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Caveat Emptor with Older Aircraft

by David Wyndham 1. December 2004 00:00
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There are still many great pre-owned aircraft out there and it will be about six months to a year for balance to return to the pre-owned aircraft market. Balance means an overall aircraft market that favors buyer and seller equally. A general measure of that is 10% percent of the active fleet being available for sale. To date, about 13% of the active fixed-wing turbine business aircraft fleet is for sale. Later model aircraft are seeing a tightening of the market and even some slight price increases.

One part of the market has yet to recover. Selling prices of turbine aircraft older than about 20 years of age are still "soft."

Let's look at three older generation business jets and compare them with today's replacements. The Citation 500, Lear 23/24/25 series and Hawker 700A were all popular and successful aircraft. Currently, there are 987 of them in the active fleet. About 30% of that fleet is currently for sale - definitely a buyer's market. This isn't likely to change anytime soon and here is why.

Reason number one is their age. In order to remain reliable, older aircraft require more maintenance than newer aircraft. The more time spent in maintenance, the less time the aircraft is available for flight.

Aircraft Availability is defined as the amount of time an aircraft is available for flight in a service year divided by its total service year. A service year is when the aircraft is normally required for flight. This may be five days a week or 365 days per year. Availability is expressed as a percentage.

At some point, the cost of decreased availability plus the cost of maintenance outweighs an aircraft's low acquisition price. Many buyers are reluctant to "take a chance" on an older aircraft – regardless of condition.

Reason number two is technology. Today's current generation of business jets have more fuel-efficient engines, more (and better) cockpit automation increasing safety and productivity, and better performance. You buy 30-year old technology; you get what you pay for. Upgrades can cost more than the value of the aircraft. The Citation 500, Lear 23/24/25 series and Hawker 700A are still have good support, but their follow-on models are much less costly to operate (maintenance and fuel).

Reason number three is regulatory issues. Some older aircraft have noise issues. The cost of a hush kit can be as much as the value of the aircraft. In addition, we are less than a month away from the implementation of RVSM in North America. Of our sample aircraft fleet above, less than 10% are certified for RVSM. Jet aircraft are inefficient at low altitudes and these aircraft will be restricted to operating below FL 290. Aircraft with analog digital air data computers are the most costly to upgrade with RVSM costs typically running from $100,000 to as much as $250,000. Why invest 25% of the aircraft value in RVSM?

Now let's look at the "replacement" aircraft for the Citation 500, Lear 23/24/25 series and Hawker 700A: The Citation 525/CJ1, Lear 31 and Hawker 800A. There are currently 1,009 of these aircraft active. Their size is similar to their earlier cousins. They are more fuel-efficient, cost less to operate (fuel and maintenance) and generally have superior performance to their earlier cousins.

Today, about 12% of this fleet is available for sale - much closer to a balanced market. In addition, 55% or more of this fleet is already RVSM certified and almost all the rest are capable of being certified. Given their current selling prices, investing in RVSM for these aircraft (if not already done) is economically justifiable.

I don't see this situation changing. Our general recommendation to clients is to be very cautious about purchasing aircraft older than 15 years of age. A 15-year old aircraft should yield 10+ years of reliable service, have reasonable maintenance costs when balanced with availability, and likely be worth certifying for RVSM (if not done) and also be worth upgrading with things like new avionics.

From age 15 to 20 or 25 years of age, aircraft are seeing the cost of major maintenance inspections increase. They are perhaps looking at second or third engine overhauls with life and cycle limited components in the engine coming due for replacement. Corrosion control programs tend to come into consideration as well. Aircraft in this age group, if well cared for, will still tend to see a drop off in availability.

Beyond about 25 years of age, aircraft generally start running into availability issues. We did a study for a client and showed that replacing their five age 30+ aircraft with three new aircraft would give them better availability, more utilization, and at a lower total life cycle cost.

While there is "never an always and always a never," I'd be wary of looking at older aircraft. Evaluate their condition, the availability of spares, and their ability to be fully mission-capable (RVSM, safety-enhancing avionics, etc). Perform a full life cycle cost analysis - low acquisition prices can be easily off set by higher maintenance costs and low availability can require the use of alternate aircraft - driving costs even higher. This is not to say that all older aircraft are ready to be sold for parts. Rather that (1) even well cared for aircraft will tend to have high maintenance costs and reduced availability and (2) the market for these aircraft is likely to remain soft and sellers of these aircraft will have to bear that in mind.

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David Wyndham


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