Aircraft Sales - Page 8 Aviation Articles

Business Aviation & NextGen, Part II: Upgrade, Sell, or Do Nothing?


Image: Creative Commons/SempreVoldano

For aircraft owners, there are still a lot of issues surrounding the FAA's NextGen program. Determining what you should do to remain compliant without drowning in the high costs associated with the new avionics involved is challenging, to say the least.

Last month, in part one of our NextGen series, I discussed avionics equipment and mandates associated with the NextGen program, including what equipment is already mandated, what will be mandated come 2020 and what could potentially become required in the future. These scheduled and proposed mandates have become an important factor to consider for aircraft owners, especially when it comes to deciding whether to upgrade their aircraft's avionics or upgrade to a new airplane altogether.

Here's a rundown of what some aircraft owners have experienced, including how much cash you may need to shell out to get up to speed:

The Trends:
While some business jet operators have a little bit of time to think it over, others are already finding it necessary to upgrade their airplanes to ADS-B and FANS-1/A for international operations. And others are choosing to upgrade early to get it over with and avoid the consequences of not being ready for the 2020 ADS-B mandate.

"What I'm seeing is people using the cost of NextGen to justify an aircraft replacement sooner rather than waiting," says David Wyndham, President and Co-Owner of aircraft consulting firm Conklin & de Decker. "They are fearful of the cost of the upgrade on their older aircraft, or having an older aircraft with little resale appeal if they don't upgrade."

The resale value of an old airplane is one thing. The cost of new, mandated equipment exceeding the cost of the aircraft itself is another reality that aircraft owners must face.

But not everyone shares the opinion that upgrading now is the best option. Some aircraft owners are willing to wait it out with the preconception that the FAA won't be able to meet its own mandate in 2020, and with the hope that the cost of equipment will decrease as more manufacturers put their solutions on the market and better options start to emerge than exist right now. This plan could backfire, though: According to Duncan Aviation's website, as the deadline approaches, the cost of ADS-B will likely go up and aircraft owners could find themselves on a wait list for installation, and, ultimately, grounded.

The Challenges:
Equipment upgrades for NextGen have become a bit of a headache for aircraft owners, as much of the newer technology isn't compatible with what's currently on board aircraft, especially aircraft older than 10 years.

Jeremy Cox, Vice President of JetBrokers, Inc says there are problems at the manufacturer level when it comes to compatibility. "The main problem with ADS-B compliance…is that both Collins and Honeywell are still working on their FMS modifications to enable the ADS-B functionality."

"Worse, there will not be any weather depiction through most of the large aircraft FMS units, as they will not support the frequency," Cox says.

Add to this the possibility of STCs and required waivers for some equipment upgrades, and aircraft owners are experiences delays and down time for expensive equipment that they didn't want to begin with.

The Real Cost:
There are numerous options to consider when it comes to upgrading an airplane for NextGen, which is why every aircraft will be different when it comes to determining the cost of NextGen upgrades.

International operators will be hit the hardest, according to Cox. A full NextGen-compliant upgrade for an international, long-range business jet could likely mean numerous equipment upgrades, such as a new GPS, NAV system, FMS, transponder, Multi-Function Display (MFD), SATCOM, cockpit voice recorder (CVR), or a datalink printer.

Some owners will have additional options to consider, like whether to install ADS-B In along with ADS-B Out equipment. (As of now, the FAA is only mandating the use of ADS-B Out.)

Cox says the cost could add up to millions for business jet owners. "A Gulfstream IV will cost about $1 million to comply. A Falcon 900 will cost anywhere from $1.1 million to $3.5 million. A Challenger 601 will cost more than $1.5 million. Add to this the cost of in-flight SATCOM data that will always be turned on when operating within FANS and CDPLC airspace."

The Silver Lining:
If there's a silver lining to the cost of NextGen equipment, it's that the safety and efficiency that comes with these upgrades will benefit everyone who participates.

While the initial installation is no doubt costly, some people (depending on the type of ADS-B equipment used) will get satellite weather and traffic information at no cost. For those used to paying fees for satellite weather and GPS subscriptions, the high initial price of ADS-B might be worth it in the long run.

And still others see the value in NextGen overall. Pilots are all different when it comes to what they find necessary or valuable in avionics, and many see ADS-B and other equipment upgrades as a welcome and necessary part of the flying world.

