Jeremy R.C. Cox, Senior Certified Aircraft Appraiser and professional aircraft broker, offers his perspectives on valuing jets for resale.
The market value of a specific jet is affected by a multitude of variables, which include but are not limited to:
To begin our journey through the land of Jet Values, it’s important to define and understand various Value Terms, many of which come from the current edition of the Uniform Standards of Professional Appraisal Practice (USPAP), produced by the Appraisal Standards Board of the Appraisal Foundation.
The Definition of VALUE is “The monetary relationship between properties, and those who buy, sell, or use those properties.” Value expresses an economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value. In appraisal practice, value must always be qualified (for example market value, liquidation value or investment value).
Market Value: A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership, or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.
Forming an opinion of market value is the purpose of many property appraisal assignments, particularly when the client’s intended use includes more than one intended user. The conditions included in market value definitions establish market perspectives for development of the opinion.
These conditions may vary from definition to definition but generally fall into three categories:
Appraisers are cautioned to identify the exact definition of market value as well as its applicability in each appraisal completed for the purpose of determining market value.
Average Retail: As defined by the Aircraft Bluebook, “this…is the retail market price for an average (mid-time) used aircraft. This price is not a forecast. It is a report from the end of the previous quarter. Use the Bluebook as a guide, then check the current market.”
Wholesale: Again from the Bluebook this is a “component of Average Retail resulting in lower value. Prices and other data in the Aircraft Bluebook are editor opinions, which are based on information derived from sources that our editorial staff believes to be reliable. The publisher and editors do not assume any responsibilities for the accuracy of the source material.”
Standard Price: This ‘Factory New List Price’ assumes an aircraft with the minimum equipment as specified by the manufacturer. This price for most jet aircraft includes paint, interior and minimal VFR instruments.
Average Equipped: The second ‘Factory New List Price’ reflects the way most aircraft of a particular type left the manufacturer or completion center. It generally includes the equipment listed in the ‘BASE AVG’. Before completing our lesson in definitions, we will quickly return to USPAP for our last two…
Personal Property: Identifiable tangible objects that are considered by the general public as being “personal” - for example, furnishings, artwork, antiques, gems and jewelry, collectibles, machinery, and equipment; all tangible property that is not classified as real estate.
Real Property: The interests, benefits and rights inherent in the ownership of real estate. (As you see, the USPAP considers all aircraft as ‘Personal Property.’)
It is widely accepted that Market Values are consumer-driven, while Appraised Values are driven by experts. Unlike Market Value, Appraised Value is not necessarily the sale or purchase price of an aircraft. Rather, it is a guideline in the selling or buying process. Generally, an aircraft will not be sold for more than the Appraised Value, especially if a lender is financing the purchase. Yet the aircraft may actually be worth more than the Appraised Value to a Buyer, and a Seller, based upon their own unique circumstances.
Today’s struggling “Post Global Financial Crisis” economy appears to still be in the doldrums as it struggles to re-energize amidst random acts of terrorism, war-torn refugees, company mergers, uncomfortably high unemployment figures abroad, political embezzlement, uncooperative opposing government factions, and an intensely wasteful US Presidential election (two years!).
I would argue that there really is no such thing as stable Retail and Wholesale Values anymore.
Today’s market most definitely favors the jet buyer. The majority of sales transactions that I see going through other brokerage firms appear to be priced at or below the quoted Wholesale book value, rather than anything close to quoted Retail. This situation supports my argument that Retail and Wholesale have merged into one Lower-Value, which I now prefer to call “Base Merged Value.”
Over the coming months, we’ll consider a variety of Jet Value Concepts as well as issues that include Damage History, Missing Logbooks, Condition, Status, Modifications, and a series of Aircraft Model Specific Points of Value. Please stay tuned.