What's it worth? How to Value an Airplane (Part 1)

When Airplane Intel is helping a client buy or sell an airplane, a question that comes up virtually 100% of the time is, “how do I know what this airplane is worth?” Valuing an airplane can be difficult and downright dubious because aircraft values revolve around a plethora of variables such as market trends, aircraft condition, aircraft history, total times, modifications installed, and even the integrity of its maintenance records. 

In today’s episode, Jeremy Cox will shed some light on the process of valuing and appraising an aircraft. Jeremy is the founder of JetValues Jeremy and is an experienced pilot, aircraft mechanic, aviation consultant, and Senior Certified Aircraft Appraiser. 

Jeremy Cox

Known in the Industry as “JetValues Jeremy” I am very active in the aviation industry. I currently hold valid A&P, IA, and FCC Licenses and a Commercial Certificate with Instrument Rating. As a former member of the Society of Licensed Aircraft Engineers and Technologists, I was elected by the Royal Aeronautical Society as a Technician of the Society in 1987. I am now actively involved in the Greater St. Louis Business Aviation Association. During my varied career, I have also been very active in various roles for the National Business Aviation Association, the Popular Flying Association, the Experimental Aircraft Association; and the Aircraft Owners and Pilots Association.

I was formerly the Vice President at JetBrokers, Inc; a professional aircraft sales company. My duties at JetBrokers included acting as a direct interface between aircraft purchasers and sellers, marketplace research, prospecting, technical status/compliance review, pre-purchase inspection monitoring, reporting, and aircraft appraisal. My market focus was Dassault Falcon products. I currently maintain a monthly column in the Avbuyer Magazine.

To date, I believe that I have managed to amass a treasure trove of knowledge and experience during my more than 44-year aviation career.

Podcast Transcript:

Adam: Today, we're speaking with Jeremy Cox, President of JetValues-Jeremy, an aviation consulting and appraisal firm. Jeremy, I'm really excited to speak with you today. Thank you for spending some time with us on the podcast.

Jeremy: You are most welcome, Adam. Thank you very much for inviting me. 

Adam: Oh, yeah, absolutely. I'm really excited to talk to you because you are full of a lot of very interesting information, and I know our viewers are really going to appreciate the things that you have to say. These are the questions that we get the most. So, before we get into it, tell us a little bit about yourself and what you do.

Jeremy: Sure, absolutely. I'm an American Society of Appraisers Accredited Senior Appraiser, Machinery & Technical Specialties leaning towards aircraft. I hold a valid A&P certificate with ratings, inspection authorization. I also hold my FCC with Radar Endorsement. I've got 1200 plus hours on a commercial multi-instrument ticket but I don’t have a medical, so I don’t fly anymore. 

I’ve flown the Cessna Conquest and Citation 650. I've done two Atlantic deliveries in light aircraft and I have air-towed targets. I've also towed crop dusting in an operation [unintelligible [00:05:01]. My maintenance experience is very broad from light aircraft through Lockheed, Boeing, and Airbus large aircraft. I've been a director of maintenance several times.

 I've been a chief inspector. I have been the accountable manager of the PMA. Assisted two companies to get an FAA Repair Station Certificate. I have written several AAIPs, Approved Aircraft Inspection Programs. I lean towards the technical side.

I've also bought and sold 70 different makes and models of turboprops and airliners also did one helicopter, but I'm not really [chuckles] strong on helicopters, but I am strong on appraising them. My first appraisal was performed in August 1999. Since then, I have appraised 151 different makes and models of aircraft and have appraised almost 400 individual aircraft, meaning that I've written reports on each.

How I got into appraising? I started appraising aircraft when I was invited to join JetBrokers in 1999 to buy and sell business jets and turboprops. At first, my appraisals were to support either a listing or a sale, i.e., what will I get for my aircraft if I sell it? Or, how much will I pay for a specific aircraft? That kind of appraisal situation. But soon, I had banks coming to me, asking me to appraise an aircraft in support of a loan. 

I also had executives and attorneys coming to me for aircraft value and legal proceedings. I was also asked to be an expert witness giving value opinions under oath several times.

