienced professionals with broad backgrounds, including fixed- and rotary-wing airframe manufacturers, manufacturers of gas turbine engines, corporate flight department management, air charter companies, fractional aircraft programs, Fixed Base Operations (FBO), Maintenance, Repair and Overhaul (MRO) and commercial airlines.
Much like NAFA, Holstein Aviation prides itself on the integrity, capability and professionalism of the individuals who form their organization. Holstein and NAFA foster connections, credibility and capability throughout the aviation industry.
"The Holstein Aviation team is proud to be a NAFA member,” said Shawn Holstein, President of the company. “Ensuring that our global client base is informed about financing opportunities and trends is critical, and NAFA helps make that possible."
For more information about Holstein Aviation, visit nafa.aero/companies/holstein-aviation-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.
Best Time to Sell an Older Jet see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the ideal time to sell an older aircraft.
Above and beyond the upfront cost savings, benefits to acquiring a used jet in great condition include avoiding much of the increased depreciation that besets aircraft in those early years. Of note to sellers, the inventory for well-maintained, 15-year old or younger turbine aircraft is severely limited. That translates into high demand and a market that's in your favor.
As with many things, putting an older, well-maintained jet on the market involves the right timing. It may sound counterintuitive, but the best time to sell an older jet is right after you’ve done the scheduled, heavy maintenance on it, after you've brought your jet up to date on all of its maintenance events.
A jet's optimum selling price point occurs when the aircraft has its lowest maintenance exposure to asking price ratio (ETP). That ratio is expressed as the value of an aircraft as a percentage of unaddressed maintenance due on an aircraft versus the overall market value of the aircraft. When the ETP is at its lowest is also when the aircraft is most desirable. That's why historically, planes that have the lowest ETP tend to sell the quickest.
To be clear, this does not include avionics upgrades, only scheduled maintenance. Retrofitting avionics on older jets is not just an expensive proposition, it's also a subjective one. The vast range of options available make it virtually impossible to please everybody. Plus, the money a seller sinks into new avionics probably will not be recouped in the sale. It's better therefore to let the new buyer install the avionics suite of their dreams post-acquisition.
If it's possible, coordinating the completion of heavy maintenance items with the start of the last quarter of the calendar allows the owner of an older, well-maintained jet to take advantage of the best calendar time of the year to sell it--September through December. That's because many businesses have a fiscal year and a calendar year that parallel each other. Those that do tend to more closely assess ways to manage their bottom line as they approach Q4. That heightened focus on the year-end clarifies whether selling the jet or acquiring one is an appropriate income offset option. For many, it's the perfect time.
And then there's the tax incentive. When the dollar amounts are more significant and an aircraft is used in business—the possibility of a tax deduction of 100% of the cost of the aircraft does exist, based on the current tax law in place.
To be fair, getting to 100% is really difficult and the inherent landmines are many. At AOPA Aviation Finance, we strongly advise anybody pursuing that goal to talk to their tax experts before attempting such a course of action. I should also point out that the latest regulations that came through in 2017 closed some significant aviation-related loopholes. For instance, capital gains deferment into another aircraft purchase is no longer a legal option. A discussion with your accountant on how you’re going to manage your tax liability is a must. When you do go to sell, there will be capital gains tax implications.
Bottom line: If you own a well-maintained, older jet and it's fresh out of maintenance, now's the best time to consider selling it. ETP is low and demand is high.
This article was originally published by AOPA Aviation Finance Company on November 18, 2019.
What Does it Cost to Operate a Large Cabin Jet? see more
NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses the costs associated with operating a large cabin jet.
Any answer to questions asking what it costs to operate an aircraft must always start with, “it depends”. The following article discusses some of the dependent variables.
For the purpose of our discussion, Conklin & de Decker defines Large Cabin Jets as those that typically seat 10+ passengers, have a flat cabin floor, include a galley for preparing a hot meal, and a lavatory. Cabin height should allow for most people to stand up without much of a stoop (i.e., approximately 70 inches). And range should allow for at least 3,000nm non-stop.
Aircraft typical of this category are the Gulfstream GIV and G450 series; the Dassault Falcon 900 series; the Bombardier Challenger 600 (through 650) series; and Embraer’s new Praetor 600.
How Much Does it Cost to Buy a Large Cabin Jet?
Acquisition costs for new models in the Large Cabin Jet category run between $32m to $45m. Pre-owned prices vary as many of these models will have been in production for many years. However, a typical 20- year-old Large Cabin Jet can be purchased for between $4m and $6m.
Keep in mind that placing a pre-owned aircraft into service will probably require additional funds, and a buyer may elect to spend a further $1m to $2m on upgrades, paint and interior refurbishment.
Major maintenance checks may be due soon and must be budgeted for at the time of purchase. If the engines are close to overhaul and are not enrolled on a guaranteed hourly maintenance plan, then buyers should budget another $1m+ per engine for the overhaul. It’s essential that the pre-owned Large Cabin Jet buyer plans on these major expenses.
What’s the Operating Cost of a Large Cabin Jet?
Operating costs depends on the size and age of the aircraft. Below are some illustrative averages for a Large Cabin Jet, taken from the Conklin & de Decker Report. These have been rounded-off:
- Average variable cost per hour: $4,000
- Fuel*: $2,000
- Maintenance: $1,200
- Parts, Labor, Major Maintenance Reserves
- Engine Reserves: $800
(* Fuel cost depend on fuel price (per gallon) and fuel burn.)
What are the Data Costs of a Large Cabin Jet?
Another variable cost to budget for is Wi-Fi or airborne internet. The ultimate costs will vary, based on the type of connection, speed and amount of data used, and where you fly. If flying in the US, you could use an air-to-ground (ATG) system connected to cellular towers.
Large Cabin Jets are typically used to fly globally, however, and if flying over water or in remote regions, maintaining internet connectivity will require a satellite-based system.
There are different installation and rate plan options designed to fit the needs of both the passengers and pilots. New installations for a satellite system can run anywhere from $650k to $800k.
