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Recent news and events

If you are confused about headlines involving aircraft manufacturers versus upbeat information from publications versus your observations in the marketplace along with current selling prices, you are not alone.  A review of several sources including data from the NAAA, JetNet, and the Bluebook Price Digest Marketline newsletter provides mixed results although the trend is generally positive in spite of the current economic news.  The intent here is to review various pieces of data as they relate to current trends in selling prices to see what is making sense in the real world. 

A recent interview with the CEO of JSSI (see the article below), indicates that business jets are flying more hours than years past which is good.  However, aircraft value information does not indicate that this market is really taking off and depending on the source used (asking prices, selling prices or published prices), reviewers and analysts are left scratching their heads trying to make sense of all this data and what to really believe.

When examining the data for newer business jets from the NAAA, selling prices appear to be steady or declining slightly.  Older jets were holding their values albeit low.  There was no obvious positive trend for the small number of aircraft sampled.  The Marketline newsletter indicates that only a small number of aircraft have increased in value over the previous quarter but these appear to be newer jets and there is no other information to substantiate this "increase" or positive market signs as stated in the recent newsletter.  Most makes and models (according to Marketline) appear to be declining or holding steady.  Older jets, of course, are going to be an issue for some time to come due to several factors including their older or original avionics in that no one really wants that old equipment and the cost to maintain these aircraft is not going down.  JetNet indicates that fewer aircraft are on the market (an overall decrease of less than 2% from April) and asking prices along with "days on market" have increased slightly (single digit percentage range).  Only four aircraft were repossessed in May according to JetNet.

There is some agreement in the turbo prop market information.  Data from the NAAA shows that after a slight increase earlier this year, values declined for several models and have stabilized close to their previous levels.  Marketline indicates that only one make/model increased from the previous quarter.  The remainder either decreased in value or held their value from the previous quarter.  JetNet reports a decrease the number of turboprops on the market (about a 2% decrease from April) however asking prices remained steady and the average number of days these aircraft are on the market increased.  Only one aircraft was foreclosed upon in May.

For a change, there is some positive news to report on piston twins.  NAAA data indicates an increase in value for the Cessna 421 and Piper Chieftain models.  Older Aztecs are also showing slight increases.  Marketline indicates that 10 makes/models increased over the previous quarter.  Data from JetNet is very limited but their information indicates that more aircraft have come on the market and asking prices have increased slightly. 

Piston singles are always interesting to analyze and for the purposes of this newsletter, we are only looking at those aircraft manufactured after 1975.  Information from the NAAA (representing a fairly small but good cross section of the market) indicates that values for most models are remaining steady although some of the more popular models are showing slight increases.  Information from Marketline indicates that most piston singles remained stable and a fairly small number increased while a slightly larger number declined in value.  In fairness to Marketline, there are many more years, makes and models being reviewed and older models of single engine piston aircraft continue to be problematic from a valuation standpoint because many buyers are looking for airframes with lower times and aircraft with more modern avionics.  As a result, these older aircraft are not likely to increase in value anytime soon.

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.

Private Jets Starting to take off again

From USA Today:  Private jets, largely grounded by the recession, are taking off once again — a sign that businesses may be feeling more confident despite the still shaky economy.

JSSI, a company that arranges maintenance for hundreds of corporate aircraft, saw an 11.4% increase in flight hours in the first three months of this year vs. that period last year. In April there was a 7% jump in flying time among its roughly 1,300 customers, compared with April 2010.

The findings mirror those of other analysts who say that after a steep decline during the economic downturn, and after a public backlash against corporate excess, private jet travel is making a comeback. Still, it's way off from its peak.

"We are not back to late '07, early '08 levels, but we're really off the bottom of where we were," says Lou Seno, president and CEO of JSSI. "In the fall of 2008, following the decline of the financial markets … flying literally fell off the charts, and because of the economy and everything else, it has been slow to recover. But the recovery we're seeing has been encouraging."

Industry analyst Brian Foley noted that private flying has been increasing since March 2009, when the departures and landings of business jets had plummeted 35% from their peak in April 2008. It's now down about 10% from that high point, he says.

Certain players in the private plane arena, such as charter operators and fuel providers, are doing better than others, Foley says. "Those folk are all seeing some early recovery in the industry," he says. "However, aircraft manufacturers, those who make business jets, they're still far from recovery."

