When considering an aircraft for purchase, the easy thing to do is just avoid those with any damage history. This is an easy choice to make but would you really reject a perfectly good aircraft that had everything you were looking for – and more, which had a wingtip repaired? What about one with a prop-strike history? Ever considered an aircraft that had repairs from a gear-up landing? All of these types of events are fairly superficial in nature from an aircraft appraisal perspective but from an FAA perspective or NTSB perspective things may become less clear. After all, what is the difference between major and minor damage, “substantial” damage and “moderate” damage? The purpose of this article is to provide a little clarity and remove most of the mystery.
First, understand the difference between damage assessment and damage history. It is common for the average layperson or evaluator to become confused between these two concepts. Not understanding the difference tends to lead any evaluator to an incorrect analysis and related result.
Damage Assessment is just that. An assessment of the current damage by qualified personnel such as an Airframe and Powerplant Mechanic (A&P). The FAA has definitions, regulations and procedures in place to address the proper repair of aircraft along with the related documentation to maintain the aircraft type certificate rating. Understanding and valuing current damage can be addressed by obtaining a quote from a qualified repair facility to repair the area.
Damage History is the focus of this article and is more associated with the term diminution of value. While the extent of damage is important, equally important are the questions of “what” was repaired and “how” it was repaired. Understanding a damage event’s diminution of value may get a little confusing in some cases due to the various definitions and various groups and appraisal agencies. Let’s see if we can clear some of this up.
The FAA is generally focused on public safety and the related maintenance of aircraft. The FAA has their own damage assessment categories (NOT damage history) that are referenced on occasion albeit somewhat incorrectly. However, it is important to remember that the FAA is a regulatory agency and those damage related definitions were developed in order to drive certain maintenance activities and documentation. In a broad sense, the definitions discuss major and minor REPAIRS and ALTERATIONS for the purpose of damage assessment and the impact of those repair efforts (major repairs drive a specific process, specific forms, etc.) There is no clear definition by the FAA in regards to the extent of damage itself. For example, a fairly insignificant damage event may be classified by the FAA as a Major Repair simply due to the fact that the repair procedure is not in the aircraft manufacturer’s Structural Repair Manual and a repair process needs to be developed. Regardless, the FAA has no interest whatsoever in the market evaluation of aircraft and the use of any grading by the FAA would be an incorrect approach in valuing a previous damage event (damage assessment vs damage history).
The NTSB also has damage assessments for the purpose of determining when an incident should be reported. There is no interest on the part of the NTSB to address the market evaluation of aircraft and the categories/definitions tend to be too broad for the practical purpose of appraising aircraft. One such example is “Substantial Damage” which is defined as “damage or failure which adversely affects the structural strength, performance, or flight characteristics of the aircraft, and which would normally require major repair or replacement of the affected component.”. A number of damage scenarios might fall into the “substantial” classification by the NTSB’s definition that are fairly minor in nature such as a damaged aileron that is replaced with a brand new component. Again, these definitions were developed for a very specific purpose (damage assessment/reporting) and are not suitable for valuing aircraft from a previous damage event (damage history).
The Professional Aircraft Appraisal Organization (PAAO) is the largest professional organization that is focused exclusively on the evaluation and documentation of aircraft. The PAAO uses their own grading criteria in an effort to understand the value impact from a previous damage event (damage history). The PAAO has six levels of damage history grading ranging from “No Damage” to “Extensive Major Damage”. Each level is clearly defined for the PAAO Appraiser to apply. However, it is important to understand that any diminution of value is really a market perception or financial penalty which the market places on a given aircraft due to a previous event and not an assessment of the mechanical condition of the aircraft – and this is the appraisal problem to be solved. A properly repaired aircraft may fly for many years without further incident or issue – if properly repaired. However, if aircraft X has some level of damage history, it will not command a premium in the market when compared against aircraft Y which has no evidence of previous damage. So, how are these levels of damage used by the PAAO Appraisers?
The best way to answer this question is to look at a simple example of a damaged wingtip. The owner has several repair options that may have been used and which will impact the overall valuation of the aircraft.
The first option may have been to just repair the existing wingtip. Under most situations, this would be considered as a “Superficial” damage history event essentially meaning that no structural members were involved, no forms needed to be filed with the FAA and only a logbook entry would be needed. Another option would have been to replace the wingtip. Here, there are also options. The owner may have elected to use a “serviceable” unit which has unknown history (possible repair??) and would also carry a “Superficial” damage history designation OR replace the wingtip completely with a factory new unit. If the “factory new” option was used, the damage would have been removed and there should be no deduction for this example alone (a damage history event with “No Damage” assessed). If the damage event involved more than the wingtip such as the ribs or stringer or even the wing spar itself, the level of damage would increase. Now, knowing the level of damage, how do we assess the financial impact?
Addressing the financial impact due to a previous damage event really requires the services of a professional aircraft appraiser and one who is also going to assess the airframe of the subject aircraft and research the related repairs. In other words, the professional aircraft appraiser wants to know not only “what” was repaired but “how” it was repaired, and what is the overall condition of the airframe. The event’s diminution of value is essentially a function of the airframe value along with the condition of the airframe. Very few evaluators know how to establish a value for the airframe of a given aircraft which is one reason flat percentages are used when discussing diminution of value. However flat percentages tend to introduce a number of conundrums which evaluators are unable to address. In this case, we will examine a prop-strike incident but the analysis could apply to any aircraft – piston or turbine.
In our example, we have an owner who is flying his aircraft to his home base after completing a number of improvements such as a new paint job, a new interior and his panel has been updated with the latest and greatest avionics on the market. Unfortunately, he suffers a prop-strike while landing at his home airport. In this example, we will stipulate that no damage has occurred to the airframe itself. Prop-strikes usually require that the engine be torn down or overhauled and the propeller usually needs to be replaced. Most evaluators at this point would just declare that the subject aircraft lost X% of its value due to this incident. Really? Let’s examine that thinking. Using a flat percentage, the evaluator has now penalized the paint, interior and brand new avionics by that same X% – none of which were involved in this event. In fact, with this level of reasoning, any future additions or modifications to the aircraft will also be impacted by X%. Some of these improvements or equipment have not even been manufactured yet! For turbine aircraft which may have engines on a maintenance plan, those very expensive engines have now been financially impacted by X% AND, the dollar impact for the damage history would have a higher impact than it deserves.
Other evaluators will want to focus on the engine but that would be incorrect too. Let’s say that at some point in the future, the owner switches engines or even decides to acquire a brand new engine instead of overhauling the current one. How would an evaluator apply a flat percentage (or ANY deduction for that matter) on a replacement engine? What about the current engine which is now airworthy and installed on a completely different aircraft? Will we take some amount off this aircraft which had no involvement in the prop-strike whatsoever? The answer is really very simple. The evaluator needs to look at each piece separately.
In this specific example, the engine would be valued based on the time remaining since overhaul. The prop would be valued since new and there would be no deduction on the airframe because there was no damage.
When searching for an aircraft, don’t become misled by damage assessment grading versus damage history. Use the services of a trained, professional aircraft appraiser who is going to leave their office to look at the aircraft and examine its records. The professional appraiser should be providing you with a report of their findings and observations versus a 2 or 3 page valuation and superficial analysis.