The aircraft pre-purchase inspection is perhaps the most important aspect of buying an aircraft.  An aircraft pre-purchase inspection done well can save you thousands of dollars, done poorly and it could cost you your life!

It is pretty common for most prospective buyers of small, light aircraft, i.e. 'below 12,500 lbs, or 5,700 Kgs' commonly known as 'Puddle Jumpers' to handle the entire sales/purchase transaction themselves without any assistance from a professional broker. Of course there is nothing inherently wrong with this approach; it's just like you buying or selling your own home without using the services of a real-estate agent. I don't recommend this approach, but it is of course your prerogative to do so.

As you have decided to go it alone, here follows some points to remember.

Always ask to see a complete and consecutive set of log books that commence from the date of new delivery of the aircraft, up to the present day. If the candidate aircraft has many thousands of hours on it, then you should be faced with a substantial number of books. If you don't have all of the books, then it will be impossible for the owner to certify to you that the aircraft has 'no-known-damage-history.' This is a very important issue when you are trying to determine the market value of the candidate aircraft.

It is also normally a wise decision to select a pre-buy inspection facility or mechanic that does not normally have a relationship with the current owner. This is unless of course that the aircraft is not 'new' and still under the factory warranty.

Have the facility or mechanic perform the pre-buy inspection in accordance with a written checklist. If the chosen facility or mechanic is a specialist in this specific type of aircraft, it will be likely that they/he will have their own checklist to follow, which is normally over-and-above a normal aircraft inspection. In the situation where there is no specific pre-buy checklist available to your chosen facility or mechanic, and you have checked with the owner group or club that follows this specific aircraft type, then I strongly urge you to include all of the items normally required by the Annual and 100 hour inspection specified by the manufacturer of the aircraft. If the aircraft is an antique or a homebuilt machine, then I suggest that you use appendix D of cfr 14, FAR 91, subpart 43 as your guide.

Do a test flight first and make sure that your mechanic is along for the test. Have a specific flight profile that you wish to follow, to enable accurate trends to be captured for analysis post flight. Also make sure that the autopilot and all of the applicable avionics work correctly and accurately.

If at all possible, have the aircraft pressurized with a 'huff' cart on the ground, to check for leaks, if the aircraft is a pressurized type. Don't just rely on the test flight to verify that the system is working correctly.

Don't just rely on the results of a differential compression check of each cylinder, have each 'jug' and the rest of the engine borescoped too.

Invest in a Spectral Oil Analysis Program (SOAP) kit for both the engine oil and airframe hydraulic systems. Hopefully the candidate aircraft's owner has been maintaining the aircraft under such a program for as long as he has owned the aircraft, and then in this case you will only have to verify with the laboratory that the program is current and up-to-date.

Have several of the special inspections specified by the manufacturer of the aircraft, accomplished as a part of the pre-buy inspection. These might include a Symmetry Check, Lightning and Gauss Checks, a Heavy Landing Check, a Fabric Hardness/Condition Check (in the case of fabric covered aircraft), an Ultrasonic or 'Coin-Tap' Test (in the case of composite aircraft) and possibly a Rigging Check (especially if the aircraft is a wire-braced Bi-Plane.)

It goes without saying that a complete and comprehensive verification of the Airworthiness Directives, Service Bulletins, Service Letters, Supplemental Type Certificate changes and Major Component Total Time in Service and Serial Number confirmation is an absolute must-do as a part of your pre-buy inspection.

As soon as all of the above items and possibly a great deal more have been performed for you to complete your pre-buy inspection, make sure that both you and the seller receive a written report of all of the findings as a direct result of the pre-buy inspection. Hopefully you have already written into the purchase agreement that has been agreed too, and signed by both you and the seller that the aircraft will be delivered to you in an 'Airworthy Condition.' If this is so, then you now have a shopping list of items that may well be the responsibility of the seller to either fix, or discount off the purchase price before you can close the transaction. Remember that the cosmetic condition of the aircraft is generally irrelevant to the airworthy condition of the aircraft, unless a specified standard has been agreed to in the purchase agreement.