During the first quarter of the year, shipments of general aviation aircraft dropped 4.6% compared with 2010, according to the General Aviation Manufacturers Association, and billings plunged 19.6%. Piston-engine planes, the smallest and least expensive of aircraft, represented the bright spot, with shipments rising 13.3%. Turboprops, however, dipped 6.7%, and business jets plummeted 22%. Many corporate jets were parked during the economic downturn — not just because of corporate financial concerns, but to quell the public outcry sparked when heads of the nation's Big Three automakers arrived in Washington by private plane in 2008 to seek government help for the industry. The memory of that controversial trip has faded, observers say. And businesses are recognizing that private jets are sometimes necessary to drive profits, enabling employees to make multiple meetings in a day or travel in and out of markets with few commercial flights.

"It appears that people are getting back to doing business and using their airplanes for the purpose which (they're) … meant to be used," Seno says. "For guys who have to go out and make it happen, the only way to do it is in a corporate airplane, where you can get in and make five stops in one day." But like the stuttering economy, private flying has yet to hit full throttle.

"I think business aviation is looking like the broader economy," says Dan Hubbard, spokesman for the National Business Aviation Association. "You're seeing some indications that (give) you reason for cautious optimism, but (there's) a lot of mixed signals." Many fliers are continuing to try to be as efficient as possible, experts say.

"They're still doing things intelligently," Seno says. "They put six people on an airplane and see 12 customers in two days. We hear those stories all the time."

"I think people were trained to economize in the recent economy, and habits are hard to break," Foley says. "I think it will be awhile before we get back to full use of business jets, but we're definitely moving in the right direction."

A Question for the Appraiser

Q:  When is it appropriate to use a "desktop appraisal"?

A:  The term "desktop appraisal" is used to describe a wide variety of items and services.  On one end of the spectrum the "desktop appraisal" is little more than a number on a napkin or in an email.  On the other end of the spectrum it may involve a signed report (although not from Plane Data, Inc. or any NAAA member adhering to published ethical behavior).  Regardless, there are a couple of key attributes which are common and represent unnecessary risk on the part of the bank.  When an evaluation like this should be used depends on what the bank is attempting to accomplish.  Let's examine the key attributes that banks should be aware of and what questions banks should be asking when using this type of report.

First, desktop reports involve unverified details about the subject aircraft - because an unbiased party never left their desk to go out and complete the necessary research.  In many cases, the details about the aircraft in question are provided by the person selling the aircraft and the objective of this 3rd party information (normally a spec sheet or data sheet) is to present the aircraft in a positive light.  This is accomplished, of course,  by downplaying or omitting any negatives and accenting the positives.  However, negative attributes may have an impact on the overall value of the aircraft and should be identified to obtain a complete view of the collateral for the bank's records.  The magnitude of the error will depend, of course, on what items have been omitted.  The questions banks have to ask in this situation include - what if the value of the aircraft is substantially less than calculated?  How and when will it be identified?  Would knowing all the details about the subject aircraft impact my decision to complete the deal?  Would the bank approve a signature loan for a deal this same size?

Second, in many cases desktop reports are not signed by the evaluator.  Reports which have signatures from the evaluator normally attest to the unbiased nature related to the aircraft and the deal itself, what activities the evaluator did or did not complete and what appraisal standards (if any) were followed.  The signature should also allow any reviewer to follow up with the evaluator at some point in the future if questions arise.  The question that banks have to ask in this situation include - is the evaluator knowledgeable and qualified to provide an opinion of value?  This is a critical question because many evaluators use desktop reporting because they simply lack the knowledge, skills and abilities to complete the necessary research.  In other words, it is much easier to state that no log books were reviewed (as an example) instead of performing the necessary research, identifying key issues (positive or negative) and assigning values to these attributes.  There is also the question of who to contact in the event the evaluation needs to be supported of course.

There are situations when a preliminary report is helpful.  For example, a bank may simply want to know if the aircraft (as described in the spec sheet) has a value that works for the transaction in question.  Normally, these preliminary reports are followed up with a formal appraisal assignment that involves an on-site examination of the aircraft and records once the deal moves forward.  Using "desktop appraisal" reports as the sole means of documenting and evaluating the bank's collateral is being viewed by more and more bank regulators as a "questionable practice" when financing aircraft.

Plane Data, Inc provides our banking clients with Market Analysis Reports which attempt to take all key data points into consideration as part of any analysis when the needs exists for a preliminary evaluation.  These reports are not signed because specific details cannot be confirmed but there is no doubt who completed the analysis when the report is reviewed.  If an appraisal assignment is received within 30 days of the Market Analysis, banking clients are normally given a break on the price of the appraisal itself.

Plane Data, Inc. works with banking clients to help them make informed business decisions using current market data along with factual attributes about the subject aircraft.  There is no need for any bank to take on unnecessary risk or employ questionable practices when financing aircraft.  Better solutions are available and Plane Data, Inc. has them!

Key Items to Note

 

 

other information

Call 800-895-1382 for more information or to see how Plane Data, Inc. can help you.