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The Piston Aircraft Pre-Buy Inspection

by Jeremy Cox 1. December 2006 00:00
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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.

Purchasing a Corporate Aircraft: Part 1

by David Wyndham 1. December 2006 00:00
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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.

Performing a Financial Analysis: Part 2

by David Wyndham 1. December 2006 00:00
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In last month's we identified the basic financial data needed for the analysis. Remember, the goal of the financial analysis is to identify the aircraft that does the best job for the money.

In a financial analysis you will need to analyze all of the costs associated with the aircraft: acquisition cost, operating costs, depreciation and taxes, and the potential residual value after a set term. If the aircraft is to be used in a commercial operation, you will need to make assumptions regarding potential revenues as well. All of these considerations are important and needed to complete the analysis. Use the same set of assumptions for each aircraft to ensure that you get a true comparison.

Given a set of costs and assumptions, what next? You will need an analysis tool to perform a life cycle cost. A life cycle cost

- Takes into account the total costs and can show the impact of taxes and depreciation.

- Generates a cash flow analysis to show the years of negative cash flow - something a commercial operator wants to avoid.

- Examines the time-value of money for each aircraft and acquisition option.

The time-value of money places importance on the timing of a revenue or expense occurs. Think of interest. If I invest $1,000 at 5% per year, I'll have $1,050 at the end of a year. Similarly, if I owe you a $1,000, and I pay you today, I need $1,000. But, if I can wait a year to pay you, I can invest $953 at 5% and end up with $1,000 after a year. Taking the time-value of money into account allows you to compare different streams of revenues and expenses to see which one has the better time-value.

Terms used to describe the time-value "interest rate" include return on investment (commercial operations) and net present value (non-revenue operations like a corporate flight department of government). These are usually abbreviated as ROI and NPV respectively. For a revenue operation, the higher ROI is preferred. For a non-revenue operation, the "least negative" NPV is preferred.

What is a typical percent to use for the ROI/NPV analysis? You usually don't have to make one up. Government agencies usually look at the cost of borrowing money - Treasury Bill interest rates for example. Corporations have expected returns and use that for all major purchases. If you are in a large organization, just call the financial department, the CFO, comptroller, etc. and ask them for the relevant rate and your organization's marginal take rate. They will be impressed at your level of understanding!
Taxes and depreciation can play a role in the time-value analysis. If used 100% for business, the IRS allows 100% of the aircraft's value to be deducted, or depreciated, in as little as five years.

The final value, the aircraft residual value, is tough to estimate. Essentially it requires guessing at the future value of the aircraft. Looking at historical residual values of pre-existing aircraft can give you some idea of what the future may hold. We've looked at aircraft values for a number of years and, averaging good and poor economic times, will use a reduction in a jet aircraft's value of 3% per year, 4% for a turboprop or piston, and 5% for a helicopter. Right now, it is too much, but over time it is a reasonable estimate.

Now that you have your costs, ROI/NPV rate, and marginal tax rate, how do you perform the analysis? Prior to spreadsheets, it was a time-consuming process. Today, there are spreadsheet applications that, given the proper data entry, will quickly calculate cash flows and ROI/NPV. Just make sure what you use allows you the flexibility to compare the different options. Look for the ability to vary your cost assumptions and to create reports. If you are a pro at Microsoft Excel or other spreadsheet applications, you can even try to do one from scratch.

For a non-commercial operation, the only revenue will be the sale of the aircraft. This will never pay back the initial acquisition cost and all expenses, so the NPV will always be less than zero. In this situation, the "least negative" or value closest to zero is the most favorable NPV.

For a commercial operation, the goal is to recoup your initial investment, pay all your expenses, and generate a return (profit) equal to your stated ROI. Do this and the NPV is zero. If the NPV is less than zero, you have not reached your ROI goal, and if the NPV is greater than zero, you have exceeded your ROI goal.

What the financial analysis will allow you to do is to rank order the mission capable aircraft to find the one that does the best job for the money. Once you have done this, you can easily go back and adjust the assumptions and re-run the analysis for changes in acquisition cost, interest rates and other variables. This will give you a very clear picture of what your options are.

A financial analysis of the aircraft capable of performing your mission is the fairest way to identify the best value for your operation. It takes into account all the cost factors.

As always we welcome your input and experiences please post your questions or replies below.

Aircraft Market Report: 2006 Q2

by Jeremy Cox 1. August 2006 00:00
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Every three or four months I will now be providing you with a Quarterly Market Report that highlights 49 fixed wing and 9 types of rotary wing types of aircraft. Most of the data that will be contained in this report is very courteously and kindly provided by the folks from Kansas at the Aircraft Bluebook – Price Digest, http://www.aircraftbluebook.com/ I would like to especially thank Mr. Paul Wyatt, the Bluebook Editor for the use of his data in the production of my report. I hope that you find the report of some use to you.

