All posts tagged 'aircraft buying' - Page 2

A new feature for buying and selling aircraft

Here is a copy of a press release we issued earlier today about our new aircraft comparison feature. Check it out by using this example here of a Gulfstream G550.

GlobalAir.com revamped its Aircraft Exchange site in early 2010 to include a treasure trove of new features. Yet the company refused to stop there.

This month it added another new tool that will make life much easier for those in the market to purchase an aircraft.

Programmers at GlobalAir.com, with the help of several aircraft brokers, developed an in-depth aircraft comparison tool launched this week. Prospective buyers can use it to contrast an unlimited number of a type of aircraft to seek certain features such as interior layout, an avionics suite or maintenance updates.

Other comparison aspects include when and what particular paint job looks like, engine specifications, propeller / APU times, and a section for options and features.

“This is a technology-driven achievement,” said Jeff Carrithers, president of GlobalAir.com. “Now it will be so much easier for aircraft brokers and end users to have a research tool to compare an unlimited number of aircraft at the click of a button.”

GlobalAir.com representatives will show off the new feature, along with other site upgrades, later this month at EAA Airventure in Oshkosh, Wisc., July 26 - Aug. 1. They encourage you to visit them at Hangar D, Booth 4028.

“It is informative, easy to navigate and pleasing to the eye,” Carrithers said. “The aircraft broker/dealer community is going to thank us. We’re helping buyers perform research that normally is burdensome to the sales process because of the lack of information. The more details you can give a buyer, especially on a large-ticket item like an aircraft, the more readily they can make a decision. After visiting our site, all they have to do is call, email or text a seller. Then the deal process is one step closer to being done.”

Earlier this year, GlobalAir.com performed a major overhaul to its Aircraft Exchange.

Among the many updates added, the new features allow an advertiser to post an unlimited number of aircraft images into a click-and-drag photo-flow tool, options for a seller to receive ad inquiries via text message, a feature invented by GlobalAir.com developers. A buyer also can post an aircraft to a Facebook page and has the ability to download complete specs of an aircraft, along with images and any other details a seller wants to make available.

“We’ve went all out on this new page,” Carrithers said. “Seeing an ad on our site is the next best thing to looking at an actual aircraft in person. Now that we have included this comparison feature, the sky truly is the limit for dealers displaying an aircraft on our site.”

Aircraft Financing: A Return to Sanity

Two years ago, if you were interested in purchasing an aircraft and wanted to finance a portion of the acquisition cost, the world was your oyster. Low down payments, extended loan terms of 20 years or more, minimal credit verification all added up to a great deal for buyers in a marketplace full of competition. Much like the home mortgage market or commercial finance world, capital was available and, seemingly, as long as you had a pulse, someone was willing to offer you a loan.

We all know what happened in October 2008: the financial world was turned upside down. Financial markets were faced with the imploding real estate bubble, commercial and secondary market capital providers like Bear Stearns, Merrill Lynch and many retail lenders, big and small, teetered on the brink of ruination. Many fell over the edge. In the aircraft world, lenders retracted and in some cases, exited the market place. Buyers retracted, watching the values plummet to record lows and waiting for the market to hit bottom. Some owners were forced to sell their aircraft whether they wanted to or not.

All of these and many more factors resulted in a fractured aircraft sales and finance market with a huge volume of aircraft for sale, few buyers and even fewer opportunities to finance acquisitions.

Now as we approach mid 2010, we see that the worst of the economic storm seems to have passed and the world of aircraft sales, purchases and financing seems to be returning to a calmer state. I do not mean that these markets have returned to the craziness of 2008 but the phoenix does seem to be rising from, or at least poking its head out of, the ashes.

Aircraft prices seem to have bottomed out and some sources even indicate that the single engine aircraft actually seem to be gaining value (up from the 30% or 40% loss of value that took place in 2009). Finance opportunities are rebounding as well. Although there are far fewer banks and finance companies willing to write aircraft loans, the ones that remain seem to be willing to extend credit, and here is the big difference, provided that more stringent underwriting criteria are met.

The entities that are willing to underwrite aircraft loans generally fall into two categories: 1) Small or medium sized financial institutions who, as a general rule, did not suffer from a high volume of non-performing aircraft loans or 2) Large financial institutions for whom aircraft finance is a less significant portion of their credit related business and who, thanks in no small part to the stabilizing impact of TARP funds, had the ability to absorb them more easily. Regardless of which of these two categories they fall into, the number of aircraft finance entities in the market in 2010 is dramatically smaller.

So, let’s say that you have been watching the aircraft sales market and carefully shepherding your capital for the last eighteen months waiting for the perfect price on the aircraft of your dreams. Having found your prize, you now are interested in financing a portion of the purchase price. What should you do and what should you expect?

You can use an aircraft finance broker or, in some cases, go directly to the actual lender. Some industry groups have associated finance plans and the internet can be a useful tool in determining who to talk to. You will likely find that you will need to make a down payment of at least 15% of the value of the aircraft (more if you anticipate any commercial use of the ship, that the duration of the loan will not exceed twenty years and that you will need to have a strong credit score (FICO), good liquidity and good cash flow. Lenders will look long and hard at financial statements, tax returns, credit reports and/or other documents so it is in your best interest to have all these types of documents ready and know where you stand financially before beginning the loan application process.

