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From Brian Jacobson, Operations Director at the National Aircraft Appraisers Association: As we enter into the Summer flying season the market is still a mixed bag, though the piston singles market appears to be smoothing out. As we all know high fuel prices, high maintenance costs on aging aircraft, and the threat of user fees have done their bit to slow the piston market for several months now. But, values have been reduced on most singles and piston twins, and perhaps buyers are becoming satisfied that they can buy some of those aircraft and do the necessary upgrades while keeping their budgets in line with reality. Speaking of reality the best airplanes sell the fastest and at the highest dollar value. Everyone wants a low time airframe, newly or recently overhauled engines, excellent cosmetics, and upgraded avionics. Aircraft that are lacking any or all of the above are hard sellers that require reduced asking prices and long selling times. The turbine market is still booming. We are seeing some reductions in values on older aircraft, but late model, well equipped aircraft are moving quickly through the market place. In fact, sometimes the market doesn’t even see them. One dealer told us that he sold two Citation Jets that he never saw at premium prices. There are still long wait times for new aircraft so the upper end used market is being hit hard by purchasers. Sellers are in the driver’s seat in that market.
I recently attended the National Aircraft Finance Association (NAFA) conference on behalf of the the NAAA. It was good to see existing clients and meet new people but part of the NAFA sessions also included presentations by industry analysts on the health and well being of the industry and any future trends they see. The opening session was focused on the health and well being of the industry overall and I thought it would be insightful to highlight views from two industry analysts. A representative of the Teal Group provided an industry overview and a forecast for 2007 and beyond. Generally, the long term growth in the turbine market looks great although they expect a mild dip in the market after 2009. The Teal Group also forecasted delivery of 12,000 business jets over the next 10 years with a net worth of $173.2B. Of course, this presumes a continued strong economy, no recession and continued strength in corporate profits. A representative of JPMorgan Equity Research acknowledged that economic forecasting is difficult (looking at last year's forecast compared against reality) but also painted a bright future. One of the more interesting comparisons was the close relationship between corporate revenue (using sales revenue from 20 of the largest public corporations) to the delivery of business jets. They also showed results from a study that indicated the number one reason behind the use of business jets was to effectively meet challenging business schedules. The second reason was to reach remote locations that scheduled airlines do not serve. The study also showed that employees aboard corporate owned business jets were 25% more productive than working in the office and nearly twice as productive as traveling aboard scheduled airlines. JPMorgan Equity also predicted a slight slowdown or dip after 2009. Both analysts agreed that the U.S. is the dominant player in the business jet market but noted that there were tremendous opportunities in other countries as their aviation infrastructure continues to develop and comes on line. The European and Asian markets could be very active players in the years ahead.
Big Money Being Offered To Attract PiperJet Plant From Aero-News: Piper is searching for a home for its new PiperJet aircraft manufacturing plant, the accompanying 1500 jobs, and possibly its corporate headquarters. Two Florida cities have unveiled details of incentive-laden proposals designed to entice the Vero Beach-based company to stay in-state... and they're quite serious about it. One plan has reportedly reached $90 million. New Mexico officials are now confirming the state's place as a bidder for the aircraft company, according to The Albuquerque Tribune. "I will tell you that we are clearly very, very interested in Piper and we would be delighted if they were to choose New Mexico as a site for their facility," said Kelly O'Donnell, the state's acting secretary of economic development. "We feel we present a very competitive package, and clearly New Mexico is becoming increasingly desirable as a place to do business." Piper spokesman Mark Miller confirmed Wednesday Albuquerque is one of the five cities that are on the short list for the site. A visit to Albuquerque by Piper officials for an assessment is scheduled Friday. "We are continuing to explore our options," Miller said. "Albuquerque is part of our serious consideration for site selection." Piper said it narrowed its list of potential sites last month down to five, but would only confirm its hometown of Vero Beach as one. Various media reports list Oklahoma City; Tallahassee, FL; and Columbia, SC as rounding out the short list. As Florida's public records laws are a bit more rigorous than some, officials in Tallahassee and Indian River County, which includes Vero Beach, have disclosed details of their proposed incentive packages. The Vero Beach proposal package tops out at $50 million and includes such incentives as purchasing Piper's existing facilities and leasing it back to the company and building a new facility for building the PiperJet, along with the impact fees associated with the construction and possibly a reduced utility rate, said Helene Caseltine, economic development director for the Indian River County Chamber of Commerce. Caseltine said the Indian River County Board of Commissioners and the Vero Beach City Council have approved the plan in concept and a vote for final approval would happen only if the city is chosen by Piper. "That's a ballpark figure," Caseltine said of the $50 million. "We're not going to release our entire package to the media. That would be silly. I don't want our competitors to know the details." Tallahassee City Commission is scheduled to meet on Wednesday to consider an estimated $90 million proposal created