The aircraft appraisal industry is largely unregulated, which creates some very serious issues when it comes time to appraise an aircraft. Technically, anybody with a pulse, a pen, and a piece of paper can appraise an aircraft – even without ever seeing the aircraft or reading any of craft’s logs or maintenance history.
These appraisals typically rely on publications or other data that is generally submitted by consumers, may be unverified, and may even be submitted to influence the price of a particular make or model in order to influence a particular purchase or outcome. Publishers are in the publishing business, not the appraisal business, meaning their number one priority is to make readers happy and sell copies of their publication – not to provide credible appraisals for various aircraft across the country.
Recently, the Professional Aircraft Appraisal Organization (PAAO) established and published the first – and currently the only – set of Best Practices for the Aircraft Appraisal industry. These Best Practices are meant to maintain public trust around appraiser selection, training and education of appraisers, the individual responsibilities of each appraiser, the process of writing a comprehensive and concise aircraft appraisal report, and a few other areas regarding the operation of the organization.
Plane Data, Inc is a proud part of the PAAO. As such, we wanted to write a brief summary of the PAAO’s Best Practices, in order to help guide you in the right direction as you make your selection regarding hiring a professional appraiser.
Let’s jump into it.
Why should you use the PAAO Best Practices?
The PAAO encourages all aircraft evaluators and appraisers to use these Best Practices as they attempt to value an aircraft. These Best Practices are not exclusive to PAAO certified appraisers.
If an appraisal does not follow the PAAO Best Practices, it simply means that the credibility and reliability of the report, as well as the opinion of value, will likely diminish as more and more of the Best Practices are neglected.
The Best Practices are not meant to replace general appraisal industry standards but rather enhance them to focus on the unique challenges related to aircraft and aircraft appraising. Current appraisal guidelines represent the minimum actions that need to be taken – we believe that across the board, these actions are inadequate since aircraft are unlike any other piece of machinery that might require an appraisal. A general failure to understand these complexities is part of the industry problem – and this is one key reason the PAAO requires all applicants and Associates to have a background in aviation.
What are the Best Practices?
Selecting Candidate Aircraft Appraisers
Simply stated, PAAO Associates are all airplane people, and this is an important difference when looking at others in this industry. New applicants who decide to join the PAAO must possess competence in the aviation industry, along with some business acumen, computer skills, writing skills, a sense of ethics, and the ability to pass a criminal background check. In addition, they must pass a review by the PAAO board, and they must demonstrate an ability to act independently with no bias or interests. This is a good time to point out that NO OTHER AIRCRAFT APPRAISAL ORGANIZATION REQUIRES A CRIMINAL BACKGROUND CHECK. The importance of this will be highlighted later.
PAAO Training is focused on Aircraft and only aircraft, and it’s conducted by PAAO senior aircraft appraisers. The instruction is “hands on” and includes field visits to actual aircraft to show PAAO students what to look for, where the information is found and why that information is important in the valuation process. The final exam for the training is presenting the field results to the Review Board, and each applicant’s report must pass the scrutiny of the Review Board before they are allowed to write reports that are issued to the general public.
Responsibility of the Aircraft Appraiser
The appraiser’s primary responsibility is to understand the project and what appraisal “problem” they are being asked to solve. To better understand the project, the professional aircraft appraisers must determine the purpose of the report, the scope of work, and the details related to the field visit. They also should obtain an engagement, which identifies the client, establishes an agreement on the terms and conditions, fees, and other items, and it identifies the contact for the field visit.
In addition, the appraiser should be current with regards to their ratings – both in their PAAO training and USPAP training. Furthermore, they should utilize the PAAO Analytical Methodology in establishing an opinion of value – more on the PAAO Analytical Methodology later.
The professional aircraft appraiser should also obtain the necessary data for the aircraft that they’re appraising, including certificates, logbooks, maintenance records, public information, accident or incident reports, etc.
During the field visit, the appraiser is expected to show up on time with a professional appearance and photo ID. They should also digitize all critical information (think logbooks), and photograph key items (exterior, interior, etc.). They should also establish and maintain a work file for the project. Furthermore, they should ensure that throughout the entire process, they maintain an independent unbiased and impartial stance toward the aircraft.
This is the point where the criminal background checks become important because it speaks to the individual’s ability to adhere to some type of ethical behavior and maintaining public trust. It is questionable that an individual who has a felony conviction would have any reservations with regards to ethical behavior, falsifying reports and/or their results for profit. Of course, there is the more practical concern about convicted felons having access to aircraft with substantial value and access to equipment that could be easily removed from the subject aircraft.
All of this aside, there are certainly individuals who are dishonest and unethical who have no felony convictions. These individuals are assessed on a case by case basis but new Associates are instructed on ethical behavior and agree to the PAAO Ethics Statement when signing up for the organization.
The Aircraft Appraisal Report
The aircraft appraisal report should be professional in appearance, with minimal typos and all calculations checked. While we want the report to be comprehensive, it should also remain concise and as simple as possible. Photos should be incorporated where appropriate. Finally, the report should include a narrative that supports the opinion of value – using the sales comparison approach, any relative data sources and PAAO Analytical Methodology.
The PAAO Itself
The PAAO interfaces with clients to educate and inform them about the PAAO aircraft appraisal process and the organization provides a framework to support its Associates and promote the public trust. This includes items such as training, database development and upkeep (proprietary information that only PAAO Associates have access to), mentoring programs, certifications, business development, and a Review Board for reports and Associates.
The PAAO Analytics Methodology
The PAAO Analytical Methodology isn’t mysterious when you realize that every evaluation process begins with a base configuration or “model”. For those evaluators who use publications as their primary or sole source of information, it should be understood that most publications use the configuration of the aircraft when it left the factory. If the aircraft is 40 years old, then it uses configurations and equipment that are 40 years old and therefore base their “average retail” number from that configuration.
The PAAO starts with a concept or model called the Computed Base Airframe Value which is devoid of all value points such as the engines, avionics, paint, interior, etc. The PAAO Analytical Methodology then takes current information from the market – aircraft values, avionics, engines, props, etc. and then uses a proprietary mathematical “modeling” process to build a model that more closely aligns with the subject aircraft, thereby allowing a more credible, reliable and believable opinion of value. The PAAO Analytical Methodology also allows for easier analysis of items such as damage history, missing logbooks or logbook entries, condition of the airframe and other key items that other methods simply ignore.
In summary, these Best Practices are unique in the industry. They’re not meant to compete with or replace appraisal industry standards, but to enhance them to accommodate the exceptional nature of aircraft appraisals to provide more believable opinions of value. The PAAO invites every appraiser and evaluator to utilize these Best Practices in their aircraft evaluation and appraisal efforts.
If your Evaluator is not following these Best Practices, you should probably stop and ask, “Why Not?” and better understand what ethics and practices they are following.
We would encourage you to reach out and start a discussion with us about your aircraft appraisal needs. If we can help you out, we’d love to talk to you and discuss how we can help.