In this month’s Aircraft Comparative Analysis, Mike Chase provides information on two popular business jets for the purpose of valuing the Gulfstream G550. The field in this comparative study includes the Dassault Falcon 7X business jet.
Over the following paragraphs, we’ll consider productivity parameters (payload/range, speed and cabin size) and cover current and future market values for the Gulfstream G550. According to Vref, a 2015 G550 has a list price of $52m.
The Gulfstream G550 traces its roots to the Gulfstream GV, which was the first ultra-long-range large-cabin business jet produced at the time of its first delivery to customers in 1995. Most notable about the GV is its 6,500nm range, made possible (in part) by the BR710A1-10 engines that power it. The GV’s range makes it capable of non-stop flight from New York to Tokyo.
Features on the GV include enhanced weather radar, autopilot and head-up display for the pilot. Safety features included the first Enhanced Vision Systems (EVS), which allow increased visibility in adverse environments. The aircraft is also fitted with commercial and military communications equipment to provide secure voice and data capability.
Two new aircraft followed the GV, the Gulfstream G550 in 2003 and the G500 in 2004. The G550 relinquished its title as the top-end of Gulfstream’s in-service product line with Gulfstream G650 deliveries that began at the end of 2012.
Today there are 480 wholly-owned Gulfstream G550 aircraft in operation worldwide, an additional eight G550s in shared ownership and 14 in fractional ownership (combined total of 502 units). About one-fifth (102 units totalling 20.3%) of the G550s in operation are leased, according to JETNET.
The G550 fleet is widely spread around the globe. North America has the largest fleet percentage at 58%, followed by Asia (23%) and Europe (13%), for a combined total of 94%.
Payload & Range
Data contained in Table A are sourced from Conklin & de Decker, and also published in the May 2015 issue of B/CA. As we have mentioned in past articles, a potential operator should focus on payload capability as a key factor. The G550’s ‘Available payload with Maximum Fuel’ (2,500 lbs) is more than the Falcon 7X’s (1,660 lbs).
In addition, Table A shows the fuel usage by each aircraft in this field of study. The Gulfstream G550 burns more at 402 gallons per hour (GPH) than the Falcon 7X (347 GPH) according to data sourced from Aircraft Cost Calculator.
According to Conklin & de Decker, the G550 cabin volume is 1,812 cubic feet and its cabin length is 50.1 ft. The Falcon 7X is smaller in cabin volume (1,506 cu. ft.) and shorter in length at 39.1 ft. The Layout of Passenger Accommodations (LOPA) comparison can be viewed here.
Meanwhile, Chart A (courtesy of UPCAST JETBOOK), shows the side-by-side comparisons. The two aircraft share cabin height dimensions (6.2ft), while the Falcon 7X is wider at 7.7ft versus a 7.3ft width for the G550.
As depicted by Chart B and using Wichita, Kansas as the origin point, the G550 shows considerably more range coverage than the Falcon 7X, as sourced 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.
The G550 is powered by two Rolls-Royce BR710-C4-11 engines, each with a thrust rating of 15,385 pounds. The Falcon 7X business jet is powered by three Pratt & Whitney Canada PW307A engines each offering 6,402 pounds thrust.
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 G550 to its competition, factoring direct costs with each aircraft flying a 1,000nm mission with a 1,600 pound (eight passengers) payload. The G550 shows the highest cost per nautical mile at $6.04 compared to $5.33 for the Falcon 7X. This is a difference of 71 cents, or 13.3% cost per nautical mile.
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 G550 computes at $2,737 per hour, which is 17.2% more than the Falcon 7X at $2,336 per hour to operate.
Aircraft Comparison Table
Table B contains the pre-owned 2008-model 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 G550 has 6.2% of its fleet currently ‘For Sale’ and the Falcon 7X has 8.5% for sale. The average number of new deliveries and pre-owned transactions per month is higher at 6.9 per month for the G550 than the Falcon 7X (2.3 per month), as shown in the last column of the table.
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 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 2015 G550 aircraft in private (Part 91) and charter (Part 135) operations over five and seven-year periods, assuming a used retail value of $52m, per Vref’s Pricing guide.
Asking Prices vs Age, Airframe Total Time & Quantity
Chart E, sourced from the Multi-dimensional Economic Evaluators Inc. (www.meevaluators.com), shows a Value and Demand chart for the pre-owned Gulfstream G550. The current pre-owned market for the G550 aircraft shows a total of 31 aircraft ‘For Sale’ with 17 displaying an asking price, thus we have plotted them.
We also added the pre-owned Falcon 7X business jet in our study group with asking prices ranging from $23m-$43m. 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 time/hours (AFTT) and age/condition will cause great variations in price. For example, in Table E are four 2003-model G550s listed ’For Sale’ with AFTT hours ranging from 1,392-6,686. Two have ‘asking prices’ and two encourage prospective buyers to ‘make offer’.
Here, we aim to determine how to use the demand curve for a) the two G550s with asking prices, and b) the two G550s with the ‘make offer’ label to gain a useful predictive asking price.
Demand and Value are on opposite sides of the same price axis. Thus, the market for a used G550/Falcon 7X responds to at least four features: Years, Airframe Total Time (AFTT), Quantity and Asking Prices.
The points in 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 (as done 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 G550 displays a high level of productivity.
Popular attributes of the G550 are a larger cabin volume compared to the Falcon 7X. It also has greater payload capability and range, however price and costs per mile and per hour are higher for the G550. 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 Gulfstream G550 continues to be very popular today. Those operators in the market should find the preceding comparison useful. Our expectations are that the Gulfstream G550, which started delivering in 2003, will continue to do very well in the pre-owned markets for the foreseeable future.
Nevertheless, we recommend buyers and sellers pay close attention to the market, and in particular any market displacement of the G550 as a knock-on effect of the Gulfstream G500 and G600 with are expected to deliver in 2018 and 2019 respectively.