Why Use An Accredited Aircraft Appraiser? see more
NAFA member, Louis Seno, ASA, Chairman Emeritus and Special Advisor to the Jet Support Services, Inc. Board of Directors, discusses why using an accredited aircraft appraiser is best.
Keeping a finger on the pulse of your aircraft’s current valuation is crucial, both for tax and depreciation purposes, and when you seek to refinance or sell your aircraft. (Listen to “Regular Check-Ups,” Above & Beyond Podcast, June 2019.)
The demand for reputable appraisers is increasing throughout the business aviation industry. Original equipment manufacturers (OEMs), banks and leasing companies, insurance underwriters, and on-demand charter operators all need knowledgeable appraisers they can trust. But what makes an individual qualified to become an appraiser?
Due to the complex nature of the appraisal profession, education and experience are crucial. However, there are no legal requirements, nor license needed, so anyone can call him- or herself an aircraft appraiser, regardless of their knowledge, skills, experience, or abilities. In response, the American Society of Appraisers (ASA) established an aircraft-specific discipline and designation program, to help assure owners and financial institutions that the aircraft are accurately valued.
An increased demand for aircraft valuation experts in the early 2000s mandated something more be done. And so a 2016 partnership was formed between ASA and the David B. O’Maley College of Business at Embry-Riddle Aeronautical University to establish a universally accepted industry standard. Together, they developed a series of four courses designed specifically for professional aircraft appraisers, enabling those so committed to achieve a new official accreditation.
Successful completion of the courses provides participants with the necessary fundamental appraisal coursework to apply for professional accreditation through ASA, with a specialty in aircraft appraisal. The curriculum covers commercial, business, and general aviation aircraft, including fixed-wing and rotorcraft, and other aerospace assets, such as tugs and ground power units.
ASA’s coursework and testing builds a solid foundation of aviation knowledge. A thorough peer evaluation of appraisal reports is then conducted before an individual can receive the Accredited Member (AM) credentials for two years of experience, or the Accredited Senior Appraiser (ASA) credentials for five years of experience.
Additionally, there is a 100-hour continuing education requirement to be completed during the five years after receiving ASA accreditation. Courses and advanced conferences are offered around the globe for ASA appraisers to learn more about current issues and prepare for future valuation challenges.
“The accreditation process is detailed and meticulous,” said Johnnie White, ASA’s CEO. “We recognize that your turbine aircraft is a multimillion-dollar asset. To ensure its proper valuation, we set high standards on educating our designated members.”
You can secure a qualified appraisal for your aircraft in one of two ways:
- In a desktop valuation, the appraiser will go well beyond a simple pricing comparison by researching the current aircraft on the market, establishing the average days the aircraft model has been on the market, and evaluating any trending data. The appraiser also will assess the maintenance status, look for any major inspection expenses that could be coming due, and perform a cursory check of the logbooks and specifications for the aircraft without looking at the asset. This is the less costly option.
- A physical, onsite appraisal will consist of all of the above, plus a hands-on inspection that includes a thorough examination of the aircraft, including engine and airframe maintenance logbooks. With this option, you will pay for the appraiser to travel to and from your aircraft, for the time spent on the physical inspection of the aircraft and records, and for research of recent sales of comparable make/model aircraft to establish the asset’s current market value.
When your aircraft needs an appraisal or reappraisal for insurance or refinancing purposes, or to prepare for its disposition, choose an ASA-accredited appraiser who has invested in their profession to become the most accomplished and skilled person to appraise your aircraft and to keep a pulse on its value for years to come.
This article was originally published by Business Aviation Advisor on November 1, 2019.
How to Build a Business Aircraft Acquisition Plan see more
NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses the importance of developing a thorough aircraft acquisition plan.
With a sense of urgency and a large sum of cash, an aircraft acquisition can be completed rather quickly. However, without a plan or the right team in place, these types of scrambles typically result in the wrong aircraft for the job, or just simply picking the wrong aircraft. To avoid the headache from an impulse purchase, you need to build a business aircraft acquisition plan.
