The proverbial question and the considerations to help answer it…
Today, there are a large number of great aircraft from which buyers can choose. The differences between new and used aircraft are significant, however, with price being only part of the story. David Wyndham explores how to decide among available options.
Consider the Large Cabin jet market. Since the 2008 recession, this segment stayed relatively safe from the significant descent in used aircraft prices—that is, until 2015. In the last two years, declining oil prices and a slowdown in emerging markets saw new aircraft deliveries of Large Cabin jets decline 8.2% from 2014 to 2015, and 20.6% from 2015 to 2016 totals. Bombardier, Dassault and Gulfstream have all reduced the number of expected new jet deliveries in 2017 too.
The Vref Index for Late Model Large Jets fell 52% over the past five years. It consists of the used selling prices for late model Bombardier Global 5000, Gulfstream G450, Gulfstream G550, Falcon 900EX, Falcon 7X and Embraer Legacy 650 jets.
Discussions with a few experts in the finance industry indicate that a 10% per year decline in values is a good estimate for at least the next two years.
Based upon recent market dynamics, a 10-year old version of these aircraft can be purchased with an average savings of $38m over their list price when new (source, Vref 2017 Volume 2). Within all available model years, AMSTAT indicates reasonably good aircraft availability of these popular business jets, see Table A.
Before we close this case in favor of purchasing used aircraft, consider all the evidence. Remember to set up a competitive acquisition and evaluate all the variables beyond just price.
Big Issue Considerations
New business jets offer the latest in avionics that meet all current and known future air navigation requirements. You specify the aircraft’s paint colors and style, and configure the interior with the layout, materials and options that you desire. Once the aircraft is delivered and accepted by your aviation department, flight operations can begin immediately.
Such is not the case with used aircraft; there may be many considerations that cost both time and money, including the aircraft coming with whatever the current owner has for paint and interior. The avionics, while certainly modern and capable, may not meet all the known future air navigation requirements. Below are some rough budget costs for some items that your used Large Cabin jet may require to satisfy your needs:
New aircraft are delivered ready to operate, with zero maintenance due. All of their engines and components have zero time on them. Almost all unscheduled maintenance for a given period of time is covered by the new aircraft warranty.
Used business jets typically fly 300-500 annual hours. Thus used aircraft arrive on your ramp with wear and tear on the airframe, engine and systems. Most business jets tend to require some major scheduled maintenance every six-12 years. Inspections schedules vary, so budget $500,000 to $2m for airframe maintenance on your used aircraft for the first year.
Large Cabin business jet engines may be operational for 7,200 hours or more before needing major maintenance or an overhaul. Within this aircraft category, aircraft engines typically are on a guaranteed hourly maintenance program. If not, overhaul costs can run to $1m+ for each engine.
Putting the used aircraft into service won’t require that all the above items be accomplished, but comprehensive aspects of the aircraft selected must be considered.
What needs to be done will cost both money and time.
At a minimum, paint and interior work are needed every six to eight years. Avionics upgrades are commonly needed by then as well. Minimum time to get this work done varies with the complexity of the required tasks, but budgeting between three and six months is prudent.
The Last Item for Your Consideration
The models used as examples in this article are still in production and are among the finest their manufacturers produce. There are newer designs, however, with bigger cabins, more speed and more capability entering the marketplace. An example is offered in Table B.
Availability of good, used jet models of recent designs is limited, even in the current buyer’s market. Finding the proper balance between timely availability, optimum equipage, pristine livery and price depends on your company’s mission and use for Business Aviation.