The Key to Your Aircraft’s Value (Part 3 of 3)

The essentials of business jet asset management…

David Wyndham  |  25th September 2016
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David Wyndham
David Wyndham

David Wyndham is executive sales director & acquisition specialist with Par Avion Ltd. Based in Sebastian,...

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Dassault Falcon Jet

David Wyndham concludes his series on the value of a company’s aviation assets, this month focusing on areas where strict compliance with FARs and good management are essential.

Unless the paperwork says it is airworthy, a business aircraft is a very expensive ornament. All countries throughout the globe specify minimum standards for airworthiness. In the USA, FAA oversees airworthiness and in Europe, EASA sets the standards. In order to maximize the value of a business aircraft, therefore, the company’s Director of Aviation must establish and maintain a management system that guarantees regulatory compliance.

Aviation records need to be thorough, organized and backed-up. Aircraft records can be paper or computerized. Most operators of turbine aircraft, however, have several computerized maintenance record providers available to them. Whatever process is used, a backup is essential.

If the aircraft is heading off to a major maintenance check, records of previous maintenance must be with the aircraft and duplicate copies should be stored in a second, safe location. The company’s aviation manager is obliged to monitor not only the required maintenance, but also the optional items such as service bulletins that can add usefulness or value to the aircraft. The absence of good maintenance records will devalue any aircraft, no matter how clean it many appear to the seller or potential buyer.

More than Just Aviation

The asset value of aviation equipment often exceeds $100m. Even for a company with only one aircraft, aircraft and support equipment in excess of $10m is not unusual. Thus managing a Flight Department requires knowledge of asset evaluation as well as techniques for establishing and effectively applying cost controls.

The Aviation Manager must possess financial prowess and have access to an effective set of tools for evaluation and controlling costs. One of those “tools” is a good working relationship with the company’s Chief Financial Officer and the ability to communicate clearly with those at headquarters who manage the company’s overall assets. Another is tracking the value of the company’s business aircraft as the market for business aircraft continues its cyclical oscillations.

Lack of awareness about market conditions risks being caught off guard if challenged by company officers who are concerned about the assets invested in Business Aviation.

Rather than be involved with the cost of each aviation nut and bolt, the CFO needs only to know that company assets are being well-managed. But when a question is asked, the Aviation Department Manager should have a ready and justifiable answer. Owners want to be assured that the Aviation Department is keeping a close eye on aviation assets as well as operating costs. Thus budgeting is essential as well as monthly accounting of variances between actual and budgeted expenditures.

Know When to Seek Help

Today’s economic environment, which is characterized aircraft depreciation and loss of market value in excess of historic norms, presents opportunities as well as challenges for the company desiring to upgrade its current fleet. When evaluating an acquisition, the Flight Department Manager as well as the company’s senior management need tools that can alert them when a carefully crafted trade can be advantageous. Management consultants and specialists in aircraft sales are available to evaluate current market conditions, and to apply tools for analyzing the cost-benefit of the various options.

To assist outside consultants, or to conduct in-house evaluations, records pertaining to the Flight Department and its assets are critically important. Adjunct to the maintenance records is the pedigree of the maintenance itself. Not only must the maintenance be documented, but the thoroughness of the documentation and recording who did the work can add value as well. There are many well-regarded maintenance facilities.

While managing the cost is important, a “cheap” job can be penny-wise and pound foolish. For example, if the interior of the company aircraft is done by a shop well respected for their work, not only can it add to value of your aircraft, but it can also mean better quality materials and a longer-lasting job.

Damage history often has a negative effect on the residual value of an aircraft. While training and safety systems need to be in place to minimize the risk, damage can still occur.

Proper documentation can negate some of the diminution of value, however, by providing a detailed and thorough reflection of the extent of the damage as well as the steps taken to repair and return the aircraft to service.

Documentation must demonstrate that the aircraft has no hidden damage.

As a popular aircraft model ages, many third-party companies will offer after-market modifications. Some offer a re-engine program that promises more speed and reduced fuel consumption. Aerodynamic modifications such as winglets are common. As avionics advance in capability, it is possible to put the latest safety and navigation systems in an older aircraft. As a general rule, these modifications should enhance the reliability, maintainability, performance and safety of the aircraft.

Interior upgrades should enhance the passenger experience and comfort. The more common these modifications are to the rest of the fleet, the more likely they are to add value.

But beware: modifications must be done judiciously and with considerable forethought.

Lastly, guaranteed hourly maintenance programs (GHMP) are becoming more a requirement than an add-on with respect to value. The value of these programs, suitable for a separate discussion, can be summarized in their excellent records, offering you and any potential buyer a consistent maintenance budget, and providing unscheduled maintenance coverage.

Selling any aircraft with 500 hours until a scheduled engine overhaul will not command a high selling price. But with the engines on a GHMP, any potential buyer will know the cost of the overhaul is covered by the program and thus, there are no surprises. At a minimum, if you have $300,000 in escrow for the GHMP, the next buyer can transfer into the program and have access to that financial reserve.

Maintaining business aircraft value requires a strategic and tactical asset management plan that addresses the use of the aircraft as well as the tools needed to maintain and monitor its condition and value through its life with your company.

Read More About: Upgrades | Operating Costs | Business jet ownership


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