To begin, there are two fundamental reasons for acquiring new or different aircraft:
- The current aircraft can no longer perform the mission, or
- The current aircraft is no longer the most cost-effective solution.
Changes in mission need to be quantified. As an example, one client in the Eastern US started flying shorter trips with fewer people. Their eight-passenger jet, with a 1,800nm range, was more than they needed.
Instead, they found that a five-passenger airplane that’s more efficient on short trips might be the next aircraft for them.
But how can you quantify what it is that you need and want? Economics are critical. The cost of an aircraft is more than the acquisition price alone. It encompasses the total costs needed to operate the aircraft and allow for a future residual value.
As an example, a single aircraft that meets 98% of usage requirements may cost far more than an aircraft that meets 85% of your needs with a supplemental jet card, charter or fractional solution in place for the remaining 15%.
What Should Your Acquisition Plan Include?
It is important for you to understand what it costs to own and operate the aircraft – and this will all come into your acquisition plan. So, what should your acquisition plan include?
An aircraft acquisition plan must (at a minimum):
- Identify, quantify and differentiate your needs and wants;
- Identify and rank the possible aircraft types by mission capability; and
- Analyze all the costs involved with the aircraft.
Your plan should be void of emotional issues and stay as far from subjective criteria as possible. To help in this respect, you will need someone who can ask the tough questions and assist with an unbiased analysis of the candidate aircraft.
Consultants may offer the unbiased review that you initially need, and their feedback will need to cover both technical and financial aspects of the aircraft acquisition.
Who Should be on Your Acquisition Team?
As you proceed with the acquisition you need to add expertise across several fields to your team. Tax planning should begin well before the purchase, not after the closing, meaning that you will need to hire someone familiar with taxes as they apply to aviation.
You will also need to consult a qualified aviation attorney to ensure that the contracts are appropriate and that the various regulatory issues are addressed. A document that looks good from a basic business perspective may not be legal in the eyes of the FAA or other aviation authority.
Don't overlook the insurance broker, who will need to be kept informed as to when and how the aircraft is to be used. (For example, if the aircraft is to be placed on a management agreement, who and how are each of the parties to that agreement going to be covered?)
You will also need an aircraft sales professional, who will ideally have an excellent understanding of the aircraft sales market — what the availability is; lead times for various models; who to contact about pre-buy inspections and appraisals; and how long it could take to dispose of your current aircraft.
Moreover, the aircraft sales professional you hire will need all the qualities required to be an excellent facilitator, since their job will also be to make sure the deal closes and that all parties are happy.
Additional Planning When Buying New…
Moreover, if you are buying a new aircraft, specifying all the options, picking out paint, and choosing an interior may take a minimum of six months and may well require the services of additional advisors.
Think of your business aircraft acquisition as a “time-is-money” deal. That is, if you don’t have much time, you’ll probably spend even more money! If you are looking to close a deal by the end of this year, you need to be looking seriously right now, and investing in all of the right areas to ensure your acquisition plan results in the right aircraft, at the right cost, at the right time.
This article was originally published by AvBuyer on October 25, 2019.
JSSI Advisory Services Joins National Aircraft Finance Association see more
FOR IMMEDIATE RELEASE
EDGEWATER, Md. - Feb. 14, 2019 - National Aircraft Finance Association (NAFA) is pleased to announce that JSSI Advisory Services has joined its professional network of aviation lenders as a stand-alone member. This Jet Support Services, Inc. (JSSI®) company supports a global customer base with ad hoc services and is a leading provider of aircraft services to lenders, insurance companies and operators worldwide.
“NAFA members proudly finance, support, or enable the financing of general and business aviation aircraft throughout the world, and we’re happy to add JSSI Advisory Services to our association,” said Ford von Weise, President of NAFA.
JSSI Advisory Services leverages 30 years of JSSI expertise and data to deliver technical advice and consulting services to clients. As an independent provider of maintenance support to virtually all makes and models of business aircraft, JSSI oversees 8,000 maintenance events per year with a global network of over 70 technical advisors. This depth and breadth of resources, along with its 2018 acquisition of Conklin & de Decker, have allowed JSSI Advisory Services to gain market share and position itself as a “one-stop shop” for aircraft owners, operators and financiers seeking guidance on often complex aviation matters.
