Skip to Main Content

owning & operating an aircraft

  • NAFA Administrator posted an article
    Extended Downtime? How to Maintain Your Jet see more

    NAFA member, George Kleros, Sr. Vice President, Strategic Event Management & Fleet Support at JSSI, discusses COVID-19's impact on the economy, flight department extended downtime, and the maintenance needs of business aircraft.

    If you are one of the flight departments anticipating some extended downtime, following are some areas to give attention to regarding the day-to-day maintenance needs of your aircraft...

    As we begin to consider what the new normal entails on the other side of the coronavirus crisis, it’s clear this will not be an instantaneous recovery for Business Aviation. However, it’s unlikely we will see a return to what we experienced in 2009, one of the most difficult years our industry has ever faced.

    In recent weeks JSSI has been performing claims oversite for insurance underwriters in addition to appraisals, lease returns and aircraft default recoveries for financial institutions.

    Based on the cases we have seen so far, it is apparent that many similar issues that occurred in 2009 have resurfaced.

    For example, although they may not intend to immediately sell their aircraft, many owners have no plans to fly for the foreseeable future, and the overarching behavior at this time is to severely reduce expenses wherever possible.

    There are several important factors to consider when making the decision to cut operating costs and pause aircraft utilization. Here are five areas you should consider as part of financially responsible decision-making during a period of extended downtime.

    Aircraft Inactivity Choices

    When an aircraft sits unused, you have two choices:

    1. Exercise the aircraft, or
    2. Preserve the aircraft.

    In the short-term, exercising the aircraft is going to represent better value for money. Proper preservation of the engines, avionics, APU and airframe requires an extensive, labor-intensive process that involves special equipment to perform correctly.

    Furthermore, several preservation steps will need to reoccur periodically throughout the downtime for certain items.

    At some point, there will be a need to fly the aircraft again, or there may be an opportunity to sell the asset which will require a quick turn to return to airworthiness.

    The process to take an aircraft out of preservation is equally extensive and requires additional labor hours because of all the operational checks involved. The complex process makes sense if you plan to store the aircraft for more than six months, but it is not cost-effective for anything less than that.

    In addition, taking steps to exercise the aircraft will help ensure all systems are working correctly and any issues can be addressed as and when they are discovered, not at the last minute.

    Inspections Remain Necessary

    When an aircraft is parked, it is obviously not accumulating hours or landings. This means hourly or landing-driven inspections are no longer accomplished because they are not due.

    Despite this, it is still highly recommended to keep up with all scheduled calendar inspection events. These are in place for several important reasons, including to control corrosion and keep parts lubricated to prevent future damage.

    The inspection of particular areas of the aircraft at specific intervals is pre-determined by OEM engineers and is based on their findings that a potential issue is most likely to surface within that period. Timely corrective action will allow for the issue to be resolved as efficiently as possible.

    It should also be noted that performing inspections too early might mean missing an underlying problem that is not yet serious enough to be detected and treated. 

    Waiting until the next time the inspection is required may then put you past the critical point, ultimately requiring extensive repairs and special engineering that may contribute to a loss in aircraft value.

    On the other hand, choosing to push the inspection out beyond the scheduled time could lead to the same scenario and extensive damage being incurred from not addressing the problem sooner. This is especially true for aircraft that spend most days outside on the ramp.

    It is therefore highly important to follow the Chapter 5 calendar schedule and always remain within the designed inspection schedule for your specific aircraft.

    Click here to read the full article.

    This article was originally published by AvBuyer on May 11, 2020.

  • NAFA Administrator posted an article
    Asset Insight Podcast:CorporateCare Enhanced, Technology and Digital Advancements from Rolls-Royce see more

    NAFA member, Andy Robinson, Senior Vice President Services & Customer Support for Rolls-Royce North America discusses the company’s CorporateCare Program, as well at the company’s technology and digital advancements with host and NAFA member Asset Insight's Anthony Kioussis.

    Specific topics covered include:

    • The importance of an engine Program and the true value of CorporateCare.
    • What led Rolls-Royce to upgrade CorporateCare to Corporate Enhanced?
    • The additional benefits now offered by CorporateCare Enhanced.
    • Technology and digital advancements made by Rolls-Royce, in 2020, and what the industry should expect to see in 2021.
    • Electronic Engine Health Monitoring – how it works and why it is important.
    • Virtual Training, and how it is improving customer support.
    • Sustainable Aviation Fuel, and where does Rolls-Royce stand in this initiative.

    Click here to listen to the podcast.

    This podcast was originally published by Asset Insight, Season 1, Episode 28.

  • NAFA Administrator posted an article
    7 Avoidable Mistakes in Acquiring a Bizjet see more

    NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, LLP, discusses mistakes to avoid when acquiring a private jet aircraft.  

    Acquiring a private jet aircraft is fraught with the potential to make expensive mistakes. Yet, a qualified aviation team can help a purchaser achieve optimal results by avoiding these seven missteps:

    GOING IT ALONE

    Assembling the right aviation team admittedly entails some cost and initial effort. But most purchasers quickly realize that buying a jet is not like buying a car, real estate, or other assets. Rather, a jet purchase or lease is complex and requires the assistance of aviation experts who excel in the subject matter and interact seamlessly on a deliberate closing schedule. Tax-intensive, cross-border, and novel purchases may require additional expertise beyond the core team members described below.

    Aircraft broker. Purchasers buy aircraft solo, and that can work out. However, a purchaser might suffer buyer’s remorse or experience negative outcomes such as unnecessarily incurring taxes on the purchase. A skilled broker focuses on the purchaser’s needs and wants, knows the “market,” identifies the best available aircraft for the purchaser, and negotiates business and other terms with the team.

    Consultants and pilots. Various consultants perform visual and record inspections, appraise aircraft, supervise pre-buy inspections, organize flight departments (Part 91-private aircraft operations), provide insights into choosing Part 135 managers (commercial/charter use), and may provide broker services. Pilots may support, perform, or lead on some tasks but must collaborate with the other team members.

    Aviation lawyer. Aviation law is challenging, so non-aviation counsel should not act alone in aircraft purchases. Instead, they should hire an experienced aviation legal team that understands and regularly structures acquisitions amid conflicting tax, regulatory, liability, risk management, choice of owner entity, and other complex rules. They must also regularly draft and negotiate aviation-specific agreements and, importantly, have even broader financing expertise than just aircraft loans and leases.

    Aviation insurance broker. The aviation insurance market is no place for a generalist broker. Aviation insurance brokers know how to navigate aircraft insurance markets and negotiate complex policy terms. 

    Escrow agent and FAA counsel. With few exceptions, purchasers and sellers should use escrow agents, comprised of escrow companies and FAA lawyers. These agents hold and disburse funds, collect and file documents at the FAA, register interests and parties on the International Registry, and may issue title insurance. FAA counsel can also offer legal advice, write title opinions, and draft multiple documents.

    NOT SELECTING THE RIGHT AIRCRAFT 

    Despite the unquestionable benefits of owning or leasing a whole jet aircraft, notably during Covid-19, a prospective purchaser should first rule out other workable options to fly privately, such as chartering or buying a fractional share of a jet. After that, a purchaser should concentrate first on the aircraft/user’s “mission” before deciding on which new or used whole aircraft to buy or lease.

    Generally, the term “mission” is aviation speak for a purchaser’s effort to identify aircraft that will serve all or at least most of the private travel the purchaser envisions. When completed, the mission profile informs the search by purchasers and their brokers in today’s active market with numerous jet makes and models for sale.

    NOT PLANNING FOR TAXES BEFORE SIGNING AN LOI

    Private jets attract the interest of tax authorities at the federal, state, and local levels. Before signing a letter of intent () to acquire a jet, if possible, a purchaser should use accountants and lawyers to develop tax minimization strategies and structures under federal tax law, including the use of bonus depreciation and other business deductions, state sales/use tax laws, and local property laws. Solid planning may be slower than purchasers expect but failing to do so can wreak tax and financial havoc. 

    NOT CREATING A LEGAL OR STRONG AIRCRAFT OWNERSHIP/OPERATING STRUCTURE

    A purchaser should determine the person or entity, often an , that will own the jet, and then structure the operations of the jet in compliance with the s. An owner that violates the s invites FAA scrutiny and, sometimes, enforcement litigation by the FAA or the U.S. Department of Justice, easily causing owners to incur sky-high legal fees. 

