When evaluating the impact of previous damage events on an aircraft’s value, understanding where to start and how to base your assessment is crucial. As a seasoned Senior Certified Aircraft Appraiser with over 30 years of experience, I’ve encountered a range of approaches in the field of “damage history” assessments. In this article, we’ll delve into an often misused methodology – relying solely on the FAA 337 form for evaluation.
The Misleading Methodology: FAA 337 Form
The FAA 337 form is a frequent source of information for major or minor alterations and repairs to aircraft. However, the assumption that the FAA’s classification of a repair as major or minor holds the key to assessing the diminution of value is only partially accurate. Many variables are at play.
Understanding the Flaws: FAA Mechanic’s Perspective
When an FAA mechanic faces a repair, they consult the manufacturer’s structural repair manual to determine the necessary steps. This leads to three scenarios:
- A straightforward parts replacement
- A covered repair solution
- An uncovered solution
The crucial point is whether the manual covers the repair, and determining whether to label it as “minor” or “major.”
A Deeper Dive into FAA Ratings
A repair covered in the structural repair manual may involve significant effort and still be labeled “minor.” Conversely, a relatively superficial repair not covered in the manual may be deemed “major.” The FAA’s perspective prioritizes airworthiness, not aircraft valuation. They have no interest whatsoever in valuing aircraft. As a result, this method can lead to skewed assessments.
A Real World Example
I was involved in a case wherein a large bizjet was damaged. The aircraft was in the shop for avionics upgrades, routine inspections, etc. Both engines were on an insurance plan, and the skin was composed of composite material. The maintenance effort included removing the elevator and damage by a lift to the trailing edge of the horizontal stabilizer. No structural components of the stabilizer were involved in the event. Because the repair was not in the manufacturer’s structural repair manual, the aircraft manufacturer’s engineering department devised a restoration that involved a U-shaped strip of titanium and epoxy-type material. The noticeable part of the repair was observable if one were to view the top of the stabilizer about 14 feet off the ground (high T-tail aircraft), and one would only see two small vertical lines about an inch long. Otherwise, the repair was not noticeable. The repair was classified as “major” in the eyes of the FAA. The evaluator used data from a publication to derive a flat percentage deduction based on a recent, major damage event. The impact for this specific aircraft was in the hundreds of thousands of dollars in diminution of value on a multi-million dollar bizjet. After physically examining the aircraft and logbook entries along with the 337 forms, my report pointed to the evaluator’s lack of formal aircraft appraisal credentials and missing statements of ethical compliance. I then turned my attention to the flat percentage and pointed out that the avionics had just gone through an update. Based on the evaluator’s analysis, we successfully removed X% of the avionics overall value (including the recent upgrades). There was an insurance plan on both engines. Therefore X% had to be removed from them as well – which made no practical sense as these areas were not involved with the event. Of course, the flat percentage approach also impacts any mods and equipment manufactured or ordered in the future! In the end, my client won the case.
Seeking a Better Approach: Beyond FAA Ratings
A more comprehensive approach is necessary instead of relying solely on Form 337. Research should encompass logbook entries, FAA and NTSB records, and existing work orders. Some records might not be available if the event occurred more than two years ago. A holistic evaluation considers various factors rather than mindlessly applying percentages. The evaluator then needs to physically see the repair to determine if the repaired area impacts the rating of the airframe (which only PAAO Aircraft Appraisers are able to assess), and the evaluator needs to understand what structural members were involved – if any.
The PAAO Rating System
PAAO Aircraft Appraisers offer a more nuanced damage assessment. Their scale comprises six levels, ranging from “no damage” to “extensive major damage.” Unlike the FAA’s simplistic “major” or “minor,” this system provides a clearer picture of the damage’s severity. PAAO appraisers understand that damage impact is tied to the airframe’s value, preventing inappropriate flat percentage deductions.
The Expert Appraiser’s Role
A professional aircraft appraiser should provide the following:
- A detailed report.
- Outlining the extent of the damage.
- The repair process.
- Its potential impact on the airframe.
Avoid falling for the simplistic “one-size-fits-all” approach of applying flat percentages. When facing a diminution of value scenario, working with an appraiser with the proper credentials, training, and experience is crucial. Assess the appraiser’s credentials and expertise, and seek a more comprehensive evaluation that considers the damage’s specifics and impact on the aircraft’s value.
