Aircraft For Sale Aviation Articles

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.

What's an Airplane Cost? Common Aircraft Price Tags

Curious how much airplane you can get for your money? If you’re just starting your search for an airplane, you might be surprised to learn that aircraft prices vary widely, depending on the year, modifications done to the airplane and the relevancy of the avionics, among other things.. A Cessna 172, for example, might cost $40,000 or $400,000 dollars.

From light aircraft to business jets, the costs vary from large to small. Here are some examples of what you’ll pay for a few of the most commonly purchased airplanes:

The Cessna 172


1982 Cessna 172P: $39,000

1981 Cessna 172P: $72,000

2007 Cessna 172SP: Approximately $150,000-$250,000

2015 Cessna 172SP: Approximately $364,000

 

The Mooney M20

 

1977 Mooney M20J: $65,000

2009 Mooney M20TN Acclaim: $425,000

 

The Beechcraft Baron 58
1977 Baron 58P: $175,000

2005 Baron 58: $649,000

 

The Piper Meridian
2007 PA46-500TP: $1.2 million

2015 PA46-500TP: $2.3 million

 

The King Air
1981 King Air B200: $825,000

2004 King Air B200: $2.3 million

 

The Citation Sovereign
2007 Cessna Citation Sovereign 680: $6.9 million

2008 Citation Sovereign 680: $8.0 million

 

The Gulfstream G550
2006 Gulfstream G550: $25.0 million

2014 Gulfstream G550: $49.9 million

The New Normal For Used Business Jet Values?

Since there is lots of new aircraft news coming out of Oshkosh, I though I'd tackle used aircraft.

As part of our aircraft cost database updates, we do keep a close watch on market values of used aircraft. We use residual value data from The Aircraft Bluebook Price Digest, Vref Aircraft Value Reference, and HeliValue$.  Many times those publications agree, but there is enough differences that we are not relying on a sole source for the numbers. I think the residual values have made a significant change since 2008. Of course 2008 to 2010 saw a significant recession and along with it, aircraft values plummeted. But since then we have entered a global recovery.  We are seeing a different market for used aircraft prices than pre-2008, especially among business jets.

The new normal is quite an adjustment. While aircraft still hold their values better than most other capital assets, the previous norm of appreciating values in a good economy followed by a correction in a down economy does not appear to be the norm any more. While the US is still the single largest market for turbine business aircraft sales, the percentage of global sales within the US has been close to or below 50% even pre-recession. New aircraft are showing up in numbers all over the world, and the market for used aircraft is also seeing a bigger global market. Buyers are smarter than ever, and no longer is a buyer going to by the aircraft just because it is US N-registered. They are looking for and getting great prices. Here is what we are finding is the new normal:

  • 2008 to 2010 saw an unprecedented drop in used aircraft values.
  • From 2010 to today, we have seen values continue to decline, but at a much lesser rate.
  • We are in an economic recovery, but aircraft values remain low.
  • Today, more than ever, requires buyers to know the individual model’s residual value history. 

Aircraft values are behaving more and more like stocks. While the stock market may be up, not all stocks are performing so good. What we are seeing is that different aircraft, again, especially among business jets, with vastly different market depreciation rates. Almost all are seeing declines, but there are differences between models. So while our cost database residual value curve represents an average, that average is based on a group of aircraft types. Within that group are significant variations. So we caution you to use our residual value data as a benchmark, but do additional due diligence when evaluating specific models. Much like the stock market, individual aircraft (stocks) will behave differently than the market as a whole.

Many thanks to Vref Aircraft Value Reference for the following charts.

This chart is one that Vref calls their Late Model/Mid-Size Jet Index. It is comprised of 2008 models of the Challenger 300, Challenger 605, Citation XLS+, Citation Sovereign and Gulfstream G150. These are all popular aircraft with good sales histories. From 2008Q1 to 2014Q1, that index dropped 50.5%. Look at the curve and while 2008-2010 saw the biggest drop, that past two years (in a recovery) are not seeing values of this group correcting back or leveling off significantly. 

Looking at Vref's market indices for the business jets shows this group fared pretty well by comparison:

  • Light Jets dropped 83% over six years.
  • Midsize jets dropped 73.5% over six years.
  • Large Jets dropped 74% over six years.
  • The Late Model Midsize Jets dropped 50.5% over six years.

Looking at one model, the Challenger 300, shows much more of a bifurcated curve.