    One of the most common problems stems from illegal charters, which take various forms. One rampant violation occurs when Part 91 operators lease their aircraft to many unrelated travelers, which is really a fake charter operation. Another violation often occurs when an LLC with no business enterprise operates the aircraft it owns or leases. The FAA views these flight operations as creating an illegal “flight department company.” When structured improperly, neither the leasing nor the LLC operator (allegedly) holds mandatory FAA certifications as commercial operators under the FARs. 

    Owners also frequently believe the same  provides a liability shield for its owners (members) from third-party liability claims. However, in general, the LLC will not protect the owners from any lawsuit or liability that may ensue from illegal aircraft flight operations or violations of federal or state laws. Although insurance helps mitigate this risk, it is a false premise that insurance suffices or will respond to alleged liability. More risk mitigation structuring and financial exposure analysis can pay off.

    SKIPPING AIRCRAFT INSPECTIONS

    Although I have seen prospective purchasers bypass independent inspections in buying a new or used aircraft, that omission has led to surprises or disputes without an adequate legal remedy. Purchasers typically arrange a visual inspection of a jet and a review of its records.

    If all goes well, an agreed maintenance facility then performs a pre-buy inspection, an in-depth aircraft checkup, and delivers an inspection report to the parties. This report identifies discrepancies that a seller usually fixes before the purchaser accepts or rejects the jet and closes the purchase. Leaving out this step is at best unwise. Beware—finding a facility and completing an inspection may push beyond a closing schedule. 

    NOT EXPLORING AIRCRAFT MANAGEMENT ARRANGEMENTS EARLY AND OFTEN

    Aircraft management companies hold the life of jet owners and passengers in their hands. These companies differ significantly in size, experience, and services. It is critical to conduct due diligence on at least two companies covering safety, service, transparency, integrity, pricing, and FAA status. Choosing based solely on the lowest cost or a referral may needlessly raise personal, asset, and operational risks. 

    A purchaser that does not consult a manager during an initial jet inspection may forfeit valuable hands-on knowledge about the operations and maintenance of the subject aircraft. In contract negotiations, a purchaser, with certain team members, should secure balanced terms in such key areas as safety practices, including Covid-19 protocols, expense controls, travel scheduling, and services provided. 

    NOT CONSIDERING FINANCING BEFORE SIGNING A PURCHASE AGREEMENT

    Even if a purchaser intends to buy a jet with cash, it is still worthwhile to inquire about leasing or borrowing to finance a jet acquisition before signing a purchase agreement. Most purchasers earn far more from their investments or businesses than the current very low rates. It is ideal to close a lease or loan at the purchase date, but either financing can occur later. Using a non-aviation lender or lessor is feasible, but may result in higher transaction fees, slower negotiations, and sub-optimal terms. 

    CONCLUSION

    With the support of an experienced aviation team, a purchaser can complete a simple or complicated acquisition of a business jet smoothly and correctly. As aircraft deal activity rises amid Covid-19 safety concerns, it is worth understanding where mistakes can occur and how to prevent them.

    This article was originally published by AINonline on November 13, 2020.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – March 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the March 2020 Used Aircraft Maintenance Analysis. 

    During March, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,218 aircraft listed for sale identified a 1.2% inventory fleet increase over February’s figure, for a year-to-date (YTD) increase of 1.6%.

    Concurrently, the available inventory’s maintenance status posted a 12-month best (highest) Quality Rating, keeping the fleet within the ‘Excellent’ range, virtually unchanged (at 5.297) compared with February’s 5.295, on a scale of -2.500 to 10.000.

    March’s Aircraft Value Trends

    While the average Ask Price for aircraft in the tracked fleet decreased a bit, the posted figure was only $20k below the 12-month high figure achieved in February, and only one group experienced a decrease.

    • Large Jets: Ask Prices remained virtually unchanged, increasing a nominal 0.1%.
    • Medium Jets: The only group to post a value loss, Medium Jets decreased 6.7%.
    • Small Jets: Increased 3.0%.
    • Turboprops: Rose 1.7%.

    March’s Fleet for Sale Trends

    The total number of used aircraft listed for sale increased 1.2% in March, and 1.6% for Q1 2020. That translated into a tracked inventory increase of 26 units in March and 36 units for all of Q1. Individual group figures broke down as follows.

    • Large Jet Inventory: Increased 1.3% in March (+6 units) and 7.9% during Q1 (+34 units)
    • Medium Jet Inventory: Rose 1.8% (+11 units) for the month, but down 4.9% for Q1 (-32 units)
    • Small Jet Inventory: Increased 0.4% (+3 units) in March and 7.5% (+48 units) YTD
    • Turboprop Inventory: Increased 1.4% (+6 units) for the month, but down 3.1% for Q1 (-14 units).

    March’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (worsened) 5.5% for the month and 4.0% during Q1. Individual results were as follows:

    • Large Jets: Worsened (increased) by 5.9% for the month and 6.3% during Q1.
    • Medium Jets: Improved (decreased) 0.6% in March and 4.1% for Q1.
    • Small Jets: Worsened (increased) 14.5% to post the group’s worst (highest) 12-month figure, while also increasing 22.3% during Q1.
    • Turboprops: Worsened (increased) by 1.3% in March, but improved by 11.7% YTD.

    March’s ETP Ratio Trend

    The fleet’s ETP Ratio worsened (increased) in pretty dramatic fashion in March, virtually erasing any previous improvement to post a figure of 71.1% (versus February’s 65.4% and the 64.8% it registered at Year-End 2019).

    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 the Market (DoM) increase, in many cases by more than 30%.

    During Q1 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 68% longer than assets with an ETP Ratio below 40% (245 days versus 413 days). How did each group fare during March?

    • Turboprops: Continued to hold the top (best) spot by a wide margin posting the lowest ETP Ratio of 42.1% (the group’s third consecutive 12-month low/best figure).
    • Large Jets: Held on to second place at 64.7%.
    • Medium Jets: Kept their third position at 74.6%.
    • Small Jets: Posted the group’s 12-month worst (highest) figure of 90.2%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during March 2020.

    Asset Insight - March 2020 Most Improved Business Aircraft

    Most Improved Models

    All of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). While the Hawker 800A experienced an Ask Price decrease of $29,622 and the Dassault Falcon 900 saw no change in Ask Price, the remaining four models experienced price increases, as follows:

    • King Air B200 – Pre-2001 +$74,913
    • Gulfstream GV +$228,194
    • Hawker 800XP +$77,760
    • Hawker Beechjet 400A +$27,969

    Hawker 800A

    Since appearing at the bottom of January’s ‘Most Deteriorated’ list, the Hawker 800A claimed third place on February’s ‘Most Improved’ list, and leads the ‘Most Improved’ list for March.

    Two aircraft traded last month, and the 31 currently listed for sale equate to 13.7% of the active fleet. The latest fleet mix helped the model achieve its standing through a Maintenance Exposure decrease exceeding $243k (which overcame an Ask Price drop approaching $30k).

    The model’s 152.5% ETP Ratio is not going to magically spark additional buyer interest, but its improvement is notable, as is its ongoing market following.

    Dassault Falcon 900

    Second place goes to a model whose appearance was created through a 50% increase in available units for sale in March. That difference resulted in a decreased Maintenance Exposure of nearly $369k. With no change in the average Ask Price, the Falcon 900 earned its position on this list.

    Translation: Three aircraft are now listed for sale (as opposed to the two listed last month) and the recently-listed unit did not show an Ask Price. This should serve as proof that statistics can be misleading!

    The Falcon 900 has a strong following, though, and with an ETP Ratio below 45%, sellers should be able to locate interested buyers, even though the listed units represent 13% of the active fleet.

    King Air B200 (Pre-2001 Models)

    Third place goes to a model that recorded three transactions, one withdrawal, and four additions to the fleet for sale in March, lowering the Maintenance Exposure by nearly $48k and increasing the Ask Price by nearly $75k.

    The 43 units listed for sale offer a good selection for buyers while still representing only 5.5% of the active fleet, creating ample opportunities for sellers. Moreover, the model’s near 46% ETP Ratio is a testament to the following this >20 year-old aircraft continues to enjoy.

    Gulfstream GV

    Next on the ‘Most Improved’ list is an aircraft whose 19 sellers should have little problem locating interested buyers, considering listings represent 10% of the active fleet, and the Gulfstream GV’s ETP Ratio is below 30%. (Admittedly, the current pandemic may delay deal-making a bit.)

    One aircraft transaction was registered as we closed March, leading to a Maintenance Exposure decrease exceeding $556k that, along with an Ask Price increase of more than $228k, earned the model its ‘Most Improved’ ranking.

