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Private Jet Value
Last month, David Wyndham addressed Asset Management at a high level, focusing on utilization, finance and maintenance. This month he dives a little deeper into the factors that fundamentally influence a company aircraft's value.
A business aircraft’s value depends upon the owner’s expectations. Is the asset acquired solely as a means of postponing (or avoiding) taxes, or possibly as an investment to be resold for a profit as market conditions change? Or is the aircraft purchased to provide meaningful transportation that enables a company to prosper?
Value varies with time due to changing business opportunities and company strategies. In order to assess the value of a company aircraft, managers of flight departments need to understand the objectives of the companies and the executives they serve.
If the company needs an effective means for placing the right employee in the right place at the right time, the aircraft’s value is related to the availability and delivery of efficient transportation. The cyclical ups and downs of the resale market can be handled more successfully when companies are able to extract utility from their business aircraft, therefore biding their time when prices are down.
It is essential, therefore, that the Aviation Department Manager understands the company’s overall expectations.
An aircraft’s marketability at the time of sale often is impacted by the make and model initially acquired. For example, having the company aircraft available 24/7 to the CEO will run counter to its use as a shuttle.
Optics, such as ‘ramp presence’, also may impact aircraft selection and thus the value of the asset if and when it is sold. The CFO of a client supported the acquisition of a global business jet for the company, but he was concerned about the aircraft appearing too big and too flashy. He said he didn’t want a ‘royal barge’ out on the ramp. Another client, which focused on servicing the US Government, was so concerned about their customer’s attitudes toward image that they purchased an aircraft that was too small for their mission.
That client was willing to make a fuel stop on many trips in order to arrive in an economical-looking aircraft.
When aircraft acquisition is influenced by factors other than providing effective transportation, value at the time of sale may suffer.
Since factors affecting safety, such as how the aircraft is maintained, flown and secured, are within the purview of the aviation department, a business aircraft provides value to companies that seek maximum control over the safety and well-being of its employees who travel extensively.
An operator’s expectations of a high level of safety should be addressed with specific guidance for aircraft availability and dispatch, pilot and mechanic training, crew rest, duty days, mandatory time-off, or other safety-related restrictions. There are many corporations operating not-for-hire (i.e., in accordance with FAA Part 91) that insist on following the more restrictive regulations of commercial (‘for hire’) operators. Companies owning a business aircraft can specify how they want their Flight Department to fulfill the travel needs of employees and their clients, and that authority has value.
There are other entities that have a stake in the “value” of your company’s aircraft, however. Perhaps a bank, financing or leasing company maintains legal ownership of the corporation’s business aircraft. The bank, as part of their lease or loan, usually specifies acceptable use of the aircraft. Your insurance carrier may also have use restrictions. Such provisions may curtail the aircraft’s operation, or limit the aircraft from flying into high-risk nations.
Such conditions are normally addressed at the outset of the acquisition, and in the case of insurance, can be adjusted or changed if necessary.
The wise Aviation Department Manager reviews such restrictions to assure that they have minimal, if any, impact on the aircraft’s value as a business tool.
In every nation there is a national aircraft regulatory authority, such as the US Federal Aviation Administration, that specifies the compliance and operational rules for aircraft. Regulatory compliance requires the operator to maintain accurate and thorough records and documentation for the aircraft. With respect to taxes, there may be national, state or even local tax authorities with an interest in your aircraft (whether for sales tax, use tax, property tax or other fees). Again, proper and detailed records are required.
Failure to maintain those required records has an impact on aircraft value at the time of sale. With respect to the FAA, lack of proper documentation can turn a multi-million dollar asset into a multi-million dollar liability if the maintenance records are not correct. No matter the apparent condition of the aircraft, if the proper documentation and sign-offs are not available, the aircraft is not airworthy, and thus very difficult to sell.
The company CFO or other financial managers have a clear financial stake in the firm’s business aircraft, not only in representing the costs to the corporation, but in managing the cash flow and accurately monitoring the value of the aircraft. They need correct operating costs, tax bills, finance statements, and due dates for aircraft replacement items as they relate to other financial events within the corporation.
The Aviation Department Manager and staff also have an interest the aircraft as an asset. To meet that obligation, they must monitor and maintain the physical condition of the aircraft. They also are required to document compliance with all applicable regulations regarding the aircraft.
Overall, the Aviation Department Manager must ensure that the company aircraft meets the transportation needs of the corporation. Failure to fulfill those duties diminishes the value of the company aircraft when the time comes to sell the equipment or trade up to a newer model.