The 2008 Challenger 300 dropped 50% since late 2007, slightly better than its index. But its value curve has a hockey stick shape. The 2008 CL300 dropped over 36% in the first two years of the recession. It has plateaued off since then and several brokers have mentioned this aircraft as a good value with a good future ahead of it. This aircraft has done quite well. 

Not to embarrass any models, but I've seen 75% to 85% drops in other 2008 business jets from 2008 to today. There are many excellent used aircraft selling for great prices. But among individual models there are significant variances. Two take-aways here:

  1. Don't plan on your used aircraft appreciating. A model here or there may be the rare exception, but don't plan on it.
  2. Looking at the general market is not the same as the market for your specific make/model/model-year. 

You need to know the macroeconomics of course, but also need the guidance of someone who knows the microeconomic climate for your aircraft. Despite all the great information available on the Internet and in the aviation news, you still need good advice from knowledgable professionals. 


 

 

Selling Your Aircraft? Get More Inquiries

FSBO

The other day, a gentleman selling Cessna 172 called our office. It seems that the first time he placed the aircraft on our site, he got several inquiries from potential buyers. A couple of them even made offers. However, he held out for better offers since it was getting a lot of action. Maybe that was the right decision, maybe not. Regardless, after a couple of months the inquiries started to slow, and ultimately stop.

He wanted some advice on getting the response he was receiving initially. I figured that if he wanted these tips, several sellers out there could use this advice. I sat down and compared 25 aircraft that have received the most inquiries – not just views – to see what they have in common with each other. Here are a few of the things I found.


Photos, Photos, Photos!

Take a look at this Cessna 182. As you can see, there isn’t a lot of detail included – but there ten photos of the outside, the interior and the panel in the Image Gallery. "A picture is worth a thousand words" is an old adage for a reason – short of seeing the aircraft in person, nothing comes as close to putting potential buyers in cockpit like a series of clean, clear and bright photos. More photos also tells buyers that you have nothing to hide from them!


Summarize Thoroughly

Imagine you only have ten seconds to tell someone everything about your aircraft. Can you do it? You had better figure it out, because that is about the maximum length of time a person will look at text when they’re skimming. We live in the Age of Instant Access, so make sure you can attract buyers instantly.

Here’s a good example of a summary that’s making an impact – this 1978 Sundowner. They touch only on specific value-added items, plus appeal to the ease of taking this aircraft to the skies. Everything about this aircraft screams "turnkey and ready" – no wonder it has received over ten inquiries in three months!


Highlights

Speaking more towards the fast-paced society that we experience, sometimes you only have a few words to get out before that potential buyer moves on. The shiniest object in the room gets noticed first. This is where the Highlight tag (also known as Teaser Text) comes in handy.

Highlight Tags

When you drill down to a specific aircraft type, next to the photo on GlobalAir are a few words highlighted in red. Imagine this time that you only have two seconds to define the aircraft you have for sale. This should be a statement of value, such as "Only 130 hours SMOH" or "Price Reduced". Also effective are things that make your aircraft a rare find, such as "Totally Rebuilt" or "Millennium Edition". Even something as simple as "One Owner" or "Always Hangered" speaks to someone. The biggest crime here is leaving it blank, as you’ll be surrounded by aircraft that "speak louder" than yours.


Vote Early, Vote Often

While everything I’ve listed so far speaks to creating the most effective ad for your money, this tip speaks more to your continued involvement. The worst mistake you can do is believe your aircraft will "sell itself". It doesn’t matter if you have the most pristine, low-time and/or cheapest aircraft on the market – if you’re not actively pushing it, it will take longer to sell.

So how can you be more active in getting your plane in front of the passive buyers (the ones that wait for the right deal to present itself instead of going out to find it themselves)?

One of the easiest is with your social media pages. At the top of every page on GlobalAir.com you will see quick links to Facebook, Twitter and Google+ - log into your social media account, click on the link, and post your ad to your personal page, and encourage your friends to share it. You already do this when playing games or sharing funny cat photos – may as well use your friend network to spread the word!

Feeling aggressive? Another option is a broadcast GlobalAir sends twice a month called Plane Mail. Imagine your aircraft e-mailed to over 50,000 aviation professionals and enthusiasts at once! Even if they aren’t buying currently, they probably know someone that is. And it’s an astonishingly inexpensive approach!


So what is the ultimate takeaway from this list? It boils down to 1. Set your ad up right, and 2. Stay involved in promoting it. If you think that’s too much to do, be prepared to have that aircraft for a while the go-getters snag all your potential buyers.