“We’re proud to officially join NAFA and look forward to serving members with an unparalleled suite of services,” said Jason Schwab, President of JSSI Advisory Services and Conklin & de Decker. “We can help members in any location at every stage of the aircraft life cycle, from acquisition to operation to retirement,” Schwab added.
JSSI Advisory Services delivers many high-level professional services, including maintenance event management, ASA- and USPAP-certified appraisals, and on-site technical inspections of aircraft, records, and flight operations. Additional services include maintenance cost forecasting, completion inspections, fleet monitoring, delivery acceptance and ad hoc consulting engagements.
For three decades, JSSI has been the leading independent provider of maintenance programs to the aviation industry, covering airframes, engines and APUs. JSSI provides comprehensive, flexible and affordable financial programs and tools for managing the often unpredictable costs of operating and maintaining business and commercial jets, turboprops and helicopters.
Much like NAFA, JSSI Advisory Services is shaped by a culture of collaboration, innovation and integrity, striving for excellence in the aviation industry. JSSI and NAFA continue to foster the highest standards in service and safety through their support of business and community. For more information about JSSI Advisory Services, visit www.jetsupport.com/advisory-services.
The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.
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.
NAFA member, Neil Book, President and CEO of JSSI, talks to Anthony Harrington, with BAM. see more
NAFA member, Neil Book, President and CEO of Jet Support Services, Inc. (JSSI), talks to Anthony Harrington with Business Aviation Magazine.
Q: Your big announcement at EBACE was the acquisition of Conklin & de Decker. Can you comment on the logic that guided the deal?
NB: There is a very real need in this market for easier access to data and more transparency for aircraft operators and owners. Conklin & de Decker’s mission, as they define it themselves, is to arm operators and owners with information. Their product set is all about helping the general aviation industry to make more informed decisions around the purchase, operation and sale of aircraft, by providing objective and impartial information. They’ve been doing this for 35 years, so they bring a layer of credible data and a level of customer service that is very consistent with our own culture.
The starting point for the deal was the launch of our advisory services platform last year, and the early success that we have had with it. This acquisition will be the first of many as we grow the strength and depth of our services business. There is no doubt that Conklin & de Decker is a tremendous bolt-on acquisition for us.
It is worth emphasizing that JSSI’s growth, prior to this, has been entirely organic. This is our first strategic acquisition and we are actively looking for more.
Q: How do you see the advisory service side? Does it simply strengthen the JSSI brand and add to the service set you provide or do you see it growing into a significant revenue earner in its own right?
NB: I think it will absolutely generate significant revenue and earnings, or we wouldn't pursue it. I also believe that it only strengthens the JSSI brand if we deliver a high quality product. We strive to be the best at what we do and if we do not provide the highest quality product, it could have a negative brand impact.
On the Conklin side, we have a strong technology team, led by our newly named CIO, Jake Gerstein. I’m confident we’ll be able to relaunch Conklin’s platform with even better data, features, and a more global focus.
Q: Both the engine and airframe OEMs are going down a similar route, deploying sensor data beamed directly to operations centres for maintenance purposes. Is this competition for your platform?
NB: I don’t see OEM real-time data being competition. I’m confident we can help operators better disseminate and understand that information. We cover every single make and model of aircraft and have been doing so for the last 30 years. We are sitting on a massive amount of maintenance data. This, coupled with operating data from the 2,000 aircraft we support and Conklin’s database, will allow us to deliver a product that helps operators. Ultimately, the market will decide.
Q: There is an issue in the market at the moment with the very mixed skill sets of appraisers and valuers, some of whom are very good and others who produce very questionable figures. How do you see this playing with your platform?
NB: I can’t speak for the entire market, but we take a lot of pride in the integrity of our appraisals. We just hired our eighth ASA-certified appraiser, Rich Thompson, and believe that our technical expertise really sets us apart. This service to date has been very geographically fragmented. Many banks have to partner with a number of different appraisers around the world, and, as you say, this can have very mixed results. The beauty of working with JSSI is that we have our people in key locations around the globe and this leads to a level of consistent and high quality work that our customers appreciate.