In 2014, I decided to get my accreditation, my certification as an aircraft appraiser. For this, I joined the NAAA, the National Aircraft Appraisers Association, and took their 24-month program to become both a certified appraiser and a certified buyer's agent. In 2018, I decided to retire from aircraft sales. In the following year, I also went to Embry-Riddle Aviation University to take The American Society of Appraisers Aircraft Appraisal Program. In 2019, I founded JetValues-Jeremy and went full-time aircraft appraising.

Last year, I appraised 54 individual aircraft, 20 of which were full on-site audits and evaluations, including a trip to La Paz, Bolivia, which was fun, for a mining company there. I actually bought and sold several of those airplanes that were turned into air tankers for fighting fires back when I was with JetBrokers.

I also was selected to appraise the world's rarest business jet, which is the McDonnell 119/220. When I say it's the world's rarest business jet, there's only one in existence. So, I did the appraisal late last year for the gentleman. He's looking to donate the airplane to a museum.

I also got to appraise The Wolf of Wall Street's flying boat. He had a Seawind 300T turbine version of a Seawind which would sit atop his yacht. Fortunately, it wasn't on top of the yacht when the yacht sank off Sardinia, in the Mediterranean that's shown in that movie about him.

So far this year, I've appraised 39 individual airplanes, but none of them on-site due to the COVID-19 travel restrictions. I had some good engagements that I ended up having to do as desktops because I couldn't travel. 

Aircraft appraising is my passion. I love living within my aviation bubble and focused entirely on aircraft values. So, that's my story and I'm sticking to it.

Adam: [chuckles] Well, it's a very interesting story. You've got an enormous amount of experience, both sides of aviation, the maintenance and also the flying, and now using that, putting them together for evaluating airplanes. That's really great. That's a really important piece of the puzzle when it comes to buying an airplane and selling an airplane, and even ensuring an airplane as you go through your ownership phase with an aircraft. Can you tell us a little bit about some of the trends you're seeing in the used aircraft markets in terms of overall values?

Jeremy: I do see and follow trends and I can tell you that there are more than 440,000 general aviation aircraft operating worldwide. Half of these are based here in the United States and a third in Europe. Approximately, 39,000 are turbine business aircraft, 32,000 are helicopters. The world's most prolific light aircraft is the Cessna 172. There's more than 44,000 individual aircraft built. 2020 Cessna 172 S model is right at $400,000. The average price of all 172s if you lump them altogether from the 60s all the way up is about $95,000. So, across the board, so the residual value is approximately 25%. 

It appears values of the 172, so that type of airplane are trending upward. The Boeing 737 is the most prolific large aircraft with 11,000 individual aircraft built. 2020 737 Max is somewhere around $50 million, the average price-- And the reason I say circa or around is because the airlines cut their own deals. The average price of all the 737s lumped together excluding the BBJ series is about $10 million bucks. So, if you want to buy a 737 used, on average it's around $10 million. Residual value is approximately 20%. And I can say values for those trending down, especially with COVID. 

Surprisingly enough, the Russians have got us on the most prolific helicopter. There’s the Mil Mi-8, the Hip, they call it. There's almost 18,000 of these helicopters in the world. A 2020 Mil-8 is 12 million bucks US. The average price is about $4 million, so the residual value is approximately above 30% and values appears to be stable. Going on to turboprops, the King Air is the most prolific turboprop, with more than 4000 aircraft built. A 2020 King Air 350i is $7 million. The average price of all King Airs lumped together is about $3 million. So, the residual value is approximately just slightly above 40% and values are stable. 

The Citation series is the most prolific business jet series with almost 7000 individual Citations built out there. A 2020 Citation Longitude is $22 million. The average price of all Citations lumped together is about $2.25 million, but that's kind of unfair, the Longitude and the Latitude models because obviously there's a lot of airplanes that were built in the 70s that are still flying. But residual value is approximately slightly about 40%. 

I can say I've done quite a few Citations this year, appraisal-wise. I've done quite a few King Airs as well, but values are trending upward on the Citations. 