If you have not recently checked your credit score, do so. Most states allow you to obtain a free credit report annually. Personally, I think it is a good idea for most of us to check our credit score with all three major credit-reporting agencies at least once a year. In this day of potential identity theft, it is wise to make sure that the only person affecting your credit score is you. If, during the course of your personal credit review, you uncover something that is or appears to be incorrect, address it immediately with the credit agency. Remember, financial institutions occasionally make errors when they report to the credit agencies but it is up to you to see that they are corrected. Historical delinquency issues related to mortgage and installment debt payments are now critical issues impacting financing of luxury items. You should be prepared to expound on any delinquency circumstance that may be reflected on your credit bureau. Such items may not turn out be an automatic disqualifier but will likely impact any finance terms if offered. If you are disputing any creditors reporting, have that documentation available in advance.

Make sure that you can demonstrate to the lender that you will be able to repay the loan, even if unforeseen circumstances arise. Cooperate with them by doing what is needed to demonstrate your credit worthiness for the loan requested and ability to repay it in accordance with the agreed upon terms. After all the financial woes we have been through, lenders are not likely to offer you a loan based solely on your winning smile and steady pulse.

Whatever you do, use common sense. Ask friends and colleagues who have recently (within the past few months) financed an aircraft who they used. Call finance brokers and/or lenders and ask questions. Make sure you are comfortable that the individual and entity you are dealing with has experience in lending, can help you through the transaction efficiently and, most importantly, deal with you in an honest and helpful manner.

Use Caution When Comparing Costs

Last month I talked about a methodology to compare costs. I suggested that Life Cycle Costing is the preferred method in order to fully understand the total costs of owning and operating an aircraft. Even if Life Cycle Costing, I want to bring another point of caution to you.

What is covered?

We've done many benchmark reports and analyzed the costs of hundreds of aircraft. It is vital to understand exactly what went into the number is that you have.  If you have used Life Cycle Costing yourself, then you will have put forth the effort into your costs. But what about costs from other sources?

If your analysis suggests that an aircraft costs $1,200 per hour and your friend, who operates the same type, tells you $900 per hour, who is correct? Well, you both can be. Just what was covered in each number and what were the underlying assumptions?

Fuel cost is an easy example. For each hour that you fly, your aircraft consumes so much fuel. The $1,200 per hour assumed fuel at $5.25 per gallon while your friend used $4.50 per gallon. At 85 gallons per hour, you are different by $63.75 per hour.

Next up in variable costs is maintenance. But what maintenance is included? Scheduled, unscheduled, retirement items, engines? Are major cost items such as engine overhauls accrued as a cost per hour, or just shown as an average or an interval not equal to the time accrued?

Say you spent $252,000 on an engine overhaul due at 3,600 hours. The accrual cost is $70 per hour. If you have had the aircraft for only two years and flew 600 hours during that time, the “cost per hour” to you is $420 per hour. Quite a difference!  While that cost jumps out as obvious, add up a lot of $1,000 and $500 items. Taken individually, they seem insignificant. In total the effect can be substantial.

Maintenance costs can vary considerably and their cyclical nature adds to the fog surrounding using a single number. While Life Cycle Costing helps, you need to be consistent in the methods and length of time used. Even so, a five year cost period for a new aircraft will differ than a five year cost for a 10-year old aircraft. What maintenance happens when is important.

Training costs, new avionics, upgrading paint and interior, how much insurance coverage you have, whether you have three full time crew or two full time crew and one part time contract pilot, and so on all can add up to significant differences in the cost. 

When you are analyzing and comparing costs from different sources, you need to know what methodology is used and what the numbers include (or exclude). The more detail the better as you can easily be lulled into a false sense of security when two big numbers are close together. Ideally you should run all the numbers yourself using as close to the same assumptions and sources as possible.

Lastly, please keep in mind that every serial number of a single model does not cost the same to operate. In the real world some folks will see higher costs than others, especially in the area of maintenance. Ask questions and understand that "your actual results may vary."

You Need A Methodology For Comparing Aircraft Costs

When comparing aircraft costs, it is important to understand what costs are included and what aren't. Otherwise, you can end up comparing "apples and oranges." This can lead to making a decision with wrong or incomplete information. What we often see if that the "number" is smaller than the total cost. The big items are usually included, but adding up a lot of smaller numbers can alter the total cost considerably.

What is a good methodology to use when analyzing the cost of an aircraft? I’m glad you asked. Life Cycle Costing can ensure that all appropriate costs are considered.

Life Cycle Costing includes acquisition, operating costs, depreciation, and the cost of capital.

Amortization, interest, depreciation, and taxes also play a part in what it costs to own and operate an aircraft and can be included in the Life Cycle Costing as appropriate. As the term Life Cycle implies, it looks at a length of time versus a snapshot in time.

How long of a cycle depends on how long you plan on operating the aircraft.

