Contributed by Doug Roth, aircraft sales rep
As your business aircraft ages, there will come a point when you begin to ask yourself if it is still worth spending money on it or is it time to sell or trade. This generally occurs about the time a major inspection, engine overhaul, paint/interior refurb or mandatory avionics upgrade is coming due.
There are a lot of factors that go into making the decision to reinvest in the aircraft, but the biggest and most obvious is whether the money is well spent. The answer to this question can actually be quite simple and lies in the aircraft value once the investment is made.
The value of an older aircraft can be determined with this simple formula.
Value= Base aircraft marketable value + engine value + inspection value + paint / interior value
However, all the parts that go into it can be rather complicated. Let me walk you through it.
Base Aircraft Marketable Value
For a quick determination of the base marketable value of your aircraft, you can begin with industry-recognized aircraft value reference guides, such as Vref and Aircraft Blue Book. These books provide recent sales data and information on your specific make model aircraft. However, at the time of their publication the information can be almost six months old so they may not accurately reflect any market changes that are beginning to trend.
If you need accurate market information to make a decision about selling or trading your aircraft, it is wise to consult with an aircraft sales professional for the latest in market conditions.
Keep in mind, this base value is just a starting point. You still need to take into account how fresh your inspections are or how many hours remain on the engines. These factors will have an impact on the overall value, both positive and negative.
Engine Value
The model of your aircraft and whether or not others like it are typically on an engine maintenance program, will determine how you calculate engine value.
Example of Engines On Maintenance ProgramsThe majority of aircraft with the Honeywell TFE731-20,-40,-60 engines are typically on an engine maintenance program. If your TFE731-xx engines are on a maintenance program then their value adjustment will be zero, because they are considered base average among those model engines. However, if your TFE731-xx engines are not on an engine program, then adjustment to the base aircraft value will be negative the amount to buy into the program.
Example of Engines Not On Maintenance Programs
For aircraft with engines not typically on a maintenance program, such as aircraft with PW JT15D-5 series, the value adjustment is based on the number of hours remaining, above or below the engine’s mid-life. Take the number of hours above or below mid-life and multiply it by the hourly operating cost of the engine. If the hours are below the mid-life, add this to the base aircraft value. If the hours are above the mid-life, subtract.
Once an aircraft reaches 30 years, engine values are based more often on the life remaining rather than an engine program. Engines with less than 1500 hours will have a negative value adjustment based on the cost per hour.
Inspection Value
An aircraft’s base value on the market typically assumes that the airframe inspection life is at 80%. Therefore, an aircraft with a fresh inspection could add up to 20% of the cost of a typical inspection to this base value. The opposite is also true. If the inspection life is less than 80%, the value will be reduced.
For example on a Falcon 50, a C check can cost in the neighborhood of $250,000 and will add six years until the next major inspection. If there are three years, or 50% remaining in the inspection cycle, then the base aircraft value will be reduced by 30%, or $75,000.
Cosmetics Value
With normal use an aircraft paint and interior can have a life of about 7 and 8 years, respectively. Applying the same rule of 80%, the cost to restore the paint and interior can be applied to the base value in the same way we did with the inspections.
However, the real value of your aircraft’s interior rests solely upon your personal preference and how you use it, not its age. You may love that 15-year interior because you were involved in the original selection of materials and colors.
Paint is similar, where personal preferences play a part, but to a smaller degree. Having the aircraft painted at major inspection intervals is beneficial to maintaining the value because a fresh coat of paint helps to protect from possible future corrosion.
Nonetheless, if you are considering selling, the value of the paint and interior rests in the personal preference of the buyer. Even a five year interior may be replaced because it is just not the new owner’s style.
Avionics Updates
Deciding whether or not to invest in the necessary avionics to meet the upcoming mandates on your aging aircraft is a topic for another time. Stay tuned.
However, for the purpose of this example, all values above being equal, an aircraft with WAAS/LPV and/or ADS-B will have a significantly higher value than one without.
Total Aircraft Value
Now you have a snapshot of what your aircraft is worth. What now? Do you spend the money for the upcoming inspection or overhaul? Is it time to sell?
With later model aircraft, the costs associated with major inspections or restoration may be relatively small in comparison to the base market value, making the decision to invest in the work easy.
As aircraft grow older, those costs become larger in comparison to the base market value to the point where the majority of the aircraft’s value will be in the inspections and/or restorations.
This is where you need to take a hard look at and assess your future flying needs. If your aircraft meets payload and range requirements for the foreseeable future, the investment may be worth it.
Especially if your foresee operating the aircraft for at least 40% of the life of the inspections and/or restoration. In the end, when you reinvest, you are building value and life back into your aircraft to meet your future needs. Your decision to invest should be based on your travel needs and requirements and what is most cost-effective for you.
Duncan Aviation Aircraft Sales
Need help in evaluating the value of your business aircraft? Contact your Duncan Aviation Aircraft Sales Representatives. We'll be happy to help.
Download the latest business jet model/market summary here.
http://www.duncanaviation.aero/aircraftsales/model-market-summary.php
