Business aircraft market valuations are one of the most critical – and most complex – elements in the brokerage or acquisition process. Yet Aircraft valuation is utilized for everything from analyzing and / or predicting residual values to effectively pricing an aircraft appropriately so it will sell in the current marketplace. Failure to get this aspect of a business jet or turboprop transaction exactly right can cause sellers to benefit less than they could or require buyers to pay more than they should.
So then, you justifiably ask, how and why does this occur? Usually the reasons are simple, and, sadly, the situation truly is almost always needless. It really comes down to not having sufficient information, the most current data, or the best research, analysis and guidance – often all three. Naturally, not making the best decision almost invariably follows.
A total of 5,751 business aircraft changed hands during 2014. Only 15.5 percent of those transactions involved new aircraft. However, even for new aircraft, market and pricing knowledge is power, despite the fact that this segment’s acquisition costs are generally pretty well defined, and fairly finite. Factors such as pricing on competitive models, the value history of other aircraft from the manufacturer, and the level and quality of post sale product support all influence not only the acquisition cost today but also a particular aircraft’s future value. Additionally, knowing where the manufacturer is in the company’s sales plan and how much incentive exists to make a sale at any particular time can prove of great value to prospective purchasers.
The remaining 4,858 aircraft transactions occurring last year represent a wide age span, many different interior configurations, a large number of equipment and upgrade packages, varying levels of care, maintenance, and condition, and significant variances in original or previous acquisition costs. Prospective buyers and sellers must capture, digest and analyze mountains of data. Yet this very critical process is something most people only do on rare occasions. How then can there reasonably be any legitimate expectation of success, given this scenario?
Data-driven decisions. Aircraft valuation should be an integral part of any brokerage or acquisition conversation. But that discussion needs to be based on relevant, current, and verifiable information. Solid industry intelligence, real-time marketplace and product knowledge, manufacturers’ new product plans, and historical, as well as current, pricing should be included. All elements relevant to establishing the most accurate value must be part of the mix.
A myriad of items affect the value of business aircraft, regardless of whether it is a jet, turboprop or piston aircraft. Airframe and engine total times, maintenance programs, general condition, interior configuration, options and upgrades, ownership pedigree, based locations, damage history, the number of competing aircraft on the market and their price points are just a few factors that can enhance or decrease, often dramatically, the asking price.
Other aspects, such as how many days an aircraft stays on the market before it sells, sales by month, price adjustments, and seller motivation, can favor or hinder buyers and sellers. All of this information and data must be gathered, compiled and analyzed. Competitive aircraft need to be evaluated. Then candidate aircraft have to be ranked and weighted. Every variable that can detract from, or add to, the price of the aircraft has to be folded into the final recommendation. No guess work. Not assumptions. No surprises.
Timing is everything. Market dynamics at the time of purchase or sale can have a significant impact on aircraft value. Understanding how the market is behaving today is not enough. You must possess not only historical information but also develop an intelligent and credible scenario for the time an aircraft will be on the market or in which a purchase is anticipated. Current events, alterations and aberrations, and varying levels of activity will drive changes in the market both immediately, but also downstream. Obviously these elements can impact the effectiveness of future decision-making. By minimizing the unknowns and accounting for prospective or potential deviations, the effect of amplitude in the market will not impact marketing, pricing and sales plans to as great of a degree as it otherwise might.
Existing and expected further market activity may dictate selling multiple aircraft individually. Or placement on the market initially may be revised to avoid negative impacts on pricing and availability. There is no substitute for the current and complete market intelligence. Historical knowledge and exposure to a wide variety of scenarios over many years remove outliers and refine the range within which the marketplace can be expected to function, fluctuate and maneuver.
Realistic expectations. Nothing has a greater impact on an aircraft’s salability than accurate pricing. This has become an even bigger influence since the economy entered a severe recession in 2008. Clear and concise understanding of market value is imperative. In an unruly market, such as the one that has existed in varying degrees for the past six years, missing the mark here can effectively put you out of the ballgame, greatly delay the transaction, or yield a selling price that is not going to be accepted gladly.
Pricing variations can lead the unknowing or unwary astray. A scenario that has been observed on more than one occasion over the past half decade is where sellers lower prices, sometimes dramatically. Lower prices then drive increased transaction activity. When some sellers misinterpret this as true or growing demand and raise their asking prices, buyers run for cover. Sellers still have an asset they want to go away, buyers cannot obtain desired aircraft at manageable prices, and aftermarket business is prevented. In short, no one is happy.
Improve your odds. A prudent buyer or seller can best help themselves by obtaining knowledge, experience and expertise that is not resident in their organization or which they personally may not possess. This is where reputable professional brokerage and / or acquisition specialists can help you avoid costly mistakes. Not only that, you should anticipate that partnering with a capable broker will gain and / or save you an amount that exceeds the professional fee. Additionally, truly good brokers are dedicated to adding value. They will do the necessary head work and required leg work so that you can spend your time doing what you do best – run your business.
The global business jet fleet numbers approximately 20,000 aircraft. Your broker will know where to start, and where he or she doesn’t need to go. Often they are way ahead of the knowledge power curve because of other, recent transactions involving the make and model of aircraft you are selling or considering for purchase. When combined with the research, marketing, technical and contracts prowess that successful and widely-regarded brokers possess, the realization quickly dawns that this is one of the best and most financially beneficial partnerships you can possibly create.