    Hawker 800XP

    Following the behavior of the Hawker 800A, the Hawker 800XP made the ‘Most Improved’ list thanks to a Maintenance Exposure decrease approaching $24k and an Ask Price increase nearing $78k. Four aircraft transactions were posted in March that, following some additions, a withdrawal and some other changes, meant 13.3% of the active fleet is currently listed for sale.

    The 800XP is sporting an ETP Ratio nearly half that of the 800A. Assuming an asset’s engines are enrolled on an Hourly Cost Maintenance Program, the model has sufficient following in the market for sellers to structure sensibly-priced transactions.

    Hawker Beechjet 400A

    Rounding out March’s ‘Most Improved’ list is the Beechjet 400A, an aircraft that occupied a place in the ‘Most Deteriorated’ rankings last month, and whose sellers may have a hard time convincing a limited pool of buyers that their aircraft is worthy of the price they seek.

    With 61 units, 22.6% of the active fleet, listed for sale, and aircraft age ranging from 17 to 30 years, differentiation is likely to focus heavily on price. The model’s 78.6% ETP Ratio was created through three sales last month, as well as one withdrawal from, plus six additions to the ‘for sale’ fleet.

    The revised inventory mix lowered Maintenance Exposure by over $20k while boosting Ask Price nearly $28k. Regrettably, with the current ETP Ratio most sellers are likely to find pricing discussions challenging.

    Asset Insight - March 2020 Most Deteriorated Business Aircraft

    Most Deteriorated Models

    All six models on March’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Bombardier Learjet 31A posted an Ask Price increase of $17,731, the Learjet 35A experienced no Ask Price change, and the remaining models underwent the following decreases:

    • Cessna Citation II -$4,444
    • Cessna Citation ISP -$20,015
    • Hawker Premier 1 -$13,183
    • Gulfstream GIV -$25,556

    Cessna Citation II

    March’s ‘Most Deteriorated’ model registered five transactions, but the 89 units currently listed for sale account for 17.5% of the active fleet, creating serious pricing challenges for sellers.

    The aircraft’s $241k Maintenance Exposure increase and Ask Price decrease are both symptomatic of the model’s 147.4% ETP Ratio. With aircraft age ranging from 25 to 42 years, sellers must rely on buyers seeking low pricing that addresses the very real probability they would become the aircraft’s final owner.

    Cessna Citation ISP

    The second ‘Most Deteriorated’ model this month is another member of the Citation family, except this one is older, since Citation ISPs range from 35 to 43 years of age. No transactions were noted in March, but three withdrawals from inventory left 17% of the active fleet (47 units) available for buyers focused on still-operable ‘antiques’.

    Surprisingly, the Citation ISP sports a lower ETP Ratio than the younger Citation II fleet. Nevertheless, the 126.1% Ratio (courtesy of a Maintenance Exposure increase approaching $176k and an Ask Price decrease exceeding $20k) offers buyers the opportunity to earn ‘final owner’ status with this model.

    Bombardier Learjet 31A

    The first of two Learjets on the ‘Most Deteriorated’ list this month posted no transactions in March, although one aircraft was withdrawn from inventory. At the last count, 38 Learjet 31As were listed for sale, representing 19.5% of the active fleet.

    These aircraft are now between 17 and 29 years of age, and while they are still quite productive assets, their 128.1% ETP Ratio is a testament to their challenging marketability.

    The Learjet 31A essentially earned its spot on this list through a Maintenance Exposure increase exceeding $246k, even though the aircraft actually posted an Ask Price increase. Whether or not the higher Ask Pricing can be achieved, especially at this challenging time, remains to be seen…

    Bombardier Learjet 36A

    The second Learjet on this list is a 27-44-year old model that also recorded no transactions during March, and no Ask Price change. (While statistically correct, this fact is also somewhat misleading as only one of the four listed units displays an Ask Price.)

    The aircraft earned its spot on this list thanks to a Maintenance Exposure figure approaching $210k. With its ETP Ratio exceeding 151%, this model is not readily marketable, although its operating capabilities are still quite impressive, by any standard.

    Beechcraft Premier 1

    No transactions were identified for the month of March, but the two inventory withdrawals and four additions created an availability of two dozen units, 20.2% of the active fleet. These assets are only aged between 15 and 19 years, but their ETP Ratio, which stood at nearly 90% during this latest analysis, negatively impacts their marketability.

    Maintenance Exposure approached $308k in March, while Ask Price dropped over $13k. Enrollment on an engine Hourly Cost Maintenance Program would lower the HCMP-Adjusted ETP Ratio, but that is not an effective differentiator for sellers, as most of these assets are enrolled on a program.

    Gulfstream GIV

    Rounding out our ‘Most Deteriorated’ list this month is a model whose ETP Ratio, quite frankly, surprised us. The GIV continues to have a respectable following. However, its ongoing Ask Price decreases (nearly $26k last month) and high Maintenance Exposure figure (over $563k in March) are clearly reflecting the aircraft’s 27-34 years of age.

    Two units transacted in March, one was withdrawn from inventory, and another was added to total 20 available units, equivalent to 11.6% of the active fleet.

    Here again, sellers whose aircraft engines are enrolled on an Hourly Cost Maintenance Program will see a lower HCMP-Adjusted ETP Ratio, but the figure will still be such that price is likely to be the transaction’s primary driver.

    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 one.

    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 Asset Insight report was originally published by AvBuyer on April 16, 2020.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – January 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, discusses which business aircraft showed the most improvement and deterioration in terms of their maintenance exposure to ask price ratio during January 2020, and what the market factors impacting those models were. 

    During January 2020, the average Ask Price for aircraft in Asset Insight’s revised, and substantially expanded, tracked fleet increased 16.8%. Which models were impacted the most? Tony Kioussis explores.

    In January, Asset Insight expanded the number of aircraft in its tracked fleet of 134 fixed-wing models, and the new inventory mix posted a 1.6% unit decrease to 2,147 aircraft for sale, compared to the 2,182 assets comprising the same make/model list in December.

    Asset quality improved 1.3% during the month, from December’s 5.206 to 5.272, a 12-month best figure that moved the Quality Rating from ‘Very Good’ into the ‘Excellent’ range on our scale of -2.5 to 10.

    Additionally, at $1.332m, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the lowest (best) 12-month figure for the second consecutive month.

    January’s Aircraft Value Trends

    During January, the average Ask Price for aircraft in the expanded fleet increased 16.8%, with all four groups contributing.

    • Medium Jets led the way through an increase of 22.7%
    • Large Jets were a close second rising 22.4%
    • Turboprop Ask Prices increased 10.2%
    • Small Jets increased 1.6%.

    January’s Fleet for Sale Trends

    The total number of used aircraft listed for sale decreased 1.6%, although this comprised a larger overall fleet size by virtue of the increase in tracked models. Total tracked inventory decreased 35 units with individual group figures breaking down as follows:

    • Large Jet inventory: Increased 0.9% (+4 units since December 2019)
    • Medium Jet inventory: Decreased 7.0% (+46)
    • Small Jet Inventory: Increased 5.9% (+38) and
    • Turboprop inventory: Decreased 6.9% (+31)

    January’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased 1% to post a 12-month low figure in January. Individual results were as follows:

    • Large Jets: Increased (worsened) by 2%, based on January’s expanded fleet mix;
    • Medium Jets: Maintenance Exposure improved (decreased) 1.7%;
    • Small Jets: Worsened by increasing 6.5% due, in part, to the new fleet mix;
    • Turboprops: Improved by 10.5% as a result of the new models added in January.

    January’s ETP Ratio Trend

    The latest fleet mix increased (worsened) the average ETP Ratio to 72%, from December’s 64.8%, but Turboprops posted a respectable improvement (decrease).

    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 the Market (DoM) increase, in many cases by more than 30%.

    During Q4 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (215 versus 395 DoM). How did each group fare during January?

    • Turboprops held the top (best) spot by a wide margin posting the lowest ETP Ratio, 42.6% (a 12-month low/best figure for this group and a substantive improvement on December’s 52.1%);
    • Large Jets held on to second place, but the 70.7% Ratio represented the group’s record high (worst) figure;
    • Small Jets captured third position but worsened from December’s 67.3% to 76.8%;
    • Medium Jets took last place while posting the group’s record low (worst) figure of 87.4% compared to December’s 75.5%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during January 2020.

