The Economics of Aircraft Valuation, Part II

We recently delved into the often-challenging topic of how to effectively price your business jet.

In that blog, we posed some relevant questions regarding what you should consider when you’re trying to assign a market value to your aircraft and why.

Now, drilling a bit deeper into the issues, we want to pinpoint some of the critical factors to help you confidently valuate your aircraft. These considerations can help regardless if the market—the general climate for jet sales—is soft or robust, stable or fluctuating.

Aircraft Valuation Factors

The age, condition, features and performance record of your aircraft are certainly vital to any credible valuation of it.

But so are the external factors—the market and general economic environment at the time of your valuation.

As mentioned, we touched on a few of these market factors. Now we’ll offer some additional context for pricing your aircraft.

Following is a more comprehensive list of key market considerations to help you put a more accurate valuation on your airplane. Knowing the answers will help you determine the value potential when it’s time to remarket and sell.

  • The current market values for similar aircraft, from oldest to newest.
  • The estimated five-year residual value projection.
  • The adjusted market value.
  • The number of recent aircraft sales over the past six months, from most recent to oldest.
  • The most recent aircraft appraisal.
  • The condition of the peripheral markets.
  • The number of available aircraft like yours in the market, and the number of them that are for sale.
  • The assessed best time to invest and/or divest in the asset.
  • The ready availability of maintenance parts and spares for your aircraft model.

 

Other factors affecting the price of your jet:

  • Use Case – Remember that aircraft use cases can differ considerably, depending on the needs. If the aircraft is owned by a Part 135 charter operator, it’s designed to offer maximum capacity and revenue generation. It may have more flight hours with more takeoff and landings than a Part 91 operator, which adds to the wear and tear of the interior.

 

  • Adjusted Market Value – The AMV indicates that the market or base value of the aircraft has been adjusted from a half-life condition to account for the actual maintenance status. It should come as no surprise that the maintenance you perform on an aircraft has an impact on its value. In fact, “monetizing aircraft maintenance” is a major factor in valuating an aircraft. If you keep your jet well-maintained and follow an aircraft engine program, it will always be in “ready-to-sell” condition.

 

  • Aircraft Asset Depreciation – Like most physical assets, an aircraft develops a “depreciation profile” whereby its current market value depreciates, over time, to a residual value. This trend, along with increasing obsolescence factors resulting from new technologies and improvements in fuel burn, has the effect of limiting an aircraft’s useful economic life.

 

  • Inflation – While economic activity is a key driver of aircraft valuation cycles, the role of inflation should also be considered. While there may be short-term fluctuations, over the long term, inflation can have a significant impact on pre-owned aircraft values. For example, an increase in the net price of new aircraft can have a positive effect on used values, and vice versa. An increase in the rate of inflation is a positive dynamic for the asset-based financing of aircraft when compared to traditional assets, such as bonds and equities.

 

Be Circumspect

The preceding factors ought to be a strong focus of your assessment and valuation. But don’t forget that there’s no better way to effectively evaluate your aircraft than to try and absorb everything you can regarding the current market. That way you can see how your aircraft measures up.

Also keep in mind that there’s no “silver bullet” to aircraft valuation and pricing. There’s no absolute framework by which to judge the value of your aircraft.

An aircraft’s value is best determined on a plane-by-plane basis, with all the unique considerations of your potential buyer’s needs measured against your plane’s attributes. The results, hopefully, are for a mutual agreement between the buyer and you, the seller.

Talk to an Advisor

Considering the above-mentioned, we’d be remiss not to pitch our own expertise in this valuation equation. As jet brokers, the core of our business is understanding aircraft value and how those values are affected by the influences in our market.

We view our clients as the best business people in the world, and we consider it our job to provide them with the information necessary to make an intelligent assessment of their aircraft, and then help them to execute a sale transaction flawlessly. And we always start by listening and diagnosing before we offer any solutions.

At Guardian Jet, we’ve developed a very comprehensive methodology that focuses on how aircraft, on a relative basis, will perform in terms of resale value.

If you’d like a quick and accurate calculation of your airplane’s value, we’re here to help. Simply complete this short online request form or us a call at +1-203-453-0800.

 

 

This entry was posted in Aircraft Valuation, Asset Management, Aviation Industry, Business Aviation, Fleet Planning, Guardian Jet Learning Center, Ownership and tagged , , , , . Bookmark the permalink.

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