All posts tagged 'business jets'

Misconceptions about Aircraft Costing

Over the years I have written a number of articles discussing aircraft operating costs and methodologies for analyzing them. This month, I’d like to review some common misconceptions about costs that I run into on a regular basis. Most of these result from connecting something that we are familiar with, like the cost of running an automobile or building a house, and using those as an analogy for the unfamiliar cost of owning and operating an aircraft. 

Misconceptions about Aircraft Costing

The biggest misconception is focusing on the acquisition cost to the detriment of operating costs and asset value over time. I have a client whose maximum acquisition budget is $20 million. This is a real limit and not one to exceed. Where the misconception arises is that if we are looking at Aircraft A with a selling price of $20 million and Aircraft B which sells for $17 million, the former aircraft is the less costly option. But is it?

Assume that both aircraft have similar capabilities in terms of range and cabin.


The only way to know which one costs “less” is to evaluate the total costs to acquire, operate and dispose of the aircraft. Two major costs are the operating costs, to include maintenance, and the estimated residual value after a set length of time. Looking at our current scenario, Aircraft A has a lower fuel consumption than Aircraft B. Aircraft A also has engine and airframe maintenance costs similar to Aircraft B. Looking at the costs per hour:

Variable cost.                        Aircraft A.                  Aircraft B. 

Fuel                                        $1,376                        $1,521

Engines                                  $ 580                          $560

Maintenance                         $ 784                          $677

Per Hour                                $2,740                        $2,758

There is more:

Aircraft A flies faster than Aircraft by 8%. Remembering the aircraft fly from origin to destination, the faster aircraft uses fewer hours to fly the same trips. If Aircraft A flies 400 annual hours, this requires Aircraft B to fly 432 hours. The annual variable cost is

Variable cost.                        Aircraft A.                  Aircraft B. 

Per Year                                $1,096,000                $1,191,456

Aircraft A costs almost 10% less in variable cost per year than Aircraft B. If both have about $650,000 per year in fixed costs, the annual operating budget favors Aircraft A slightly. While not enough to make up the $3 million price difference, it does account for about $1 million over 10 years. There is still more.

Aircraft A is a popular model and is currently selling better than Aircraft B. Current market values are being maintained better than for Aircraft B. After 10 years the estimated residual (resale)  value in dollars and percent is higher for Aircraft A. Now our 10-year life Cycle Cost is:

10 YEAR COST.                               Aircraft A                               Aircraft B

Acquisition                                        $20,000,000                         $17,000,000

Variable costs                                   $ 10,960,000                         $11,914,560

Fixed Costs                                       $ 6,500,000                           $ 6,500,000

Resale value                                     ($10,000,000)                       ($ 7,500,000)

10-Year TOTAL                                $27,460,000                          $27,914,560

Aircraft A costs about the same to own and operate as Aircraft B. Making the purchase decision just on acquisition price doesn’t tell the entire story. In the above example, we need to evaluate of parameters in addition to just costs to determine which aircraft is the best value. 

There could be other considerations like product support. Not only the perceived quality but where are the service centers located? If Aircraft A has a service center on your home field while Aircraft B’s nearest service center is 300 miles away, Aircraft A will be easier to maintain and, if AOG at home, might be repairable in less time.

Consider the equipment? What if Aircraft B has a more advanced SVS than Aircraft A? But what if you prefer the usability and displays in the avionics system on Aircraft A?

Never let a spreadsheet make a decision for you.  Never just look at a single cost item when evaluating aircraft costs. Aircraft are not commodities sharing essential the same characteristics. That is why I stress to my clients to look for a best value when making the aircraft decision. Costs are a very important part, but even the total costs do not tell the total story. 

If you are currently in the market for an aircraft please review and their Aircraft Exchange.

(This is a 2nd edition of this article and may be found on other websites)



Pre-Owned Aircraft Market Stabilizes after Ten–Year Decline

A recovery is in progress in the pre-owned business jet market following what seemed to be an interminable downturn since 2008. Even though the U.S. market strengthened in recent years, weakness in other world-areas kept global inventories excessively high, providing downward pressure on aircraft values in all markets.

Now, as those international markets are returning to relative stability, surging demand in the U.S. is driving a new market dynamic.