Aircraft owner Neal Clayton says the technology is worth it. "I am not a weekend-afternoon local flyer. If I fly I'm going somewhere, at least across state lines, maybe at night, maybe in IMC, or maybe both. So things like synthetic terrain, weather display, and GPS steering are more than toys to me."

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.

Yearend Aircraft Purchases - A Good Deal?

There is less than a month left in 2013. For many businesses, this is a time to look at yearend capital purchases. Buying in December can get a business a nice tax deduction for the year while spending the money as late as December 31. With new business aircraft, you commonly see strong sales and deliveries in the last quarter, December especially. To see if this makes sense from a tax perspective, consult an aviation tax authority, not me. Here are three tips if you find yourself in an airplane-buying mood.

Tip #1. Take the time to plan on what aircraft to acquire. If this article is your first inkling that you want to buy, wait until next year. 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.

When looking at what aircraft to acquire, be objective. Objective means choosing criteria that can be measured. 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? Make sure that whatever aircraft you acquire, that it meets objective criteria for meeting your business’s air transportation needs.

Tip #2. Get your acquisition team together. To get the tax deduction for a business aircraft for 2013, you will generally need to take delivery and place the aircraft into service by year’s end. Ownership involves the title, insurance, sales tax planning, and possibly financing. The bigger the aircraft, the more complexity these deals seem to have. Make sure that your team: legal, tax, insurance, finance, etc. are informed and prepared in advance. Note: in advance is not the day prior to delivery. These professionals are quite busy in December.

Tip #3. Evaluate all of the costs involved in the owning, and operating, of the proposed aircraft. You may be getting a sizeable discount on the aircraft you are looking to purchase, but if it is going to eat up a lot of money in operating expenses, then the deal may not be the best one financially. Look at the total Life Cycle Costs: acquisition, operating costs, finance or lease costs, and potential resale value after a period of use.

Being able to get another tax deduction in 2013 with the acquisition of an aircraft may be great in 2013, but may not be as helpful to your company in 2014 and beyond. As part of the aircraft life cycle costing, you may want to look at your company’s projected profits over the next few years. 2013 may be a profitable year (congratulations), but having a larger write-off next year may be better.

Bonus tip #4. Good things come to those who will wait. When the new aircraft manufacturer makes a lot of year-end deliveries, many of them will come with a trade-in. So Early 2014 should see these same folks with some good deals on pre-owned aircraft. Maybe, just maybe, the deal on the older aircraft might exceed to deal on the new model.

I did not see any “Black Friday” deals on new aircraft. But, depending on the manufacturer and model, there may be some great deals to be had prior to yearend. If you have planned for this in advance, you should be able to make things happen. P.S. - cash is king here as the deal would be guaranteed to close.

Jurassic Jets

Are older business aircraft even sellable? And how old is OLD?

At the recent NBAA convention in Las Vegas, I sat in on several briefings about the state of aircraft sales and residual values. It was unanimous that older aircraft are not selling. No news there. It's been that way since 2008. What was interesting is the speakers' definition of "old."

I've been going with older than 15 years as "old" in terms of the ability to sell at a reasonable price within a reasonable amount of time. Age 15 also works with getting financing: The Aircraft Age + Length of Lease/Loan should not exceed 20 years. Age 15 allows for a five year financial deal. It seems like the new "old" is younger than that. And no, we can blame it on the Millennials. Blame it on the economic booms of the late 1990s and again in the mid-2000s.

An "old" business airplane is now older than age 10 in terms of maintaining a residual value and being sellable.

Glancing through the GAMA shipment database by year, business aviation saw significant increases in sales and deliveries during the past 15 years. Many manufacturers saw their sales double, peaking in delivery backlog in about 2008. Thus, there are a large number of relatively recent vintage airplanes available that are in the 5 to 15 year group, and especially aged 5 to 10.

The future air navigation systems that have been developing are in place or will be in the next decade. New or nearly new aircraft are either capable of using the full airspace, or can be easily upgraded. Older aircraft may not be so easily updated, especially older business jets that need the upper altitudes for efficient flight.

Older business aircraft, especially jets, have operating costs significantly higher than their new equivalents. A second or third overhaul on most turbine engines will be very costly due to retirement components within the engine. Unscheduled maintenance is also much higher for these older aircraft.

