What's it worth? - The key considerations when valuing a private jet

The most important question when trading anything is of course, what's it worth? Whether we are advising our clients on how to position their aircraft in the market with regards to price, taking aircraft in on trade or purchasing aircraft outright for inventory, understanding market value is critical. My role at Jetcraft requires me to be well-versed in aircraft value analysis. In this article I’ll outline the main considerations when estimating the value of aircraft, roughly in order of importance.

This may seem obvious, but it’s important to note from the outset that a value analysis does not determine an aircraft’s value. The market determines value and always will. The analysis allows you to make sense of market data and compare the aircraft in question with comparable aircraft currently for sale and others that have recently sold. Once you know what the market is doing you can estimate the number you expect it will bring. This in turn allows you to set expectations and/or determine the pricing strategy when bringing an aircraft to market.

Market Data – If you’re valuing a 2015 Gulfstream G650, you need to know how much that 2015 G650 in New York sold for last week. You’re essentially comparing the aircraft to others which you know the value of. You know this value because someone (assumed to be rational) has just reached into their pocket and paid that price for it. You also need to know how much you can buy that other 2015 G650 currently for sale in Switzerland. Again, the market determines value, so the exercise is pointless without up to the minute market data. This is where having close colleagues all around the world, tuned into their local markets, provides significant value to the exercise. This point cannot not be overstated and is pivotal to the quality of the valuation analysis that Jetcraft is capable of.

Before I get into it and possibly lose a few readers, I’d like to let you know that we’d be happy to value the jet or turboprop you fly, operate, manage or indeed own yourself. Message me.

Back to it…

Depreciation – Unlike assets such as real estate, where values can go either way, aircraft values only go in one direction in the long term. You’ve guessed it, south. Fundamentally, aircraft are machines and machines depreciate. Parts wear, paint cracks and steel corrodes. This is true in almost all cases, unless it’s a some kind of collectable such as a Spitfire.

Entry into Service Date – This doesn’t need much explanation. The earlier the entry into service date the lower the value will be.

Time & Cycles – Another one that doesn’t need much explanation. The more hours on the airframe, engines and auxiliary power unit (APU) the lower the value. There is an average number of hours expected for a given entry into service date. If the time is higher than this average, there is a deduction made and vice versa. The time/cycle ratio can also come into play, but it’s difficult to put a number on this. Have you ever heard someone saying, ‘good miles on a car’? Essentially, it means that the car has done long motorway trips, not lots of start/stop city trips. Machines (such as jet engines) do not like heating up and cooling down (a cycle). In addition, landings put stress on the aircraft structure and landing gear itself, so less is better.

Maintenance – Aircraft require continuous maintenance throughout their lives. As they are flown maintenance costs are accrued and these will need to be paid in the future. The closer you get to a heavy inspection, such as the 120-month for a Bombardier or the 96 and 144-month for a Gulfstream, the larger this accrued cost is and therefore the larger the deduction in value. The value or depreciation curve over time looks kind of like a Christmas tree on its side, where the spikes represent money put in for a maintenance event.

There are some interesting yet expected dynamics to note here. All inspections carry risk, especially large ones. What issues will we find when we strip down this aircraft? Issues (or discrepancies) will always be found, just that some are more costly than others. On one side you have buyers looking for a turnkey aircraft with the large inspection (and risk associated with it) in the rearview mirror. No risk? Should I pay a premium? On the other side, pre-inspection, buyers are inclined to look for a discount for taking on the inspection risk.

Maintenance Programs – I think we need a quick explanation on these first. As stated above, continuous maintenance is required to maintain airworthiness. Maintenance Programs are part maintenance reserves (money you pay into a pot to cover scheduled maintenance) and part insurance against unscheduled maintenance i.e. if something breaks unexpectedly. You pay the program rate for each hour you fly, and in return you get budget stability and peace of mind that the unexpected is covered. So, what does this mean for values? Well, if an aircraft is not on an engine program and the cost to enrol, onto say Rolls-Royce CorporateCare or JSSI, costs $1 million, then you can say that the aircraft is worth $1 million less than a comparable aircraft (with the same time on the engines) which is enrolled and fully paid up. It’s the same story for airframe and APU programs.

