Fall of 2013, I wrote on the subject of what is old for a business aircraft. That article dealt with the issues regarding whether older business aircraft are easily sellable, and tried to put a number on what is old. I think it important enough to revisit again.
At the recent NBAA regional meeting at Teterboro, I sat in on briefings about the state of used aircraft sales and residual values. Much like with similar briefings at last two years' NBAA Annual Meeting & Convention, older business aircraft are still not selling. For financing, a general consensus for turbine airplanes is still this: the Aircraft Age + Length of Lease/Loan should not exceed 20 years. Age 15 allows for a five year financial deal. Some lenders are using a younger age than even 15!
The factors I mentioned in 2013 are still valid:
- A good supply of relatively young, up-to-date, turbine business aircraft are listed as for sale.
- Future air navigation systems requirements such as NextGen and FAA 2020 are still making the ability to update older aircraft in question, both with the cost and timing.
- Markets outside of the US wanting new or nearly new aircraft.
- Increasing operating costs of older aircraft make them less desirable.
While the supply of used business jets is lower as a total percent of the market, the global market is sufficiently large that there is a good selection of aircraft to choose from across most categories. The FAA deadline for new navigation equipment is still January of 2020 and the FAA shows no signs of changing the date. The airframe manufacturers and third party companies are still trying to certify equipment for the last 10 or 15 years' worth of models. With cheap oil and a strong US dollar, the non-US market is having a tougher time affording these new aircraft. But when they do purchase, they still look at the nearly new models.
In this article I want to look at the operating costs again, from a different perspective.
You can buy a 30-year-old Gulfstream GIII for about $1 million. A 20-year-old GIVSP sells for about $4.9 million. A 10-year-old G450 sells for around $16 million (source Vref). According to AMSTAT, the GIII models offered for sale have been listed for an average of 491 days - about 16 months. The G450s listed for sale have been on the market about 6 months. So the average G450 is selling before the average GIII.
Provided both aircraft have the range and cabin that fit your needs, why spend $16 million when you can spend $1 million? For much less than $15 million, you can buy a lot of maintenance and upgrades for the older GIII. It's relative, that's why.
An engine overhaul on a Spey or Tay can run to over $1 million each. Include all the other airframe and avionics maintenance and you can have a maintenance budget of from $3 million (G450) to $5 million (GIII) over five years' typical flying. The G450's maintenance budget is far less relative to the value of the aircraft:
Aircraft Value Maintenance Budget (5 yrs) Maintenance as Percent Value
G450 $16 million $3 million 19%
GIII $1 million $5 million 500%
The maintenance quoted above is required to keep the aircraft in an airworthy condition. In other words, the GIII owner might spend $3 million to keep the GIII in a $1 million sellable condition. The math doesn't work from an investment perspective. A company called Asset Insight does this analysis on business aircraft to a far more detailed degree. Time and time again, their analysis shows that buyers are not willing to spend even close to the value of their aircraft for maintenance.
If you are the GIII owner, you can shift your perspective about your current aircraft. First, accept that you are likely the last owner of the entire aircraft. Second, spend your maintenance dollars wisely. You may not want to do the engine overhauls, but instead might be able to secure a pair of Spey engines with a two or three years' life remaining for far less than the overhaul. Better yet, keep those engines on a guaranteed hourly maintenance program if they are on one. Or you may elect to sell the aircraft for salvage (keeping someone else's GIII flying for a few more years), and upgrade to the GIVSP or G450.
I used the GIII as an example. The GIII is still a fine airplane and mechanically, most can be flown for many more years. You can replace the example of the GIII with any other business aircraft of its time. Aircraft buyers are not generally willing to buy low and pay for maintenance bills that equal or exceed the value in the aircraft. That is how the market works.