When buying a business jet, is it better to buy a 'project', or to purchase an aircraft that’s already been upgraded? How do the variables affect the price a buyer should pay? Jet Tolbert provides some insights…
Private Jet at Sunset
Is it better to buy a project? Or is it best to purchase an aircraft that’s already been upgraded? How do the variables affect the price a buyer should pay? Jet Tolbert provides some insights…
Currently there is a smorgasbord of upgrade options available to aircraft owners, so when considering your next aircraft purchase it’s important to begin to understand how they might impact an offer.
In today’s market many sellers are willing to hold out for top dollar to recuperate any investments they may have made to upgrade their aircraft with the latest amenities and avionics.
This may be acceptable to the buyer if the aircraft’s value is in keeping with current market conditions.
But buyers need to assess whether they’re paying a higher price for an airplane that has upgrades they don’t necessarily need or want.
Similarly, will the upgrades retain some of their value when time comes to resell the jet?
Some aircraft upgrades are a little more ‘subjective’ in their nature, offering no guarantee the buyer will recover the additional cost when they eventually come to sell.
Some buyers simply prefer to purchase an airplane for less, taking the time to install required updates as they need them and ensuring they only pay extra for what is absolutely necessary to their own mission requirements.
So how can a buyer determine a fair aircraft value in relation to required or existing upgrades? Following are some pointers intended to help answer some of the questions…
Advice on Turn-Key Airplanes
While it’s true that last month’s sales are old news and that the aircraft currently available ‘For Sale’ are more representative of today’s market, there is still much to be learned from the recent transactions.
Often, recent sales history can tell much about the buying trends towards certain upgrades, and their impact on resale value.
For example, does that brand new Wi-Fi system add value to a Light jet? Is a complete avionics retrofit a driver to sales activity on a specific Long-Range model? What are the other trending buyer preferences?
Prices and the unique circumstances of an aircraft sale are not generally to be found in the public domain, but a well-connected broker should be able to help shed some light on the details of recent activity, advising on the current market trends, and help distinguish ‘best-value’ from unreasonable expectation that could cause a buyer to miss out on a great deal.
Advice on Buying a Project
Usually sellers will not discount the price of their aircraft to account for every upgrade that a buyer wants in order to customize the airplane. If, as a buyer, you are seeking for upgrades to be made to a preferred purchase option, you can probably expect to buy a ‘project’ airplane nearly dollar-for-dollar less than the cost of mandated avionics upgrades (where required).
However, the avionics and cabin upgrades that are a buyer preference (as opposed to an FAA mandate) would need to be valued on a case-by-case basis. Usually, sought-after upgrades not mandated by an aviation authority, but considered necessary by buyers (i.e. Wi-Fi) will mean less in terms of an aircraft’s value.
As an example, fewer Light jet owners would be willing to pay an extra $4k/month for Wi-Fi that would only be used on relatively short trips, so state-of-the-art Wi-Fi installed on a Light jet will naturally be seen as less important than it would for a longer-range aircraft.
Thus, larger jets not equipped with Wi-Fi are more likely to see a deduction in value equivalent to the cost of Wi-Fi installation, whereas for the Light jet a deduction in value is less likely. Different items differ from market-to-market. Wi-Fi is only the tip of the iceberg.
Structuring the Purchase
Buyers must be realistic. Although for many years, the market has been stacked in the buyer’s favor, those expecting to make an offer whereby a seller includes new paint, interior and other upgrades are often disappointed. Aircraft sellers tend not to seriously engage on such ‘desired’ terms.
Nevertheless, an experienced purchase team with a deep understanding of both the buyer’s needs and the seller’s expectations will be able to help negotiate and structure a deal that will get the aircraft sold, and into operation in the shortest time, helping the buyer decide whether the turn-key aircraft or project aircraft is the better option, and why…