If you have a damage and corrosion free aircraft that is airworthy, then you probably have a keeper.

As always you can reply to this discussion with questions and experiences, let others know about how you have handled your pre-purchase and any ideas as they apply to the 'Puddle Jumper' Pre-Purchase Inspection.

It seems that in aviation, there are two large groups, those who think finances are scary (read as job threatening) and those who think finances are just simply boring. Both groups try their best to avoid the subject. There is a third, a small but growing group that I want you to join -- those whose knowledge of finances gives them a powerful and convincing tool for making the right aircraft decision!

Before the financial analysis, you need to identify the aircraft capable of performing your mission. This analysis needs to cover performance, cabin/baggage/comfort, and support. Once you have a group of capable aircraft identified, the next step if the financial analysis.

For any aircraft financial analysis you will need the investment required, the cost of operation, and the estimated residual value of the aircraft at the end of the term. Taxes and revenue potential can also play an important part in the analysis. The objective of a financial analysis is to determine which of the qualified aircraft provides the optimum combination of these elements.

In aircraft financial analyses, we also need:

- Amount of utilization. Do this in miles and then divide by the aircrafts' typical trip speeds to arrive at the utilization in hours.

- Type of ownership. Full ownership, co-ownership, fractional ownership. Maybe not even owning at all. Differentiating among these is a subject for another newsletter. For this month, let's assume a form of full ownership.

- New versus used. Do the lower maintenance costs, increased availability, added tax depreciation benefits, and the ability to specify the exact configuration of the new aircraft outweigh the used aircraft's lower acquisition cost?

- Lease or Purchase? A lease typically has a very low initial payment, and depending on the type of lease, may not be considered "long term debt" on the corporation's balance sheet. Purchase includes both finance and full payment up front. With a purchase, you do have ownership and after the payment(s), have an asset with a definite value.

- Trade-in Value Assumption. If you currently own an aircraft, you need to get an idea of its current worth in the market. Price guides such as the Aircraft Bluebook Price Digest, Vref , and The Official Helicopter Bluebook offer a good starting point for determining the value of an aircraft. Nothing beats an appraisal by a qualified appraiser. An appraiser will give you the real-world value in today's market that will aid you in negotiations with buyers.

- Acquisition Price. For used aircraft, see the references above. You can also look at aircraft-for-sale web sites to see what the "asking" prices are. Keep in mind that there can be a considerable margin between asking and final selling price. An appraiser can also give you some information on used aircraft prices as well. For new, start with the manufacturer's list price. In today's market, most manufacturers are willing to make a deal, so don't count out a new model that is "just a little bit" outside of the target acquisition price.

- Length of ownership. When you analyze each aircraft, use an equal length of ownership. Looking at cash flows and costs over different lengths of time can give you a distorted picture. This is very important when considering the time value of money. When income or expenses occur can be as important as how much.

- The aircraft operating costs. This includes the fuel and maintenance. Also needed are things such as hangar, insurance, training, and crew salaries. Don't forget the miscellaneous things like charts and pubs, too.

Taking all the above into account over a defined period provides you with a Life Cycle Cost. This is step one. Step two will be to use the concept of the time value of money to differentiate between the cash flows. We all can agree that being paid today and paying our bills next week is the preferred way to manage our finances. This is the simple version of the time value of money. Next month, we will explain it in detail and complete the financial analysis.

If you have any ideas, suggestions or experiences you would like to share with this discussion we would like to hear about them.  Please respond below.

My spreadsheet thus shows that:

The following aircraft/helicopters saw the largest gains in value, including the normal yearly/model new price increases:

THE WINNERS

• 16.29% Bell 206/407 Series
• 12.74% Cessna 210 Series
• 10.17% Cessna 441
• 8.90% Mooney M20 Series
• 7.71% Falcon 50/50EX Series
• 7.22% Challenger 300

The Overall Market has shown an Increase in value ‘Across the Board', equal to 3.88% over the last twelve months.

