Aircraft For Sale - Page 4 Aviation Articles

So You Want To Insure Your Plane...

Imagine yourself here: you’ve finally saved enough to buy that beauty of a Cessna 172. You have got your pre-buy done, the loan paperwork finished and the delivery to your home airport all arranged.  You suddenly remember that you need insurance, but realize you have no clue if aircraft insurance works the same as car insurance.  Today’s post is designed to give readers an idea of how aviation insurance works – you’ll see that aviation insurance is similar to your car, but also very different. Before I give you the low-down on aircraft insurance works, it’s important to get a little history.

A Brief History 

After World War I, we begin to see the emergence of the civil aviation industry which goes hand in hand with the aviation insurance industry.  Post-war brought a surplus of war aircraft which were then either dumped into the market for pennies on the dollar.  An aircraft which had previously cost the government, such as $17,000 for a Curtiss Jenny, was being sold in the open market for as little as $50 – I don’t know about you but I’d buy an airplane right now if a Cessna was that cheap!

Former military pilots all over the country were buying these cheap planes up using them for a variety of civil aviation activities such as barnstorming (trick flying), crop dusting, mail delivery, passenger transport, and more.  As one can imagine, these new civil aviation activities added a whole new risk for insurance companies and often resulted in crashes for a variety of reasons.  Companies were ill-equipped to handle this new risk and many saw a significant loss as a result.

However, one company rose to the occasion, despite an almost certain loss, and Travelers Insurance Company became the first to announce a comprehensive program specifically for air risks in 1919.  Travelers wrote lines of insurance primarily for maintenance, operation, and the use of an aircraft for private and commercial operations.  Several lines were included in the program including: life insurance, accident insurance for owners and pilots, trip accident ticket insurance, Workers’ Compensation insurance, and public liability and property damage insurance.  While Travelers was the first to offer these lines of insurance, it’s important to note that they did not include lines for damage to the actual aircraft (this is referred to as hull coverage). 

Over the next few years, which Travelers anticipated to be a period of profit, the company ceased to exist in 1931 after being in business for 12 years.  Several other companies sprung up during those first years after Travelers made their foray into aviation insurance.  As the aviation insurance industry stabilized, companies that exist still today started to appear such as United Sates Aircraft Insurance Group (USAIG), the Associated Aviation underwriters (AAU), and the Aero Insurance Underwriters (AIU).  With several new companies in the U.S. market and an abundance of accidents during the early years, companies began to look for ways to spread the risk so that losses were not so significant. 

Group Approach, the Law of Large Numbers, & Reinsurance

As many new companies were entering the aviation insurance industry, it was discovered there was a more economical way to do business in addition to spreading the risk.  Individual companies were taking huge losses when a claim was filed because of the damage to aircraft and property as well as the deaths of those involved.

The “Group Approach” was created with the intent not only to spread the risk between many companies but also to spread the profit between those same companies.  The founders of the group approach did considerable research in Europe (a country with a more developed aviation insurance industry) and found that indemnification (making a party whole after a loss) could be handled safely only by employing the group approach.  This new method of the group approach also brought about the synonymous concept of the “Law of Large Numbers” – the risk and profit are spread over a large number of companies which allows for a much more stable aviation insurance industry.

Another approach used to stabilize the insurance industry was the approach of “reinsurance”.  In the early days of insurance, a devastating fire threatened to bankrupt several of the local insurers and it was quickly discovered that insurance companies themselves needed to be insured against such catastrophic losses.  What began as a way to protect insurance companies became the essential element of aviation market supporting major airlines, airports, and even space risks.  Aviation insurance can be similar to auto insurance (premiums, liability, etc.), however there are some key differences that are important to know about. 

Direct Writers, Brokers, Underwriters & Policy Term Length

Recently I bought a new car.  To add it to my insurance, all I did was call up my insurance agent at State Farm® and give the Vehicle Identification Number (VIN), make, model, year, and the accident history.  I opted for full coverage since it was a much newer car than I had owned previously and in a matter of minutes I had a binder (temporary insurance policy) ready for me at the office to pick up so that I could use my new car.

State Farm® is a great example of what is known as a Direct Writer.  A direct writer gives a you an aircraft policy option through their company, just like an auto insurance agent.  There is actually only one company that currently issues policies this way –  the Avemco Insurance Company.   This company is actually very popular with private owners of aircraft in general aviation, airports and Fixed-Base Operators (FBOs).  It can be argued that Avemco gives the best deal as they directly write their own polices, which brings me to the concept of insurance brokers.

