Welcome to GlobalAir.com | 888-236-4309    Please Register or Login
Aviation Articles
Home Aircraft For Sale  | Aviation Directory  |  Airport Resource  |   Blog  | My Flight Department
Aviation Articles

Oldies But Goodies, the decision to buy a new aircraft versus old(er) aircraft

by David Wyndham 18. April 2017 15:32
Share on Facebook

The majority of manufacturers of new turbine business aircraft are still having difficulties selling their new aircraft. Sales remain sluggish. According to GAMA 2016 was the worst year for business jet deliveries since 2004. Ref: http://aviationweek.com/bca/business-jet-shipments-lowest-2004-gama-says

When I talk to brokers of pre-owned aircraft, many are reporting that 2016 was a very good year and that 2017 is continuing the upward trend. Why is that? One reason is that there are still a lot of quality pre-owned aircraft for sales at prices that have not recovered since the last recession. 

A friend in the finance industry who frequently works with high net worth individuals reports that for them, buying new is not financially the best option. Ten, 15 or 20-year old business jets are safe, have relatively low time versus their life, and, if you understand the maintenance requirements, can offer years of excellent service. 

Business jets still depreciate at alarming rates. A rule of thumb for a new business jet? Try 8% to 10% per year! Sources like Vref and the Aircraft Bluebook Price Digest support this with historical data. For a number of models, you can easily buy a seven-year old for about half or less than acquiring new. The manufacturers' sales people stress the new aircraft have much lower operating costs due to the lower maintenance costs, have the latest avionics, and new aircraft warranties. They are right, but still - that market depreciation! Being a numbers person, I ran some numbers.

looked at several popular large cabin business jets and the below is an average of a couple models. I used Vref pricing and ran operating costs to include the costs aging aircraft maintenance using our Life Cycle Cost software. Here are a couple things to consider.

Acquisition

New aircraft list = $44 million 

7-Year old model = $7.5 million

15-Year old model = $3 million

 

Knowing that acquisition is only part of the costs, what about the variable operating costs - including all the older aircraft maintenance?

Variable Cost Per Hour (on engine hourly maintenance program)

New aircraft = $3,800 per hour 

7-Year old aircraft = $4,900 per hour

15-Year old aircraft = $5,100 per hour

$1,300 per hour in operating cost is a lot - 34% greater than for the new model. The new jet, $44 million and you are good to fly right away. The 15-year old might need $2 million to $4 million in upgrades, new paint & interior, ADS-B, and some engine work. Even the 7-year old will need some upgrades. 

But when you look at residual values as a financier does, that difference in the operating cost budget pales in comparison to what (may) happen to the value. After seven years, that new jet may be worth half of new (or less) based on recent history. That $44 million jet may decline by $22 million! The older jet's value will be dependent on the maintenance status, especially the engines. It's possible that after seven years the now 15-year old may still get $2 million or more if the engines are in good shape. Even if you park the 15-year old jet after seven years' use, you are only out $4 to $6 million. 

One area not covered in these numbers is availability and utilization. A aircraft age, they require more maintenance and the extra maintenance burden requires more downtime. When the aircraft is in for maintenance, it is not available for flight. I you need high utilization, that older aircraft will likely make it difficult to maintain a busy flight schedule. But, for the lower utilization owner, such as many high net worth individuals, 200 hours a year is plenty and that 15-year old jet can easily keep up that schedule. 

Can you keep an older jet flying 30-hours a month? Maybe but not every month. I don't have an exact number as there are too many variables, but maintaining consistent 500-600 annual hours will be very difficult in all but newer models. A new aircraft can sustain that use with ease. That seven-year old model can probably sustain that level save for the "once every 8-year" type of heavy maintenance. 

Consider a company like NetJets. They need to minimize downtime. NetJets and the other fractional aircraft providers all tend to operate newer models. They do this to be able to offer the 800-occupied hours per year for their share owners. They cannot consistently get the revenue hours with older aircraft. 

can't ascertain that the new aircraft sales are going to the high utilization operators while the infrequent-fliers are buying the older models. But that can be one reason while the pre-owned aircraft brokers are enjoying a good year. 


Tags:

Aircraft Sales | Aviation Technology | David Wyndham



Archive



GlobalAir.com on Twitter