    Most Improved Models

    Four of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement), while the Hawker 1000A and the Falcon 900 experienced a Maintenance Exposure increase. Excepting the Citation VI, which had no Ask Price change, the remaining five models experienced price increases as follows:

    • Hawker 1000A $264,250
    • Beech King Air C90 $17,714
    • Cessna Citation ISP $14,409
    • Gulfstream GIV $189,141
    • Dassault Falcon 900 $1,700,000

    Asset Insight Most Improved Aircraft - January 2020

     

    Hawker 1000A

    The Hawker 1000A captured top spot on the ‘Most Improved’ list, following its third place showing on December’s list after occupying the ‘Most Deteriorated’ slot in November. No transactions were posted for January, but two transactions were confirmed for December after we closed out that month.

    There were nine assets listed for sale at the end of January, equating to 22.5% of the active fleet. The model earned its top spot via a 17.6% ETP Ratio improvement thanks to a Maintenance Exposure decrease approaching $13k, along with a substantial Ask Price ‘increase’, but only because the two least expensive aircraft were the ones that changed ownership.

    Seller Advice: With current listings averaging an Ask Price 53% higher than December’s average trading value, along with an average ETP Ratio of 91.4%, sellers should carefully consider offers that, on first blush, may appear to be low.

    Cessna Citation VI

    The Citation VI took second place on January’s ‘Most Improved’ list thanks to a Maintenance Exposure decrease exceeding $170k that played well with no change in the model’s Ask Price.

    One aircraft transacted in January, and the seven inventory units amount to 20% of the active fleet for sale. With an ETP Ratio exceeding 115%, sellers need to be sure before turning down any offers. Buyers are likely to be few and far between.

    Beechcraft King Air C90

    This model posted four transactions in January and 43 units remained for sale (10.8% of the active fleet). The King Air C90 joined the Most Improved list due to a 14.5% ETP Ratio improvement, and this was thanks to a Maintenance Exposure reduction approaching $53k and an Ask Price increase.

    Although the C90 fleet is between 38 and 49 years of age, this aircraft continues to enjoy a decent following. Its current ETP Ratio of 113.2% will create difficult decisions for some sellers, but there is sufficient market interest for most owners to find buyers, assuming they are realistic about the market’s view of their asset’s value.

    Cessna Citation ISP

    The Citation ISP found itself in this same position in November, and was on the ‘Most Deteriorated’ list in December. The 13.1% ETP Ratio improvement resulted from a near $66k decrease in Maintenance Exposure, along with an Ask Price increase exceeding $14k.

    Four transactions were posted in January, but 55 units were listed for sale at the end of the month (19.6% of the active fleet). The model’s current 94.3% ETP Ratio places buyers squarely in the driving seat.

    Gulfstream GIV

    Two aircraft joined the ‘for sale’ fleet in January, and with no transactions being posted, inventory rose to 25 units (14.3% of the active fleet). The model has demonstrated resilience over the past few years and earned its place on this list by virtue of an $18k Maintenance Exposure decrease along with an Ask Price increase exceeding $189k.

    However, at 27 to 34 years of age, and carrying an ETP Ratio of 131.5%, one wonders how much longer GIV aircraft that are not covered by an engine Hourly Cost Maintenance Program will be truly marketable.

    Dassault Falcon 900

    The final model joined this month’s ‘Most Improved’ list on technical grounds and proved, yet again, why small fleets can create misleading statistics. No Falcon 900s transacted in January, the lone December inventory aircraft was withdrawn, and two other units entered the for-sale fleet.

    These changes led to a $338k Maintenance Exposure increase, but a whopping $1.7m Ask Price increase helped secure a place for the Falcon 900 on the list. The problem is, the latest listings are priced over 60% higher than the withdrawn aircraft, making the Ask Pricing difficult to achieve while also artificially enhancing the group’s ETP Ratio.

    Hope is never a well-founded strategy.

    Most Deteriorated Models

    All six models on January’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Cessna Citation II and the Gulfstream GV posted an Ask Price increase of $5,504 and $249,167, respectively. The remaining models registered the following decreases:

    • Hawker 800A   -$64,968
    • Bombardier Global Express -$426,250
    • Piaggio P-180   -$58,696
    • Dassault Falcon 900B -$367,500

    Asset Insight Most Deteriorated Aircraft - January 2020

     

    Hawker 800A

    January’s ‘Most Deteriorated’ model posted no transactions during the month, and the 33 units listed for sale accounted for 14.3% of the active fleet. To achieve its position on this list, the Hawker 800A posted a Maintenance Exposure increase approaching $149k, and an Ask Price reduction approaching $65k.

    With a listed fleet ETP Ratio of 191%, any seller whose aircraft engines are not enrolled on an Hourly Cost Maintenance Program is likely to keep flying their aircraft until it reaches the salvage yard.

    Cessna Citation II

    The Citation II was second-best on the ‘Most Improved’ list in December, so how did it get here one month on? A Maintenance Exposure increase exceeding $93k was the primary culprit, but its problems do not stop there.

    Two units transacted in January, one was withdrawn from inventory, and five more aircraft joined the fleet to offer buyers a selection of 95 assets (18.5% of the active fleet) sporting an ETP Ratio of 108.8%.

    Seller Advice: If an offer comes your way, consider it a gift no matter how small!

    Bombardier Global Express

    This model occupied top spot on our ‘Most Improved’ list last month, but inventory changes through additions and withdrawals increased Maintenance Exposure over $1.1m, and an Ask Price reduction exceeding $426k certainly didn’t help.

    On a positive note, the model’s 13 listings equate to only 9% of the active fleet, and its ETP Ratio of 68.8% will make many of these aircraft quite marketable, especially if they are enrolled on an engine Hourly Cost Maintenance Program.

    Note: As we pointed out last month, the Bombardier Global Express still has plenty of financial and operating life remaining, along with a strong following. For this reason, many current and potential owners are considering upgrading their asset utilizing the JANUS Modernization Program, a decision that could add substantial value to the aircraft while making it virtually indistinguishable from a new production unit, particularly with respect to passenger amenities.

    Piaggio P-180

    The market has not been kind to this model, which is unfortunate considering its cabin size, low interior noise level, and speed for a turboprop. No transactions were reported in January, while the three additions to inventory increased buyer selection to 14 units, or 16.7% of the active fleet.

    The aircraft’s 115.9% ETP Ratio, created through a Maintenance Exposure increase approaching $75k and an Ask Price drop of nearly $59k, is undoubtedly challenging sellers. Buyers are firmly in the driving seat here as well.

    Dassault Falcon 900B

    One aircraft transacted in January and two were withdrawn from inventory, leaving 12 units listed for sale (8% of the active fleet). Unfortunately, those inventory changes increased Maintenance Exposure by nearly $247k, while Ask Price fell approximately $368k, landing the model on this list.

    With an ETP Ratio of 45%, most of these aircraft are infinitely marketable, especially if their engines are enrolled on HCMP.

    Gulfstream GV

    Even though the GV posted an Ask Price increase in January, the model could not overcome a Maintenance Exposure increase approaching $1.1m, created through the withdrawal from inventory of two assets and no sales transactions. The GV thereby found its way to this list after occupying sixth place on the ‘Most Improved’ group in December.

    With only 12 units listed for sale (6.3% of the active fleet), an ETP Ratio averaging 41.4%, the aircraft’s superb operating capabilities, and the market following for this model, most sellers should have the ability to extract good value from the sale of their asset.

    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 one.

    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.

    This report was originally published by AvBuyer on February 17, 2020.

  • NAFA Administrator posted an article
    Charlie Bravo Aviation's Insider Guide Interview: Aircraft Appraisal with Tony Kioussis see more

    In the latest Insider Guide Interviews, NAFA member and co-founder/CEO of Charlie Bravo Aviation, René Banglesdorf speaks with fellow NAFA member, Tony Kioussis, President/CEO of Asset Insight about the top tips regarding aircraft appraisal. Find out about the work Asset Insight does when appraising aircraft and how they work out an aircraft's value. 
     

    About Tony Kioussis: 

    Editor, Aircraft Value & Maintenance Analysis, AvBuyer As president & CEO, Asset Insight, LLC, Tony provides valuations, audits, analytics and consulting services, and a uniform methodology for grading an aircraft’s maintenance condition. 

    Previously he was VP, strategic marketing, GE Capital’s Corporate Aircraft Finance group; VP, aircraft sales, Jet Aviation Business Jets; and sales director, airframe programs, JSSI, developing the “Tip-to-Tail” airframe hourly cost maintenance program. 