by city economic development officials. The plan includes building a 593,000-square-foot manufacturing space and around 122,000 square feet of corporate office space. That construction would cost about $65 million, with an additional $15-20 million to cover capitalized interest through 2013. Another $5 million would be used for airport improvements and Piper would provide lease payments over 30 years to cover the debt, according to the proposal. Published reports in Florida indicate the state would also throw in another $20 million to keep Piper home. Enterprise Florida officials, the state's economic development arm, declined to confirm or deny those reports to the Tribune. Oklahoma and South Carolina declined to comment on specific numbers to the Tribune, as did New Mexico. Vero Beach City Manager Jim Gabbard was quoted in The (Vero Beach) Press Journal on Wednesday saying, "We know there are other proposals out there like the $70 million from Albuquerque." O'Donnell wouldn't spill an exact value of what that state might offer. "However, the total value of the package, including tax abatements, could total $70 million over a number of years," O'Donnell said. "I'm not confirming nor denying, however I could see that our package, with everything included, could total that amount over a certain number of years." O'Donnell went on to say the state of New Mexico has "an arsenal" of incentives it is authorized to offer including industrial revenue bonds, a program to provide reimbursement for certain training costs, and tax credits for providing high wage jobs and on the value of equipment they bring into the state. Richard Aboulafia, an aviation analyst with the Teal Group, doesn't like New Mexico's history of directly investing in an aviation venture like Eclipse Aviation and the planned spaceport. "There's a fine line between infrastructure and tax breaks and outright subsidies," Aboulafia said. "You have to watch that you're not giving away the store." But, he said New Mexico's chance of outbidding its competitors was "very good." "The New Mexican taxpayer is a remarkably generous creature," he said. Vero Beach stands to lose the most should the vote not swing their way. Piper employs 1,029 people and is Indian River County's largest private employer, Caseltine said. It has been in Vero Beach since 1957. An economic impact study released last month concluded that the company has a $518 million impact on the local community, Caseltine said. "If Albuquerque or whoever loses out, they just move on to the next project. No big deal," Caseltine said. "If we lose out, it's devastating."
I recently was contacted by a prospective buyer to appraise an older Citation Jet for his bank and to justify his agreed upon price. Originally he asked me to include his bank to the list of "users of the report" as the bank needed this report for financing purposes. Older Citations tend to have most of the value in their engines and this aircraft was no exception. One engine had 66% of its life left and the other about 50%. However, this aircraft also had moderate damage history from a bird strike several years earlier which is unusual for these types of aircraft. Another factor was a major avionics upgrade that occurred in 2004 which removed the original equipment and essentially updated the panel with newer and more functional technology. The problem was that the older equipment had more value than the newer equipment even though the newer equipment was a good choice and made navigation easier it was still the "one box replaces many" type of situation that appraisers see on a regular basis. As a result, the avionics value at the end of the upgrade was worth much less. Needless to say, the final result was a lower value than expected. The buyer was unhappy because he had already negotiated a price for the aircraft and apparently there was no provision in the Purchase Agreement to address a situation such as this. Although the buyer did not care about the damage history, I explained that the bank does - and so does the rest of the market. The buyer also forwarded an evaluation from the selling broker "justifying" the negotiated price. The evaluation used the Bluebook Price Digest and I explained that several incorrect assumptions had been used - such as "No Damage History" and simply adding equipment without making an adjustment for equipment that was removed. The customer "encouraged" me to review and change my report but any attempt to get anywhere close to his negotiated figure would mean a violation of NAAA ethics and a gross misrepresentation of the aircraft. Needless to say that did not happen. The customer then asked me to remove the bank's name from the report and it was apparent that he was getting ready to shop for a report that would provide the number he needed. Hindsight is always 20/20 but there are several points that need to be highlighted here. First, had the bank contacted me directly then they would have received the report and maintained control of the situation and managed their risk more effectively. Of course I would have supported the report in the same fashion but the bank would be in a better decision making position. Second, an aircraft broker's report or desktop report may have provided the desired number but it most likely would not have accounted for the damage history and avionics change out as no log books are typically reviewed. Third, had I been involved with this buyer as a Qualified Buyer's Agent then there would be no surprises as the appraisal report is part of the Service and the negotiated Purchase Agreement would have included the appropriate "out clauses". When dealing with evaluation reports, know and understand the services you are getting. NAAA Certified Appraisers always physically examine the aircraft and log books if a signed report is required. Other evaluation methods may not and the impacts can be serious. Also, keep control of the situation by contacting the appraiser directly. Don't rely on internet evaluations or other questionable reports that could be provided by the customer. I can also help you if you have questions or need assistance managing your risk. Call me at 800-895-1382 to know more.
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