The 8 Steps to Evaluate Business Aircraft

How can you define your business aircraft acquisition process and ensure the jet or turboprop you buy is the right aircraft for your mission need and budget? The following eight steps should help refine your selection...

Buying a business aircraft can be a daunting task. Each OEM will come up with its own unique comparison matrices and metrics; some aircraft dealers or brokers may try to push their own pre-owned inventory; fractional operators may press home the advantages of their program, even for users flying over 200 hours per year; and so on...

Finding an independent Business Aviation consulting firm can provide you with an objective opinion and help you avoid paying more than necessary or, worse, being negatively impacted by the hidden costs of aircraft ownership and residual value.

The following eight steps will help define the business aircraft acquisition process and clarify your personal, business, and operational requirements to guarantee client satisfaction.

Step 1: Define the Mission Need

It is crucial to define your typical aircraft mission requirement before looking at aircraft for sale, including:

• Range
• Most regular destinations
• Number of flight segments
• Frequency of flights
• The need: non-stop vs. one or multiple stops to pick up business team members
• Operating base location
• Average number of passengers
• Number of hours
• Capital expenditure
• Luggage requirements
• Cabin size, and
• New vs. pre-owned (as well as any cabin layout preferences and flight deck specifications).

Having a clear idea of these requirements will help sharpen your focus when you do begin shopping the market.

Step 2: What Segment are You Shopping?

Second – and based on Step 1 – which potential jet segments should be considered? There can be subtle differences that have implications for the cost of ownership. For the purpose of illustration, we will focus our article on the Super Mid-size and Large Cabin Jet  segments….

Step 3: Establish a Preliminary Shortlist of Target Aircraft

Next, illustrated in Figure A, identify an initial list of target aircraft and proceed to eliminate the options that don’t meet the required specifications. Once you have a list of no more than five potential aircraft (ideally fewer), you have your preliminary list ready.

You are now ready to thoroughly analyze all aircraft on the shortlist to identify the best option that either meets or exceeds expectations.

Step 4: Compare Your Preliminary Shortlist Aircraft

Using a number of metrics, compare the preliminary shortlist aircraft against each other. What is the hourly fuel burn versus range capability of each? (Fuel is the largest operating cost, and can account for more than 50% of an aircraft’s cost per hour).

Moreover, you should compare an aircraft’s price against its productivity index (depicted in Figure B). For the purpose of this article, Figure B shows the best Super Mid-size jet from our shortlist is ‘Aircraft A4’, and from the Large Cabin Jet segment ‘Aircraft A1’ is better, since both rank higher on the productivity index.

The following metrics should also be used to compare the aircraft options on your preliminary shortlist:

• Payload vs. Range Capability
• Year 1 Hourly DOC vs. Range Capability
• Year 1 DOC per Seat Mile vs. Range Capability
• Price vs. Range Capability
• Passenger Cabin Volume vs. Range Capability
• Residual Value.

Step 5: Narrow Shortlist to Two Candidate Aircraft

After some thorough comparisons, you should be ready to summarize mission profile vs. aircraft capability and identify the two options on your preliminary shortlist that meet or exceed your needs.

As demonstrated in Figure B, for our case study ‘Aircraft A1’ and ‘Aircraft A4’ are the aircraft that progress through to the final evaluation stage.

Step 6: Consider Costs, Cash Flows and Net Present Values

Execute an exhaustive aircraft comparison that includes costs, cash flows and Net Present Values (NPV) of the two aircraft options. Several assumptions will need to be made to carry out a five-year cash flow analysis, including:

• Financing rate and timeline
• Inflation rate
• Depreciation method
• Flight and cabin crew requirements
• Fuel cost per gallon
• Tax implications
• Aircraft utilization
• Asset disposal timeline, and
• Estimated aircraft residual value.

Step 7: Make your Selection, Based on Lowest Overall Cost and NPV

Pick the option representing the lowest overall cost and lowest Net Present Value. Figure C shows that from our example case study ‘Aircraft A4’ would generate greater value and a higher return on our invested capital. But don’t forget to also consider the residual values, which represent the largest hidden cost of aircraft ownership.

Step 8: Optimize Your Business Case

If you want to improve your business case, add any headcount savings and labor productivity enhancements that are associated with operating a business aircraft. Essentially, business jets are time machines. It is estimated that commercial fliers lose many unproductive business hours on every leg of a journey they travel that would not be lost if they flew on a business aircraft.

Corporate aircraft help executives to be in multiple places on the same day, and return home for dinner (helping optimize professional and personal lives).

Moreover, some of the cost of aircraft ownership can be offset by choosing a Part 135 company to operate the aircraft in a charter program, lowering your fixed costs while covering variable hourly costs.

Additional Thought (When Buying New)…

Finally, if you are planning to buy a new jet, negotiating a number of key items with the OEM could change the balance over other options. A list price discount of 1% on a $30m jet would equal $300k. Moreover, you should:

• Factor the financing rate and package adjustments (0.5% lower interest rate equals an estimated savings of $500K),
• Consider the additional OEM and non-OEM service support incentives, and
• Negotiate a larger minimum critical stock at no additional cost, and extended warranty terms and conditions.

There are other factors, too, such as lower spare parts cost and engine plan rates; additional initial training courses in Year 1 (in case of pilot turnover, as you may want to be protected from any additional training-associated costs); free recurrent training for two pilots in Year 2; and guaranteed residual values.

In Summary…

When evaluating the right business jet plane for your needs, resist the urge to make a decision based on emotion. This can be costly in the end. By using this eight-step guide, you can professionally compare your options and arrive at the aircraft that makes the best financial sense.