    An active industry member, Tony serves as Board Secretary for the National Aircraft Finance Association; is a Member of the Transportation Research Board’s Business Aviation Subcommittee; and former Chairman of the Products & Services Member Council for the International Aircraft Dealers Association. 

     

    About Asset Insight: 

    Asset Insights is an Asset Performance Management company that combines decades of engineering and asset management experience with the innovative adoption of digital technology to create unique APM solutions and services.  
     

    About René Banglesdorf:

    René Banglesdorf is the co-founder and CEO of Charlie Bravo Aviation, an aircraft brokerage headquartered just north of Austin, TX. René has a degree in journalism from Ohio University and serves as the VP of Communications on the International Aviation Women’s Association Board. She is a frequent speaker on topics of business aviation and women’s issues and has written several books, the latest of which, Stand Up: How to Flourish When the Odds are Stacked Against You, is Out Now.

    This interview was originally published by AvBuyer on March 15, 2021.

     

     
     

  • NAFA Administrator posted an article
    Understanding Aircraft Logbook Best Practices, see more

    NAFA member, Jason Zilberbrand, President and CTO of VREF Aircraft Value Reference, explains Aircraft Logbook Best Practices. 

    Do you realize how vital aircraft logbooks can genuinely be? 

    Not only does an aircraft logbook track and record essential maintenance, but it can also affect the price of your aircraft. Should you decide to sell later on, a missing logbook could knock off a huge chunk of profit you may have seen otherwise or force the buyer to walk away.

    Are you following aircraft logbook best practices?

    Read on for some of the most common questions about understanding aircraft logbook best practices.  

    Understanding Aircraft Logbook Best Practices

    More seasoned aircraft owners may understand the importance of aircraft logbooks. For those who still have some questions, we’ll go over what it is, why it matters, and how not to confuse an aircraft logbook with a pilot logbook.

    What Is A Logbook And Why Does It Matter?

    Also called “aircraft maintenance records,” aircraft logbooks serve as your only written record of maintenance performed on your aircraft. In other words, if a service benefits your aircraft but is not recorded in your logbook, it never happened.

    Equally important to having a written record, the Federal Aviation Administration (FAA) requires that you keep up with a logbook to show “compliance with the general aviation maintenance record-making and record-keeping requirements of Title 14 of the Code of Federal Regulations (14 CFR) parts 43 and 91.”

    What Is The FAA?

    The Federal Aviation Administration (FAA) is the United States governing body that regulates the manufacturing, maintaining, and operating of aircraft. 

    Looking back at aviation’s history, some of the earliest flights had practically no safety regulations in place. Because of this, fatal incidents like the 1981 Fokker F-10, 1956 Trans World Airlines Super Constellation, and United Airlines DC-7 collision occurred without much interference.  

    The FAA did not start overnight and went through several phases before becoming part of the federal administration. Since 1967, the FAA has helped prevent air travel incidents and improve pilots’, aircraft employees’, and passengers’ safety.

    What Is The Difference Between A Pilot Logbook And An Aircraft Logbook?

    An aircraft logbook will lay out any of the following:

    • Overall condition

    • Previous maintenance services 

    • Incidents

    • Certifications

    • Repairs 

    • Inspections 

    • Time on the airframe

    • Other parts and accessories

    • FAA compliance

    All of this information makes an aircraft’s logbook valuable to have and will be necessary for years to come even after ownership has changed hands.

    A pilot’s logbook is different from that of an aircraft logbook. It is mainly for personal use to showcase flight time (needed for pilot ratings), instrument proficiency check (IPC), certifications, and flight information. Depending on the pilot’s level of experience, each logbook may not look the same.

    How Do You Keep A Logbook?

    The FAA sets out a general idea of what it prefers regarding how aircraft logbooks should look. According to their mock logbook sheet, they have a suggested format of listing the following in this order across the top of the page with boxes to fill in underneath:

    • AD number and amendment number

    • Date received

    • Subject 

    • Compliance due date hours/other

    • Date of compliance

    • Airframe total time in service at compliance

    • The method used to comply with the ad

    • One time or recurring

    • Next compliance due date hours/other

    • An authorized signature, certificate, type, and number

    • Remarks

    Assuming there are no extreme incidents, you are more likely to prove your aircraft’s condition and justify its selling price by having this information handy. 

    How Long Should You Keep A Logbook?

    As an aircraft owner, you are responsible for its logbooks and using them to record any relevant information to the aircraft. 

    Ideally, keep all information in one place permanently. However, there are a few items you can worry a little less about, according to the FAA. For example, the FAA says, “Section 91.417(b) requires records of maintenance, alterations, and required or approved inspections to be retained until the work is repeated, superseded by other work, or for one year.”

    To summarize, keep an ongoing logbook for as long as you own the aircraft. Otherwise, follow the FAA’s guidelines for all other forms of record.

    How Do I Keep Up With My Logbook?

    There are a few ways you can store your aircraft’s logbook. Some people prefer a physical logbook to keep all of their information. 

    Most aircraft owners keep their logbooks in a lockbox or vault away from the plane for safekeeping. However, there are a few things you should look out for when relying on a physical logbook. This includes the chances of it getting lost, stolen, or permanently damaged.

    You can also go digital with your logbook and keep its contents stored in the cloud using encrypted software (like VREF Vault). This way of storing information can be ideal as it is not likely to be lost, stolen, altered, or damaged.

    You may choose to keep both a physical logbook and a digital copy if you wish. 

    Maintain Your Aircraft Logbook With VREF Vault

    If you’ve ever had your logbook stolen or if you’ve ever misplaced it, then you know exactly how important it is to have a logbook process that you can rely on. 

    Introducing VREF Vault – you can think of it as your digital filing cabinet. By using VREF Vault, you can keep your logbook information safe, secure, and easily accessible. The VREF Vault utilizes the same blockchain encrypted technology as Bitcoin, the cryptocurrency that’s taking over the world.

    You can drag and drop photos and documents, enable limited access, track vendors, gain valuable insight, and so much more using the VREF Vault. 

    Sound like something you could use? Don’t waste another second leaving your aircraft logbook information exposed. Contact us and get all of the information you need to start using VREF Vault for your aircraft.

    This article was originally published by VREF on March 4, 2021.

     

  • Tracey Cheek posted an article
    The Flight Department Company Trap see more

    NAFA member, Greg Reigel, Partner with Shackelford, Bowen, McKinley & Norton, LLP., discusses regulatory issues with owning or operating aircraft.

    Businesses and individuals face many regulatory issues in connection with owning or operating an aircraft. Aircraft owners or operators who are unfamiliar with the limitations imposed by the applicable regulations may unnecessarily expose themselves to liability for non-compliance.

    For example, aircraft owners or operators commonly attempt to shield their liability by creating some form of business entity that is a subsidiary of the “real” operating company to own the aircraft.  Or, rather than forming a subsidiary, they create a business entity to own the aircraft that is solely owned by the individual who really wants to use the aircraft.

    In either scenario, the aircraft is the sole substantive asset of the company, and the business entity is used to maintain and fly the aircraft for the benefit of the parent company or individual owner of the business entity. By structuring the ownership and operation of the aircraft in this manner, the aircraft owner and/or operator has just fallen into the “flight department company trap.”

    I recently presented a continuing legal education program on this very topic for Lawline.  In my presentation, I discussed the various rules and regulations promulgated by the Federal Aviation Administration that have a significant impact on how businesses or individuals are permitted to utilize private aircraft, as well as how to identify the flight department company trap, understand the consequences of creating a flight department company, and available alternatives to avoid falling into the trap and legally conduct private aircraft operations.

    If you would like to learn more, you can view a short clip from the CLE here. Otherwise, you can find other posts discussing this topic here on The Pre-Flight Brief or on our Aviation Law Articles page.  And, of course, if you have specific questions or would like to discuss this topic further, please feel free to contact me.

    This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP. on October 18, 2019.

  • Tracey Cheek posted an article
    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:

    1. Salaries
    2. Training
    3. Hangar
    4. Insurance
    5. Refurbishment

    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.

     

     

  • Tracey Cheek posted an article
    Ain’t Nobody’s Business see more

    NAFA member, Edward Kammerer, with Greenberg Traurig, discusses aircraft ownership privacy and security.

    When asked why you use business aircraft, you likely would list “security” and privacy” among your top reasons. These legitimate and valid concerns include industrial security, personal security, a desire to keep trips and destinations confidential, and a good old fashioned sense of MYOB. 

