Aviation Director Andre Fodor reflects on the risks and rewards of exploring all options when selecting your next business jet.
As a child of immigrants, it was ingrained in me growing up to be financially resourceful. When I told my parents that I’d purchased a brand-new minivan to accommodate my growing family, they were quick to remind me of the loss in value that would be incurred just by driving the car out of the dealership.
The low interest rates, discounted pricing, bundled accessories and all inclusive maintenance couldn’t sway them from their stance.
Airplanes in those respects are just like cars. They come with similar purchase incentives, and suffer depreciation in similar fashion. For many flight departments, that makes a discussion about whether to buy a new or used aircraft a very pertinent topic.
Purchasing a New Jet
There is nothing like a shiny paint job, stain free carpet, headliners free of scuffs, and that brand new smell in a new aircraft. The maintenance logbooks are thin, and you can set up everything exactly as you want them to be.
With that being said, you will also have in your hands an ‘infant aircraft’, that is approximately two years short of maturity and reliability, prone to youthful tantrums, malfunctions, failures and post-manufacture squawks that will be yours to manage and overcome through warranty, maintenance programs and professional relationships.
With the purchase of a brand new aircraft, you should select the latest avionics advancements that can be afforded. The goal here is that the airplane will not require costly upgrades, or become technologically obsolete for several years. If you are selecting a new airplane, it’s important to avoid the common mistake of dismissing the purchase of an advanced avionics system in favor of cost savings.
Upgrading later can not only be costlier, but may significantly add to the inconvenience of downtime (and loss of dispatch ability).
Note that many later upgrades of this nature require significant interior removal within the aircraft.
By getting the upgraded systems when you first buy your new aircraft, price and taxation are diluted through the acquisition cost and there will be no labor costs associated with the installation.
On the more general subject of taxation, it is worth considering that many countries promote sales through tax incentives on new aircraft. It’s therefore essential that your legal and finance team be well-versed in the advantages of early depreciation, tax friendly locations, self-leases and any other opportunities for money savings. For companies with heavy tax burdens, the purchase of a large asset may offset higher tax brackets.
Finally, consider that when buying brand-new, you will want an experienced professional to accompany the aircraft through its manufacture and certification, assuring that you are getting a high quality jet right from the ‘cradle’.
Purchasing a Used Jet
The alternative option is to acquire a used jet. With current global financial conditions, exciting opportunities exist for the acquisition of very nice aircraft at an equally attractive price.
Be sure to know your mission requirements thoroughly – not only for now, but for the medium-term, because you may find it tempting to buy a larger jet than you need because the purchase price is cheap. The operational costs on a larger airplane will certainly be a sticker shock to the unwary!
Buying an older aircraft offers interesting opportunities providing the pedigree of the aircraft is nothing but excellent. Beware of the bottom prices: take the time to learn the history - do your research thoroughly. Prices that differ wildly from market averages (particularly to the south of the market average) are very likely to come with history, possible legal issues, poor care or damage history.
I once met an operator who had purchased a used jet for a bargain price, only to find that it previously belonged to Libya’s Muammar Gaddafi. The records were sketchy, and upon its first landing in the US, it was impounded due to unpaid bills.
An experienced broker would have been able to raise the much needed information to prevent such purchase from being made.
Purchasers of used aircraft must be willing to set money aside for upgrades. In one respect, the airplanes don’t depreciate in value as quickly as new airplanes do (there’s a much steeper depreciation curve at the beginning of an aircraft’s life), and the purchase price is lower, which may enable a larger budget towards upgrading the jet at an appropriate time.
As always, you should build a solid team of experts that can help you identify a used airplane of excellent pedigree, know all of the right upgrades to keep it viable into the future, and handle the buying and upgrading process without ending up with a costly, heavy inspection (for example) that was not calculated into the acquisition price.
Finally, make sure that any residual warranties and engine and/or maintenance contracts are transferable, and check whether there are any ‘buy-in’ fees regarding these attributes. Be sure there is an ample supply of parts available in the market to keep your aircraft flying and productive well into the future.
Regardless of where you choose to go with the new or used aircraft discussion, surround yourself with expertise and experience. These resources will prove to be money well spent and will discourage you from bad decisions and the dreaded buyer’s regret.
Stay focused on the end-game, which is to secure a fair deal to all involved and an airplane that will provide your flight department with reliable and efficient corporate transportation for years to come.
This article features in AvBuyer's 2018 Yearbook. Read the full edition here.