The world's most popular turboprop is the Cessna Caravan series amazingly enough, with almost 25 operating worldwide. A 2020 Grand Caravan EX is $2.7 million, the average price is about $1.3 million, so the residual value is almost 50%. Again, values appear to be trending upward. It's been this way for a number of years in the business aviation field. You've got the most popular turboprop being the Caravan. These are the most transacted airplanes too, each year.

On the jet side, it's the Gulfstream G550. But you've got to understand, there's almost 600 of them built and operating in the world and it's a current production airplane as is the Caravan. So, it's a very strong airplane. From the point of view of longevity, it's got competition from in-house with the new Gulfstreams. Unfortunately, the values are trending downward. 

There's a number of reasons behind that. But a 2020 G550 is $62 million list price, the average price is about $19 million if you lump them all together, and the residual value is just above 30%. But like I say, values are trending downward on those airplanes.

Based upon the examples I've provided, you can see if you average everything out, all the airplanes I've talked about, across the board, the average residual value is about 35%. What do I mean by residual value? Yeah, you take the new price that somebody paid for that airplane when it was delivered to them, you track average retail prices, sale prices, basically. 

It's combination between asking prices and selling prices, you find the middle road because as you know, the FAA bill of sale has a place for you to write in what you paid for the airplane, no one ever does. You put $1 or $10 plus OVC, other value consideration, so nobody ever quotes that, unlike the real property with houses and buildings and businesses and so forth. 

So, across the board, we're seeing about 35% residual value. So, airplanes today are at about 35% of what they were when they were delivered new. 

One of the reasons for this residual value rising and I see it rising is because globally, the inventory of available aircraft is very slowly dropping. In July 2009, which was the peak really right before we went into the global financial crisis, there were 6016 business jets, turboprops, and helicopters advertised for sale. This was the most ever in BizAv history, and it reflected 12% of the entire fleet up for sale at the time. They reported last month in April 4549 aircraft were advertised for sale, which is equivalent to 7% of the entire fleet.

So, you can see we’re at absolute peak at 12%, we're down to 7% of the entire fleet. And part of that is the fleet has actually gone down. A lot of airplanes have been knocked on the head, some because of ADS-B. Long before that, were hit because of stage three. There's been several mandates that have put the older dinosaur aircraft to bed anyway. 

The trend has shown that the inventory of available aircraft has been diminishing since the high in mid-2009. The highest average asking price is business jets, turboprops, and helicopters all combined-- If you take all the business jets and turboprops and helicopters and combine them together and average them out, you'll see that we're currently sitting at $2,950,000 with a gradual upward trend. 

What's interesting is December 2008, which was a guess, right before during the trip over the cliff, the global financial crisis, I call it the amalgam priced, each was $4,900,000. So, just shy of $5 million. We're a little over half sitting right now.

I can tell you what's interesting and disturbing is the sales transactions are really down. That's really, I believe, because of COVID. Jet transactions are currently indicating that they're 50% down on 2019. This was as of, what is it Tuesday today? This was as of Friday, when I last looked. There's 537 year to date transactions of business jets versus 2034 in 2019. So, that's significant.

Turboprop, same thing, they're 50% down. 328 year to date versus 1232. And helicopters are also 50% down. 263 year to date versus 909 in the same period of 2019. I think people are just waiting to see with this COVID deal. 

Adam: Yeah, I agree.

Jeremy: People, I think, wanting to bring their planes on the market are holding tight. When the lockdowns finally end, will we see a massive spike in transactions? I don't know. I've done a lot of appraisals this year. I've done a lot for banks, for financing. There have been several transactions I know have been put on hold because I was queued up to do the appraisals for the bank and they're just sitting tight.

Adam: What I've seen since the lockdown is an increase in people doing research on airplanes, where typically my clients would come to me and within a few days, be wanting to move forward on a prebuy. Now, I have a long list of clients that I'm working with on a consulting basis to do research on airplanes going through the records and the logbooks and trying to get an idea of what asking price would be. 

And then there's some email traffic or phone calls between the prospective buyer and the owner or the broker of the airplane. But no one, like you say, is really pulling the trigger on anything right now because either they can't logistically make it work because of the travel restrictions, or they're not sure if the airplane is going to change in price. 