    Many owners go to great lengths to keep the identity of their aircraft and their flying patterns hidden from view. However, despite owners’ best efforts, prying eyes easily can detect and track aircraft and identify their owners. Information available at the FAA Registry and other publicly available government filings, as well as aircraft information websites and services, make aircraft ownership information and destinations easy to obtain.  

    How Private and Secure is Your Aircraft?

    Many aircraft are owned in LLCs formed just for this purpose. While the names of such LLCs may intentionally obfuscate the identify of the aircraft’s “true owner,” public information regarding the ownership and management of such LLCs often point to a company or individual owner. Additionally, services such as JetNet and Amstat are very effective at revealing an aircraft’s “true ownership.” 

    Contrary to what many think, taking title to an aircraft in an “Owner Trust” does not protect the owner’s identity. The name of the beneficiary of an Owner Trust must be disclosed in the aircraft’s publicly available registration documents. The use of a so-called “Double Trust Structure” can be effective to shield an owner’s identity. A Double Trust uses an Owner Trust with a second trust as the beneficial owner of the Owner Trust. The name of the second trust is a matter of public record, but the name of true owner of the second trust is hidden. Even with a Double Trust, the identity of the true owner can be discovered if the owners are not vigilant. 

    Flight Tracking

    Anyone with an internet connection can track an aircraft simply by typing a tail number into aircraft tracking websites such as Flightaware.com or various other “plane spotter” websites. 

    The January 1 requirement that aircraft update their navigation tracking systems to ADS-B standards makes following aircraft movements an option for anyone with readily available and inexpensive equipment. Fortunately, the FAA and the National Business Aviation Association (NBAA) recently announced a program which will allow an owner to block public tracking of real-time positioning and identification information for ADS-B compliant aircraft.

    What Can You Do?

    While there are no fail-safe methods of keeping your aircraft’s ownership and movements secure, there are several precautionary measures which you can take to help preserve privacy and security.

    • Avoid the use of vanity tail numbers and identifying marks on your aircraft which may provide telltale clues to ownership.
    • Carefully monitor the identity of signatories to public documents. The identity of the “true owner” of an aircraft can be disclosed by cross-referencing the names of LLC documents to the “true owner” through websites such as LinkedIn. Documents filed at the FAA, such as tail number reservations and re-assignment, can help a determined investigator connect the dots between the true owner and the actual registrant.
    • Double Trust structures, if properly formed and vigilantly monitored, can help protect your identity. 
    • By making an Aircraft Situation Display to Industry (f/k/a as NBAA’s “BARR Program”) blocking request, owners and operators can opt out of having their aircraft information broadcast over the internet. 
    • Sign up for the NBAA/FAA Program which allows your ADS-B tracking data to be broadcast in a format which is not readily accessible to the public. 

    Modern technology makes keeping your aircraft’s identity and location private and secure more difficult than ever. However, by taking a few simple precautions, you can shield your identity and aircraft movements from your competition, the media, those with political motivations, and the curious general public. 

    This article was originally published by Business Aviation Advisor on January 1, 2020.

  • Tracey Cheek posted an article
    What Do I Want the Seller to Fix see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares what a buyer should negotiate that the seller fix before the purchase.

    The pre-purchase inspection report will drive the negotiation. It will determine what must be fixed; what should be fixed; and what could be fixed later at some other point. What “must be fixed” are all airworthiness items and Airworthiness Directives. What “should be fixed” relates to operational integrity items. All else falls under “what could be fixed later.” Generally, the buyer wants the seller to cover the cost of all AD issues.

    Of course, there are exceptions to consider. Let’s say the seller’s estimate to fix all the AD-related squawks is $100,000. Let’s say s/he knows of an A&P with whom they have a good relationship. The A&P says the work can be done for $80,000. In that case, it may be more attractive for that buyer to negotiate a price reduction of $100,000 instead of having the seller fix those items. The buyer could realize a 20% savings. But in this scenario, the logistics involved in obtaining a ferry permit and flying the aircraft to a mechanic’s base must also be factored in. If those additional costs approach the $20,000 the buyer hoped to save, it might be better to put the onus back on the seller.

     “What should be fixed” can be considered those items that may have an operational or usage impact but don’t otherwise jeopardize the airworthiness of the aircraft. For example, a spot of corrosion the size of a baseball on the rudder should be fixed. But if the buyer’s intention is to repaint the aircraft anyway, it might be better to negotiate a price reduction than to make the seller eliminate the corrosion pre-sale.

    An intermittent HSI or DGI are examples of “what could be fixed later.” If the buyer’s intention is to upgrade the panel post-acquisition, it’s better to lower the price accordingly and then take care of the failing device during the entire avionics upgrade.

    Determining what the seller should fix is also influenced by the buyer’s general attitude toward an aircraft purchase. Some folks don’t want to deal with any aircraft issues. They just want the plane delivered squawk free. Others have a higher tolerance for addressing issues.  

    These are some of the guiding questions an AOPA Aviation Finance advisor might ask you to help assess your personal tolerance for handling pre-purchase inspection squawks: How important is it to you to have it fixed vs. receiving credit? How long can you stand to go without fixing the item? How urgent is it that you get it replaced or fixed? What kind of relationship do you have with a qualified mechanic? How much effort are you willing to expend in finding a qualified mechanic to save some money? How does this plane’s overall condition stack up against others in the marketplace? In other words, is there enough supply vs. demand in the marketplace to give you any negotiating leverage? 

    For example, we’ve seen a recent surge in the popularity of the Cessna 182. To buyers in that market, we would advise they come prepared with a flexible negotiation mindset. You can have a particular mindset, but if you have to compare your mindset to the realities of the market, you may have to adjust it. After all, there might be ten other potential buyers lined up behind you who are willing to deal with that leaky door seal post-purchase instead of demanding “it simply must be repaired before closing at seller’s expense.” 

    Our experience and advice apply as much to the seller as it does to the buyer. A recent client wanted to sell his Piper Warrior for a price he thought fair. We advised him that an aircraft like his that fits in the flight training usage profile would likely sell for better than what he imagined he could get. We recommended a higher asking price. He took our advice and received bids even above that amount.  

    Our advisors have deep knowledge of both the market and demand. AOPA Aviation Finance has an extensively researched database and can provide guidance on the relative market strengths and weaknesses of most aircraft, from the common to the esoteric.

    This article was originally published by AOPA Finance on November 18, 2019.

  • Tracey Cheek posted an article
    Over and Above - Hourly Cost Maintenance Programs Offer Unexpected Benefits see more

    NAFA member, Anthony Kioussis, President of Asset Insight, LLC, discusses the benefits of Hourly Cost Maintenance Programs.

    As OEMs sought to expand aircraft deliveries to Business and General Aviation (B&GA) during the early ’80s, they encountered two hurdles. One was the perceived, if not real, inability of certain engines to achieve their published maintenance intervals, thereby increasing operating costs. The other was operator perception that certain airframes and engines were more expensive to maintain than advertised.

    To address both concerns, numerous OEMs modified offerings already available to the airlines, and Hourly Cost Maintenance Programs (HCMP) were born. Initially viewed as expensive, the idea of “guaranteed operating costs” soon was embraced by B&GA operators. And once lenders and lessors began relying on their value to securitize their assets, HCMP coverage became an industry staple.

    Today, aircraft owners routinely experience enhanced value when their Program-enrolled aircraft is sold. In fact, not enrolling some models on HCMP may result in a valuation reduction to the aircraft, since the majority of certain models are so enrolled. However, some new and used aircraft buyers may not consider that HCMP offers benefits over and above the value increase to the aircraft. These are quantifiable and can provide value directly to the owner. For example:

    • Additional Coverage While Under Warranty – Certain “related expenses” are not covered by warranty, such as the cost for shipping the affected component to the maintenance facility, shipping a rental component to the aircraft, installing the component, the cost of the rental component during the repair period, removing the rental part once the original component has been repaired, return shipping for the rental, shipping cost to the maintenance facility for the original component, and logistical support associated with these tasks – including the cost to transport and house personnel at an unscheduled maintenance event site. That is not to say the warranty is not valuable, but its coverage often is limited to the cost of repairing the affected component.
    • Exposure at Resale – Depending on market conditions, an owner may choose to pay to enroll an uncovered aircraft on HCMP rather than having to discount its sale price in excess of that enrollment fee. While incurring the expense at the time of sale, they have enjoyed none of the HCMP coverage benefits.
    • Days on Market – Detailed analytics from resale organizations show that an in-service aircraft will take longer to sell absent HCMP coverage. This could mean a substantial loss in value as aircraft are depreciating assets.
    • Rental Component Expense – Many owners fail to account for the true cost of rental components, the potential difference in their travel experience when chartering aircraft, the total cost of charters during their asset’s downtime, and storage as well as other fees for their grounded aircraft.
    • Freight and Shipping Charges – The cost to ship “Aircraft on Ground” parts, and the freight charges and logistical challenges to transport a component from wherever the event occurred to the service facility, as well as the cost to ship a rental component to the site of the maintenance event, should not be underestimated.
    • Financing Benefits – Each aircraft financing entity has its own way of valuing Hourly Cost Maintenance Programs, so it’s difficult to determine the exact value that any one financier may place on HCMP coverage. However, the savings differential over the term of a loan or lease could be substantial.