Column A, Rows 2 through 59 are the featured Aircraft Types. I have grouped these into a series whenever I deemed it as necessary. What I mean by this is that, if we take the Mooney M20 Series as an example, I have lumped (I can almost hear your protests from here, already) every ‘20' designated Mooney aircraft into one large group that encompasses over 30+ separate models that range from the 1955 Mark 20 through the 2006 M20R Ovation 2GX.

Column B, Rows 2 through 59 are the Current Low Retail Prices quoted by the Summer Edition of the Aircraft Bluebook Aircraft Price Digest for each Aircraft Type, series. If you think back to the example of the Mooney M20 Series in the last paragraph, you will now understand that the number in this column at Row 5, that the 1955 Mark 20 is currently reported by the Bluebook as having a (Base) Retail Value of $20,000.00 USD. Continuing on with this thread, Column C, Rows 2 through 59 are the Current High Retail Prices quoted by the Summer Edition of the Aircraft Bluebook Aircraft Price Digest for each Aircraft Type, series. In this case at Row 5, the 2006 M20R Ovation 2GX has a (Base) Retail Value of $478,000.00 USD. Columns D and E, Rows 2 through 59 are pretty self explanatory, i.e. These are the same reported Values from the Bluebook, 12 Months Ago. I am actually planning on keeping these numbers the same for the remaining two Quarters (Fall and Winter) and thus keeping the same reference point for a year, with its replacement occurring on its anniversary, i.e. every Summer edition of this Report will have a new numbers here (yes, you have sussed my drift; the Current Low and High Retail Prices in this report will become the new ‘Year Ago' Reference Figures, this time next year.)

Now my spreadsheet gets interesting with Column F, Rows 2 through 59 because I have used the following formula to crunch these numbers into a comprehensible market indictor:

((B5/D5-1)+C5/E5-1)-1/2 = ‘Percentage'

What I have done is, I have divided the current ‘Low Retail' by the old (last year), then both the current ‘High Retail' by the old (last year) and then both resultants are added together and then finally this result is divided by ‘two' to provide an averaged percentage result.

Column G, Rows 2 through 59 are the Annual Hours Flown in a twelve month period, as quoted by the Bluebook.

Column H, Rows 2 through 59 are the normal Knots True Airspeed for each aircraft Series, as quoted by the Bluebook.

Column I, Rows 2 through 59 are the typical Nautical Mile Ranges of each aircraft, as quoted by the Bluebook.

Column J, Rows 2 through 59 are the Standard US Gallon Fuel Capacities of each aircraft, as quoted by the Bluebook.

Column K Column I, Rows 2 through 59 purely my own input and the figures entered in this column represent the typical US Gallon per Flight hour Fuel Consumption of each aircraft.

Column L, Rows 2 through 59 is thus a simple computation with the use of the following formula:

I2/J2 = ‘Nautical Miles per US Gallon'

What I have done is, I have divided the typical Nautical Mile Ranges for each aircraft by the typical ‘Standard' US Gallon Fuel Capacities of each aircraft, which results in a fairly accurate ‘Efficiency' number that denotes NM/USG.

Next I am going to skip a column in my explanation and move onto Columns N and O. These are the current figures (as of July 15, 2006) that were being reported by this website, https://www.globalair.com/.

Columns P and Q denote the respective, current and twelve month ago figures (as of July 15, 2006) that were being reported by the Organization of the Petroleum Exporting Countries (OPEC) at their website, http://www.opec.org/home/.

Columns R and S denote the respective, current and twelve month ago figures (as of July 15, 2006) that were being reported by Dow Jones for their Industrial Average, derived from their chosen portfolio of publicly traded corporations.

Columns T and U denote the respective, current and twelve month ago figures (as of July 15, 2006) that were being reported by the British Bankers Association for the London Inter-Bank Offered Rate (LIBOR) percentage interest rate, available as an Excel spreadsheet like this, from their website: http://www.bba.org.uk/.


Now my spreadsheet should be easily understood. So what can now be gleaned from this document?

  • Well I believe that it will be found to be useful on many different levels and for various purposes:
  • It is a quick handy reference for anyone who wants to know the current value ‘range' (the high and the low) for their type of aircraft series.
  • The performance data is a ‘down and dirty' handy reference (please don't use the data for flight planning purposes because you may crash!)
  • The Annual Fuel Cost portion coupled with the NM/USG ‘Efficiency' portion of the spreadsheet is very telling, especially in today's ever tightening world oil supply markets.
  • And finally, my spreadsheet should be somewhat of a reliable barometer of the current condition of the used aircraft marketplace (the 12 Month Percentage Change) as it relates to the leading economic indicators i.e. the performance of the stock market, the cost of oil and the cost of money.

My spreadsheet thus shows that:

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


  • 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.


  • 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.'

Is It a Good Time to Buy?

by David Wyndham 1. July 2006 00:00
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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?

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