Lastly, emerging markets outside the US can, and do, purchase mostly new or newer aircraft. Developing nations are adopting the EASA regulations as it relates to aircraft aging issues. Some even place an age limit on imported aircraft.

So we have a large number of recently produced aircraft, many with updated avionic systems, that can be purchased for quite reasonable prices. Financial institutions have the money to lend, provided the credit is excellent. The 20 or 30-year old airplane costly to maintain, and sending them to a developing nation to sell isn't viable. These aircraft are just not selling. Let’s take a look at an example.

Jet Years produced Percent Fleet For Sale Average Days Listed For Sale
Gulfstream GIII 1979-1987 18% 828
Gulfstream GIVSP 1992-2002 13.56% 375
Gulfstream G450 2005-current 7% 239

You can buy a used GIII for under $1 million. But almost no one wants one even at that price. Newer GIVSPs and especially the G450 have a market.

One of the speakers referred to the oldest business aircraft as "Jurassic Jets." They are from a bygone era of cheap gas. They are not selling and the financial institutions do not want them on their books. From what the speakers say, and I agree, this is not going to change. Many of these aircraft are with their last owner.

Why go the Extra Mile?

Sometimes it pays!

Jim Odenwaldt
Elliott Aviation Aircraft Sales Manager

www.elliottaviation.com

In our previous articles we talked about the technical side of our deals; now it is time for a discussion about the power of relationships. Dealer/Brokers thrive on repeat business from our core customer base. We all need new customers to keep our database alive but we must nurture relations with customers who have already used our services. As our client’s needs change, we need to be willing to adjust, stay intelligent and supportive.

I spent my first 16 years in the Aircraft Sales business with a full-service dealership. Our sales team represented a full line of new piston through turboprop products and enjoyed a large protected territory. We had the backing of an MRO division that grew to several OEM Authorized Service Centers. We were stocking dealer and did our own demos, deliveries and often customer training . This offering was ideal for many owners as they had local and complete support as they moved up the product line.

In the late 90’s I met an owner of a cabin-class single who was ready to move up and purchased a new twin turboprop. He would base with us and be a perfect customer… buying airplanes, hangar, fuel and maintenance. My company was happy with the deal and also happy to tell me that I would personally be doing the 200 hrs of transition training that the insurance company had decided to require. It was immediately obvious he was excellent pilot, fun to fly with and the mission was complete in four months.

The next two years went smoothly with his ownership experience and he was ready for the next logical transition to a light jet. He was a new airplane buyer and the OEM we were representing did not have a single pilot jet to offer. I painfully sat on the sideline while he bought a new airplane from the competition. We still had a fuel customer but had lost the sales and MRO business.

Interestingly, it became evident that the new jet service center being 200 miles away was very inconvenient, especially compared to the on-field service that he had become accustomed to with our product. My company was supportive of my idea to provide shuttle service to and from the competition’s facility, as needed. Yes, it was usually a piston airplane but it was a ride and he was very appreciative. This offer of support proved key, since after two years, our OEM had a single-pilot jet to offer and the customer was ready for an upgrade. We participated in the new delivery, got our local facility MRO Factory Authorization for the new jet and sold the trade!

The decision to think outside the box and offer the extra support with this client proved to be very worthwhile. He has provided countless referrals and has personally owned eight airplanes, bought two for his company and had us involved in 13 transactions. Without the decision to offer the support when he went with the completion it would have most likely ended with just the one sale. We have remained loyal to each other and that’s a win-win.

Jim Odenwaldt has extensive flying and technical experience with all Beechcraft products and sales expertise with all models of Hawker/Beech, Citation and Gulfstream. After graduating from Embry-Riddle in 1989, Jim worked as a CFI and maintenance technician. While with American Beechcraft Company, he was responsible for aircraft sales in the mid-Atlantic region. In addition to his ATP, Jim is an A&P and type rated in the Beechcraft Premier.

Elliott Aviation is a second-generation, family-owned business aviation company offering a complete menu of high quality products and services including aircraft sales, avionics service & installations, aircraft maintenance, accessory repair & overhaul, paint and interior, charter and aircraft management. Serving the business aviation industry nationally and internationally, they have facilities in Moline, IL, Des Moines, IA, and Minneapolis, MN. The company is a member of the Pinnacle Air Network, National Business Aviation Association (NBAA), National Air Transportation Association (NATA), and National Aircraft Resale Association (NARA).

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