Monthly rates based on data used and download speeds can start at $25,000 per month. An approximate data estimate is $2,000 to download a movie in HD or $4,000 to stream a live sporting event.
What are the Fixed Costs of Large Cabin Jet Ownership?
Fixed costs of Large Cabin jet ownership typically run between $1m and $1.2m per year and include the following:
Here’s how the costs for these elements looks:
1) Salaries: The pay for two pilots ranges from $170,000 to $200,000 per pilot, depending on job duties and level of experience. Depending on your operating location and travel schedule, it may be wise to employ an aircraft maintenance engineer/technician on a salary of $80,000+ per year.
And if the schedule is complex, involving frequent changes and multiple individuals who can authorize use of the aircraft, a flight scheduler is recommended as well as an administrative person. Their salaries can be in the region of $60,000 per year.
2) Training: Pilots need training at least annually and that can cost between $75,000 to $80,000 for two crew members.
3) Hangar: For hangar rental, plan on an annual fee between $50,000 and $60,000 for a typical metropolitan area. Premium locations, like New York City, Hong Kong and Geneva, will be significantly higher.
4) Insurance: This can range between $30,000 to $60,000 depending on the aircraft value and liability limits. If the aircraft spends a lot of time outside of developed countries, those costs may increase substantially.
5) Refurbishment: Paint and interior should also be considered. A new interior and paint job may last from seven to nine years with excellent care. Depending on the level of completion, materials and extra features, you should budget approximately $1.2m to $2m for this work.
Additional costs that can be incurred include acquiring aircraft technical publications for the flight crew and additional maintenance, office and travel expenses.
What’s the Overall Cost of Owning a Large Cabin Jet?
In summary, it’s reasonable to plan an operating budget of approximately $2.8m per year for 400 annual hours operations in a Large Cabin business jet, excluding the costs of capital, taxes and depreciation.
This article was originally published by AvBuyer on January 13, 2020.
Preparing Your Aircraft for Sale see more
NAFA member, Amanda Applegate, Parter with Aerlex Law Group, shares what you need to know to prepare your aircraft for sale.
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.
This article was originally published in BusinessAir Magaziine, December 2019, Volume 29, No. 12 on January 6, 2020.
Aircraft Operating Costs: How to Measure Them see more
NAFA member, David Wyndham, Vice President at Conklin & de Decker, discusses where some of the common mistakes are made when comparing the operating cost of one business aircraft against another and how data can be used to give a true apples-to-apples comparison.
When comparing business aircraft operating costs, data from multiple sources is likely to provide inconsistent results. Your first consideration should be the quality of the data and where it is from.
A quality supplier of cost data should explain where and how their costs were calculated.
- Good cost data should clarify whether you are looking at the operating costs for a new aircraft or a used model;
- It should detail how many years the costs are projected (for example, a five-year budget will differ significantly from a 10-year budget);
- You also need to establish if the costs only cover scheduled maintenance during the projected period, or whether they accrue for other maintenance and unscheduled maintenance.
How Does Utilization Affect Operating Cost?
Many aircraft have calendar-based maintenance requirements. If an inspection is due every six months, the aircraft will have a different average hourly cost at 250 annual hours versus 500 annual hours. The trip profile will also further impact cost, as will varying fuel consumption for long or short trips.
For helicopters, flying with external loads or in a high-cycle operation will significantly affect the costs. Likewise, high-frequency utility operations are going to see very different costs compared to a low-utilization VIP operation. The cost of special equipment also needs to be accounted for.
To be fully understood, all costing assumptions must be stated and fully explained.
Operating Costs: Which Key Terms Need to be Defined?
Fuel cost will clearly be different for a long trip versus a short trip but what is the assumed cost of that fuel? It will only create confusion if you attempt to directly compare fuel costs for Business Jet A flying a 600-mile trip at $4.50 per gallon versus Business Jet B flying a 1,200-mile trip at $5 per gallon.
There are many other terms that need to be defined beyond fuel cost. For example, are the salary costs based on two senior captains, or one senior captain and a first officer? Is the hangar-cost based on a major metropolitan area?
Maintenance costs can take days to analyze in detail. In general, you need to define the period for which the costs are assumed and clarify if they accrue for maintenance outside this period.
Are the engines accruing for only the overhaul, or are they on a guaranteed hourly maintenance program with full coverage for all engine maintenance, including unscheduled events? It’s important to have a clearly defined explanation of what maintenance is assumed to be included and for how long.
You should also clarify if the costs cover fuel and maintenance costs only, or additional items too. When trying to determine the total costs to own and operate an aircraft, more data is always better.
What is the Cost per Nautical Mile?
In aviation, we have a habit of always talking in terms of flight hours. However, if the aircraft is used to transport persons from one location to another, the aircraft's job is to fly a given distance. Airplanes that fly point to point should be compared on a cost-per-mile basis.
Let's compare a King Air 350i and a Citation CJ4. Using the default Conklin & de Decker variable cost per hour, the King Air 350i variable cost is $1,312 per hour and the CJ4 shows $1,708 per hour.
There you have it, the jet costs almost $400 per hour more to operate! But what's missing here?
It’s the cost per nautical mile.
If the King Air averages 281 nautical miles each hour, the cost per mile is $4.67. If the CJ4 averages 409 nautical miles each hour, the cost per mile is $4.18. What initially may look like one airplane having 30% higher variable costs per hour really has a 1.5% per mile lower variable cost.
There is not a single set of correct assumptions and methodology to apply when comparing aircraft costs. The director of maintenance will be concerned with seeing the details of the maintenance budget.
The CFO, although requiring accurate maintenance costs, will need to know the tax implications of the deal and depreciation predictions but is not likely to need all the maintenance line items. The finance representative will need a full set of costs to know that the buyer or lessee can afford to operate the aircraft, not just make the payments.
In Summary: Consider the Source
The supplier of the cost data needs to not only accurately represent the costs but also explain them and answer your questions.
