Mike Chase has thirty-five year's extensive global managerial experience in marketing, sales and finance working in the corporate, commercial- airline and supplier aerospace industries. He has worked as vp-... Read More
In this month’s Aircraft Comparative Analysis, Mike Chase provides information on two popular business jets for the purpose of valuing the Embraer Legacy 650 for sale.
Over the following paragraphs, we’ll consider productivity parameters (including payload/range, speed and cabin size) and cover current and future market values for the Legacy 650. The field in this comparative study incorporates the Gulfstream GIV-SP business jet.
Embraer announced its entry into the Business Aviation market in 2000 with its Legacy 600 which made its first flight in 2001. The Legacy 600 is a business jet derivative of the Embraer ERJ-135 family of regional jets. JAA (EASA) certification was achieved in August 2002 with FAA certification following soon after. The Legacy 600 comes in two versions, including a shorter-range, higher capacity Legacy Shuttle. The jet is powered by two Rolls-Royce AE3007A1E engines each offering 7,953 lbst.
The Legacy 650 followed in 2011, based on the platform of the larger ERJ-145 to provide a longer-range version of the Legacy 600. Powered by two Rolls-Royce AE3007A2 engines each offering 9,020 lbst, the Legacy 650 has a flight level ceiling of 41,000 feet.
There are 88 wholly-owned Embraer Legacy 650s in operation worldwide. By continent, Asia has the largest fleet percentage (46%), followed by Europe (25%) and South America (14%), for a combined total of 86%.
US Flight Activity
Table A shows that the number of Legacy 650 flights increased by 5.8% in 2015 vs 2014, but the distance traveled and flight hours declined in the comparison between the two years. This is evident also by the decline in the average distance and flight times.
Payload & Range
The data contained in Table B are sourced from Conklin & de Decker but are also published in the B&CA, May 2015 issue. As we have mentioned in past articles, a potential operator should focus on payload capability as a key factor. The Legacy 650 ‘Available payload with Maximum Fuel’ (1,909 lbs) is less than the Gulfstream GIV-SP (2,019 lbs).
In addition, Table B shows the fuel usage by each aircraft in this field of study. The Legacy 650 burns less gallons of fuel per hour at 362 GPH versus the Gulfstream GIV-SP (486 GPH), according to Aircraft Cost Calculator.
According to Conklin & de Decker, the Legacy 650 cabin volume is 1,656 cu. ft. and its cabin length is 49.8ft. The Gulfstream GIV-SP, meanwhile, has virtually the same in cabin volume (1,658 cu. ft.) but is shorter in length at 45.1ft. Chart A (courtesy of UPCAST JETBOOK) shows the side-by-side comparisons. The GIV-SP offers a little more cabin width and height than the Legacy 650.
As depicted by Chart B and using Shanghai, China as the origin point, the Legacy 650 shows slightly less range coverage than the Gulfstream GIV-SP, per data from Aircraft Cost Calculator (ACC).
Note: For jets and turboprops, ‘Seats-Full Range’ represents the maximum IFR range of the aircraft at Long-Range Cruise with all passenger seats occupied. ACC assumes NBAA IFR fuel reserve calculation for a 200nm alternate. The lines depicted do not include winds aloft or any other weather-related obstacles.
As mentioned above, the Legacy 650 is powered by two Rolls-Royce AE3007A2 engines with a thrust rating of 9,020 lbs. The Gulfstream GIV-SP business jet is powered by two Rolls-Royce TAY 611-8 engines each offering 13,850 lbst.
Cost Per Mile
Using data published in the May 2015 B&CA Planning and Purchasing Handbook and the August 2015 B&CA Operations Planning Guide we will compare our aircraft. The nationwide average Jet-A fuel cost used from the August 2015 edition was $5.25 per gallon at press time, so for the sake of comparison we’ll chart the numbers as published.
Note: Fuel price used from this source does not represent an average price for the year.
Chart C details ‘Cost per Mile’ and compares the Legacy 650 to its competition, factoring direct costs and with each aircraft flying a 1,000 nm mission with a 1,600 pound (eight passengers) payload. The Gulfstream GIV-SP shows the highest cost per nautical mile at $7.32 compared to $5.85 for the Legacy 650. That’s a difference of $1.47 or 25.1% per nautical mile in favor of the Legacy 650.
Total Variable Cost
The ‘Total Variable Cost’ illustrated in Chart D is defined as the Cost of Fuel Expense, Maintenance Labor Expense, Scheduled Parts Expense and Miscellaneous Trip Expense. The Total Variable Cost for the Legacy 650 computes at $2,701 per hour, which is 15.8% less than the Gulfstream GIV-SP at $3,206 per hour.