Q: How is the business doing, generally?
NB: Business is performing great and we’re having a lot of fun. We are seeing growth in every region around the world. Flight hours are up generally across the globe, so having 2018 turn into a strong flight-hours year is a very good barometer of the health of the industry.
Q: July and August have seen a considerable spike in both rhetoric and actions around protectionism and punitive tariff increases, raising the probability of trade wars weakening global
GDP. Do you see this as a significant threat?
NB: I can’t opine on a theoretical trade war at this point and what impact that will have on our business or global GDP. I am highly confident, however, that business jets are a critical tool to the global economy and will continue to be so.
Q: How interesting is the insurance market for JSSI?
NB: We’re working with two of the largest aviation insurance companies, who have made the choice to outsource their engine claims to JSSI. You have to remember that we manage in excess of 8,000 different maintenance events per year. When an engine claim is filed, we step in and perform a detailed analysis of the event. We determine the insurance company’s responsibility and we direct the work to the facility that is in a position to deliver the best turn-around time, highest quality work and the best pricing. And, of course, we audit the invoices when they come in. Our work has driven significant cost savings for the insurer, which ultimately helps the operators.
Q: How big is this market for JSSI?
NB: We’re focused on the “tier one” insurers today and believe this can be a significant business for us.
Q: Over the last two years you have expanded JSSI’s remit to include smaller commercial airlines. How is that working out?
NB: We have been really pleased with our success in this regional airline market. Since launching the program, we’ve enrolled five regionals and have a very robust pipeline. This year is already the strongest we’ve had through nearly three quarters and we do not anticipate it slowing down.
This article was originally published in the Autumn 2018 issue of Business Aviation Magazine.
Whole Aircraft Ownership: Is It Right For You? see more
NAFA member, David Wyndham with Conklin & de Decker, highlights the benefits of sole ownership of a business aircraft.
If control over your company’s transportation is paramount, sole ownership of a business aircraft is particularly attractive. With high enough utilization, it is also very cost effective.
As a generalization, when your flying needs come close to (or exceed 200 annual hours), whole aircraft ownership can be more cost effective than fractional, charter or membership programs. Whole aircraft ownership offers the following benefits.
Freedom: With whole aircraft ownership a company has the freedom to select the best aircraft to satisfy its needs. Within safety and operating regulations, that aircraft can be operated as the owner requires.
Customization: When a company acquires its own aircraft, the outfitting of the aircraft can be done to suit its operational and travel requirements.
Options for colors, seating, carpeting materials (and more) are able to be matched to your needs and preferences. The larger the cabin size, the more flexibility there is in how the interior can be configured.
Service Levels: The aviation department personnel are the owning company’s employees. Not only is that company able to shape their training and manage their competence, it can affect how they interface personally with passengers.
The ability to hire the employees that fit the organization can be invaluable, and this service level generates a rapport that is effortless and comforting.
Control: In the US, Federal Aviation Regulations (FARs) allow the most flexibility and opportunity for control to not-for-hire operations flown on behalf of the aircraft owner. A company-owned aircraft that is used in support of the business of the company falls under these rules.
While all aircraft must be operated safely, the sole owner of a business aircraft has greater influence over operations than either a charter customer or a fractional owner. Factors influencing safety and security are within the operator’s control.
A whole-aircraft owner has the highest levels of privacy. You can discuss sensitive business, or leave important corporate documents and personal items on board the aircraft.
Responsibility: With this high degree of control comes an equally high level of responsibility. While the FARs state that the pilot in command is the ultimate person responsible for the safe operation of the aircraft, the owner is responsible for the hiring and training of that pilot. The owner has liability for the actions of its employees, and this extends to the aircraft operation.
The owner can manage this risk via high-quality training and insurance. The crew should be trained to the highest appropriate levels of competence. Maintenance engineers (if applicable) also require regular training.