Costs are not a commodity where cheaper is always better. An aircraft that has been well maintained and has up-to-date avionics and a guaranteed maintenance program will cost more to acquire than the same model with a sketchy past, poor records, and engines that are approaching a major check. In the end, it’s true to say that you get what you pay for.
This article was originally published by AvBuyer on November 8, 2019.
What Is The Typical Down Payment Percentage on a Jet? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about jet down payments.
Q: What is the typical down payment percentage on a jet? Possibly a CJ3+?
A: How the aircraft is being used will be a primary factor in determining the required down payment. For Part 91 personal/business use lenders typically will finance up to 85% of the purchase price or aircraft value, whichever is less. Part 135 charter or other commercial usage generally requires larger down payments. 30% down is typical for this type of usage. How the loan is structured can also play a factor in the down payment. AOPA Aviation Finance can offer solutions such as interest only, asset based, or longer fixed term structures. Larger down payments are typically required for these types of loan structures. Please give us a call, we’d be happy to discuss your situation in further detail.
This article was originally published by AOPA Aviation Finance Company on September 18, 2019.
Why 'Pre-Owned' Private Jets Can Be Surprisingly New see more
NAFA member, Chad Anderson, President of Jetcraft, discusses why you should buy a pre-owned aircraft and where to find them.
Pre-owned, vintage, used…from sports cars to designer clothes and beyond, these words don’t usually indicate ‘new’.
But, according to Jetcraft, the world’s leading aircraft sales specialist, pre-owned private jets don’t have to be ‘old’ – in fact, the savviest buyers are now picking up these airplanes after less than a year of use.
So how do buyers find an almost-new aircraft? And what’s bringing these jets to the market in the first place? We asked Chad Anderson, president of Jetcraft.
Why should I buy a pre-owned jet?
Pre-owned aircraft allow buyers to find the long-range or large-cabin model they need at the best possible price. Private jets are valuable but expensive assets, so it’s important you invest in an aircraft that suits your needs and will retain value. With the sophistication of upgrades and renovations available today, pre-owned planes are every bit as attractive as new ones.
Why are these almost-new aircraft available?
As many businesses ‘go global’, and more and more private jet owners fly greater distances for work or leisure, demand is growing for spacious, fast jets that can span half the world without stopping. The top jet manufacturers are responding to this need by releasing new large-cabin aircraft. This influx is driving some buyers to sell their airplane after only one or two years of ownership, so they can upgrade to an even newer model.
Indeed, this summer Jetcraft sold the world’s first pre-owned Gulfstream G500 – an aircraft that only came onto the market in 2018. The speed of this sale shows how demand for almost-new long-range models is at an unprecedented high.
How do I find a pre-owned jet to buy?
There’s a lot of competition for young, pre-owned jets. In fact, our recent market forecast anticipates four times more pre-owned transactions a year than new deliveries by 2023 and we’re seeing many aircraft that are correctly priced, marketed and positioned are sold before they even hit the market. If you’re planning to purchase a pre-owned aircraft, it’s important to work with a consultant you trust and who has a pulse on the market and the latest available inventory.
Which jet should I choose?
Today, most buyers are looking for an aircraft that can fly direct from London to cities such as Seoul and Singapore. If you’re regularly travelling long distances, you want a fast jet that allows you to be in the office or at home with your family as much as possible. Choosing between types at the very top of the market, such as the Gulfstream G500 and G600, the Bombardier Global 7500 and the Dassault Falcon 7X and 8X, can be difficult. Speaking with an experienced professional is invaluable in finding an aircraft that perfectly fits your needs.
This article was originally published in Luxury Lifestyle Magazine on September 24, 2019.
Painting the Financial Picture see more
NAFA member Adam Meredith, President of AOPA Aviation Finance Company, shares what items you need when preparing to finance an aircraft.
"You don't really need all of this financial information, do you?" It’s a question often asked by AOPA Finance clients. Yes, yes we do. If you want the lowest rate, the most competitive structuring, the least amount down, and the lowest payment, an exhaustive analysis of your credit worthiness must be made.
IRS Schedule Cs or Schedule Es are not enough. While they may indicate whether the ownership structure has any pass-through income on an individual's tax return, the description of that pass-through income is summarized as a line item or two. Likewise, K-1s only indicate percentages of a shareholder’s income and liabilities. Line items and percentages don’t tell the whole story. Full tax returns do.
Global Cash Flow
Your tax summaries may show cash going from one related entity to another. But are you actually taking from the “left pocket and putting it in the right pocket?” If so, that isn't real money, is it? The lender will net that out of your “global cash flow.” Global cash flow—also known as a Consolidated Statement of Cash Flows—is a listing of all the various entities in which a person has ownership and what their net cash flow from all the entities is.
And then there’s the global debt schedule.
Global Debt Schedule
What is a global debt schedule? It’s a comprehensive list of all the ownership entities. It’s a listing of the actual total debts of each entity in which the individual has ownership. It details what the total amount owed is, and to whom. What the monthly payments are. How much is interest versus how much is principal. It also includes maturity dates for all debt.
Depending upon what one’s business relationship is with his partners, the lender may require additional documents to help fill in holes in the financial picture. Those might include hypothecation, subordination, or even side agreements. A hypothecation agreement could be submitted from the controlling party acknowledging the CEO emeritus is entering into a financial relationship.
Speaking of partners, imagine a borrower has two partners and he owns one-third of the business. Some lenders may require the other two partners’ to be party to the transaction.
For some, that’s just too much. They’re only going to have the loan for three years so the “pain-in-the-neck” factor is not worth their time and effort. Other folks just don't want to disclose all their financial information for personal reasons. Still others have obligations with lenders elsewhere that restrict them from guaranteeing debt or have covenants in place from other business debt. For these individuals, a collateral-based loan might be the more appropriate option. The trade-off is simplicity for a little bit higher interest rate.
Collateral Based Loans
A collateral-based deal might proceed more quickly from initial inquiry to funding but it does come with a different paperwork burden. Even so, the process is usually far less onerous. Banks will conduct an exhaustive search on the quality of the individual as well as on the aircraft. For the individual, they want to know if this person has filed bankruptcy. Do they have tax liens against them? Are there pending lawsuits on them, for any reason? A person applying for a collateral-based loan should be crystal clear how good or bad their character looks on paper.