And something that I noted in a previous podcast episode was that the asking prices for airplanes, I haven't seen any change in asking price per se since COVID. But based on the feedback I'm getting from the folks I'm working with, there is a lot more negotiation occurring for a reduction in the asking price, because now the demand for the airplanes is less. There's less competition now to drive the price up or to keep the price closer to the original asking price.

So anyway, I think that's interesting. I've been keeping track of aircraft for sale inventory, just simply using Trade-A-Plane or Controller. I thought I would see a larger number of aircraft being put on the market. There has been a slight increase overall on average, but not as much as I thought. But like you say, the number of transactions has actually gone down, which is something that we predicted what happened. It just makes sense. I think that's going to be short-lived though, like you were saying. 

Overall, this is going to come back to normal probably and perhaps we'll have a small window where the perceived value of an airplane or the asking price, or however you want to put, it is less than what it has been trending over the past, say a couple of years. But I think that window is going to be very short. And I think overall, the prices are going to start going up in value again, in most markets anyway, maybe not all of them. 

To those folks thinking about buying an airplane, I think it's probably the next six months might be a pretty good time for you. For those wanting to make the most of their investment with their current airplane, maybe it makes sense to wait a little bit to sell that thing.

So, with that, Jeremy, please tell us a little bit about what you're seeing, maybe some changes overall in aircraft value or just in the market since COVID.

Jeremy: It's interesting. Your opinion, it mirrors mine to a large extent. What's interesting, from the appraisal standpoint, I think the light aircraft below 12-5, they've been strong for a number of years now. I've seen examples with specialized airplanes like the American Champions that have the big wheels for backcountry flying. Goodness, I've seen those airplanes go up $15,000, $20,000 a year in the last few years. Things are pretty strong on the light aircraft side of it. 

Adam: We've been watching those values trend upward for the last three or four years, 5% or more a year and it's crazy to me. Of course, a lot of folks trying to get into aircraft ownership and using the Cessna 172, I’d say, as an entry airplane are really having a hard time because they're asking a lot of money for these airplanes, and they're being sold. It's the markets bearing those prices so far. So, maybe this will be a COVID-- a positive thing that can come from it perhaps is that it stabilizes the rapid appreciation or market value of some of the lighter [unintelligible [00:22:05] single-engine airplanes.

Jeremy: I think you're right. I don't have a background in the smaller aircraft over the last 30 years. I did at the beginning my career, so I'm not a great reference for the smaller airplanes, but I do watch the business jet and turboprop marketplace pretty closely, so I can tell you what's going on with that. It's interesting. I do everything from ultralights all the way up to Boeing Airbus equipment from an appraisal standpoint, so I get to see it. 

When I went full-time appraising last year with my own company, I realized how strong the light aircraft market was. Because I wasn't in that marketplace till I went full-time appraising and it's like I can look at that and you can watch the trends and see it.

So, like you, I really am compelled to say that personally I have not observed or recorded any significant drops in values due to coronavirus. I have however seen sporadic asking price drops which are likely panic driven by sellers who are absolutely compelled to sell right now. But I think they're rare, to be honest. I've been involved or at least participating with Alasdair Whyte's Corporate Jet Investor townhall meetings. He holds them every Wednesday through the Crowdcast webinar service. 

On every Wednesday, there's usually just over 500 industry people like me participate in these weekly meetings and converse back and forth and throw out ideas and thoughts. It's almost like going to church really where you sit down and you say, “What do you think?” Everyone throws their opinion in the hat. But what's interesting is the points resulting from these meetings, and they've been going on now for more than a month, is COVID still is a long-term event.

Today's values are definitely affected by the coronavirus, the airline, the big airplane markets, 737s on up, they've seen a 40% drop in values. It's pretty instantaneous. It's pretty obvious. 

Obviously, you see the MAXs that were on hold anyway because of their software issues with the autopilot system. We're seeing people dumping their positions on those and we're saying the world's airlines pretty much shut down. 

