Plane Data, Inc. - Aircraft Consulting and Appraising

February 2011 Newsletter

Market Summary

The Market Summary this month examines both December and January numbers along with perspectives from the industry.  As expected, there was quite a bit of activity during the end of 2010 for various reasons.  January was sluggish (as it tends to be) but sales were continuing and this is a very good sign.  The National Aircraft Appraisers Association had an excellent perspective on the overall market that supports what is being seen by JetNet however AMSTAT seems to have a different perspective.  Overall, inventories do not appear to be decreasing significantly but are holding fairly steady.

From the NAAA (with minor editing):  With the winter weather affecting most of the country this year you would think that the general aviation market would be non-existent, but that is not the case.  Activity in December was slower than normal.  It appears that this month (January at the time this letter was written to NAAA members) people who had deals pending or wanted to buy airplanes but were afraid to finalize their decision until they knew what the tax situation was going to be.  These individuals are either back in the market or concluding the deals that were pending. 

In doing research for our (NAAA) data over the last several months we have noticed that as sales close, more of the same makes and models come on the market.  So we are not seeing a reduction in inventories for sale on many makes and models.  Either inventories remain close to stable or they increase.  Over the last two years many owners who wanted to sell removed their aircraft from the markets because of low offers and we may be seeing them coming back onto the market now. 

The Detroit Free Press had a front page story about real estate appraisers in the area.  The complaint was that appraised values were coming in too low and causing deals to fall through.  The article explained that banks were no longer working directly with appraisers but with management companies that assigned appraisers to jobs. That is designed to keep the influence of the parties out of the appraisal process.  This situation is being highlighted because the NAAA has seen a number of cases where asking prices on airplanes have been much higher than their market values as determined by our members.  The Free Press article expressed concern because the buyers and sellers could not get together on their deals with the appraised values coming in lower than the asking price.  In most of those cases the seller was not willing to lower the price, and the buyer was not willing to put more cash into the deal to make it happen.  What is the role of the professional aircraft appraiser when something like this occurs?  Should we listen to the parties and take their “supporting” information that would help them complete the deal as the article urged?  One appraiser was quoted in this article as saying that it was his job to come up with a credible, supportable appraisal, and he claimed he does.  His interest and ours in our businesses of appraising aircraft is not in bringing the parties together but in valuing the property appropriately.  It is always a good idea to review all relative information to be sure that no mistakes are made but the interested parties should NEVER be allowed to dictate the results of the appraisal. 

AMSTAT has a different observation (from AVweb) - There's been a significant improvement in the used business jet and turboprop inventory but it might be too early to signal a real recovery for new sales. AMSTAT reports that more used business aircraft and turboprops were sold in the last quarter of 2010 than in any quarter in recent memory. Inventory remains higher (14.7 percent of the world's business aircraft are for sale) than the 12.5 percent that is considered normal but it dropped from 15.5 percent at the end of Q3. AMSTAT says the relative flurry of sales "represents the most transaction activity since 2008" and may signal "the start of a true recovery." Among the factors that concern OEMs besides the raw numbers is that a lot of the used aircraft on the market are relatively new and selling at below-market prices. The AMSTAT review doesn't break out the heritage of the aircraft that are selling but it's probably safe to assume that high-value, relatively low-price airplanes will be among the first to go. Because of all the wild cards in the market, AMSTAT isn't predicting a return to a normal market just yet. It could be "entirely coincidence, or it could be the most promising sign that the market have given us in a while."

My personal perspective (and that of the NAAA) is that inventories appear to be constant across the board meaning that the aircraft being sold and coming off the market are at the same levels as those coming on the market.  The result is that market values are remaining fairly steady as they have over the past few months.  Over the past few weeks, I have appraised several business jets and many of these I also appraised a few months ago so it allows me to get more of a historical perspective for the same aircraft under different market conditions over time.  When looking at changes in the market the largest impact to market value has been due to the downward pressure on prices.  There has also been an increase in the overall time it takes a specific make/model to sell too.  Some declines in both the inventory and "time on market" are present but overall there doesn't seem to be a dramatic change in values.  What the future holds is anyone's guess but it does seem as though values may be on the verge of trending upward once inventories begin to decline. 

Of course, each make and model is different and unique.  Any attempt to attach a broad overview to a specific make or model would be incorrect as some of these aircraft are doing better in the market than others.  If you have a specific question about the trend for a specific make, model or year, you will need to call 800-895-1382 for additional information.

New Service Breaks All Records!

Several weeks ago I announced a new service - Logbook Replication - and the response has been better than expected.  Since its announcement, over 50 airframe and engine log books have been digitized and more projects are currently scheduled.  In all cases, an updated appraisal report was also involved. 