Every time an AOPA Finance advisor must request additional information because our client’s paperwork is incomplete adds additional stress to the process. Bottom line-- there are no shortcuts. A transparent, painless credit deal requires in-depth financial paperwork.
This article was originally published by AOPA Aviation Finance Company on June 12, 2019.
How Long Should You Keep Your Business Jet? see more
NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses your plan on how long you should keep your business jet.
When buying a business jet, it’s important to have an idea of how long you will own the aircraft. But where do you begin your analysis? David Wyndham assesses not only why, but how you should build a plan…
A client was recently looking at how the cost of owning their first business jet compares to a jet card or block charter. Their expected annual utilization is 350 hours and they plan to operate between two continents, requiring a Large Jet. They ultimately chose not to purchase the aircraft.
Why did they choose not to own an aircraft? In short, their expected utilization period only covered the next two-to-three years. After that the client expected to retire and fly substantially fewer hours. In this case, a very short-term of ownership, combined with the projected decline in the aircraft’s residual value, meant the total ownership costs favored a well-structured jet card program over outright ownership.
There is no ideal length of time to own a business aircraft, however. The ideal will differ from one prospective owner to the next. So what are the key considerations that a buyer should take into account when determining the length of ownership?
Changes in the primary mission will often dictate a change of aircraft to one that is a better fit. For example, one flight department suddenly needed to fly much longer trips following a merger. The existing aircraft lacked the necessary non-stop range, creating the need for a replacement aircraft.
Likewise, if the need to carry a certain number of passengers changes then an equipment change could be required. Mission requirements could dictate a smaller aircraft or a larger one.
For example, there's no need for a 12-passenger Long Range Jet if the primary mission changes to short hops with fewer passengers.
When the mission changes, it's important to establish if these are for the short-term or will be more permanent. A short-term change in mission or hours to be flown might be well-served by charter or a jet card. As a part of your acquisition process, you will need to see if any foreseeable mission changes are likely to occur, and if so, when and for how long.
As an aircraft ages, it requires more maintenance to stay reliable. The time needed to perform that maintenance tends to increase. The costs of operating a newer aircraft are therefore lower than older examples. If the economics of the newer aircraft are lower than the older one, it can further support a change.
For business-use aircraft, taxes may be another consideration when deciding how long to keep the aircraft. There are some companies that maximize the tax depreciation of the aircraft as aggressively as the tax law allows and, once depreciated, these companies often elect to replace the aircraft.
Part of this discussion depends on the profits of the corporation and the need for tax deductions. Taxes should never be the sole reason to buy or sell your jet, but they can be a significant decision point. It's always a good idea to consult with a tax expert for further guidance.
Maintenance, Technology and Parts
Maintenance Factors: Calendar requirements for travel, advances in technology and the ability to obtain spare parts after an aircraft has been out of production for many years are among the other considerations for determining how long you should plan on keeping your jet.
If the aircraft is flown a lot, the increased calendar availability of a newer aircraft needs to be factored into the equation. Older aircraft can be down for maintenance more than 50% of the time, which necessitates significant supplemental lift.
How might an aging aircraft fit with your projected mission needs five years from the time of purchase?
Technology Factors: New technology that is required for ATC, navigation and increasing safety may not be cost-effective when modifying older aircraft. For some business jets, updating systems to a modern ‘glass cockpit’ suitable for global navigation can exceed $1m or more. For the older global jet, it may not be worth spending that money. This must be assessed at the time you’re buying a jet.
Parts Availability: For much older aircraft with fewer left flying, the ability to find spare parts, irrespective of cost, makes the aircraft less able to meet its schedule. A rule of thumb is that if less than half the fleet is still flying, the aircraft can be considered an ‘end-of-life’ model – in which case, you may need to develop a plan for the aircraft’s scrappage once your planned term of ownership is finished.
If the long-term mission needs are not likely to change, then the decision should center on costs. The costs of keeping or replacing the aircraft should be calculated using a life-cycle cost approach to arrive at the best financial solution.
This approach considers not only the operating costs but also current and future values. It may also include taxes and the cost of capital.
In summary, there is not one right answer for how long to own a business aircraft. The timing depends on the age of your aircraft and on the costs of owning and operating it. I’ve seen owners who change aircraft every five-to-seven years and some who keep an aircraft 20 years or longer.
This article was originally published by AvBuyer on March 6, 2019.
How to Refurbish Your Jet With Maximum Appeal (Part 1) see more
NAFA member, Gary Crichlow, Director of Aviation Finance with Arc & Co., discusses business jet refurbishment.
How would you upgrade your jet to optimize appeal on the resale market?
When refurbishing your business jet, how far should you go? How can you anticipate appealing to future buyers, and what should be the priorities with a sale in mind? Arc & Co’s Gary Crichlow shares the insights of Tobias Laps and Iain Houseman.
Refurbishing or upgrading an aircraft is a very different investment proposition compared to refurbishing a property. While property generally appreciates in value over time, aircraft are fundamentally depreciating assets. Outside of very specific, often unpredictable market conditions, aircraft will lose value as they age.
Any investment into a business aircraft therefore needs to be looked at from the point of view of slowing that value loss as much as possible and extracting maximum utility, rather than expecting a positive financial return.
The most effective way to slow natural depreciation is to ensure the aircraft is desirable to the market so it sells quickly when the owner decides they want to upgrade or generate some cash.
Mainstream, sought-after aircraft models in top maintenance condition that have undergone a high-quality cabin refit don’t tend to stay on the market for long (unless they’re unrealistically priced).
What Makes an Appealing Interior?
Naturally, when considering how to fit out the cabin of a private jet, it’s crucial to make choices that not only align with your current needs and desires, but also account for your future buyer’s mindset as much as possible.