Now, I did read yesterday that Lufthansa is looking to get about 1700 flights a day starting next week, or ramping up to it, which is a good sign but there's been so many airline bankruptcies. The carnage from COVID is in the airliner-size airplane. That's where the carnage is. But the opinion of the attendees on the Corporate Jet Investor townhall is to get a transaction done today quickly, the expectation is a drop between 10% and 25% to facilitate a quick close.

I've got to say the biggest problem with the COVID situation, the travel restrictions and getting deals done and closed, an airplane may have been in pre-buy, and it's keyed up ready to go, but the biggest issue we're seeing, pilots. We had a pilot problem going into this. It seems that we no longer have a pilot problem going ahead after COVID stops, the lockdowns stop because a lot of people have been laid off and there's a lot of pilots out there looking for work.

But it's physically being able to get a pilot to the airplanes. Usually, any airplanes I deal with, it's a two-man crew, getting the pilots there to actually do the test flight and do the delivery flight and do the positioning flight. That seems to be the biggest problem. 

I truly believe, genuinely believe business aviation and personal aviation will explode as soon as the lockdowns are over, coronavirus is pretty much done. I don't think anyone with any kind of wealth that enables them to use business aviation, private aviation, personal aviation, I don't think any of them want to get back on the airlines. And I don't believe they will. So, it's inevitable that we're going to have a boom, it's just going to explode. I haven't seen any change, but there are sporadic drops, but I expect it to explode when we get back to business.

Adam: Yes. Absolutely agree with you on that. We will have to just wait and see, but like you say, the mobility that private aviation gives you, which we now see, can be an issue with commercial airlines and it's going to take some time, could be months or years before the airlines reach its normal capacity that we've been used to. We still need to travel to places.

So, the folks that have the resources to get involved in general aviation, business aviation, etc., are likely going to do it. Whether it's through charter or through fractional or through full-on ownership, I think there's going to be a spike and, of course, what that means is that values of airplanes are going to start rising again when those trends catch up.

Speaking of which, when you look at these major listing sites, Controller, Trade-A-Plane, ASO, etc., our listeners often see a wide range of aircraft asking prices. Everything has a value, of course, each component, each modification, and even the airplane's history. Can you tell us a little bit about how you approach valuing an airplane and give us some pointers as to how we can maybe circumvent a value, just by looking in the listing because why is this airplane $30,000 or $50,000 more than this one? It's confusing to people.

Jeremy: That makes sense. But before we go there, Adam, I think it's important just to lay out the methodology that goes into valuing an airplane. There are three conventional and generally accepted approaches to value. Appraisal standpoint forms the basis of everything. It's not just somebody pulls a number out of their box and says, “I think I'm going to ask this for this airplane,” which happens a lot. And that's why you see those wild and crazy numbers and variances advertised online. 

And let's not forget that a lot of those airplanes advertised online aren’t even real. They may have sold two, three, four or five years ago, the ones that don't have serial numbers or N-numbers. Then, it's a hook to actually get you to call so the person advertising can say, “Well, that airplane is sold but we've got this one.” [chuckles] And they usually don't have a listing on it either. It's a big switch.

There's generally three approaches to value. It's the cost approach, the sales comparison or market approach, which is mainly what I follow along with, and the income approach. 

So, each of these approaches is based on the principle of substitution, which states that no buyer will pay more for an asset than the cost to replace it. Cost approach is basically you calculate the replacement cost of new, is probably not in a new condition airplane that you're trying to appraise. So, you have to put a depreciation adjustment for the loss of value different between it being new and where it currently is. 

The elements of depreciation consider the physical deterioration as maintenance, wear and tear, etc. Functional obsolescence. Great example are airplanes that have four engines instead of two, need a flight engineer to operate, things like that. Then, economic obsolescence, no parts availability, no check pilots, noise, RVSM, ADS–B, things like that when applicable.

Cost approach is pretty rare. This is a sad thing to say because none of us like accidents, but a cost approach might be something that you do if insurance company comes to me and says, “This is very sad. There's a smoking hole in the ground and this airplane did exist. We need to know what it was worth,” and you don't have the airplane itself to reference. So, you might do the cost approach.