Insurance brokers (as well as agents) are the middle men between insurance companies and people looking for insurance.  Brokers work for a commission (percentage) of the premium and work with certain companies to find the best policy for their client much like aircraft brokers look for the best buyer for their clients’ aircraft.  When they gather a list of different policies, they take them back to their client for comparison and selection.  Agents are a representative of an insurer and have delegated authority to act on behalf of their company.  Insurance agents, however, are often certified as both an agent and a broker.

An important item for novice plane owners to know is that the policy term is much different than that of auto insurance.  For instance, if you have auto insurance, you are probably set up for auto-renewal.  You pay your bill every month, every 6 months, etc., and your coverage continues along.  However, when it comes to aircraft insurance, a policy must be reviewed every year – this means that Avemco, your agent, or broker will be giving you a call to re-write your policy contract.  While this may be slightly annoying to you, it is actually in your best interest as it allows the company to revisit you and the aircraft and see what has changed in the last year.  The assumption is that risk has changed at some point whether that relate to you as the pilot or the aircraft itself.

Closing Thoughts

Prior to a few months ago, I actually could not have told you the differences between auto and aviation insurance.  Since then I have been taking a class about aviation insurance and learning that it is a lot more complex that I originally thought.  I’m not sure when I’ll be able to insure an aircraft at this point, but just learning about it will only help me to become a more informed consumer.  Hopefully that is the case for my readers as well!

Works Cited

Brandon Wild, Assistant Professor, University of North Dakota, Aviation Insurance, Lecture, Fall 2016.

Wells, A., & Chadbourne, B. (2007). Introduction to aviation insurance and risk management. Malabar, Fla: Krieger.

Images courtesy of Google Images.

Textron To Develop New Single-Engine Turboprop

By Mary Grady
AvWeb
Textron Aviation

Textron Aviation has "been listening to the market" and sees an opportunity to introduce a new single-engine turboprop, the company confirmed in an email to AVweb on Monday. "This is an entirely new, clean-sheet design aircraft -- not a derivative or variant of any existing product," the company said. The company is not yet releasing details about the project, but said their intent is to "outperform the competition" in parameters including cabin size, acquisition cost, and performance capability. "By leveraging the newest technologies, we expect this aircraft to have a range of more than 1,500 nautical miles and speeds in excess of 280 knots, while offering best-in-class operating costs," according to the company's statement. The design will be on display next year at EAA AirVenture.

In its recent second-quarter shipments report, the General Aviation Manufacturers Association said 191 single-engine turboprops had been delivered in the first six months of 2015, compared to 217 delivered in the same period last year. Textron already produces several turboprop aircraft, including the single-engine Cessna Caravan line and the Beechcraft King Air twins.

The Ultimate Barn Find? Bid On a P-51 Mustang for $150,000!

In a dusty hangar in southern California, at an unassuming airfield, there sits a forgotten treasure: A P-51D Mustang, a legendary World War II warplane that could become the find of a lifetime for one lucky buyer. One of the few remaining 425-knot piston-powered airplanes - the fastest piston-powered airplane of its era and perhaps of all time - lies in a hangar at Torrance Airport in southern California, waiting to be auctioned to its new owner.

As the inheritor of the fabled Merlin engine, the most admired sound ever produced by twelve cylinders marching two-by-two in the classic V-12 configuration, the P-51 Mustang was the best fighter aircraft of its time, shooting down 4,950 enemy aircraft by the end of the war in 1945.

According to photographer and historian Dick Phillips of Warbird Images, who researches the history of P-51 Mustangs, this airplane, serial number 44-84896, was manufactured for the war effort in 1944 and ended its military career in 1956 as part of the 169th Fighter Squadron in the Illinois National Guard. According to Phillips, the airplane was stored in California until it was sold on the civilian market for $867 dollars to P.J. Murray of Oxnard, California and was registered with the tail number N5416V.

According to Phillip's records, N5416V would be sold 10 additional times in the next five years before being sold to James Keichline for $8,950 dollars. Keichline owned the aircraft for ten years before selling it to its most recent owner, Ken Scholz in Playa Del Rey, California in 1973. Scholz originally kept the aircraft tied down on the ramp at Torrance Airport, but vandalism caused him to move it to a hangar in 1978. Scholz, a retired aircraft mechanic, apparently never flew the plane, but intended to restore it during his retirement. It seems he would never get the chance.