As I mentioned in the announcement, a service such as replicating logbooks is critical in maintaining an aircraft's value over time.  One example regarding the value of this service was for an older business jet.  This specific model of jet is not in high demand and the cost to digitize the log books was only a couple thousand dollars.  However, a complete loss of all log books would negatively impact the overall value of the aircraft by about $40,000.  The jet in question is presently worth less than $500,000.  Of course the impact becomes far more serious for newer aircraft with higher values. 

The service involves much more than just scanning log books.  A sample of a logbook from my own aircraft is available here to demonstrate what is actually captured.  The Logbook Replication Service doesn't just obtain a copy.  Once digitized, pages are captured in full color so that a complete restoration of the log books and related entries can be provided if needed.  The service itself may not eliminate the loss of value completely but it certainly diminishes its impact significantly.  Other documents that are made available such as component cards, status sheets, Cescom runs, etc. are also digitized if they are made available.  All copies are stored on a secure web server for easy retrieval by the client.

As always, projects are assigned on a "first come, first served" basis.  If this service is something your bank is interested in, please call or visit the website for more information.  I will be happy to run a quick analysis for specific aircraft to help the bank understand the costs and risks they may be presently facing.  Even if a few entries may be lost, losing all log books can impact the aircraft's value significantly.

New Service Submission Process

Over the years, faxed copies of requests have brought about problems such as a fax machine not working, forms could not be delivered through a corporate firewall, required details about the project were incomplete, handwriting was difficult to read after faxing, etc.  So, to address these and other issues, a web based form submission tool has been developed and is currently on line.  The new submission form will require users to enter required information before submission and it will allow users to obtain a copy of the information submitted.  In cases where multiple aircraft are involved (as can be the case with Logbook Replication), a submission tool is being developed that will address up to five (5) aircraft at one time and this form should be ready soon.

The web address for the submission tool is now included at the bottom of all quotations and you should be able to simply copy and paste the address into any web browser.  You can also bookmark that page for future reference as well.  I would encourage you to try the new form and submit test data to get a feel for how easy it is to use and the type of information requested.  Simply type in "test" in your name and address before submitting. 

As with any new technology problems can and do occur.  The form has been tested and used several items without incident however, if you do run into any problems, please let me know. 

Average Green Airframe Value - What is it?

Banks that have used NAAA reporting over the years are familiar with the term "Green Value" used in our calculation page.  The concept behind the appraisal process and the concept of "Green Value" has not changed but the NAAA recently changed the term to "Average Green Airframe Value" to avoid confusion with new aircraft that carry a similar term.  Most likely, you have seen the term used and wondered what it was or how it was derived.  Over the past few months, the change in terminology along with negative values associated with the term "Average Green Airframe Value" have been called into question - especially for older aircraft.  So, in an effort to clear the air, here is the run - down on the term, what it means and why negative numbers can and do occur.

To understand the term, you first have to understand the appraisal process that we use.  It is important to understand that EVERY process starts with a basic configuration of the aircraft in question.  The Average Green Airframe Value is the starting point for NAAA calculations.  Essentially, this configuration is the bare airframe stripped of all components such as paint, interior, avionics, engine(s), props, or any components that could be sold for parts.  For all intents and purposes, it is a mathematical model and should be thought of in that context if we are talking about an aircraft that is in an airworthy condition or can be made to be airworthy. 

One question that comes up is - why is the Average Green Value so much lower than a publication's Average Retail Value?  The answer is very simple.  They are not the same item whatsoever!  The NAAA process deals with a specific aircraft and our members start from a "clean sheet" approach building the aircraft's value based on their findings and observations while on site.  This is one reason on-site examination of the aircraft and records is so important.  It becomes unprofessional to simply "assume" the condition of items that are not observed or researched and "assuming" these conditions leads to incorrect results (high or low).  The Average Retail Value used in most publications is a configuration that assumes the aircraft and engines are at mid-time.  This value also assumes that the aircraft is equipped as it left the factory but that can be very unclear.  In piston aircraft the starting avionics configuration may be identified as "King Silver Crown" but the individual components may not be specified or it could vary over time or between individual aircraft.  In turbine aircraft you may see the term "Pro-Line 21" but that term may not contain the same components from model to model or between individual aircraft of the same model although the same term is used throughout.  The most obvious item missing from the configuration used by published guides is the condition of the airframe itself and the ability to address such items as damage history, corrosion, improper repairs, etc. all of which can and do occur for all types of aircraft.  You may want to think of the difference the two processes this way.  The NAAA process does not try to fit a specific aircraft to an "average" configuration.  Key value points are researched and evaluated individually.  This is why and how clients see a detailed calculation sheet in our reports based on individual key components.

