Tips When Buying Jets with Damage History

Aircraft valuation and sales experts agree that any history of damage, particularly damage beyond very minor and easily repaired ‘hangar rash’ wingtip and skin ‘dings’, is a big deal for business jets and turboprops.

Today’s used business aircraft market — which is showing signs of slowing by Q2 2023 following two years of being frantically overheated — is abnormal in that aircraft which have previously suffered hangar rash incidents, or otherwise received minor damage, are selling quickly.

More notable is that they’re selling with only minor price discounts, according to Jason Zilberbrand, President of VREF, which offers industry-leading aircraft value reference and appraisal services.

But in more normal market conditions, even fairly minor damage history can have an adverse effect on the re-marketability of an aircraft. “There is a huge stigma attached to business aircraft damage,” Zilberbrand says.

Previously damaged-and-repaired aircraft can remain competitive for resale against aircraft with repair-free logbook records, but only if their owners discount their sale prices to reflect that the logbooks of the aircraft record the fact repairs were performed and parts were replaced.

The age of the aircraft involved, and the time elapsed since the damage occurred serve to somewhat mitigate the fact it previously suffered damage, Zilberbrand notes.

The fact that damage valuation is viewed less seriously for an older aircraft than for a young one reflects buyer psychology to some degree, with buyers rationalizing that the older aircraft has operated safely for many years since it was repaired and concluding the previous damage is no longer relevant when assessing sale price.

But even in today’s red hot seller’s market, around 70 percent of potential buyers will immediately dismiss any aircraft with any history of significant damage — particularly if the damage was structural, Jim Mitchell, Executive Sales Director for Elliott Jets highlights. The other 30 percent of buyers won’t necessarily rule out buying such an aircraft, but they will most certainly seek to negotiate a sizable discount on the listed price considering the aircraft’s damage history.

“As a general rule of thumb, I’ll advise customers not to buy an aircraft with damage history, or which requires significant corrosion repair,” says Mitchell. “I wouldn’t [however] have any problem representing that aircraft [as its broker] as long as the repair was good, and I was allowed to give its history.”

Sale Prices of Previously Damaged Jets

Aircraft with damage histories can and do sell, but in anything other than an overheated market, they invariably command a price discount. The size of the discount will vary depending on the circumstances of the individual transaction, the aircraft make/model, and the type and degree of damage, according to Don Spieth, Vice President Sales and Analytics for aircraft brokerage firm General Aviation Services.

Other factors include the quality of the repairs made and the reputation of the MRO facility which performed the work, Spieth adds, but will depend on the negotiating stances and skills of the parties involved in the transaction, and the intangible emotional and psychological factors influencing the transaction’s principals as they conduct those negotiations.

Every different make and model of aircraft has different key value drivers, according to Spieth. In assessing how damage may affect a given aircraft’s resale value, the damage must be viewed in terms of how it affects those key value drivers.

Certain types of aircraft are prone to particular kinds of damage — for instance, one Light Jet model has been involved in a greater-than-expected number of runway excursions in recent times, being prone to landing gear damage. Other types are more likely to suffer corrosion issues than others.

The way the aircraft’s OEM responds in rectifying that situation is important in determining how steeply corrosion is likely to discount its resale price.

No Formula for Appropriate Discounts

Would-be buyers of aircraft with damage histories should understand there’s no hard-and-fast mathematical formula for calculating the discount percentage for any specific items of repaired aircraft damage, notes Zilberbrand.

Years ago, a basic, overly simple formula existed, but over time it was found to be unrealistic and increasingly unhelpful – thus it was dropped by the Business Aviation community. Today’s damage valuations — particularly those used in assessing resale price discounts, and in court cases — are assessed as a matter of expert opinion by certified appraisers.

This doesn’t mean that the different appraisers retained by the two principal parties in an aircraft sale transaction will agree. They often don’t, and then any price discounting becomes liable to further negotiation.

In some court cases, the damage valuation opinions of the certified appraisers retained as expert witnesses by the disputants can vary hugely. In one case cited by Zilberbrand, the two appraisers’ damage valuations differed by a factor of 100.

That said, the opinions and knowledge of experienced brokers and certified appraisers are vital when assessing how previous damage to an aircraft should be valued, says Spieth.

By taking into consideration the aircraft’s previous operating history, its repair history, its previous resale history and how the new buyer’s flight department intends to use the aircraft in performing its new mission, certified appraisers and experienced brokers can best determine how an aircraft’s damage history is likely to affect its resale price in current market conditions.

Damaged Business Jets: Tips for Buyers

Tip 1) Due Diligence is Vital

When purchasing an asset whose price could reach into the millions of dollars, it’s vital for every would-be buyer to perform thorough due diligence on the specific aircraft involved before beginning negotiations to buy it.

As with much of life, information is power, and the more the buyer knows about the potential purchase aircraft, the more easily they can make a fully informed decision on whether to pursue the deal. Assuming that decision is positive it will inform how much will they be willing to pay to secure the purchase.

Luckily for buyers, simple online searches can yield a wealth of information about the condition of the aircraft involved in the transaction and whether or not it has ever received damage. If the aircraft is found to have received damage, information can also be found on the degree of damage it probably sustained.

As a highly experienced aircraft broker, both on behalf of Elliott Jets’ third-party customers and for the company’s own aircraft sales account, Mitchell has bought hundreds of used business aircraft, and before every purchase checks a number of easy-to-access free websites, available to the general public. These provide him with substantial, detailed information on the condition and damage history of the specific US-registered aircraft he’s researching.