If you plan on keeping the aircraft 10 years, then that is the length of the Life Cycle to use.

The costs should cover the period of ownership and take into account an expected aircraft value at the end of the term. Comparisons of two or more options should also cover the same period of time and utilization. Taxes should be included. Depending on where and how the aircraft is operated will determine the tax impact.

Leases, loans and cash purchases also change the cash flow and total cost.

If you are looking at those options, then you should account for the time-value of money. A Life Cycle Cost can also account for this in a Net Present Value (NPV) analysis. This way, the differing cash flows form two or more options that can be compared and analyzed from a fair and complete perspective.

As an aside, what is NPV? An NPV analysis takes into account the time value of money, as well as income and expense cash flows, type of depreciation, tax consequences, and residual value of the various options under consideration. When an expense (or revenue) occurs can be as important as the total amount of that item. Paying cash is cheaper in total dollars, except that you have all that cash tied up in the aircraft. A lease or loan allows the cash to flow out over time. NPV runs on the assumption that a dollar today can be worth more than a dollar a year from now. Thus, implicit in the NPV is a time cost of money, called an internal rate of return (IRR) or return on investment (ROI).

Life Cycle Costing allows you to compare different aircraft, or different types of acquiring and operating an aircraft. Using the same period and general assumptions with the analysis of different options gives you a balanced comparison of those options. Regardless of the complexity of the aircraft deal, the Life Cycle Cost method should yield a useful result provided you populate it with as accurate a data as you can.

What sort of tool(s) do you use to compare aircraft costs?

 

Three Tips for an Effective Aircraft Evaluation

Buying on impulse often leaves you disappointed. What looked or sounded great in the moment can turn out not to be what you thought you were getting. This applies to love and fast machines. With aircraft, it then applies double!

The first tip when looking at what aircraft to acquire is to be objective. Objective means choosing criteria that can be measured. In this way you avoid the subjective trap: what was great last night can be less than desirable come morning. With objective criteria, you can compare more than two aircraft and rank order them. Be as specific as possible. Non-stop to West Palm Beach is good. Non-stop to West Palm Beach with four passengers is better. Non-stop to West Palm Beach with four passengers, IFR fuel reserves against a 25 knot headwind is best. If what you are measuring isn't in units of some kind, it's doubtful that it is objective. The joy of an aircraft used for transportation is in proportion to its utility.

Objective criteria should also be specific to the mission assigned to the aircraft. That way you can avoid over-buying - getting far too much aircraft than you really need. If you are clear about what you need, it is easier to set up your criteria. "Go anywhere, anytime" might set you up for a supersonic tilt-rotor amphibian, but can you afford that?

The second tip is to separate your criteria into desired and required criteria. Required criteria are criteria that the aircraft must meet in order to do the mission (job) assigned to it. If the aircraft does not meet the required criteria, it should not be considered any further.

Desired criteria are those that enhance or expand the capability of the aircraft to perform its mission. Generally speaking desired criteria go beyond the minimum needed for the mission, or perhaps they make accomplishing the mission easier, or faster. Once you have your aircraft that meet the required criteria, you can use the desired criteria to differentiate between them. This is helpful in rank ordering the aircraft. Here is a basic example:

Mission Criteria
Required
Desired

Range with 4 passengers (NBAA IFR Reserves 200 NM)

1,800 NM
2,100 NM

Range with 6 passengers (NBAA IFR Reserves 200 NM)

1,500 NM
2,100 NM
Passenger Seats
6
8
Hot food galley?
Microwave
Convection Oven

If you understand your mission, then you can your criteria to reflect what you need to do, and also choose desirable criteria that are meaningful. In the above example, the aircraft buyer was OK stopping for fuel on the 2,100 NM trip, but not for 1,800 NM trip with 4 passengers, of which there were quite a few.

The third tip is to prioritize before you analyze. If you group your criteria into sub groups, then you can not only rank order within those sub groups, but also prioritize which sub groups are more important. Again, this is best shown in the below example. Do you value more range over a bigger cabin?

Mission Score:
Range 60%
Cabin 15%
Payload 15%
Speed 10%

In this case, once an aircraft meets the required cabin size, an aircraft with a larger cabin has value, but not a lot. But, once an aircraft meets the required range, additional range will be greatly valued. This can be done once again after looking at the costs and supportability:

Total Score:
Mission 50%
Life Cycle Cost 35%
Product Support 15%

Here, an aircraft that costs a little more but offers more capability may be the best ranked aircraft in the group.

A big caveat: set this up before evaluating your aircraft. If you really, really want that supersonic tilt-rotor amphibian, you may ignore the fact that you really don't need to land on the water! OK, a bit of a stretch there but the warning is to set the rules first and then perform the evaluation second. What is important to have in your aircraft?

All of this can help you identify the "Best Value Aircraft." We do a lot of our work on the cost side, but we always stress that a large gain in performance at a small increase in cost may be well worth the added expense. At the end of the analysis, it is the responsibility of the decision maker (the one who writes the check) to arrive at that best value. An objective analysis should be done first.


Have you had any experience with this topic? If so, Discuss it with us by clicking "Reply"

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