Aircraft Comparison Table
Table C contains the pre-owned jet prices from Vref Pricing Guide for each aircraft. The average speed, cabin volume and maximum payload values are from Conklin & de Decker and Aircraft Cost Calculator, while the number of aircraft in-operation and percentage ‘For Sale’ are as reported by JETNET.
The Legacy 650 has 14.8% of its fleet currently ‘For Sale’ and the Gulfstream GIV-SP for sale is 12.2% of the fleet. The average number of transactions (sold) per month for the Gulfstream GIV-SP is higher at 5 per month than the Legacy 650 at 2 per month, as shown in the last column of Table C.
Aircraft that are owned and operated by businesses are often depreciable for income tax purposes under the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, taxpayers are allowed to accelerate the depreciation of assets by taking a greater percentage of the deductions during the first few years of the applicable recovery period (see Table D).
In certain cases, aircraft may not qualify under the MACRS system and must be depreciated under the less favorable Alternative Depreciation System (ADS) where depreciation is based on a straight-line method, meaning that equal deductions are taken during each year of the applicable recovery period. In most cases, recovery periods under ADS are longer than recovery periods available under MACRS.
There are a variety of factors that taxpayers must consider in determining if an aircraft may be depreciated, and if so, the correct depreciation method and recovery period that should be utilized. For example, aircraft used in charter service (i.e. Part 135) are normally depreciated under MACRS over a seven-year recovery period or under ADS using a twelve-year recovery period.
Aircraft used for qualified business purposes, such as Part 91 business use flights, are generally depreciated under MACRS over a period of five years or by using ADS with a six-year recovery period. There are certain uses of the aircraft, such as non-business flights, that may have an impact on the allowable depreciation deduction available in a given year.
Table E depicts an example of using the MACRS schedule for a 2010 Legacy 650 aircraft in private (Part 91) and charter (Part 135) operations over five and seven-year periods, assuming a used retail value of $17 million, per Vref Pricing guide.
Asking Prices vs Age, Airframe Total Time and Quantity
Chart E, sourced from the Multi-Dimensional Economic Evaluators Inc. (www.meevaluators.com), shows a Value and Demand chart for the pre-owned Legacy 650. The current pre-owned market for the Legacy 650 aircraft shows a total of 13 aircraft ‘For Sale’ with six displaying an asking price, thus we have plotted those.
We also added the pre-owned Legacy 600, GIV-SP and G450 business jets with asking prices (ranging from $4-28m) into our study group. The equation that we derived from these asking prices and other criteria used should enable sellers and buyers to compare, and perhaps adjust their offerings, if necessary.
While each serial number is unique, the Airframe (AFTT) hours and age/condition will cause great variations in price. Demand and Value are on opposite sides of the same Price axis. From the chart, we can tell that the market for used Legacy 650 & 600 jets and GIV-SP/G450s responds to at least four features: Years, Max Op Mach, Quantity, and Asking Prices.
Of course, the final negotiated price remains to be decided between the seller and buyer before the sale is completed.
The points in Chart F are centered on the same aircraft. Pricing used in the vertical axis is as published in the Vref Pricing Guide. The productivity index requires further discussion in that the factors used can be somewhat arbitrary. Productivity can be defined (and it is here) as the multiple of three factors:
1. Range with full payload and available fuel;
2. The long range cruise speed flown to achieve that range;
3. The cabin volume available for passengers and amenities.
Others may choose different parameters, but serious business aircraft buyers are usually impressed with Price, Range, Speed and Cabin Size. After consideration of the Price, Range, Speed and Cabin Size, we can conclude that the Legacy 650 displays a high level of productivity.
Popular attributes of the Legacy 650 are the lower cost per mile, lower variable hourly operating cost and lower fuel consumption compared to the Gulfstream GIV-SP. However, its range is shorter and maximum payload with full fuel is lower than the Gulfstream GIV-SP.
Operators should weigh their mission requirements precisely when picking the option that is the best for them.
Within the preceding paragraphs we have touched upon several of the attributes that business aircraft operators value. There are other qualities such as airport performance, terminal area performance, and time to climb that might factor in a buying decision, however.
The Embraer Legacy 650 continues to be very popular today. Those operators in the market should find the preceding comparison useful. Our expectations are that the Embraer Legacy 650 for sale will continue to do well in the used jet markets for the foreseeable future.