THE LOSERS

• 8.06% Falcon 20/200 Series
• 6.35% Bolkow/MBB/Eurocopter BK105/BK109/BK117 Series
• 4.86 Robinson R22 Series
• 4.39% Cirrus SR20/SR22 Series

What does this mean, I hear you ask?

If you have a new/low-time, medium-large aircraft like the Challenger 300 to sell, you will see it sell for more than you paid for it several months ago.

If you are operating one of the older dinosaur jets like a Falcon 20 or 200, your value is dropping much faster now, due to the price of fuel and also the less desirability of owning a forty-plus year old aircraft.

I need to do more research into the smaller aircraft markets, and by the next quarterly market report I will provide a better insight into what is occurring there (maybe it's the cost of money, I don't know), but I am certain that many of you engaged in the operation and sale of these aircraft already know the background behind the percentage points listed in my spreadsheet.

So in November we shall have a new, Quarterly Market Report.

I would like to end this month's column by asking for your help. From time to time I have the pleasure of speaking with people that, like you, read this column each month. I feel a certain responsibility in providing fairly decent content here and therefore would like to ask you, dear reader, what it is that you would like to see from time-to-time, discussed in this column. Obviously as I always state at the end of my ranting each month: ‘Any input that you care to make will be of great interest to all of the readers here at Globalair.com. So please don't be bashful and go ahead and write your comments and suggestions here. Please don't forget that whatever you write here, can be seen publicly by everyone that visits this page, so please be funny, be inspired, but most importantly of all, please be nice. See you next month.'

It is said that the optimist and the pessimist agree on only one thing, "This is as good as it can be." This applies to today's turbine aircraft market. The optimist is thrilled at the selling prices they can get for their client's used aircraft, and the pessimist is proven correct when they look at the selling prices they have to pay to get their client a good used aircraft!

New or used, the overall story is about the same. A friend selling new aircraft wanted to hire a new salesperson. They couldn't because the manufacturer is sold out well into 2007. With no new planes to sell and deliver this year, they won't hire someone to sell airplanes they can't get. Many of the new aircraft available, including the nascent Eclipse and Mustang, are sold out for several years (2009 said Cessna for the Mustang). Take a number, send us a check and we'll call you.

I took a look using the AMSTAT aircraft for sale database of turbine airplanes. As of this past week, 11% of the entire active turbine fixed wing was for sale. As a rule, this indicates an overall balanced market between buyers and sellers. However, the full story is hidden.

For current production models, only 3.2% of the active fleet is for sale. This indicates a very hot market for late model turbine airplanes. This also means that there is a weak market for older aircraft. As I see it, you actually have three markets ongoing right now:

New and nearly new turbine airplanes – about 10 years and newer are very hot. This is a seller's market. Folks who can't get into new equipment right away are looking here for aircraft. Prices remain strong and interest isn't likely to wane for some time.

"Middle-aged" turbine fixed wing – between 10 and up to a maximum of 20 years of age. This is a balanced market. There are so good deals and some not so good deals to be had. Aircraft with updated avionics, RVSM, current aging aircraft inspections, and Stage 3 noise compliance are doing OK with reasonable prices if you are patient. This is a balanced market.

Older aircraft – about 20 years and older and/or non-RVSM/Stage 2 noise. It isn't doing well, hasn't been doing well, and isn't likely to improve much. Sure, there are some decent aircraft in here, but buyer beware. There aren't many buyers looking at these so either you are a bargain hunter with hard of hearing neighbors at your airport, or can't afford anything newer! Seriously, residual values of this group aren't great. Many are approaching their "scrap value" where their values are highly dependent on engine status and any recent maintenance. If they are non-RVSM, they have been sitting for sale for a while – many well over one year.

