- 14 Dec 2022
- Chris Kjelgaard
- Aircraft Ownership
Chris Kjelgaard asks business aircraft valuation and sales experts what owners of aircraft with histories of previous damage can do to improve their prospects of a successful resale.
While relatively uncommon for modern business aircraft to suffer damage, incidents and natural disasters do happen. Owners seeking to sell previously damaged aircraft face issues regarding the marketability of their aircraft and the lower resale price a damaged aircraft will generally achieve.
The extent of the price discount at which a previously damaged aircraft will trade varies, depending on the circumstances involved in the negotiations for each individual sale.
Minor damage — such as the knocks and dings to wingtips and skin (known as ‘hangar rash’) — remains fairly common, notes Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services. According to Zilberbrand, previous minor damage will not generally result in a sizable discount on sale price, particularly in a seller’s market.
“The good news is that the market will dictate to some degree what kind of a hit you will take” on sale price, he says. In today’s hot market, “people want [the aircraft] and [to a large extent] will overlook typical average damage that is superficial or minor. And most damage is just that.”
As a result, any sale discount negotiated is likely to be “only a couple of percent of the asking price”. The same cannot be said for sale prices achieved for aircraft with histories of minor damage when offered for sale in softer market conditions (such as those which pertained from 2010 until 2020). “...When available inventory [of used aircraft] is greater than 7 or 8 percent, then damage is a big deal,” says Zilberbrand.
“The price the buyer is willing to pay — in other words, the diminution of value of the airplane — falls.” In soft markets, when several comparable examples of a given aircraft type or class are available for sale, “the chances are that buyers won’t look at the one with [previous] damage.”
Within the next few months, sellers may begin discovering this to their cost, warns Don Spieth, Vice President of Sales and Analytics for General Aviation Services. “Sellers had all the leverage, but now the market is swinging back to being more normal.”
As yet, the signs of the market normalizing “are difficult to see, but the market is swinging back to what it was before Covid” — and market conditions will begin to favor buyers of used aircraft rather than sellers, Spieth projects.
Changing Market Conditions
An important part of Spieth’s job for General Aviation Services is to unveil business and private aircraft market trends by statistically analyzing various market performance indicators and measurable market behaviors. Evidence that the business aircraft resale market is gradually returning to a more normal state is becoming clear from measurable changes in several important indicators, he says.
One is the average amount of time an owner of a business aircraft will hold the aircraft after buying it before making it available for resale again.
The long-term market norm was for owners to retain their aircraft for 5.5 years, but the average duration of ownership increased to 6.7 years after 2020, due, Spieth says, to indecision on the part of fleet flight departments and individual owners as to whether to retain or sell their aircraft. Now ownership duration “is back down and reverting to the mean, which indicates the market is normalizing.”
Another telling change is the rate of conversion of usage of business aircraft from private operation to fractional and charter fleet operation. Spieth notes the conversion rate peaked in Q1 2021, likely because as the Covid-19 pandemic intensified many businesses and wealthy individuals turned to private aviation for the first time. The conversion rate has fallen by 20-25 percent from its early- 2021 peak, he says.
A third indicator that the market for used business aircraft is starting to return to more normal conditions is the proportion of unlisted versus listed aircraft being traded by dealers. Historically, the proportion favored unlisted aircraft sales at about 60:40, Spieth says.
That proportion peaked at about 80:20 in Q1 2022 when more aircraft sales were transacted very quickly and “people only dealt with those they trusted the most when they knew the deal is good on both sides”. Now, the proportion of unlisted to listed sales is returning to its long-term norm.
“On the buyer side, there is still a lot of demand,” Spieth highlights. “But it is narrowing the preferred inventories (those are the deals that are still going fast and furious). For the most part, the time taken [to complete an aircraft sale] is lengthening.”
For now, the market remains strong. Although sales during the past two years have been taking as little as 30 days from start to finish, by mid-2023 there are signs that the market will move closer to the three to six months more typically required from start to finish.
Sellers rarely need to close sales urgently, in less than 90 days, says Jim Mitchell, Executive Sales Director for Elliott Jets.
As used aircraft inventories gradually increase, and greater choice among comparable aircraft exists for buyers, they also will feel less pressure to close purchases quickly, and instead of agreeing to pay for any needed airworthiness repairs and refurbishment — traditionally the responsibility of sellers — buyers will again start requiring sellers to pay for such work.
With the scene set, here are some tips for sellers of aircraft with damage history to keep in mind to achieve a satisfactory sale of their plane...