Finding Aircraft Value: Your Next Business Jet » Jet Owner Group

Finding Aircraft Value: Your Next Business Jet

Whether you are buying a Super Cub or a Phenom 300, finding value follows a few basic rules. And whether considering a prop or business jet, we crave value, despite any questionable “need” for this new asset / toy. But transactions where the business jet buyer gets value out of the gate, are more rare than you might think. The reasons are simple and don’t require aviation industry experience to understand.

The challenge lies in the process used to identify the best value. (Picking the wrong one can lead to vast variations in thousands and in some cases, millions of dollars of needless pain.)

Fortunately there is no shortage of data to study. Taking the time to paw through data is a great start to build your initial list / matrix. The following paragraphs amplify two guiding principles which help guide you to the best value in a business jet, turboprop, or piston aircraft in the pre-owned market.

Guiding Principle #1: Are You Investing or Buying?

As a buyer you might think: Am I going to spend money and take the time to learn? Or is this purchase a pent up desire that I can’t ignore anymore, and I must have it immediately/next week?

On any given day, up to 50% of the turboprop, light jet and mid jet market is vulnerable to the intersection of emotions and money.

If you are investing in a business jet you are buying something you likely don’t need. In fact, no one needs a business jet. Consequently the price volatility is driven by the basic premise – that “toys” are the first to go when the word *need* comes into the equation.

Some businesses can hold onto them as vital top tier transport (and arguably some even gain some efficiency over the airlines here, notably Walmart and other big flight departments.) But a sizeable chunk of the market is going to Aspen in an airplane that they financed.

Then why not get one that is also commercially viable? In other words, if it is more efficient per mile than its colleauges and it is known to have what we term “charter viability” then it will be less vulnerable to any eventuality of panicked selling since there are always buyers waiting.

And… since you are investing and not buying, you get yourself some great representation – an acquisition expert. Someone that sits on your side of the fence for airplane hunting. Neither an aircraft manager, nor charter operator, nor salesperson but someone who is focused exclusively on buying and who is connected only to you.

Your expert helps you identify the end party and develop a purchase agreement that spells out where all the pennies are going before, during and after closing.

Your acquisition expert will generate a short aircraft list driven by your budget and mission profile. An example might the following bullets, once you have landed on the Phenom 300 as the make and model of choice, and a budget of less than $7MM USD:

  • of 400 Phenom 300s made, 32 are for sale (8% of fleet is for sale)
  • of the 32 that are for sale, 16 are in the United States (these are easier to inspect, contract to buy)
  • and of the 16 that are local to the US, 5 are at or below $7MM

Guiding principle #1 has already paid off. You’ve used your mission profile (to find the plane – the Embraer Phenom 300) and of the 400 possible ones on the planet, you can now focus on 5. One of these five, you’ll likely own within 60 to 90 days should the rest of the process go smoothly.

Guiding Principle #2: Fear Not the Problems (… or the business jet with a big problem)

Problem aircraft come in five flavors, and they will speak to you this way:

#1 “I come with baggage” (aka looming inspection): There is a big inspection due, in the near future. Calendar time or flight hours are forcing this event. This big inspection will cost some owner at least $198,520 in a best case scenario. And, to put a little salt in the wounded wallet, this $198,520 event will not increase the book value of the business jet. Not all inspections / events are created equal. Some are just medicine we swallow to keep it airworthy. As a shrewd buyer, well prepped by your acquisition expert, you factor this into your offer.

#2 “I need to come home.”: Most business jets are built in the US, but that isn’t where they go to live necessarily. Even many Brazilian (Embraer) or French (Dassault / Falcon) aircraft start life in the US, only to end up in the Ukraine, like our picture above. This cuts both ways. You will get it cheaper if it is coming from a small market (Ukraine) to a big market (USA). But you still have to go get it.

The seller simply can’t ask as much since there are costs in getting it de-registered, imported, re-registered etc. Even if it is just paperwork (and usually there’s more than just paperwork) then you will pay a time, hassle and actual tax to make an offer on a ZS (South African) registered aircraft to make it N# (USA) again.

#3 “Check my engine stuff.”: This gutsy seller didn’t need the safety of an engine or airframe program. Translation: There is no warranty now and he or she also flew warranty free (for less money per hour) in their period of ownership. This means a discount for you, but it could mean a “surprise” that erases this discount.

Lean on your acquisition expert and get the parameters, and factor that into your offer. While you are at it, if you prefer the stability of knowing your annual costs, get a quote to put it “back on a program.” There will be two options – a manufacturer sponsored program or JSSI, one of the only truly independent parts and warranty options for airframes and engines.

#4 “I’ve been hurt before” (Damage History): This can be your best friend. If the damage is well documented in “how” and “when” and “by who” it was repaired (referencing all the engineering data required) then damage history can get you a discount for something that is only an optics discount. Hint: Damage history, while rare, is a good thing for you if you are a buyer and you have found a motivated seller with good documentation of the repair.

#5 “It is time for an overhaul” (or “I just had an overhaul!”): In this scenario turbine vs. piston aircraft require a different approach for discussion purposes. Finding value means buying something where you know what you’ve got.

  • Inheriting an aircraft that has a history of someone else operating the piston engine is generally something you want to avoid – unless it is “run out” and due for overhaul anyway. The less expensive the piston airplane, the bigger near term new engine costs you may have coming – but at least you are starting with a clean slate.
  • In a business jet (turbine engines or turboprop) you are typically less exposed if there are good records and engine monitoring. However, if the engines are not on a program, your exposure could be massive. A good problem if your offer assumes new engines, an expensive hot section, or a major periodic inspection. Lean on your acquisition expert for what the worst case scenario could be and get them to drive the pre-purchase inspection questions.
  • What is the perfect set up for most deals?:
    1. Piston? Run out engines (that are due for overhaul) = good / best scenario
      Turbine? Engine program in force & great records = good / best scenario

Anything else than the two bullet points above, puts you into surprise territory down the road.

Or put another way: A run out piston engine means that every day you get to operate it (after buying it) is “free money” for an engine that by all rights, should have been overhauled long ago. As long as it is operating well within parameters, give yourself a year or two, or a few hundred hours of low cost operating before you have to buy a new engine or set of engines.

With a turbine engine, focus on the engine monitoring and program warrantees you have to smooth out surprises and make the big money more predictable.

Put It All Together: Make an Offer

If we put everything above together, we now know that a $6.4MM USD Phenom “ask” can be a $5.7MM “offer” on your initial LOI to put the aircraft under contract.

The following table offers a quick summary and justification on how we got from ask to offer for your next business jet.

Business Jet 2012 Phenom 300 Sale Offer Worksheet » Jet Owner Group

The process of purchasing either a piston aircraft, turboprop or business jet can be that simple. And to get value, the discounts (defensible discounts) will pave the way to where to buy it.

Prior to that? Know your mission and have that drive your initial aircraft make and model selection. And once you are focused, arm yourself with data, advice and most importantly patience.

In the words of a well seasoned private equity investor,

“I never lost money on a deal I didn’t make.”

Aircraft can be complex and nuanced deals unto themselves and yet… if you think the one in your crosshairs is “the one” then it may be time to slow down, put down the champagne, and give it 24 hours.

It is one of many, and needs time, analysis and a good pre-purchase inspection.