Decisions made now often have a sizeable impact on the future point of sale. The one similarity with selling property is that a well-executed interior should enable the buyer to visualize himself or herself in the cabin with little or no change rather than having to consider the cost of ripping it all out and starting again.
Following are several themes that are important to consider when it comes to the perceived value that a well-executed cabin refit generates at the point of sale from a buyer’s perspective.
Note: With our use of the term ‘value’, we encompass not only the actual return by way of an increased sale price (which tends to be the exception rather than the rule), but also the impact on the time it takes to sell the aircraft, thereby minimizing the detrimental effects of depreciation and time on the market.
Aircraft Condition Over Aircraft Style
Generally, aircraft in better condition tend to be easier to sell. A relatively new interior that’s in good condition can markedly increase an aircraft’s appeal, but its impact will be very much dependent on the basic aircraft ‘metal’, i.e. its age, hours and maintenance condition.
Tobias Laps from Comlux Management AG notes that on Large Jets and Bizliners, the design of the interior, the layout and materials tend to have a much bigger impact on the buyer’s decision-making than on smaller aircraft.
“In our experience, when buyers walk onto an aircraft, they typically know within the first few minutes whether the interior will work for them or not,” Laps explains.
“If they don’t like the interior at all, they will often walk away from the deal. If there are only certain aspects of the interior that they don’t like, they will then have to decide whether changing those aspects would be worthwhile.
“It is at this point that they weigh up their view of the basic aircraft, the metal versus the cost of changing the interior to better suit their needs. If the metal is relatively new, in good condition, and is worth significantly more to the buyer than the cost of the interior upgrade, then that’s what will tend to drive the decision,” Laps continues.
It is therefore of key importance for a seller to understand the interplay between the technical and the cosmetic, which will depend heavily on the specific details of the aircraft.
Do Cabin Cosmetics Matter?
There are important aspects of the cabin prospective sellers can address to give buyers a first-class impression of the aircraft’s condition, and according to Laps that begins with choosing an interior layout with resale value in mind well before the actual sale, including “mainstream” color and veneer choices.
“In terms of specification, wireless connectivity is a trend whereby passengers can connect their own devices while on board,” he adds. “Upgrading a wireless entertainment system is easier because the interior does not have to be removed to rewire components.”
Know Who You’re Trying to Impress
Regardless of the layout and specification, Laps emphasizes that the first thing you must do when selling your jet is to prepare to impress the principal’s technical representatives.
“Make sure the maintenance records are up to date, well-organized and presentable and the aircraft is clean and fully serviceable,” he details. “It’s a very good idea to clean the landing gear, bays and externally-accessed compartments.
“Only after the representative has examined the technical condition of the aircraft and records and is satisfied will the principal typically come to assess the interior and overall cosmetic condition and make the final decision.”
In preparing for the principal to come and view the aircraft, it will need to be cleaned. “The exterior should be spotless, and the flight deck and cabin should be deep-cleaned, including the galley, lavatories, carpet and sidewalls,” Laps concludes.
“Everything should look fresh and up-to-date. Soft goods and furnishings should invite the principal to visualise himself or herself using the aircraft.”
Age Before Beauty?
Iain Houseman of Elit’Avia, meanwhile, believes the interior will be a lot more important if the aircraft is older. “If it’s a newer aircraft, then the interior is usually still in pretty good shape and, in that case, it comes down to how appealing it looks to the buyer,” he notes.
“If the interior has been designed in a way that appeals to a limited group of people (as an example, red leather seats or a carbon fibre interior instead of veneer) that can be a deal-breaker, because buyers will have to spend time and money to change it.
“For older aircraft, the interior condition can be important for the same reasons – if the interior has recently been redone or is in good condition then the aircraft is more appealing because it doesn’t need significant rework,” Houseman observes.
“Additionally, there is a need to understand the current technology systems and the proximity of major inspections for the aircraft that will allow upgrades to be incorporated and save considerable costs.
"For example, we estimated a major inspection for an owner’s aircraft of $1.1m and got the cost down to just under $800k – and managed to include some key avionics upgrades, internal improvements and soundproofing enhancement, which proved very useful in getting the aircraft ready for sale.”
Upgrading and refurbishing an aircraft is a significant investment that can strongly enhance your experience while on board. Nevertheless, when planning for the investment, it’s important to have a realistic view of the value a refurbishment creates.
A well-executed cabin refit should not only meet your immediate needs in terms of space, aesthetics, utility and connectivity. It should appeal to the broadest possible range of potential buyers when the time comes to move the aircraft on.
In ‘Part 2’ we’ll explore the current trends in cabin design as owners seek to maximize utility, comfort and style, gaining input from renowned interior designer Celia Sawyer, while also considering the importance of maintaining paperwork and ensuring the design is properly certificated to enhance the chance of selling your aircraft at the best price. Stay tuned…
More information from www.arcandco.com
This article was originally published by AvBuyer on August 12, 2019.
JetNet Sees Mixed Signals for Bizjet Market see more
NAFA member Paul Cardarelli, Vice President of Sales at JetNet, discusses the current state of the business jet market.
Business aviation data provider JetNet is fairly optimistic about the state of the business jet market, but sees some warning signs on the horizon, the company said in a state of the business aviation market presentation on Tuesday at EBACE 2019. While GDP has long been associated with business jet usage, JetNet v-p of sales Paul Cardarelli said his company's analysts have noted a bit of decoupling in GDP growth between the U.S., which has been above 3 percent for the past two quarters, and the Euro Area, which has remained flat at 1.2 percent for that span. Cardarelli placed some of the blame on the protracted drama of Brexit, which is estimated to be impacting the UK economy by £19 billion a year, among other factors.
He noted that the business jet fleet remains “geographically concentrated,” with approximately 61 percent of the world’s business jet fleet based in the U.S., and that the 22,138 business aircraft in service today had 4.5 million cycles in 2018. The last time the fleet was at that level of utilization was around 2005, when the in-service fleet numbered approximately 14,000.
“So we’re about one-third more aircraft than we were in ’05, and yet we’re operating about the same number of cycles,” Cardarelli noted. “This is one of the things that gives us some concern. We have an oversupply situation and we have underutilization going on.”