Starting June 2nd, this old 1958 P-51 Mustang will be auctioned by Scholz's estate, and the starting bid is only $150,000. It's a little rough around the edges and needs an extensive restoration, but it's complete - or at least advertised as "appearing complete," which we know is hardly a guarantee. The Packard Rolls Model V-1650 engine is being auctioned separately, starting at $8,000. And there are no logbooks or any other documentation for the aircraft. Add to this that the aircraft is being auctioned "as is," and, according to the listing, there is a host of problems that will require extensive efforts on behalf of the owner, including crazing and discoloration on the canopy, oxidized paint, corrosion, and a total overhaul of all instruments and gauges.

We know that the aircraft will need to be almost completely rebuilt, but what about the logbooks? How much do the missing logbooks decrease the value of an aircraft? We know that with a typical aircraft purchase, the logbooks are vital for determining airworthiness, and can reduce the value of an aircraft significantly, sometimes by up to a third, but for an aircraft restoration project this may not be accurate. Without logbooks, an active airplane may not be airworthy until an A&P mechanic or IA recreates each AD or service bulletin and attests to its performance and compliance, an expensive prospect that may end up repeating service that was previously performed but not evidenced without proper documentation. But a project as extensive as this P-51 Mustang is likely to be documented over the course of its restoration, providing proper documentation in the form of logbooks by the end of the project.

Rumors are swirling that the bid price will come in around $400,000-800,000 (minus the engine) but the cost of this restoration project will far exceed that dollar amount. According to a few of our Facebook followers, a restoration like this will likely cost at least $1.5 million. The airworthy P-51 aircraft on the market right now seem to be going at a market rate of $2.0-$4.5 million. This 1945 Mustang is listed for $2.14 million.

How much would you guess this P-51D Mustang will bring at auction? How much do you think it will cost to restore it? How much would you pay for the privilege of owning it?

Scary Thoughts

 

It is May, not September or October, but I'm starting to have scary thoughts about where the global economy and business aviation in particular are headed. There is mixed negative news out there. Here are some things that have me wondering what is to come.

The US Standard & Poor's listing is close to all all-time high for its P/E Ratio. A stock's P/E ratio is equal to the stock's market capitalization (or simply, value of its shares)  divided by its after-tax earnings over a 12-month period (think about profitability). Companies with high P/E Ratios are generally considers as more risky investments as investors are will to pay more for the company's profitability. Right now, the Standard & Poor's index P/E ratio is very high relative to the average. This could indicate an overheated market and foretell a coming downtown in stock prices. If high net worth individuals fear a downturn, they are not as likely to be buying aircraft. Similarly companies fearing a downturn will also spend less, thus be less likely to purchase business aircraft.

There are business aviation reports that support this. Jim Donath of Donath Aircraft Sales puts out a very well researched quarterly report on the pre-owned business jet market. From the first quarter of 2015, news isn't good. Flying activity is higher than in 2014 in the US, but down in the EU. Pre-owned business jet inventories are up for the second consecutive quarter. Donath reports 465 aircraft listed in inventory, the highest since the last recession. Transactions are not keeping pace relative to the growth in inventory. Many of these are older business jets and thus, values and selling prices are low, and the time it takes to sell them is increasing. 

Asset Insight's quarterly market report supports Donath. They state: 

Quality assets are readily available, but increasing maintenance costs are accelerating financial obsolescence for many aircraft.  With nearly 47% of the models we track averaging an ETP Ratio in excess of forty percent, as much as half the “for sale” fleet may be resting with the aircraft’s final owner.  

As mentioned earlier, flight activity in the EU is down 2.7% from 2014 with very light jet activity down 11% in April. Emerging markets for business jet sales, like China, although still growing, are not showing the strenth as in the past.

All of this is at a US or global level and may have a lot or little impact on your business aircraft operations. Still, be cautious and look for warning signs within your own organization.  What is the business climate for your industry?  What is your flying schedule looking like for the rest of the year. Are you flying more trips or more hours than you forecast? Ask your customers what they are anticipating for their air travel needs in the next 12 to 18 months. This can impact your expected maintenance budget for the year.

How are your actual costs compared with your budgeted costs? I bet your fuel expenses are down, but what about overall? I know your flight operation is operating pretty lean, but are there more cost savings to be had without sacrificing safety or service? 

If you are looking at selling your aircraft soon, look at the comparable models for sale. How does your aircraft fit in? Do you have a prime example or just an average aircraft? Are your turbine engines on a guaranteed hourly maintenance plan? If you want your aircraft to sell, you may wish to accelerate upcoming major maintenance to offer the buyer 12 to 24 months without having to do any heavy maintenance. Same thought with avionics upgrades - plan on them before offering your aircraft for sale in order to better define your aircraft as the one to buy.