Inventory of pre-owned airplanes for sale has declined on a quarter-over-quarter basis for the last two years, with much of what is remaining picked clean of the most desirable aircraft. Just a year ago, a buyer could enter the market for almost any model and be able to find an aircraft meeting its acquisition parameters. And because it was a buyer’s market, it could typically negotiate favorable pricing as well.

Well, that picture has changed considerably, especially for buyers targeting current or recent-production model aircraft with Next-Gen avionics updates, desirable cabin configurations, and reasonably strong paint and interior. Those buyers are finding themselves in competition, even bidding wars, to have a shot at that qualified aircraft. Buyers that are slow to make an offer on a strong candidate are often left behind, finding themselves starting their search anew, and hopefully wiser from the experience.

Falcon 7X

Following are examples from current and recent production models in mid-sized to large-cabin markets where inventory has taken a dramatic drop in the last 12 months:


July 1, 2017

July 1, 2018

% Reduction

Falcon 7X




Falcon 2000EX Series








Challenger 605/650




Challenger 300/350




Citation Sovereign/+




Even some older models have seen inventories drop over the last year, as buyers have recognized value opportunities in this category.


July 1, 2017

July 1, 2018

% Reduction

Falcon 900B












Challenger 604





Where does the market go from here?
The aircraft market is, of course, driven by the global economy. And there’s also compelling data that suggests our market’s health is tied directly to price of oil, as countries whose economies are tied to oil, and companies whose profits rise and fall with the price of oil, are significant users of business aircraft. While it is beyond the scope of this article to predict the global economy and the price of oil in the long-term, the forecast for the pre-owned market for remainder of 2018 and into 2019 looks good.
- Confidence, a key psychological factor for business jet buyers, is strong that the economic outlook is positive.
- The U.S. tax environment is more favorable for the acquisition of aircraft.
- The number of very-high-net-worth individuals is growing globally.
- Demand for pre-owned aircraft, especially among U.S, buyers, has displayed sustained strength the last two years.
- Utilization of business aircraft, both in North America and Europe, are returning to pre-recession levels.
- Depreciation rates for many models are inching back to historic norms (3-5% annual depreciation), after several years of double digit value slides.

All of this points to a continuation of the current market environment, characterized by more buyers entering the market, and sellers of quality aircraft finding themselves in a stronger position than they have been in a decade. Prices will continue to stabilize, and even experience a slight uptick in some cases.

It should be noted that not all models will see this scenario. Those that are 25-30 years and older are still faced with bloated inventories. Many owners are trying to get out from underneath their aircraft before regulatory mandates take affect that require expensive avionics upgrades. In addition, as these older aircraft become more expensive to maintain and operate, demand for them diminishes. Sellers of aging aircraft will still experience long market times and value softness.

Challenger 605

Despite the challenges owners of older aircraft are facing, current market trends are positive for the entire industry. Sellers are entering the market with new-found confidence. Buyers are more optimistic that the value of the aircraft they acquire is not going to drop precipitously as soon as they close. OEM’s are getting calls from buyers who just a year ago would have been looking solely in the newer pre-owned market. Charter operators, service centers, and training providers are all enjoying healthy (and in some cases excessive!) demand. A sense of stability is taking hold which has been missing in our market for a decade. And though there always seems to be a storm cloud or two forming on the horizon, aircraft owners are seeing asset value retention finally returning to historic norms.

By Jim Donath

Jim Donath is President of Donath Aircraft Services, a Chicago-based aircraft brokerage firm focused on the mid-sized and large cabin markets for over 40 years.



Last Quarter 2011 Market Condition Report


Globalair Article – November 2011 By Jeremy R.C. Cox

In March 2009 I wrote an article for that was Titled: ”The Not So Great Depression”,
you can re-read this by clicking on this link:

I wrote that piece whilst we were all living under the developing fall-out that was created as a
direct result of the Global Financial Crisis (GFC) that was first felt in the late summer of the previous
year, and was later proved to have started a full year before then (2007.)

The purpose of this article is to attempt to track just how far the Used Business Aircraft Market has
managed to pull itself away from the stinging clutches of GFC. I will use a statistical analysis process
that is fuelled by the numbers available to me through my subscription to AMSTAT. I will let you draw
your own conclusion as to where we currently stand overall, however it would be remiss of me if I didn’t
state that I believe that the Used Business Aircraft Market is on-track to achieve a soon to be issued
clean bill of health.