Another metric of the health of the market lies in the preowned segment. An inventory of less than 10 percent of in-service aircraft is considered by many as indicative of a seller's market and, as of the end of March, the numbers according to JetNet’s data were 9.3 percent for business jets and 6.7 percent for turboprops, the lowest levels since before the global economic downturn.
Yet, the company noted there were 513 retail jet sale or lease transaactions in the first quarter, compared to 641 a year ago—marking a year-over-year decrease of nearly 20 percent. Cardarelli attributes the discrepancy to a variety of reasons, including the partial U.S. government shutdown in January and stock market turbulence. Another factor could be the limited choice in the marketplace as buyers finally jumped in at the bottom of the market and have removed most of the choice aircraft.
On the new aircraft side, all five of the major business jet airframers have shown an increase in backlogs in the first quarter, an aggregate 5.5 percent rise, with book-to-bill ratios all above one while Embraer and Bombardier are approaching two. “We feel good about that—that’s a good metric for the industry,” said Cardarelli. “We’re always conservative at iQ, we do want to call them as we see them, but we’re actually bullish, particularly for the OEMs."
Since 2011, JetNet iQ has conducted its quarterly surveys gathering 500 responses in each for approximately 17,000 results from 132 countries. JetNet iQ founder Rollie Vincent shared the latest data from the company’s second quarter survey, which is 85 percent complete. The survey asks respondents to describe the current market conditions for business aviation as either not yet at the low point, at the low point, or past the low point, and establishes a net optimism score by subtracting the first number from the last.
In the second half of last year, that number hovered around 50 percent, but plummeted to 27 percent in the first quarter of this year, and with the majority of responses received for the second quarter, optimism seems to have eroded further to 24 percent. In North America, more than 50 percent of the respondents either somewhat or strongly believe there is increasing risk for a global economic slowdown in the next 12 months, while in Europe that rate exceeded 70 percent.
“It’s all across the market, the mood has changed,” said Vincent. “We think this is a caution sign, and it’s going to affect preowned sales first, which we think are coming down.” Also in Europe, nearly 60 percent of the respondents believe to some degree that uncertainty over Brexit has affected their aviation activities.
The survey typically asks respondents several topical perception questions, and among them this quarter was if they are experiencing difficulties recruiting and retaining aviation-related staff. In North America and Europe, 77 percent and 67 percent agreed from somewhat to strongly that they were, adding more evidence of an industry-wide talent shortage.
Asked about their belief that all their aircraft would be ADS-B-compliant by the Dec. 31, 2019 deadline in the U.S., enough respondents indicated strongly that they would not, leading the company to speculate that thousands of aircraft could be affected. That could perhaps to a long overdue mass retirement of aging aircraft, Vincent said.
For the first time in eight years of surveys, JetNet noted the percentage of intent to purchase light jets, which had been as low as 11 percent, has finally exceeded 30 percent, meaning a long-awaited improvement in the segment is under way, fueled by the Pilatus PC-24. That aircraft model earned the most responses to the question “what model were you most interested in for your next purchase?,” beating out the popular Gulfstream G500, G650/650ER and Bombardier Challenger 350 over the past three surveys.
Vincent updated the company’s 10-year forecast to 7,100 jet deliveries worth $237 billion through 2028. For the first time, the company included the category of supersonic business jets (SSBJ), which he expects will make an appearance sometime around 2026. Based on the survey results, more than 75 percent of the respondents in North America, and nearly 50 percent of those in Europe, believe to some degree that SSBJs will be in service in the next decade.
This article was originally published by Curt Epstein on AINonline on May 22, 2019.
Closing Before the Aircraft is in the Delivery Condition - Exploring the Risks see more
NAFA member Amanda Applegate, Partner with Aerlex Law Group, explores the risks associated with closing before the aircraft is ready.
More often than I would have thought possible, buyers and sellers are motivated by a variety of reasons to close on the purchase and sale of a pre-owned aircraft before the pre-purchase inspection is complete or before the inspection discrepancies are rectified. Sometimes it is because the buyer wants to close in order to start a major refurbishment to the aircraft and there is a long lead time on the correction of certain discrepancies and/or it would be more efficient to fix the discrepancies simultaneously with the refurbishment. Other times the seller wants the aircraft sold by a specific date for financial reasons, to make room for their newly acquired aircraft, or so the seller’s crew can leave for training on a replacement aircraft. Regardless of the reason, as a buyer there are certain risks that should be considered.
If the inspection isn’t complete at the time of closing, the risk to the buyer may be substantial because there could be unknown issues with the aircraft which haven’t yet been discovered. Additionally, if closing takes place while the discrepancies are in the process of being repaired then additional, significant discrepancies could be found, but the buyer no longer has the option to walk away from the purchase.
If the parties understand the risks and elect to move forward and close before the aircraft is in the contractually agreed-upon delivery condition, then there are two options. The parties can agree on a purchase price reduction based in part on the estimated cost to repair the discrepancies or the parties can agree on a holdback amount to be held by the escrow agent after closing, with those funds used to pay for the repair the outstanding discrepancies.
A reduction in purchase price allows the parties to complete the transaction and have no further dealings with one another. The price reduction should not only be for the amount of the outstanding discrepancies but should also include an amount that represents the risk that the buyer is assuming by accepting an aircraft which is not in the required delivery condition at closing. A short amendment should be drafted and signed by the parties which indicates the buyer is accepting the aircraft even though it does not meet the delivery conditions in exchange for the price reduction. The amount of risk being assumed under this option depends on the status of the inspection and/or the extent of the unrepaired discrepancies. One understated benefit of the price reduction over a holdback is that the transaction is completed, thus the seller has no further responsibilities and the buyer is free to do whatever they want with the aircraft going forward.