    In addition to the OEMs, HCMP coverage is available from independent sources. Their advantage is the ability to cover components produced by more than one OEM, making them a one-stop-shop. However, some firms may not be acceptable to financing entities, may not offer coverage equivalent to the OEM, and their program may not be transferable – making its value questionable.

    Hourly Cost Maintenance Programs are by no means free, but the additional value they can provide to the aircraft’s owner, can make them a wise investment. 

    This article was originally published by Business Aviation Advisor on January 1, 2020.

  • Tracey Cheek posted an article
    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.

  • Tracey Cheek posted an article
    Who’s Onboard? Onboarding Your Managed Aircraft see more

    NAFA member, Joe Barber, CAM, Vice President Fleet Development with Clay Lacy Aviation, discusses onboarding your managed aircraft.

    You’ve bought a new aircraft, or are happy with your current one. In considering many factors, including the frequency of your travel, your need for a “turnkey” operation, and maybe your desire for some charter revenue, you’ve decided to enlist the services of a professional aircraft management company. You’ve done your research (See “Choosing a Management Company,” BAA July/August 2015), made your selection, and are ready to sign.

    Similar to any new service you enlist, there is a start-up phase, referred to as “onboarding.” Onboarding is simply the steps that the company will take to properly prepare itself, the aircraft, and the crew, and to satisfy the FAA and DOT to conduct flight operations in an efficient, cost-effective, safe, and legal manner.

    The onboarding process begins once your decision is made, even before the contract is signed. It begins with a meeting including you and any of your representatives who will be involved with the aircraft, such as your CFO, executive assistant, or risk manager. The management company team typically includes an onboarding specialist and designated aircraft manager, plus representatives from maintenance, accounting, charter, and human resources.  They follow a comprehensive checklist to streamline and expedite the process. Communication is key. The team will meet frequently to review the status of your aircraft transition, and will provide you with weekly updates.

    Certain basic processes – and regulations – must be covered for every aircraft, in addition to designing others to meet your own specific requirements. The best management companies use a recognized project management system together with a system for continual improvement. Developed by Toyota engineers, Kanban and Kaizen focus on achieving high-quality results. Other companies use the Six Sigma method and its focus on Total Quality Management. The basic organizing principle is to start with the end in mind: “What will a successful aircraft ownership experience look like for you?” and then use “reverse engineering” to get there.

    In the “honeymoon period,” usually the first six months, there is a high level of activity and some topics will require your input.  There are more than 180 tasks required to operate safely and meet your individual requirements, which can be grouped into 65 categories, in three main areas:

    • Aircraft Management: Flight operations, accounting, vendor negotiations (e.g. fuel discounts), subscriptions, and insurance.
    • Flight Operations: scheduling (dispatch), ground transportation, record keeping, installation and oversight of a Safety Management System, crew training and schedules, and issuance of flight manuals.
    • Maintenance: inspections, repairs, records and manuals, warranties, equipment compliance, training mechanics, and FAA interface.

    Here are some of the questions you may be asked:

    • If your aircraft is coming from another management company, would you like to keep the same crew members? For example, if you’re moving to a larger or newer aircraft, is your current crew capable of or interested in operating the replacement aircraft?
    • If the management company finds that your crew member does not meet the proper operating standards (identified during transition training), how will this be handled?
    • If the aircraft is on a charter certificate, what are your charter requirements (e.g. annual billable hours/revenue)? Do you want the ability to approve every trip, every time? A good management company will track every opportunity and be able to share how many trips were presented, and how many you accepted or declined with the associated revenue per hour.

    The onboarding process traditionally takes 60-90 days, but may be extended if the FAA is delayed in conducting your certificate acceptance flight or additional crew training is required.  Once complete, you will have one individual assigned to you, often referred to as a “Client Advisor” or “Aircraft Manager” who will serve as your primary point of contact with the management company to ensure that you have a positive experience.

    This article was originally published by Business Aviation Advisor on September 1, 2019.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – December 2019 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the December 2019 Used Aircraft Maintenance Analysis.  

    Average Ask Price for aircraft in Asset Insight’s tracked fleet decreased 0.7% in December, but value changes varied substantively based on model size. Which models were impacted the most? 

    During December, the number of inventory aircraft comprising Asset Insight’s tracked fleet of 96 fixed-wing models decreased 1.6% to 1,748 units.

    Asset quality improved 0.2% during the month, but worsened overall during Q4 by the same amount, and by 1.8% during the calendar year. Still, at 5.206, the ‘for sale’ fleet’s Quality Rating remained within the ‘Very Good’ range on Asset Insight’s scale of -2.5 to 10

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the best (lowest) figure for 2019 during December at $1.345m, equating to an improvement of 1% for the month, 0.9% for Q4, and 4.9% year-over-year.

    December’s Aircraft Value Trends

    Asset Insight’s tracked fleet closed out 2019 by losing an additional 0.7% of asset value in December and, even though pricing increased 0.8% during Q4, the average aircraft in our tracked fleet lost 3.1% of its value year-over-year. Group performance varied as follows:

      December 2019 Q4 2019 Since December 2018
    Large Jets -1.2% -1.6% -9.1%
    Medium Jets -3.0% 0.4% 11.0%
    Small Jets -2.9% -1.8% -5.7%
    Turboprops 2.0% 4.7% -2.2%

     

    December’s Fleet for Sale Trends

    The total number of used aircraft listed for sale within Asset Insight’s tracked fleet decreased 1.6% following six consecutive monthly increases, reducing inventory by 28 units during the December transaction frenzy while resulting in an increase in ‘for sale’ fleet of 9.9% during 2019 (157 units).

    All four groups ended the year with higher availability:

    • Large Jet inventory: Unchanged for the month, and up 8.7% year-over-year (30 units);
    • Medium Jet inventory: Decreased 1.7% (nine units) in December, but gained 9.8% (48 units) during 2019;
    • Small Jet Inventory: Receded an additional 2.8% (16 units) in December, but gained 15.4% (73 units) throughout the year; and
    • Turboprop inventory: Decreased 1% (three units) for the month while increasing 2.1% (six units) since December 2018.

    December’s Maintenance Exposure Trends

    Graphically, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) traveled a sawtooth journey in 2019. It improved 1% in December (to post the year’s best figure); 0.9% during Q4; and 4.9% for the calendar year. Individual results were as follows…

    • Large Jets: Posted their lowest (best) maintenance exposure of 2019 during the month of December through a 2% decrease (improvement) for the month, along with a decrease of 3.6% during Q4, and a 15% year-over-year improvement;
    • Medium Jet: Exposure improved (decreased) 1.1% in December, but worsened 2.7% during Q4 and 6.9% since the start of 2019;
    • Small Jets: Suffered a couple of costly spikes during the year, but fell (improved) by 1.4% in December, 1.9% during Q4, and 3.5% for the year;
    • Turboprops: Maintenance exposure improved a bit during Q4, decreasing 4.2% (with 0.8% coming in December), but lost ground for the year by increasing (worsening) over 4.8% since last December.

    December’s ETP Ratio Trend

    The latest fleet mix increased (worsened) the average ETP Ratio slightly to 64.8%, from November’s 64.3%. While the year ranged from a low of 63.6% up to 70.9%, the tracked fleet posted the same figure in January 2019 as it did in December 2019.

    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 the Market (DoM) increase, in many cases by more than 30%.

    During Q4 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (215 versus 395 DoM). How did each group fare during December?

    • Turboprops recaptured the top (best) spot with the lowest ETP Ratio, 52.1% (compared to November’s 54.1% and December 2018’s 51.1%);
    • Large Jets moved down into second place with a Ratio of 55.1% (versus November’s 53.9% and December 2018’s 58.8%;
    • Small Jets captured third position by remaining unchanged for the month at 67.3%. But the group’s figure increased a bit from December 2018’s 66.4%;
    • Medium Jets took last place at 75.5% (compared to November’s 73.6% and December 2018’s 77.8%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during December 2019.

