Jay Mesinger is the CEO and Founder of Mesinger Jet Sales. With over 40 years’ experience in the... Read More
...The Role of the Board.
To avoid potentially costly surprises as new technologies become available- Jay Mesinger suggests that Board Members need to be aware of many acronyms within aviation.
The new and updated acronyms of aviation electronics and procedures—ADS-B Out- CPDLC- FANS 1/A- TCAS II 7.1- PM-CPDLC—seem like a list that never ends. Their dates for compliance are just as daunting. Some countries already mandate these advanced avionics capabilities- whereas others have allowed operators as many as six more years before equipage is required. But what does this all mean to Board Members? It means that without these avionic modifications your current aircraft or one you might be considering could be very limited in its area of operation.
This article is not a technical evaluation of these upcoming requirements (many such documents exist). Rather- it is meant to help the governance body of the acquiring or operating company comprehend the cost of these modifications while considering the return on the investment of an aircraft without new avionics.
The current market for business aircraft is segmented in ways we have never experienced in prior recoveries. Prices are continuing to drift downward- and never before has the age of the aircraft been as strong a factor in determining future value. Even though many banks and lending institutions will claim they are open for business- the requirements of most are very restrictive concerning the issue of age. Aircraft over ten years old may not be eligible at all for financing by the lion’s share of the banks and lending institutions.
Certainly 15 years old is a cut-off age. This situation has created hard line segmentation and unequal percentages of residual-value loss across the universe of business aircraft. As we discuss the need for business aircraft- even those that will be operated only in the US- there will be a date when all business turbine aircraft require some modification. Generally the older the aircraft the higher the potential cost of these modifications due to equipment upgrades that may already be incorporated in newer aircraft.
Such requirements will further cement the segmentation around age. For example- if you own a very old Learjet and are totally committed to it being flown only within the USA- the ADS-B Out mandate will still apply. So by 2020- a significant investment will be needed for domestic operations.
Some airframe manufacturers will not support the upgrading of current cockpit configuration to the new domestic and international requirements. This lack of OEM support will make the investment even greater due to having to modify the entire avionics suite. As an example- consider the Falcon 2000. To satisfy the FANS-1A requirement needed for operations in many areas of the world- Dassault will require a minimum of a Collins ProLine 21 cockpit rather than a ProLine 4 (which is the fleet standard on the classic Falcon 2000).
This upgrade alone can cost upwards of $800-000 before you begin to absorb the cost of the compliance modifications with the FANS-1A solution. It is dizzying- and I promised we would not go technical!
Some Encouraging News
I believe that the future investments in most of these older aircraft will be worthwhile- and I do believe they will make the compliant aircraft worth more at the time of aircraft resale than what you invest over and above the current value of the aircraft.
While being careful not to paint with too broad a brush- I believe there will be a new segmentation created by the haves and the have-nots with respect to these avionics upgrades. Some very old aircraft that are also facing engine overhauls or heavy airframe maintenance might not warrant additional investment- however. Such machines will be nudged even quicker into extinction.
As a Board Member- be aware as you enter into an acquisition mode that significant avionics modifications are looming. Seek the advice of an expert- be they an employee in your flight department or an outside consultant who is well-versed regarding impending mandates and requirements. Eventually there will be no such thing as an exempt aircraft. The newer aircraft and brand new aircraft may have some of these requirements designed in at production.
There are new costs associated with the ongoing ability to operate both internationally as well as domestically. No one brand is any more or less impacted. Some manufacturers will create solutions that may or may not require full cockpit modernization- so experienced consultants have never been more important to the transaction- whether buying or selling.
If selling- be sure to understand the questions that well coached buyers will be asking. Be prepared with a clear understanding of your specific aircraft’s needs and costs associated with impending avionics requirements. Being unprepared will damage your ability to negotiate successfully.