November 2005 – Baseline

10,207 Turbo-Props, 1,127 or 11.04% were available for Sale

5,757 Light Jets, 833 or 14.47% were available for Sale

4,967 Medium Jets, 544 or 10.95% were available for Sale

3,180 Large Jets, 279 or 8.77% were available for Sale


November 2007 – Pre GFC Effect

11,121 Turbo-Props, 928 or 8.34% were available for Sale

6,417 Light Jets, 812 or 12.65% were available for Sale

5,757 Medium Jets, 584 or 10.14% were available for Sale

3,728 Large Jets, 267 or 7.16% were available for Sale


November 2009 – Within The Depths of GFC

12,049 Turbo-Props, 1,503 or 12.47% were available for Sale

7,285 Light Jets, 1,313 or 18.02% were available for Sale

6,568 Medium Jets, 1,098 or 16.72% were available for Sale

4,233 Large Jets, 597 or 14.10% were available for Sale


November 2011 – Emerging From GFC

12,616 Turbo-Props, 1,350 or 10.70% were available for Sale

7,615 Light Jets, 1,198 or 15.73% were available for Sale

6,826 Medium Jets, 924 or 13.54% were available for Sale

4,612 Large Jets, 554 or 12.01% were available for Sale



As you can see from the numbers and the associated Graph, the Percentage-for-sale ‘Peak’ came
in 2009 (Light Jets peaked at 18% Mid 2009, while the rest all peaked in late 2009.)
We are about halfway back
to normal therefore 2012/2013 are looking like they might be ‘rock-solid.’




How long does it take to sell an Aircraft? Statistically for the same Groups, one can track the Number of
On Market, i.e. the Average calendar time period in days from Initial Listing For Sale until Deal Closing.
The numbers are as follows:

November 2005 – Baseline

Average Days On Market for all Turbo-Props was 505

Average Days On Market for all Light Jets was 498

Average Days On Market for all Medium Jets was 436

Average Days On Market for all Large Jets was 447


November 2007 – Pre GFC Effect

Average Days On Market for all Turbo-Props was 492

Average Days On Market for all Light Jets was 517

Average Days On Market for all Medium Jets was 382

Average Days On Market for all Large Jets was 409


November 2009 – Within The Depths of GFC

Average Days On Market for all Turbo-Props was 420

Average Days On Market for all Light Jets was 471

Average Days On Market for all Medium Jets was 357

Average Days On Market for all Large Jets was 376


November 2011 – Emerging From GFC

Average Days On Market for all Turbo-Props was 553

Average Days On Market for all Light Jets was 588

Average Days On Market for all Medium Jets was 471

Average Days On Market for all Large Jets was 459




What is really interesting about this graph is the fact that when an Aircraft MUST be sold ASAP, it is
‘Right-Priced’ and sold in less time than normal. The Lowest number of Days occurred immediately after
GFC showed it despicable face to us all.

Now for the Same Aircraft Groups we shall focus on the Average Year of Manufacture for each Group:



November 2005 – Baseline

Average For-Sale Year of Manufacture for all Turbo-Props was 1982

Average For-Sale Year of Manufacture for all Light Jets was 1983

Average For-Sale Year of Manufacture for all Medium Jets was 1985

Average For-Sale Year of Manufacture for all Large Jets was 1982


November 2007 – Pre GFC Effect

Average For-Sale Year of Manufacture for all Turbo-Props was 1984

Average For-Sale Year of Manufacture for all Light Jets was 1985

Average For-Sale Year of Manufacture for all Medium Jets was 1988

Average For-Sale Year of Manufacture for all Large Jets was 1985


November 2009 – Within The Depths of GFC

Average For-Sale Year of Manufacture for all Turbo-Props was 1987

Average For-Sale Year of Manufacture for all Light Jets was 1989

Average For-Sale Year of Manufacture for all Medium Jets was 1992

Average For-Sale Year of Manufacture for all Large Jets was 1992


November 2011 – Emerging From GFC

Average For-Sale Year of Manufacture for all Turbo-Props is 1988

Average For-Sale Year of Manufacture for all Light Jets is 1990

Average For-Sale Year of Manufacture for all Medium Jets is 1992






The following figures are quite enlightening as to the issue of Age and Obsolescence:


Year of Manufacture








MU2 Solitare

Merlin IIIB

Learjet 25B

Sabreliner 75A

Challenger 600

Gulfstream II








Year of Analysis

MU2 Solitare

Merlin IIIB

Learjet 25B

Sabreliner 75A

Challenger 600

Gulfstream II



 $ 828,800.