As an example for each group, I'll use the Citation family. Not to pick on them, but there are many models to choose from and production goes back quite a number of years so there are some good examples. One of the newest, the Cj2, shows 15 aircraft for sale with an average days listed of only 88 days. Go to the Citation Ultra, 22 are for sale with an average listing of 181 days. The oldest model, the Citation 500, has 75 for sale with an average days listed for sale of 761! The older models are taking much longer to sell.

So, the pessimist is right and the optimist is right. It all depends on what you are selling or looking for. If you buy a newer model, expect to pay close to full retail, but you'll be able to sell it in a few years. Buy a much older model; you'll get a bargain but plan on keeping it until the wings fall off (figuratively).

Have you or your company recently completed an acquisition?  What are your feelings toward the market trend right now?  Did you find a market that was very tight (and drove prices up) but was an older aircraft?

If you are selling, purchasing, leasing, financing or otherwise acquiring an interest in an aircraft or turbine engine, you need to be aware of the Cape Town Convention. The Cape Town Convention is an international treaty that went into effect March 1, 2006 and it applies to many twin-engine and most jet aircraft. Technically speaking, the Cape Town Convention is comprised of two documents: The Cape Town Convention on International Interests in Mobile Equipment ("Convention") and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment ("Protocol"). Many people simply refer to the Convention and the Protocol collectively as the Cape Town Treaty. (For purposes of this article, I will simply refer to the Convention and the Protocol collectively as "the Treaty"). This article will discuss what the Treaty is, why it is important and what it will mean to the U.S. aircraft market.

What Is The Treaty?

The Treaty creates new laws governing transactions involving subject aircraft and engines that change or supercede conflicting laws within a country governed by the Treaty (also referred to as a "Contracting State"). The Treaty addresses transaction issues including perfection of ownership, security interests/liens and possessory rights such as leases, default, remedies and insolvency. The Treaty applies to a transaction that (1) meets the aircraft/engine size requirement; (2) involves an international interest; and where (3) at the conclusion of the transaction, the subject aircraft/engine is registered in a Contracting State or the aircraft/engine owner or debtor is situated in a contracting state.

The United States and seven Contracting States (Ireland, Panama, Pakistan, Oman, Nigeria, Malaysia and Ethiopia) have ratified or acceded to the Treaty and it has been in effect since March 1, 2006. In connection with its ratification of the Treaty, the U.S. also amended many U.S. laws to comply with the Treaty (e.g. Federal Aviation Regulations, Title 49 of the United States Code, and the Uniform Commercial Code).

The aircraft and engines subject to the Treaty include: (1) Aircraft that are type certificated for at least eight (8) persons including crew; or goods in excess of 2750 kilograms (6,062 pounds); (2) Helicopters that are type certificated for at least five (5) persons including crew; or goods in excess of 450 kilograms (990 pounds); and (3) Aircraft engines having at least 1750 lb of thrust or at least 550 rated take-off shaft horsepower. The Treaty does not contain any provisions for registering propellers. International interests under the Treaty include aircraft sales, aircraft security agreements, aircraft lease agreements, aircraft conditional sales agreements, aircraft liens, assignments, subordinations etc.

The Treaty established an International Registry that allows registration of international interests in aircraft and equipment that are subject to the Treaty. The International Registry is located in Ireland, but registration is performed through its website: www.aviareto.aero. The computer driven system is available 24 hours per day, 7 days per week.

Why Is The Treaty Important?

The Treaty is important because it pre-empts existing laws in Contracting States and it changes the manner in which interests in subject aircraft and engines are documented, recorded and enforced. Under the Treaty, the first party to register an interest in a subject aircraft/engine with the International Registry will have an interest prior and superior to all other interests. Documents evidencing interests in subject aircraft/engine(s) must still be recorded with the FAA. However, it is important to keep in mind that the filing with the International Registry will supercede the priority date of any documents filed with the FAA Registry. Simply put, if you have an interest in a subject aircraft/engine, you must be the first to file with the International Registry or you will lose to other competing interests. (This is a significant change from prior U.S. law under which a filing party would not have priority over an unrecorded interest if that filing party had actual notice of the unrecorded interest at the time it filed with the FAA Registry).

