In this month’s Aircraft Comparative Analysis, Mike Chase provides information on a selection of pre-owned business jets for the purpose of valuing the Boeing Business Jet (BBJ).
A new 2015-model Boeing BBJ has a list price of $73.5m (2014). We’ll consider the productivity parameters (payload/range, speed and cabin size) of the BBJ, and address its current and future market values.
The field in this study includes the Airbus ACJ320 and the Gulfstream G650. Perhaps you have ultra-long-range needs, but there are other considerations when deciding to select an aircraft as large as a BBJ...
The market for large executive-cabin class aircraft began in the late 1950s with the introduction of the Boeing 707. Aftermarket conversions of Boeing, McDonnell Douglas, Airbus and BAC have been occurring ever since.
The demand for airliner-sized business jets pressed two leading commercial OEMs to address the market specifically with the BBJ (Boeing Business Jet) and ACJ (Airbus Corporate Jet) in the late 1990s. Boeing reacted to the ‘Bizliner’ demand in 1998 when it delivered the first Boeing Business Jet using the fuselage of the 737-700 with the strengthened wings and landing gear of the larger 737-800. Airbus followed with the Airbus Corporate Jet (ACJ) a year later.
Fast-forward into 2015, and Bizliners number 254 units in operation (per JETNET) with 153 (60%) of the total fleet made up by Boeing-built aircraft.
These spacious jets are commonly used by sports teams, governments and various global corporations worldwide. Of the 153 wholly-owned BBJs in operation worldwide (none are in shared- or fractional ownership) Asia has the largest percentage of the fleet (40%), followed by North America (35%), accounting for a combined total of 75%. An additional 12 (9.4%) of the BBJs are leased, according to JETNET.
Payload & Range
The data contained in Table A are sourced from Conklin & de Decker and B&CA’s May 2014 edition. A potential operator should focus on payload capability. The ‘Available payload with Maximum Fuel’ for the BBJ is 2,023 lbs, which is considerably less than the ACJ320 (10,400 lbs). However, it is greater than the G650 (1,800 pounds).
Also depicted is the fuel usage by each aircraft model in this field of study. The G650 at 453 gallons per hour (GPH) leads the other competitors as most fuel frugal. However, comparing the BBJ to the ACJ320 the average fuel usage shows 682 GPH (16% less fuel burn than the ACJ) per Aircraft Cost Calculator.
Ed Note: When viewing performance data for the aircraft contained within this Comparative Analysis, readers should be mindful of the several versions of ACJ and BBJ models available from the manufacturer and within the pre-owned marketplace. The ACJ suite includes the ACJ318, ACJ319 and ACJ320. Boeing’s models include the BBJ1, 2 and 3. Different models from the same manufacturer have different performance figures. Since these Bizliners are custom outfitted, empty weight and thus useful load may differ for identical models. Also, identical models also may be fitted with different fuel tanks, thereby offering different range performance.
According to Conklin & de Decker, the cabin volume of the BBJ (5,396 cubic feet; length 79.2 feet) and the ACJ320 (6,825 cubic feet; length 91 feet) are more than twice the cabin volume and more than 48% greater than the cabin length of the Gulfstream G650 (2,421 cubic feet; 53.6 feet). The respective cabin cross-sections are represented in Chart A, courtesy of UPCAST JETBOOK.
As depicted by Chart B, using Shanghai, China as a starting destination, according to Aircraft Cost Calculator (ACC) the BBJ shows more range coverage than the ACJ320, but less than the Gulfstream G650, which can connect city-pairs 6,800nm apart. The map should illustrate what makes the BBJ attractive to the Chinese market.
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.
The BBJ is powered by two CFM International CFM56-7 engines, each offering 27,300 pounds of thrust (lbst). The ACJ320 uses CFM56-5B4 powerplants, each offering less thrust at 23,600 lbst while the Gulfstream G650 is powered by Rolls-Royce BR725-A1-12 engines, each offering 16,900 lbst.
Cost Per Mile
Using data published in the May 2014 B&CA Planning and Purchasing Handbook and the August 2014 B&CA Operations Planning Guide we will compare our aircraft. The nationwide average Jet-A fuel cost used from the August 2014 edition was $6.18 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.
‘Cost per Mile’ (depicted in Chart C) factors direct costs and with all aircraft flying a 1,000nm mission carrying a 1,600 pound (eight passengers) payload. The ACJ320 shows the highest cost per nautical mile at $13.60 compared to the BBJ at $11.15.
Total Variable Cost
Meanwhile, the ‘Total Variable Cost’ as reported by Conklin & de Decker, 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 BBJ shows a cost of $7,489 per hour, which falls between the two competitors.
Aircraft Comparison Table
Table B contains the used retail prices from Vref for each aircraft. The average speed, cabin volume and maximum payload values are from B&CA and ACC, while the number of aircraft in-operation and percentage ‘For Sale’ are as reported by JETNET. The ACJ320 and G650 have less than 10 percent of their respective fleets currently ‘For Sale’ while the BBJ fleet sees 11.8% for sale, averaging a sale per month at present.
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 C.
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 commercial 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 D depicts an example of using the MACRS schedule for a 2014 model Boeing BBJ in private (Part 91) and charter (Part 135) operations over five- and seven-year periods, assuming a used retail value of $73.5m as sourced from B&CA.
Asking Prices vs Range, Age 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 BBJ and several other Large Cabin & Ultra-Long-Range Business Jet models including the ACJ320 and Gulfstream G650.
The current pre-owned market for Boeing BBJ aircraft shows a total of 15 aircraft ‘For Sale’ with four displaying an asking price, thus we have plotted those four. We also added to the mix other pre-owned business jets of a similar ilk with asking prices ranging from $72.5m down to $24.5m. 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.
Demand and Value are on opposite sides of the same Price axis. Thus, the market for used Boeing BBJs responds to at least four features: Years (age), Cabin Height, Price and Quantity.
The points in Chart F are centered on the same group of aircraft. Pricing used in the vertical axis is as published in Vref. 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.
After consideration of the Price, Range, Speed and Cabin Size, we can conclude that the Boeing BBJ, as shown in the productivity index, is productive compared with its competitors - largely due to the fact that the Boeing BBJ competes head-on with the Airbus ACJ business jets while offering a lower variable cost per hour. However, it does burn more fuel (GPH) than a purpose-built Ultra-Long-Range business jet.
So there are good reasons for those who are in the market to consider a BBJ. One of the primary reasons is cabin and cargo baggage hold space, which is very large. Typical interiors include seating for 14 to 27 passengers, conference tables, additional conference rooms, sleeping quarters, bathroom with showers and gourmet galleys. Operators should evaluate their mission requirements precisely when picking which option 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 performance that might factor in a buying decision, too, however.
The Boeing BBJ continues to be popular in the pre-owned market today. Those operators in the market should find the preceding comparison of value. Our expectations are that the BBJ will continue to do well in the pre-owned market for the foreseeable future.