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With the market continuing to be relatively flat and buyers pulling back from making major purchases or commitments, it may be more helpful to see what industry analysts are saying and to obtain their prospective on the future. 

From AVweb (with minor editing):  The current economic turmoil likely won't be felt much by the general aviation industry but that's because things couldn't really get much worse for GA manufacturers.  Most analysts believe the roller coaster stock market will stabilize without affecting the bottom lines of most companies.  Still, it's another reason for those thinking of buying an airplane to pause in the process and that could have some impact on the manufacturers. Teal Group analyst Richard Aboulafia was interviewed by several publications over the past few days and he's sticking to his basic prediction that meaningful recovery won't be felt by GA companies until next year and even then it's not clear what it will look like. Meanwhile, bizjet specialist Brian Foley says the recovery, once it does take hold, will be the very best kind of uptick.

Foley issued a release recently saying that the market for business jets looks nothing like the boom years that led to the collapse in 2008. "Today's order books are of a much higher caliber, made up of those with the financial wherewithal to buy their own aircraft or by borrowers who have been heavily scrutinized by lenders and made meaningful down-payments," the release says. "The possibility of large scale fleet cancellations is also greatly diminished in the present environment." He noted there are no shaky air taxi or speculative charter ventures in the wings waiting to cancel huge orders that will gut company order books as happened in 2008.

The Wild ride

It is common knowledge that everyone had evaluation challenges during the the "Wild Ride" from 2007 until 2010 or so.  Of course there is always the debate about what database is more reflective of actual selling prices of aircraft, what is more reliable, etc.  To this point, I was in discussions with a colleague about the differences between market values published in a well known book and data from the National Aircraft Appraisers Association (NAAA).  To prove my point, I sited a few data points and the results actually surprised both of us.  During the sharp market swings, I always knew there was a difference but never actually charted the magnitude of this difference until now - and it appears that no one else has either.  I have to say that I find it interesting when a prospective banking client says "we are close enough with the methods we are using today" with no other comment but that statement is really incomplete and inaccurate.  A good analysis would address such items as - the evaluation methods used and how they compare over different aircraft and a range of time.  Is a datasheet (which may contain errors) being used in the analysis along with a desktop report and is the result then compared against data that was collected through on-site research and analysis?  Are both evaluators impartial and unbiased?  Have the results ever been charted or analyzed or were the results of one or two situations used for comparison? 

When multiple aircraft and various configurations are involved, meaningful data is difficult to obtain.  For example, if the market has been fairly steady for many months then one would think or presume  that very little variance exists between data sources (not necessarily true it turns out).  My effort in this exercise was to take the configuration variables out of consideration and focus on the value differences in published values.

A Note About the Data Used

All data was obtained through public sources.  Published data was taken straight from the publication without editing.  NAAA data was interpreted from a graph and some degree of error may exist but these errors are believed to be relatively minor in the overall analysis.  The plot shows the percentage difference between the published guide values and those published by the NAAA.  The data from the NAAA is based on actual selling prices, published monthly and presumed to be more reflective of the market and is taken as the reference.

The aircraft configuration used is the "Average Retail" from each source as the differences between configurations (as defined by each data source) are fairly minor.  Airframe time is "mid-time", engine time(s) is/are "mid-time" and the aircraft is equipped essentially as it left the factory.  Actual configurations in the field will vary among aircraft of the same year, make and model.

Two aircraft were selected for analysis.  One is a 1997 Learjet 60 and the other was a 1975 Cessna 182P.  These models represent two ends of the financing spectrum and as you can see the results were fairly inconsistent although they generally tended to track together - in the example of these two aircraft.

 Expected Results

If both sources actually track market values, my expectation would be differences in the single digit percentage range - for both makes and models and this difference would be fairly consistent from quarter to quarter.  I would also expect the numbers to "settle out" once the market stabilized- but this was not and is not the case as is shown below.  Variances are continuing to occur and of course "inter quarter" results or the month - to - month changes are not available as the publication only provides quarterly data.  NAAA members have aircraft value data accessible for previous months for their specific projects and all aircraft value data is updated by the NAAA on a monthly basis for members.

Of course when the complexities of individual aircraft are involved, the combinations and permutations of configurations tend to make the data somewhat meaningless as it is rare for any two aircraft to be identical - even for the same year, make and model.  As stated earlier, the objective here was to remove those variances.

So, what is "close enough" for the purposes of the bank's evaluation and how much error can be tolerated?  As shown in the graph, peak - to - peak variations can range over 20% - not including configuration differences that can easily add another 20% or more (Aviation Consumer recently cited as much as a 50% variance between two aircraft of the same year, make and model).  Knowing this type of information begins to challenge the 75% or 80% "loan to value" that many lenders count on.  If you had to liquidate the aircraft in question, the 20% - 25% pad is most likely going to be insufficient.

The questions remain, what is the appropriate level of risk a bank should consider and what should any bank do to ensure they are adequately protected?  Call us at 800-895-1382 and we can help answer these questions.

A Question for the Appraiser

Q:  USPAP compliant reports contain a table that has various figures and data as they relate to the subject and comparable aircraft under consideration and analysis.  How should this table be used and what does all of this information really mean?

A:  Part of the process involved with USPAP reports examines aircraft that are currently on the market in an effort to support the final opinion of value.  Any legitimate appraisal report should do some type of analysis although the methods of supporting the opinion of value varies.  Unfortunately, asking prices have very little in common with actual selling prices.  As a a result, it may be possible to select an aircraft that is equipped very similar to the subject aircraft in the report but the asking price of the aircraft used for comparison most likely will be very different than the final opinion of value for the subject aircraft.  The issue becomes, how can we "normalize" the advertised aircraft so that a more meaningful comparison can be made? 

Quite frankly when NAAA reporting and analysis is used, most of this effort is already incorporated into the database of component values.  I say this because the component values used in the analysis of the subject aircraft are based on actual sales data and statically analyzed for NAAA members.  So the process used to gather and analyze component data already incorporates most if not all of the current market activity.  But the question remains, how do other aircraft compare with the subject aircraft?

The table in our USPAP compliant reports takes information from the comparison aircraft's ad along with its asking price and the number of days the aircraft has been on the market.  The aircraft is then analyzed using the same database and adjustments are made for key items such as engine values, avionics values and low airframe time.  The question we are trying to answer is - if we make these adjustments (as shown in our table) to the estimated market value of the aircraft currently for sale, how would it compare to the subject aircraft?  In many cases they compare closely but there are other cases where they do not and this is usually due to unique modifications (read expensive) to the subject aircraft or other issues such as damage history or problems with the airframe itself.  Think of it as a "sanity check" for both the appraiser and the reader of the report.  In fact, my reports contain several "sanity checks" including the use of this table.  Other checks include an analysis using one of the well known publications along with an analysis of current sales data for this specific year, make and model of aircraft.

While many banks and bankers simply want "the number", the final opinion of value is somewhat meaningless unless it is referenced against other information.  The bank paid quite a bit for a professional report.  It would be helpful and useful if bankers took the time to read these reports in an effort to better understand how the opinion of value was established and how this aircraft "ranks" with the rest of the marketplace.

Key Items to Note

 

Have Questions or need immediate assistance?

 

virtual office phone

 

other information

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

Key Items to Note

 

Have Questions or need immediate assistance?

 

virtual office phone

 

other information

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