An individual or company owning or leasing their own hangar is also responsible for ground safety. The owner shares the risk by properly insuring the aircraft and crew.
Managing and directing the detailed operation of aviation activities requires individuals versed in management and Business Aviation - a skillset commonly accomplished either by having an in-house aviation manager/director, or by contracting the management of the aviation operation to a management company.
The Role of Management Companies
A management company can offer a turn-key approach of contracting the function and oversight of the aviation operation. These companies specialize in flight operations.
For a first-time owner of a business aircraft, we usually recommend contracted management for starting the aviation operation. In additional to providing flight crews and functional oversight, the management company can provide economic benefits as well:
- Fuel can be purchased in bulk on behalf of multiple aircraft owners;
- Discounts can extend to maintenance (the management company with multiple aircraft should be able to negotiate discounts for spare parts);
- The management company can purchase insurance for its group of owners at rates that can be lower than for a single aircraft.
While management companies tailor their services to meet an owner’s unique requirements, they typically offer the following oversight:
- Hangaring the aircraft
- Managing the aircraft records
- Hiring and training the flight crews
- Managing the maintenance of the aircraft
- Handling the billing and verification of all variable operating expenses (including fuel, maintenance, etc.)
- Ensuring that all regulatory requirements are met by the aircraft and crew
- Refueling the aircraft
- Cleaning and cosmetic upkeep of the managed aircraft.
Offsetting the Costs of Whole Ownership
If you, as the owner, desire to further reduce your total costs, a management company can charter the aircraft when you’re not using it, provided the firm has authorization under FAA Part 135 (or its equivalent in non US countries).
This relationship is complicated as there are regulatory restrictions governing operational control of any aircraft used for commercial service. The general terms are as follows:
- The aircraft owner pays all the operating costs (fuel, maintenance and other aircraft operating expenses).
- The crew may be billed as salaries or as an hourly fee.
- The aircraft owner gets a set percentage of the charter revenue.
The charter revenue the owner receives should be more than enough to cover the operating costs, but will not be enough to cover all of the fixed expenses, debt service and depreciation. The charter revenue is shared between the charter operator and aircraft owner. Rarely, however, does a chartering arrangement with a management company produce a profit for the aircraft owner.
The relationship with the management company is as much a personal relationship as a business relationship. Communication and shared goals are important. If you want control, fly enough hours and accept the responsibility, whole aircraft ownership can be very rewarding.
This article was originally published in AvBuyer on May 14, 2018.
Pre-Purchase Inspections: Don’t Take a Hit at Time of Sale see more
NAFA member, George Kleros, Senior Vice President of Strategic Fleet Management & Support with JSSI, offers advice to help you avoid taking a hit on the value of your jet when selling.
When the term ‘Pre-Purchase Inspection’ is mentioned, it can create various thoughts in the minds of aviation professionals – not all of them pleasant. Why is that?
The main reason is that this one event can lead to unexpected, costly maintenance issues that may impact the sale of the aircraft.
There are at least five areas that should be addressed to adequately prepare for a Pre-Purchase Inspection, helping you avoid unexpected hurdles when it’s time to close on the sale of the aircraft.
Borescope – Know Before You Go There
For decades, performing an engine borescope prior to acceptance of the aircraft purchase has been a common occurrence. Many people believe the borescope is a standard procedure that is required, and that the transaction won’t move forward without it. However, the need for a borescope of the engine depends on how the buyer and the seller structure this process into a sales agreement.
There are areas that should be well understood before finalizing a sales contract and beginning the Pre-Purchase Inspection.
The first question the seller needs to ask is whether the aircraft hull insurance provider accepts any adverse findings, such as Foreign Object Damage (FOD), if the borescope is performed outside of an incident?
Performing a pre-purchase borescope may not be considered an ‘event’, and if the hull insurance provider does accept the finding(s) under this elective inspection, you need to understand what the underwriter is contracted to cover.
Typically, only direct damage is covered, while restoration of worn assemblies and parts will not be covered. Depending on the engine’s age, time before overhaul, or total time since last shop visit for on-condition engines, the newly discovered FOD could launch a premature overhaul event that may range from $400,000 to $4m in out-of-pocket costs for the seller.