Additionally, the Treaty allows a party to file a "prospective international interest" to perfect its interest in a subject aircraft/engine prior to closing the transaction. The typical situation involves a creditor perfecting its security interest in an aircraft/engine prior to closing and funding of the transaction. Both parties must consent to the filing of the prospective interest with the International Registry. If the transaction then closes after the prospective interest is filed with the International Registry, the priority date relates back to the date of the filing of the prospective interest. However, if the transaction does not close, no interest is created and the prospective interest has no effect. (Although technically it will still appear as a cloud on the aircraft's/engine's title unless it is released.)

What Does The Treaty Mean To The U.S. Aircraft Market?

Title Search. Unfortunately title searches have now become more expensive for aircraft/engines subject to the Treaty. Not only must the FAA Registry be searched to confirm aircraft/engine registration and status of pre-Treaty liens etc., but the International Registry will also need to be searched. Additionally, it is also taking a longer time to receive the results of a title search because the International Registry is not processing such requests as quickly and efficiently as one would expect. Hopefully this delay is simply the result of the International Registry's infancy and will be reduced as the International Registry becomes more adept at processing such requests.

Registration With The International Registry. Each party to an aircraft transaction will need to register as a transactional user entity ("TUE"). The one-time fee for this registration is $200.00. If a party anticipates more than two subject aircraft transactions within the next five years, it will be more cost-efficient register for the five-year period and pay the $500.00 fee. Each party will need to use a single computer for the registration because the International Registry assigns a digital security certificate for the transaction that the TUE must download. The same computer must then be used to complete the transaction. Registration approval is supposed to occur within 48 hours. However, the initial volume of TUE registrations has resulted in a delay of up to several days for receipt of a TUE registration approval.

Once registered, a TUE may also appoint a professional user entity ("PUE") to assist with transmitting information to the International Registry. PUE's include title companies, attorneys, aircraft tax consultants etc.

Filing With The FAA Registry. Parties to an aircraft transaction will still need to file transaction documents with the FAA Registry. In addition to such documents as a bill of sale, application for registration, security agreement, lease etc., FAA Form 8050-135 will also need to be filed in order for the FAA to provide the parties with an authorization number to complete the transaction with the International Registry. If a prospective interest has been filed, the transaction documents must be recorded with the FAA Registry within 60 days of the filing of the prospective interest with the FAA Registry.

Completing The Transaction. Once the authorization number is received from the FAA Registry, a party must then go to the International Registry's website, log-on and complete an electronic form asserting an international interest against the subject aircraft/engine. The International Registry will then send an e-mail message to the second party to the transaction seeking consent to the filing. If the second party consents to the filing, a permanent record of the registration will be created at the International Registry and perfection is then completed. This record can be searched and will appear as an interest in the subject aircraft/engine(s). If the second party does not consent or does not respond to the International Registry's e-mail message within 36 hours, then no interest is created or perfected.

Costs. The Treaty has definitely added costs to transactions involving subject aircraft and engines. In addition to the costs of registering as a TUE, the International Registry charges registration and search fees for a subject aircraft ranging from $35.00 to $100.00. This does not include the increased attorney and title fees a party will incur to comply with the Treaty's requirements.

Conclusion

As of today, the Treaty is the law of the land and must be complied with if a party wants a perfected and enforceable interest in an aircraft subject to the Treaty. In the aftermath of the deluge of TUE registrations following March 1, 2006 and the resulting delays, it has been suggested that congress increase the seating configuration and weight requirements in order to exempt the many twin-engine and jet aircraft that are currently subject to the Treaty. However, such a change will most likely not occur anytime soon, if at all. As a result, a party entering into a transaction involving any aircraft/engine(s) subject to the Treaty should consult with an aviation attorney familiar with the Treaty to make sure that the transaction is documented appropriately and properly recorded with both the FAA Registry and the International Registry.