 $ 2,912,692.












































Year of Manufacture








Socata TBM700B

King Air 350

Cessna CJ1

Hawker 800XP

Challenger 604

Gulfstream V








Year of Analysis

Socata TBM700B

King Air 350

Cessna CJ1

Hawker 800XP

Challenger 604

Gulfstream V



















































With all that said I believe you can see that the market is progressing and should you be condsidering
the next step please review - Aircraft Exchange.  Very current with aircraft, tools to use
such as A.Buyer and comparison tool.  If you are thinking it you might want to use

See you next Month!

(When) Will Business Jet Values Recover?

The 2010 NBAA Annual Meeting finished up less than two weeks ago. For the most part it was a success. At our booth on the convention floor, we saw a lot of good, quality traffic. People were generally upbeat. From talking with folks all year long, and especially at NBAA, here are a few comments on where aircraft values may be headed.

Big Iron. Global business jets are recovering, if they are newer. At the top, the GV/G550/ Global Express families currently show about 4% of the active fleet as “for sale” according to AMSTAT. Vref shows that values flattened out over the summer and have started to drop a bit in recent months, but with a low number for sale, I’d say the market for this category has hit recovery mode.

Long range business jets, they are not doing quite as well as their big brothers and sisters. The Falcon 900EX shows 7% of the active fleet for sale and for the G450, it has 4% of the active fleet for sale. The Challenger 604 shows 11% for sale while the newer Challenger 605 shows 4% of the fleet for sale. So while numbers for sale are getting tight, values in this big cabin/long range market have not recovered (yet). As you look at older models in this category, the numbers (as a percent of the active fleet) increase, and values tend to show less of a recovery. In general, older big cabin and long range business jet values have not showed signs of a recovery.

Super mid-size values remain soft, but again the numbers for sale show a tightening up in the market. For the Challenger 300, 8% of the active fleet is currently listed for sale.  Challenger 300/ G200 values are flat as are Citation X and Falcon 50EX values.

Midsize jet values like the Hawker 800XP family, Lear 60, Citation 650s are flat. Percentages of their active fleet for sale are in the 12 – 22% range. Again, I am not seeing any recovery here yet.

[more]Small jets: percentages of the fleet for sale vary by model. In general, newer models have a smaller percentage of the active fleet for sale. Overall, this market is still soft and values have not shown much of a broad recovery. Values are bouncing around at the bottom. Again, popular, newer models are doing better than older models.

For business jet values, the newer, bigger aircraft are leading the way with a soft recovery. Anecdotally, I’d say this is likely to continue. With a relative tightening up in the number for sale, values will strengthen for these jets in the coming year.

As you move down in size, things are not as healthy for residual values. While a general recovery is under way, it will take longer for values to recover, but only for the newer models.

For business jets older than 10-15 years of age, I just don’t see a lot of evidence of a recovery in terms of sales and residual values. I do not have confidence that the situation will see much improvement for these older jets. I think that what you see in residual values for the older business jets is the new normal. Why?

·     Banks are not into lending for older business jets. They do not want the residual value risk for a 20 year old aircraft, nor do they wish to sell it if it comes back to them after lease end or a default. Yes, you can get financing, but with impeccable credit and a significant down payment. 

·     The market recovery seems to be led by sales outside the US. In recent years, more and more new business jets were being sold outside of the US. These markets are no longer “dumping grounds” for the aging business jet. The can afford and want the newer models.

·     The last several business boom cycles saw a large increase in aircraft production rates. Thus, the used aircraft buyer tends to have a large number of relatively new aircraft to choose from.

By most economic prognostications, it will take 12-24 months for the recovery. Some global regions are well into a recovery while others lag behind. The supply of used aircraft will take time to draw down. Meanwhile new deliveries will continue to occur. I don’t see enough growth forecast to generate the market demand to clear out the older business jets’ inventories. Theese older jets will continue to age. I do not think their values will recover with many of the oldest business jets only maintaining their salvage value.

I've seen Richard Aboulafia of the Teal Group present his firm's aviation sales forecast on several occasions. As he said one time, "If you don't like my forecast, feel free to make one up on your own." So don't worry so much about the future, but just take care of today. If you need a jet, go get one. If you need to sell your current jet, go get a good broker to represent you.  

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