If the aircraft is enrolled on an hourly cost maintenance program, from JSSI or an OEM, it is critical that the seller contact the program provider to understand allowances under their contract and the conditions under which the program coverage will be applied.
All the maintenance programs I have observed over 30-plus years in the industry have not covered FOD and do not recognize work performed outside of the required scheduled maintenance checks.
Maintenance programs vary greatly on how covered items are addressed when an engine enters a shop for a FOD event.
Many programs will cover airworthiness findings unrelated to FOD, but elective inspections or borescope inspections that are out of sequence may not be eligible for coverage. The key is to contact your maintenance program provider and seek permission first. Don’t expect forgiveness later.
Understand Your Sales Agreement Before the Inspection
The sales agreement is the primary tool used to control the process and define the terms of the purchase. Simple sentences or phrases within the agreement are typically not that simple. Interpretation of these words in the contract can drag out or collapse a deal. For example, a term such as ‘discrepancies discovered’ versus ‘airworthiness discrepancies discovered’ can make a significant difference.
In one scenario I witnessed, damage was discovered in an engine following a borescope inspection. The FOD was minor, and the OEM’s engineering team issued a technical variance allowing the condition to continue with no special changes to the maintenance schedule.
When the owner was ready to sell the aircraft, the sales agreement stated any ‘discrepancies’ – and this condition was a discrepancy. It was outside of normal, but acceptable to the OEM with a release letter.
The buyer felt strongly that there was a risk and challenged the seller to correct the problem, or the sale would not proceed per their agreement. The result was an unexpected ‘out-of-pocket’ expense to the seller that could have been avoided.
Know How Much ‘Your’ Aircraft is Worth
It is important to set a reasonable expectation when planning to sell an aircraft. To do this, you should understand what your aircraft is worth prior to listing it for sale. Having an appraisal performed on your aircraft by an accredited appraiser is a valuable exercise.
It can also be beneficial to keep tabs on the aircraft’s value with an appraiser as part of the life cycle plan of owning such an asset. The in-service market values of business jets today have been steady but not stellar and can change significantly from month-to-month.
Just because there is a jet like yours ‘For Sale’ online for an asking price of $8m, you should not expect your aircraft will be worth the same, especially 60 or 90 days later.
Depending on the current inventory, the length of time on the market, the interior layout and the maintenance condition of the aircraft, the value could easily swing drastically in two very different directions.
Hire an Expert
As a seller, you may feel that selling the aircraft without a Pre-Purchase Inspection is advantageous and that avoiding this process could save money. However, the risk of not conducting a Pre-Purchase Inspection usually outweighs the savings and could possibly lead to legal issues if the buyer feels you misrepresented the aircraft.
It is good practice to consult or hire a technical expert to represent you during an aircraft sale.
Before signing the sales agreement and approving the pre-purchase checklist, it is important to have a technician that is an expert on your aircraft type to work with you and the broker representative. They will be there to keep the pre-purchase fair and balanced and help select the proper facility to perform the Pre-Purchase Inspection.
All parties want to be protected, but there are reasonable limits as to how much should be reviewed and looked at, as well as any technical inspections that are essential for the pre-purchase.
Match the Logbooks with Maintenance Tracking System
A very simple yet important check to perform is comparing the aircraft and engine maintenance status report to the actual maintenance entries in the aircraft records. This review could be another task you have the maintenance expert perform for you prior to listing the aircraft.
There will always be a few errors, but most will be very minor. However, during the audit you don’t want to find a major documentation issue that will prolong the Pre-Purchase Inspection when the timing is critical.
A major finding may create other concerns, ultimately driving the buyer or seller away from the deal. This could also ground the aircraft until the issue is corrected at considerable costs.
There are numerous tasks to consider when preparing to sell an aircraft in today’s market. But if you have these five areas covered, you will minimize your risk of ending up on the short-end of the transaction.
This article was originally published in AvBuyer on March 7, 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.