Some time ago a broker challenged me to "put my hands" on a "Green Airframe" (the term used at the time by the NAAA) and his suggestion was that this component did not actually exist.  He was somewhat correct because it is a mathematical model but I also challenged him to do the same for the Average Retail aircraft shown in his publication of choice because these aircraft do not really exist either.  Even newer aircraft have changed over time either in their equipment, their condition or both so the term Average Retail is a mathematical model too.  The difference is that the Average Retail aircraft contains many assumptions that may or may not be correct and accurate once they are applied to a specific aircraft.

Now let's turn our attention to negative numbers associated with the Average Green Airframe Value and why these occur and what it means.  A common question is - how can you have a negative value on an Average Green Airframe?  The answer depends on the type of aircraft and market we are considering.  The appraiser needs to understand at the beginning of the assignment if the aircraft is being evaluated as scrap or is it being evaluated as an airworthy item.  If the aircraft is to be considered as airworthy and it may be sold as a flyable item, then the retail market has to be considered and what comparable aircraft have sold for.  In some older aircraft, the market is so depressed that any improvements will not improve the selling price significantly.  In other words, the market may be so depressed for that specific year, make and model that an engine overhaul (as an example) would cost more than the owner could expect to obtain from a knowledgeable and reasonable buyer.  Many older aircraft that have been neglected over the years are in this position such that any refurbishment or improvement would create an unrealistically high selling price that no one is willing to pay.  For this reason, many of these older aircraft are donated or sold as scrap.  If the Average Green Airframe value is a mathematical model simply setting it at "$0" would still result in overvaluing the aircraft (all other items such as an engine overhaul considered) in the market at that time.  To account for this properly, the Average Green Airframe value must be negative if all other items are to be evaluated consistently across other aircraft makes and models. 

If the aircraft is to be "parted out" or sold as salvage, then the Average Green Airframe value really does not apply as valuable components are stripped by the salvage yard and then the remaining airframe is sold as scrap and the airframe remnants are priced by the pound for different metals that may be found within the airframe.  The objective of the appraisal at that time is focused on "salvage value" not "market or retail value".

If you ever have a question about any item in an appraisal report, you should call the appraiser and ask for clarification.  Any professional appraiser should be able to defend their report and the resulting conclusion or opinion of value.  Opinions differ of course but the professional appraiser should be able to discuss their observations and how that relates to items and details in their report.  Although everyone wants "the number", any number should be supported by market data and some level of analysis of the aircraft itself.  Generalities and assumptions lead to problems and inaccuracies.

A Question for the Appraiser:  (Typical questions asked about aircraft appraisals, evaluation methods and the appraisal process )

Q:  The question about the impact of missing log books was addressed about two years ago but with the introduction of the Logbook Replication Service, it may be important to re-examine the question - what is the impact to the aircraft's value if logbooks or entries are missing?

A:  First, let's split the answer into two different situations.  Missing entries (which could be only a page or multiple pages) and a complete set of logbooks. 

When missing entries are involved, there is no clear answer because there are so many variables to consider.  For example, if only one page is missing, it raises a red flag but additional research is needed.  Is the date (or approximate date) of this entry associated with a damage event found in the FAA/NTSB records?  Is there an immediate change in the registration number shortly thereafter?  Is this aircraft on some type of computerized maintenance program (such as Cescom) and are copies obtainable/available?  How much time is missing and can it be accounted for in the corresponding engine logbooks?  The answer to any and all of these questions will impact the final option of value. 

In the event ALL logbooks are missing the deduction becomes more serious and better defined.  The market places a serious penalty on aircraft that have no logbooks whatsoever.  The deduction varies based on previous damage events, condition of the airframe itself and other factors of course but the overall diminished value is equivalent (at least at this time) as if the subject aircraft had two (2) major damage events.  Of course, it is also impossible to verify time on the airframe or engine(s) or what mods have been applied and if they have been applied correctly.  From a practical standpoint, all airworthiness directives (ADs) would also need to be verified as the aircraft may not be in an airworthy condition.  In this market, it may actually cost more to make the aircraft airworthy than it is worth as a result of the research and effort involved in re-creating the aircraft's missing records.  This is one reason the Logbook Replication Service is so valuable.

As an appraiser, when I see log book copies instead of the physical log book, it raises many questions such as - Who copied these entries?  Did they happen to leave out any entries "by mistake"?  Did they make an effort to check that they copied all pages or if the pages were readable?  For this reason, I include a Certificate of Replication indicating the date the replication occurred and who performed the service.  Copies of the files are uploaded to my secure server for retrieval anytime by the client and the server is backed up routinely.  As subsequent entries are digitized over the years, another Certificate of Replication is added to the file as a bookmark.  The result is an avoidance to the loss of value when log books or entries are lost along with the cost of "recreating" logbooks on the part of a mechanic.  Entries can be easily printed or distributed by email to interested parties for their research.  As a result, the cost of verifying ALL ADs, airframe time, component replacement or overhaul, is reduced or eliminated.