One site Mitchell recommends is https://report.myairplane.com. Searchable by an aircraft’s (US) N-number, this site provides:

• Information on its specific registration details
• Any Service Difficulty Reports (SDRs) filed by a repair station to the FAA for any failure or malfunction found in the aircraft or its equipment
• Any NTSB information on accidents or incidents involving the aircraft
• Any FAA information on accidents or incidents involving the aircraft, and
• Any information on the aircraft held in the FAA’s Document Index files. (Particularly important in this final regard is whether the FAA holds any Form 337 filings concerning the aircraft, see below.)

Additionally, Zilberbrand recommends would-be aircraft buyers visit www.kathrynsreport.com, another free research resource which is, again, searchable by N-number, and which provides information on incidents and accidents involving US-registered aircraft. Often, detailed photographic images of the damage the aircraft sustained are also supplied.

Tip 2) Check FAA Form 337 Filings, the Aircraft’s Logbook and Other Records

Mitchell notes that potential buyers of aircraft can also search the FAA website https://faa.gov for any Form 337 information the organization holds for the aircraft.

The FAA’s official record of Major Alteration and Repair to any N-registered aircraft’s airframe, powerplant, propellers and appliances, the Form 337 provides detailed information on any repairs performed on any specific aircraft, giving valuable clues as to any previous damage the aircraft might have suffered. Note that the Form 337 (completed by repair stations or individual mechanics) is not required to state what the original damage was.

A number of other key sources of aircraft damage and repair information exist, and should be reviewed as part of the due diligence effort, according to Zilberbrand. First and most important is the aircraft’s logbook, in which the captain and personnel performing MRO on the aircraft are required to list any faults found, repair actions performed, and parts replaced.

Although the logbook will not necessarily identify any specific damage the aircraft received, it (and the captain’s report) should provide very strong clues regarding damage type and extent, and whether corrective work to replace corroded parts has been required.

Zilberbrand recommends going through the logbook from back to front to identify and establish any patterns of repair and replacement, and notes that while the notes the logbook contains can be somewhat cryptic, entries on repairs and parts replacement are usually easy to identify because they tend to be longer than routine maintenance and operational entries.

For would-be buyers, Zilberbrand says another excellent source of information on potential previous damage to the aircraft is available in the form of the worksheets completed by the MRO facility regarding repairs to the aircraft — particularly the documents detailing the work scope performed by the MRO.

This information may be made available to the buyer’s representative during the late stages of negotiations, in the pre-purchase inspection of the aircraft, but it may offer clues on previous damage to the aircraft, or corrosion which otherwise were unrecorded.

Tip 3) Check if the Damage is Static or Dynamic

The more serious the damage is to an aircraft, the less likely it is to sell quickly – or even at all if the market at the time is soft.

Zilberbrand says one of the most important factors for buyers of previously damaged aircraft is to establish whether the aircraft received static damage or dynamic damage: that is, if the aircraft was not moving (i.e., was static) at the time it received the damage, or if it was moving (dynamic). A static aircraft hit by a moving aircraft might suffer either or both forms of damage.

Dynamic damage is generally much more serious and extensive than static, and is often structural in nature, according to Zilberbrand.

So, buying an aircraft which previously received dynamic damage, subsequently repaired, can be a riskier proposition than buying one with previous static damage. Any sale price discount may need to reflect the additional risk.

Tip 4) Check Who Performed the Repair Work

An important factor which may influence the overall sale price of an aircraft with previous damage history is the identity and the reputation of the MRO shop which performed the repair work on the aircraft.

Generally speaking, buyers wanting to assure themselves that the repairs have restored the aircraft to its pre-incident (or better) condition should look for it to have been repaired either by its manufacturer or by the manufacturer’s licensed third-party repair shops, Zilberbrand says.

Several major independent shops throughout the world are also highly regarded for their excellent quality of work, but some smaller shops may not have the capabilities to repair large, sophisticated business aircraft in complete accordance with their manufacturers’ maintenance manuals. Buyers should take careful note.

Tip 5) The Clues are in the Painting

According to Mitchell, the exterior repaint work performed on an aircraft can provide clues as to whether it previously sustained damage —and the quality of the exterior repaint itself is an important factor in determining the aircraft’s overall suitability for resale.

If a potential buyer or his/her representative notices an area of paintwork that is slightly different in shade from the rest, this usually indicates that a repair has been performed in that area, often as a result of the aircraft sustaining skin damage.

More generally, the finishes of full exterior repaints should be smooth and glossy—and they should last about nine or ten years before another repaint is required, says Mitchell.

Tip 6) The Buyer’s Independent Representatives

Zilberbrand offers one final piece of advice to potential buyers of any business aircraft (not just those which have previously sustained damage).

Once buyers have selected a third-party broker to assist them in the purchase, he recommends the buyer doesn’t allow the broker to be responsible for hiring the independent appraiser and/or technical inspector, who will inspect the aircraft and its records and suggest a fair value for the buyer to offer as a purchase price. 

Instead, the buyer should independently research and choose the technical representative, thereby ensuring the transaction proceeds on terms which are the best the buyer might achieve.

Next Time...

Armed with the tips shared in this article, it is hoped aircraft buyers can enter transactions involving aircraft with damage history with their eyes wide open. Next time, we’ll look at jets with damage history from the seller’s perspective... Stay tuned!

More information from:
Elliott Jets: www.elliottjets.com
General Aviation Services: www.genav.com
VREF: https://vref.com