A holdback allows the seller to remain responsible after closing for paying the cost of the repairs necessary in order for the aircraft to meet the delivery conditions. If the holdback amendment is drafted properly, there is far less risk for the buyer under these circumstances. The buyer should make sure the seller remains responsible for not only the known discrepancies but any new discrepancies found during the completion of the repairs. Furthermore, the holdback amount should be enough so that collecting for the repairs from seller does not become an issue. I recommend the holdback amount be 150% of the estimated cost of the repairs. Additionally, the funds should be released automatically when the invoices are submitted to the escrow agent without further approval by the seller and if the holdback is not enough to cover the cost of the outstanding repairs, seller should remain liable. The escrow agent should be a party to the holdback amendment and they should confirm they understand the terms prior to execution. This will help avoid a dispute over when or how an invoice is paid. The parties will continue to work together until the repairs are complete and the remaining holdback amount, if any, is released to the seller.
There can be legitimate business reasons to close on a pre-owned aircraft prior to the aircraft meeting the delivery conditions as originally agreed upon between the parties. When the parties desire an early closing, it is important that the risk allocation is considered in the financial terms and that the agreement of the parties is clearly documented, including, if necessary, the post-closing obligations of the parties and the responsibilities of the escrow agent.
Please contact Amanda Applegate at 310-392-5200 or email@example.com.
Used Aircraft Maintenance Analysis – June 2019 see more
NAFA member, Tony Kioussis, President of Asset Insight, shares the June 2019 Used Aircraft Maintenance Analysis.
Average Ask Prices for Asset Insight’s tracked fleet decreased in June to just above the 12-month low figure while asset availability rose near to April’s YTD high. Tony Kioussis explores which models were impacted most.
Asset Insight’s June 30, 2019 market analysis covering 96 fixed-wing models and 1,680 aircraft listed for sale, revealed a Quality Rating only slightly better than the 12-month worst figure, but remained within the ‘Very Good’ range after decreasing from 5.212 to 5.196 on a scale of -2.5 to 10.
At the same time, our tracked fleet’s Maintenance Exposure figure (an aircraft’s accumulated/embedded maintenance expense) improved 3.1% last month, and 1.1% for the second quarter of 2019.
June’s Aircraft Value Trends
The average Ask Price for Asset Insight’s tracked fleet fell 1.1% in June, as all four groups lost ground:
- Large Jet values posted a new record low figure, decreasing 5.5% in June and 8% during Q2;
- Medium Jets lost 1.3% over the last 30 days but registered a 7.5% overall increase during Q2;
- Small Jet values decreased 1.2% for the month and 1.8% for Q2; and
- Turboprops suffered their third consecutive monthly Ask Price decrease, posting a record-low figure with a 1.6% reduction, and a total decrease of 2.4% during Q2.
June’s Fleet for Sale Trends
The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased by 27 units in June.
- Large Jet inventory increased 5.9% (21 units);
- Medium Jet inventory increased 1.2% (6 units);
- Small Jets was the only group whose inventory decreased (0.5%, or 3 units); and
- Turboprops increased 1.2% (3 units).
June’s Maintenance Exposure Trends
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for June’s inventory fleet mix improved 3.1%, decreasing to $1.4m from May’s $1.45m. Results for each of the four groups were as follows:
- Large Jet maintenance exposure rose (worsened) 0.2% to remain just above the 12-month low figure. For Q2 the maintenance exposure improved 7.1%;
- Medium Jet exposure fell (improved) 4% in June and 1.4% during Q2;
- Small Jets posted a dramatic 11.4% reduction (improvement), but maintenance exposure ended Q2 6.7% higher;
- Turboprop maintenance exposure increased (worsened) 2.5% in June and 6.3% during Q2.
June’s ETP Ratio Trend
Based on June’s maintenance exposure and ask price changes, the average ETP Ratio figure decreased (improved) to 65.4%% from May’s 69.8%, with all but the Turboprop group contributing to the improvement. Why is this information important…?
The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.
As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%).
So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2019 were listed for sale an average 71% longer than aircraft whose Ratio was below 40% (226 days versus 386 days on the market, respectively).
By comparison, during Q1 2019 aircraft whose ETP Ratio exceeded 40% took 62% longer to sell (237 versus 384 Days on Market).
How did each group fare during the month of June?
- For the first time ever, Large Jets posted the lowest (best) ETP Ratio at 52.5% (which was also the group’s 12-month best figure);
- Turboprops were not in first place for the first time since Asset Insight has been keeping records, due to the group’s all-time highest (worst) ETP Ratio at 56.6%;
- Small Jets were third with a Ratio of 68.8%; and
- Medium Jets improved slightly by decreasing to 75.2%.
Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual business jet and turboprop models fared the best and worst during June 2019.
Most Improved Models
All of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Interestingly, the Bombardier Learjet 31 did not experience an Ask Price change, while the Bombardier Learjet 35A, Cessna Citation ISP and Cessna Citation II experienced decreases of -$46,073, -$1,690 and -$30,399, respectively. Only two models posted price increases. They were:
- Cessna Citation V Ultra +$179,385
- Bombardier Learjet 45 (APU equipped) +$395,875
Bombardier Learjet 31
The Learjet 31 leads our ‘Most Improved’ list after placing second from the bottom on May’s ‘Most Deteriorated’ list. Although no aircraft traded in June, the model captured this spot complements of a Maintenance Exposure decrease (improvement) for the listed fleet that exceeded $226k.
Nevertheless, while only four aircraft (11.5% of the active fleet) are listed for sale, the asset’s 118.6% ETP Ratio holds about the same minimal hope for sellers during the coming months as it did in June.
Bombardier Learjet 35A
In terms of a statistical recovery, it doesn’t get much better than the Learjet 35A’s leap from worst on May’s ‘Most Deteriorated’ list to the model’s ranking in June – and it’s all thanks to a Maintenance Exposure decrease exceeding $265k (a figure that overshadowed a substantive ask price decrease).
One aircraft transacted in June, and two joined the inventory fleet to increase that number to 43. That only represents 8.6% of the active fleet, but the aircraft’s ETP Ratio (170.3%) is unlikely to find buyers for too many sellers.
