Buying Older Jets: How Old is Too Old?

If you are shopping the pre-owned business aircraft market looking for suitable aircraft to buy, the low prices of older jets may be fairly tempting.

Assuming the higher maintenance costs have been taken into consideration and an allowance for higher operating costs has been accounted for – it may well be that some of the older jets for sale fulfill your mission needs adequately.

But, is there a limit on how old is too old where business jets are concerned? And if so, what is that limit?

The answer will vary widely, depending on a variety of things – from your annual operating budget; depreciation expense requirements; and the corporate governance requirements imposed on executive travel.

Practically speaking, corporate aircraft are capable of outliving what the market considers to be their useful life. While it’s different for all aircraft, there comes a point where buyers will notice the annual operating cost for an aircraft is roughly the same as its acquisition cost.

(Simply as an observation on my part, for some reason many private and corporate buyers who can afford the operating costs of an older jet prefer to spend more money on the initial purchase of something newer, and so we tend to lose a lot of would-be buyers of older jets at at this stage.)

Aircraft that have crossed this threshold tend to find buyers in countries with lower operating costs (owing to lower fuel prices or labor costs), or remain with their owners who will maintain it, keeping it current until the cost of complying with mandates, regulations and navigational requirements exceeds the cost of buying another aircraft which already meets those requirements.

At that point, they become obsolete and are either parted out or, where few parts hold value, they are sold for scrap. Ultimately, they don’t die due to old age per se.

More as a result of falling behind the market. It takes a long time for an aircraft to get from one end of the life-cycle to the other, though, and there are many jet aircraft that are nearing 50 years old that are still in active service, and are kept to the acceptable regulatory standard.

Experience Makes all the Difference

The more experienced owner/operator will have a good idea of what the increasing maintenance costs look like as an aircraft ages, and whether there is anything big coming down the line – such as a major inspection or overhaul costing significant money.

Nevertheless, it would behoove buyers – both experienced and inexperienced – to employ a buyer’s agent. That agent should demonstrate a deep knowledge of the market’s reaction to the age of an aircraft, along with the factors that affect an aging aircraft’s operating costs.

Two aircraft of the same age could have significantly different annual budgets based on:

1. The type of aircraft;
2. Their past maintenance history; and
3. Other environmental factors, like where they’ve been based, and how they’ve been operated.

As an example, a 20 year old airplane that has had all of its heavy maintenance performed by an OEM-approved service center could have a very different maintenance budget going forwards compared to the same make/model that hasn’t seen an OEM-approved service center for 15 years.

When you factor additional variables, such as the number of hours each aircraft has flown each year, the equation begins to get complicated. (Note: Do not automatically assume an aircraft that has flown fewer hours annually will have fewer problems to work through than one that’s been more intensively used.)

What’s the Resell-ability?

A lot of good business investments are made with an exit strategy in mind. Having an expected aircraft ownership period plotted out for an aircraft can help determine whether there will be a resale market when you’re ready to sell. If not, you will ultimately need to part it out, or sell it for scrap.

Where an aircraft has a price similar to its annual operating budget, you can anticipate that it will take longer to sell, and you may need to be prepared to sell for a lower than expected price.

For many buyers of older jets, the trade-off comes with the lower depreciation, since an aircraft loses most of its value in the first few years after it was produced.

Conversely, buyers of newer, more expensive airplanes will benefit more from the tax depreciation, and in some cases roll the depreciable basis into the next aircraft with a trade-up to a dealer/broker.

To Summarize…

Often, a buyer has an aircraft in a specific age bracket they’ve been chartering and feel comfortable with. The natural starting point for them may be to look at the projected annual budget and acquisition cost, working from there.

Ultimately, the main factors in determining whether a certain age of aircraft will work for your operation begins with your budget and mission, before looking at the available options on the market, determining whether they meet the requirement.

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