Upgrades – Looking past mandatory Airworthiness Directives, assuming these are complied with, optional Service Bulletins/Upgrades can set aircraft values apart. The owner either ordered these options at manufacture or retrofitted them during a routine inspection. Maybe a Dassault Falcon 900EX EASy has been fitted with winglets, a Bombardier Challenger 604 is equipped with autothrottles or an early Embraer Phenom 300 has been retrofitted with Garmin G3000 avionics suite. Essentially, if the upgrade brings it in line with the fleet you avoid a value deduction. If it puts it in front, value is added.

Paint/Cosmetics – The cost of a paint job or an interior refurbishment. On the latter, each aspect of the interior has a value. Soft goods, such as carpet, leather, divan fabric etc. Hard furnishing such as cabinetry and galley countertops. Do you need to replace wood or just re-veneer? Based on cosmetic project experience we know the cost of these items and therefore what value should be added or deducted. It’s worth saying a few words on unique cosmetics. Sometimes you hear, for (an exaggerated) example ‘My aircraft interior is unique, I got me some pink leather seats, we might get a higher price’. As the saying goes, ‘beauty is in the eye of the beholder’. Yes, the interior is unique and therefore we need to find a unique buyer, who are few and far between. If we can find that unique buyer, happy days, but I don’t like the odds. Replacing leather comes at a cost which a ‘normal’ buyer will need to budget for.

Cabin Configuration – Similar to the above, the more unique the configuration, the less buyers out there for it. What’s unique? Well, for example, we recently sold a Dassault Falcon 7X which was equipped with a shower & custom lavatory. The shower and lavatory took up the whole aft section. The divan, which you would usually see in the aft section was now in the mid-cabin section at the expense of the standard four-place conference group. It took a while to find a buyer but we did and they were delighted with the purchase. Standard configurations are standard for a reason, they suit a larger share of the market. Like the pink seats, if we find a buyer who values the non-standard configuration, great. If not, reconfiguring cabins is expensive.

Previous Owners/Operations – The number of owners, their profile and how the aircraft was used previously. Was it solely used privately, or has it clocked up some charter hours? Which is better? Well, the condition of the aircraft trumps these questions most of the time.

Damage History – Nobody likes damaged goods. There are of course levels of damage and the type/quality of the repair. With a part-off, part-on repair and no remaining airworthiness limitations, you would never know there was ever any damage, unless you look at the aircraft’s records. In this case there is not much justification for a discount. However, just knowing there has been an incident can put buyers off. Then there are cases where the repair will physically stay with the aircraft for the rest of its life, such as a skin repair. The quality of the repair then comes into play i.e. is it a flush or a scab repair. Now we’re getting into details, but you get the point.

And that’s pretty much it. Easy ;-)

I hope I’ve shed some light on the things we think about when estimating an aircraft’s value. This is by no means exhaustive and therefore I’d very much welcome any comments, feedback or questions.

I have one final point which is relevant for any open market. There exists a triad, three interdependent factors: Quality-Price-Time. Assuming Quality is fixed (the aircraft as-is), you can then set Price depending on how quickly you want to sell. A low price will get a quick sale, a higher price may take a little longer. BUT, big but, that depreciation I mentioned earlier loves Time. So, if it’s on the market too long you then start to battle with it. The battle always ends the same way.

So, considering this impending battle, if you are thinking about a sale or an upgrade, I recommend starting the conversation with me as early as possible. That way we’ll have the luxury of Time to think about and plan the strategy to maximise the value of your aircraft. After all isn’t that what we sell? The most precious resource, Time.

Thanks for reading. And again, we’d be happy to value the jet or turboprop you fly, operate, manage or indeed own yourself. We can discuss the market nuances that exist for your specific aircraft which I might not have covered above. Message me.

If you don’t know me, I’m based in London and my role at Jetcraft involves market analysis, aircraft valuation & appraisal, sales/transaction support and business development across Europe and the Middle East.