Cessna Citation ISP
Three aircraft transacted in June, three were withdrawn from the market, and three were added to an inventory mix that now totals 53 units (19.9% of the active fleet). The model earned its way onto the ‘Most Improved’ list through a Maintenance Exposure reduction exceeding $131k, and the inventory fleet also posted a slight Ask Price decrease.
The resulting ETP Ratio – approaching 102% - combined with high availability of this well-aged fleet is unlikely to generate sudden purchasing exuberance.
Cessna Citation II
From May’s ‘Most Deteriorated’ list to June’s ‘Most Improved’ grouping, the Citation II’s reversal of fortune appears impressive – until you start to peel back the technical onion: No trades occurred during the month of June; the asset’s Ask Price dropped over $30k; 94 aircraft are listed for sale (16.8% of the active fleet); and the ETP Ratio stood at 109.1%, even after a Maintenance Exposure decrease approaching $148k.
While a 17.7% one-month ETP Ratio decrease technically earned the model a place on this list, it’s unlikely to aid sellers seeking to dispose of a Citation II.
Seller Advice: Carefully consider all offers, as prospective buyers will be few in number and are unlikely to be negotiation motivated.
Cessna Citation V Ultra
Sellers of this model have some opportunities, especially if their aircraft’s engines are enrolled on an Hourly Cost Maintenance Program. No aircraft transactions were posted for the Citation V Ultra in June, but one unit was withdrawn from the inventory and three were added, resulting in 26 aircraft listed for sale (8.4% of the active fleet).
With the model’s average ETP Ratio falling below 65% by virtue of a Maintenance Exposure decrease exceeding $89k and an Ask Price increase exceeding $179k, both buyers and sellers have an opportunity to structure transactions offering good value.
Bombardier Learjet 45 (APU-equipped)
As with three other models on June’s ‘Most Improved’ list, we captured no transactions during the month of June. The 17 aircraft in inventory, when added to listed Learjet 45 units that are not APU-equipped, represent approximately 10.8% of the model’s active fleet.
With the model experiencing a Maintenance Exposure decrease exceeding $67k, along with a sizeable Ask Price increase, the resulting average ETP Ratio should make many listed units (especially those enrolled on an engine HCMP) quite marketable – assuming a willing buyer can be located.
Most Deteriorated Models
All but two models on June’s ‘Most Deteriorated’ list (the Hawker Beechjet 400 and Hawker 800A) experienced a Maintenance Exposure increase (deterioration), and all six asset types posted Ask Price decrease, as follows:
- Hawker Beechjet 400 -$125,250
- Gulfstream GIV-SP (MSG3) -$947,500
- Cessna Citation V 560 -$7,538
- Hawker 800A -$73,714
- Beechcraft King Air 350 (Pre 2001) -$97,019
- Beechcraft King Air C90 -$21,228
Hawker Beechjet 400
The model earned the ‘Most Deteriorated’ position for June through a Maintenance Exposure increase exceeding $11k and an Ask Price reduction exceeding $125k. Only four aircraft are presently listed for sale (10.1% of the active fleet), and two aircraft traded during the past 90 days.
However, at nearly 152%, the model’s ETP Ratio is too high for even engine Hourly Cost Maintenance Program coverage to help much on the valuation front – although it may make the asset slightly more appealing.
Gulfstream GIV-SP (MSG3)
We were somewhat surprised to find this model on the ‘Most Deteriorated’ list, but it earned its way here through a $570k Maintenance Exposure increase along with an Ask Price decrease approaching $945k. One aircraft traded in June and the seven remaining in inventory represent only 8.6% of the entire GIV-SP active fleet.
As we have cautioned in previous reports, whenever a limited number of units are listed for sale, changes to one or two assets can radically alter the view. In this case, only two aircraft are posting an Ask Price and one asset dropped its price by nearly 22% in June.
This model may be on the ‘Most Deteriorated’ list, but with an ETP Ratio of 60.3%, and with many units enrolled on engine HCMP, many sellers should have the opportunity to entertain reasonable offers.
Cessna Citation V 560
Two units transacted in June, and the 27 inventory assets represent 10.2% of the active fleet. The model’s Maintenance Exposure increased nearly $117k in June, while value decreased as a result of two sellers lowering their Ask Price.
The problem here is the aircraft’s economic usefulness and its ETP Ratio – neither of which is assisting its marketability.
The single trade we uncovered during the month of June left 40 aircraft listed for sale (16.4% of the active fleet). The model actually posted an almost $33k maintenance exposure decrease in June, but that was overshadowed by an Ask Price decrease of more than twice that magnitude.
The real problem affecting sellers of these assets is how far prices have fallen leading to the model’s 188.1% ETP Ratio. Since most of this fleet is enrolled on engine HCMP, there few levers (other than price) that sellers can engage to help them compete for the limited number of buyers.
Beechcraft King Air 350 (Pre 2001)
The King Air 350 was another model we were surprised to see on this list, especially since its ETP Ratio is 44.4%. However, price reductions to a couple of listed assets, along with a Maintenance Exposure increase approaching $138k earned the asset its recognition.
Three units traded in June and the 21 aircraft listed for sale now represents 5.3% of the active fleet. Many sellers should be well-positioned to negotiate a decent price, while many buyers will find sufficient selection to maintain the model’s fairly robust trading environment.
Beechcraft King Air C90
The story is a little different for the King Air C90, and we recorded no trades for the month of June with one addition to inventory. With 50 aircraft listed for sale (13.1% of the active fleet), buyers hold the stronger hand.
The King Air C90 earned its spot on this list through a Maintenance Exposure increase approaching $18k and an Ask Price drop exceeding $21k that, combined, raised the model’s ETP Ratio past 124%.
Considering that we’re dealing with aircraft aged between 37 and 48 years, the ETP Ratio is unsurprising. What is surprising is the sudden deterioration this relatively popular model has experienced.
The Seller’s Challenge
It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.
But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.
It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.
A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on HCMP.
Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.
More information from www.assetinsight.com
This article was originally published in AvBuyer on July 17, 2019.
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.