For us as a company, we are having a good year so far. But we are watching our expenses and being watchful with our cash flow. My question y=to you is this:

Will 2015 end up as a better or worse year for your flying activity than 2014 was? 

 

 

 

 

Buying or Selling an Aircraft?

Written by: Joe Carfagna Jr.
Leading Edge Aviation Solutions, LLC.
This article first appeared in Business Jet Advisor!

FIRST BUY AN EXPERT

It can be tempting for someone to consider handling an aircraft purchase or sale on their own. No one wants to spend money if he or she feels they have the resources to achieve the desired goal themselves. Perhaps they have a skilled aviation manager, or chief of maintenance, an excellent corporate lawyer or a business associate who has been down this road before. Consider, however, these people, no matter how skilled they are at what they do, have only gone through the aircraft purchase or sale process, once, twice, perhaps a few times in their lives. The aviation broker does it for a living, over and over again, under many different scenarios. Hiring a good broker is an insurance policy against making mistakes. In fact, it could be argued that an aircraft broker’s #1 job is to prevent the client from making mistakes.

Today an aircraft broker is not just someone who puts a buyer and a seller together. Following is a list of some of the things, and by all means, not the only things a good aviation broker should be able to do for you:

Even though considerable information is available on the internet, interpreting the information is critical. A reputable broker is following the market every day, knows and understands the market and can interpret trends.

On the sell side a reputable broker will professionally photograph the aircraft, create a color brochure, utilize other marketing materials perhaps video, will utilize e-mail communication, print advertising and perhaps Facebook and Twitter.

If purchasing an aircraft, an analysis of the client’s aircraft utilization requirements should be made to determine appropriate aircraft models for their mission, whether to buy new or used, or supplement with fractional ownership or jet cards, for example. This process is useful even when the client believes they know exactly what they want. The analysis can serve to reinforce their decision or offer alternate choices that could be preferable. The ultimate goal is to have an informed client and to prevent costly disappointments. And part of this evaluation process is an exit strategy. Future market value and marketability should be part of the purchase equation. The value of an aircraft includes its life cycle: Purchase, Use, and Sale.

With the above in mind, one of the most important functions a broker performs for either a buyer or a seller is establishing a price for an aircraft. Nothing exceeds good market knowledge for this process. Pricing an aircraft correctly is critical to the sale process. While the goal is to provide a seller with a good price for an aircraft, realistic pricing is required for an aircraft to sell. Conversely, understanding the market in a purchase transaction is even more critical in order to not overpay and get the best value.

A reputable broker will go on site to physically examine an aircraft whether for sale or purchase. An examination of log books will be performed, maintenance status evaluated, service bulletins and airworthiness directives checked, cosmetics evaluated and equipment surveyed and enumerated.

An aircraft broker typically negotiates the purchase or sale for the client together with the client’s attorney. Market knowledge, technical knowledge and transactional experience are the tools for a successful transaction whether buying or selling, and this is especially true for international transactions. There are a host of considerations in an international transaction for which a good experienced broker can be of invaluable help. Regulations are different in other countries and an aircraft must meet FAA regulatory standards with regard to equipment and modifications if it is to be U.S. registered, and if being exported, there are the regulatory concerns of the foreign country. There are lien searches, de-registration and registration issues, and import and export requirements to be addressed.

An experienced broker can greatly assist in the pre-purchase inspection, a process which is adversarial in nature because it involves issues for both the buyer and the seller. It determines the aircraft’s condition and if it is as represented, what needs to be fixed and who is going to pay for the discrepancies found. Some brokers have in-house technical experts who will go on site for this important inspection to mitigate risk for their client. They will make sure the client is being protected from unnecessary expense, that only the scope of agreed upon inspection is being accomplished, and that no bill is presented for anything that has not been previously approved. If you are the buyer, you want all the discrepancies uncovered within the scope of the inspection. If you are the seller, you want to be sure you are not being held responsible and/or billed for something that should be for the buyer within the scope of the agreed upon inspection.

A good broker can help to orchestrate a successful closing by coordinating with the various people and companies that may be involved in the transaction such as attorneys, an escrow agent, a like-kind exchange agent, tax people, an aviation manager, a chief pilot, a maintenance manager and financing banks.

Attempting to perform an acquisition or disposition on your own with the intent of saving the brokerage fee can be foolhardy. When this approach is chosen it typically costs the inexperienced aircraft purchaser or seller wasted time, motion and money. There can be missed opportunities, deals that go nowhere, higher legal fees, problems coping with the other side’s employees or representatives, all of which can result in frustration, disappointment and most importantly money left on the table.

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