     

    Asset Insight - Most Improved Business Jets and Turboprops (December 2019)

     

    Most Improved Models

    Five of the ‘Most Improved’ models revealed a Maintenance Exposure decrease (improvement), while the King Air 300’s Exposure increased. Two aircraft – the Bombardier Global Express and Gulfstream GV – posted no price change, while the Cessna Citation II posted a price decrease of $4,596. The remaining three models experienced price increases as follows:

    • Hawker 1000A  $88,000
    • Beech King Air 300  $219,090
    • Bombardier Learjet 45XR $292,500

     

    Bombardier Global Express

    The Bombardier Global Express captured top spot on the ‘Most Improved’ list as a single sale, an aircraft’s withdrawal from inventory and two additions to the ‘for sale’ fleet lowered the group’s Maintenance Exposure by nearly $1.6m.

    The 14 listed aircraft represent 10.3% of the active fleet and, while that percentage may be a little high, many of those aircraft are enrolled on an engine Hourly Cost Maintenance Program (HCMP) that should bring the 55.1% ETP Ratio to below 40% once adjusted for HCMP coverage.

    Note: The Bombardier Global Express still has plenty of financial and operating life remaining, along with a strong following. For this reason, many current and potential owners are considering upgrading their asset utilizing the JANUS Modernization Program, a decision that could add substantial value to the aircraft while making it virtually indistinguishable from a new production unit, particularly with respect to passenger amenities. Some owners are also contemplating upgrading their avionics suite.

     

    Cessna Citation II

    The Cessna Citation II placed second on November’s ‘Most Improved’ list and earned the same position in December thanks to a Maintenance Exposure decrease approaching $97k (even though its Ask Price actually dropped in December).

    Two aircraft transacted in December, two were withdrawn from inventory, while two more entered the ‘for sale’ pool. The 93 units currently available represent 18.5% of an aging fleet, and the model’s near 94% ETP Ratio make this a potential ‘buy it to keep it’ asset for prospective owners.

     

    Hawker 1000A

    The Hawker 1000A moved from occupying the ‘Most Deteriorated’ position in November, to third best on the ‘Most Improved’ list in December thanks to a Maintenance Exposure decrease exceeding $30k and a respectable Ask Price increase by virtue of a single repriced inventory aircraft.

    The seller’s repriced unit perhaps notwithstanding, this model’s ETP Ratio suggests that the average buyer should count on incurring Maintenance Exposure equivalent to the price of the aircraft they’re purchasing, and that’s not the type of asset sought by most buyers, especially a model sporting a limited production run.

    Seller Advice: Consider any offer that comes your way. Another proposal may not come any time soon.

     

    Beechcraft King Air 300

    Two aircraft transacted in December, but three more entered inventory raising availability to 18 units, approximately 8% of the active fleet. The King Air 300 made this list primarily due to an Ask Price increase exceeding $219k that overrode a Maintenance Exposure increase exceeding $11k.

    With few such models enrolled on engine HCMP, the King Air 300’s 54.8% ETP Ratio might require some sellers to accept a lower price than they’d like. However, even an ETP Ratio slightly above 40% should not be a serious impediment to mutually beneficial transactions, in view of the model’s fan base.

     

    Bombardier Learjet 45XR

    Three sales and one lease were completed in December, but with four additions to inventory the number of units for sale remained at 18, representing 8.8% of the active fleet.

    The model’s ETP Ratio of 33.7% makes this aircraft readily marketable, especially if the asset’s engines are covered by HCMP. Whether the Ask Price increase can be supported remains to be seen.

     

    Gulfstream GV

    The final model on this month’s ‘Most Improved’ list experienced no average Ask Price change in December, but a single transaction and two additions to inventory lowered the average Maintenance Exposure by more than $658k.

    The 14 inventory units equate to 7.3% of the active fleet for sale. With an ETP Ratio of 31.5%, and with more than half of this fleet enrolled on engine HCMPs, sellers of HCMP-covered assets should experience less trouble securing an acceptable offer than the current 260 Days on Market would suggest.

    Asset Insight - Most Deteriorated Business Jets and Turboprops (December 2019)

     

    Most Deteriorated Models

    Five of the six models on December’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase, while the Dassault Falcon 50 posted a decrease. The Bombardier Learjet 55C posted no Ask Price change; the Challenger 601-3R Ask Price rose by $50,000; and the remaining models registered the following decreases:

    • Dassault Falcon 50  -$185,909
    • Cessna Citation ISP  -$38,461
    • Dassault Falcon 900EX -$316,667
    • Bombardier Learjet 35A -$1,455

     

    Bombardier Learjet 55C

    December’s ‘Most Deteriorated’ model posted no transactions in December, and only two inventory aircraft remained after one of the ‘for sale’ units was withdrawn. The Learjet 55C’s Maintenance Exposure increase exceeded $189k that, along with no Ask Price change, earned the jet its position on this list.

    This Learjet’s problem is two-fold: First, it’s an aging asset with limited market following. Second, with an ETP Ratio approaching 109%, buyer offers are unlikely to be appealing for sellers.

     

    Dassault Falcon 50

    The second ‘Most Deteriorated’ asset to make this list registered two transactions in December, two aircraft were withdrawn from inventory, three were added to the ‘for sale’ fleet, and the 30-unit availability equated to 15.7% of the active fleet.

    The model earned its spot on this list through a Maintenance Exposure increase approaching $16k, along with an Ask Price decrease approaching $186k that combined to create an ETP Ratio approaching 126%.

    Considering the aircraft’s age, the only surprise is the model’s relatively short remarketing period of approximately six months, which speaks to the aircraft’s operating capabilities that continue to create followers.

     

    Bombardier Challenger 601-3R

    Those of you following these monthly reviews may recall that this aircraft led all models on November’s ‘Most Improved’ list. How quickly an asset’s fortune changes as it approaches financial obsolescence.

    One asset sold in December, but two more entered inventory and the six available units represented 9.8% of the active fleet. That statistic is not the problem. The 601-3R’s ETP Ratio of 125% (created by a Maintenance Exposure increase nearing $394k, and the fleet’s age) are this asset’s greatest challenges.

     

    Cessna Citation ISP

    As we closed out December, there were 53 Citation ISP units listed for sale (19.3% of the active fleet). With this level of competition, singling out their aircraft’s value is a serious challenge for sellers. Nevertheless, some were able to do so and four sold in December.

    Unfortunately, two other units entered the fleet, and the change in availability resulted in a Maintenance Exposure increase exceeding $17k, along with an Ask Price drop of more than $38k. The model’s ETP Ratio (which now exceeds 107%) makes this a buyer’s paradise, assuming they’re willing to risk becoming the aircraft’s final owner.

     

    Dassault Falcon 900EX

    This model earned its place on the ‘Most Deteriorated’ list for technical reasons. Its ETP Ratio of 34.9% should cause few challenges for sellers who understand their aircraft’s value relative to comparable assets listed for sale.

    Three aircraft transacted in December and one new asset joined the inventory. The seven available units equate to only 5.9% of the active fleet.

    The technical figures creating the model’s ETP Ratio deterioration were a Maintenance Exposure increase approaching $479k, along with an Ask Price decrease of nearly $317k (thanks to the latest entry to inventory). These aircraft continue to be financially and operationally viable assets.

     

    Bombardier Learjet 35A

    This is yet another example of a model nearing financial, and probably operational, obsolescence. And yet one aircraft sold during December (and another was withdrawn from inventory), leaving 43 units, or 10.1% of the active fleet, listed for sale.

    When a model offers this much selection to buyers, along with an ETP Ratio exceeding 181%, complements of a Maintenance Exposure increase nearing $46k and a nominal Ask Price decrease, sellers are at a severe disadvantage. The one thing buyers should ensure they consider is if they truly wish to own an asset of this age.

     

    ADS-B Equipage and Values

    The new year could result in some dramatic price decreases for older aircraft that have not met the January 2020 ADS-B equipage mandate. While we do not believe non-equipped turbine assets will be ‘worthless’, their values will be negatively impacted.

    For aging assets, especially those with little time left before their recommended engine overhaul point, Salvage Value is a very real possibility, although actual transaction figures will be the true determinant.

     

    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 one.

    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

    This article was originally published by AvBuyer on January 10, 2020.