Aircraft Ownership: Should You Buy New or Used?

If you’re looking to determine the financial implications of buying a new or pre-owned business aircraft, you’ll need to scratch a little deeper than the cost of purchase...

Simply put, new aircraft get the newest features. Some of those are significant, adding value to the aircraft. Two of the biggest examples are engines and avionics. Using the Dassault Falcon 2000 to illustrate, an early Falcon 2000 model might look quite similar (from a distance) to today’s Falcon 2000LXS, but the changes in both engines and avionics are substantial.

The latest generation of engines are more powerful, more efficient and have a longer service life, while the addition of winglets adds range and climb performance. The new generation of avionics offers superior situational awareness, improving pilot workload and safety.

Add to the mix an increase in maximum take-off weight (allowing for more payload or more fuel to be carried), and you quickly begin to understand that two aircraft that appear similar from a distance can be very different on closer inspection.

The same can be said of any manufacturer with long production runs for a specific aircraft. Their jets continue selling because of the ongoing upgrades and improvements that are made to the product as it is adapted and evolved to the needs of the target customer over several years.

Other new features may not be so obvious. For example, today’s airborne internet systems have seen significant developments, offering greater capabilities than those from a decade ago. And interior features and designs have evolved over time offering greater comfort and convenience.

Perhaps the least obvious (to those not trained in aircraft maintenance) is the better reliability of components installed on newer aircraft, which offer longer lives and greater ease of maintenance. Unsurprisingly, all these upgrades and enhancements come at a higher price.

Consider the Maintenance Implications of New vs Old

New aircraft come with manufacturer warranties covering any unscheduled parts you may require, and much of the unscheduled maintenance cost. The biggest operating cost savings, however, is that for almost any new aircraft, there is almost no major inspection, overhaul, or parts replacement necessary for five to ten years – and in some cases longer.

This results in significant reductions in operating costs and optimal availability as the aircraft spends less downtime in the MRO shop.

Buyers of new aircraft also get to specify the paint and interior outfitting and add the options they prefer, meaning that the aircraft will reflect their personal tastes throughout. But the choice to buy new over pre-owned is not a foregone conclusion. In addition to it costing far less to acquire a used business jet, market depreciation is highest in the first few years of an aircraft’s life.

While the extent of the depreciation varies with economic conditions and the popularity of the model, initial loss of value can be 35-50% over the first five years (so the owner of a new aircraft acquired for $15m could see it lose $7.5m in value after five years).

As the aircraft ages, it will continue to lose value. For older aircraft most of the value lies in its condition and maintenance status. 

So, for example, if it has recently completed a major inspection, its engines are enrolled on a guaranteed maintenance plan, and the jet has undergone a recent paint and interior refurbishment, the pre-owned aircraft will have increased value.

Ultimately, an appraisal by a qualified individual will pick up all the value additions and subtractions for a specific pre- owned aircraft to help a prospective buyer arrive at a fair market value.

In essence, while new aircraft cost more to acquire and less to operate than used aircraft, used aircraft see less market depreciation but higher operating costs. How do you add these up? Let’s explore...

Business Aircraft Life Cycle Costing

The life cycle cost analysis takes the total costs of owning and operating aircraft into account. It looks at the cost to acquire the aircraft, the fixed and variable costs to operate it, and factors in taxes. After a defined period, you add residual fair market value back in to the equation to arrive at your total life cycle cost.

To refine the life cycle cost requires a Net Present Value calculation, which looks not only at the magnitude of a cost or revenue, but also the timing. Essentially, the NPV accounts for the time value of money or cost of capital.

A simple example of the time value of money is where an individual sees a return on their investment portfolio superior to the cost of borrowing.

Put simply, NPV favors income today and paying expenses tomorrow! So, for example, it would favor paying $15m today (for an aircraft) and spending more tomorrow for maintenance than spending $30 million today to have reduced future expenses.

Life cycle costing and NPV are financial tools that do not have a value placed on subjective measures. They can provide the financial best alternatives between both new and used, as well as lease, financing an acquisition, and other purchase decisions. Each set of circumstances needs its own calculation with clear assumptions on the financial factors.

As a would-be buyer of a new or used business jet, you must balance what you can afford, what you want to pay, and what you want to have for your next aircraft.