The market approach is what I do all the time. I'll come back to that. Let's do the income approach. The income approach is very rare also. I'll do it for a museum if required. Sometimes, it's more accurate to get a value as a museum piece rather than an airplane that's physically flying. It requires me to figure out the earning capacity if the airplane and the expected capacity whether it is derived from past, current, or projected earnings are capitalized at a rate sufficient to satisfy the investment requirements. 

Basically, you come up with a value for that aircraft, but it's based on income. And like I said, it's very rare. Museum airplanes are pretty much where the income approach is used

Market approach, that's the meat and potatoes of aircraft values. It relies on the assumption that the value of the asset can be measured by the selling or asking prices of similar assets, either individually or collectively, in the used marketplace. Examples of possible adjustments include those for age, hours, cycles, condition, equipment, modification, maintenance, and inspection status. The location, date, and type of sale, whether it's a retail sale, auction sale, or asking price. When using this approach, it's vital to adjust the comparative aircraft to match the subject aircraft. Never the other way around.

I'm going to say that again. This is going to have significance later on when we get to that point talking about the value guides. When you use the market approach, the sales comparison approach is vital to adjust the comparative aircraft to match the subject aircraft, never the other way around. With that said, I'm going to talk about some adjustments that I've just recently did for CJ2. When I do the market approach, 

I rarely use asking prices, because I'd rather have an actual sale or reported sale. I will get on the phone. I will call the people involved in that sale, and say, “So, what were you asking at the time of the sale?” 

If we've got a relationship over the years-- I've bought and sold airplanes for 20 years, so I've got a pretty good number of people that I've shared information with over the years and they share it back. So often, I'll know exactly what airplane sold for, but the times when I don't and I don't have the relationship, then I'll probably take 5%, 7%, 8%, 9% off the number they give me. Well, I think that's probably more like what it sold for. But I take eight previous sales. I don't like to take airplanes that are currently on the market because there's no real data. It's just an asking price, which changes.

I try and take it for the make and model of the airplane. But sometimes you can't. An example is the world's rarest business jet. It's the only one in existence, so the only thing I could do-- it actually was designed or built for the same government contract. 

The Lockheed JetStar won that contract, so the JetStar has four engines. The McDonnell has four engines. They're different types of engines, but-- in fact, I went back as far as 1992 when these airplanes, the JetStars, were trading and I used JetStar as my base for the comparison. Basically, I adjusted those sales prices for CPI percentage increase each year from the date of the sale as far back as 1992. 

Then, I equalize the value between the Pratt & Whitney JT12A-8 engine, which is on the JetStar, and the Westinghouse GE J34 WE-34 engines on the 119. 

Fortunately, for me, one of my previous customers, when I was buying and selling airplanes, is the owner of the type certificate of the J34 engine. Therefore, I had very accurate numbers for it. Let's see. At the beginning of the month, I did a fair market value and orderly liquidation value, the banks require that, of a 2003 CJ2. It had the ATLAS Tamarack winglets and it was for bank financing. My sales comparison spreadsheet-- remember you take the comparable aircraft and you adjust them against the subject airplane. 

I had 27 individual adjustments for CJ2 because the field was so wide with winglets, without winglets. Basically my adjustments were year of manufacture, aircraft total time, engine one, engine two, time since overhaul engine plan.

One aircraft didn't have the total assurance program, TAP. It meant that those engines had a different TBO schedule. If you're a non-TAP engine of the Williams, you've only got a 3500-hour TBO. If you're on a TAP program, you get a 5000-hour TBO. So, there's an adjustment to be made for that. 

The paint year, interior year. GTN 750 Garmin, GTN 650 Garmin, there were quite a few that had the GNS 530Ws, so I had to adjust those against the GTN 750 or 650. GTX 3000 which the subject airplane had, so I had to adjust several of those that didn't have the Garmin transponder as a tool. Several of them had the GTX-330D, so I had to show the adjustment between those winglets.

LoPresti Boom Beam Landing Lights, Garmin GDL 69 [unintelligible [00:36:12] display, Pro Line 21. TCAS II, TCAS I versus TCAS II. SkyWatch versus TCAS II. UNS 1K FMS or equivalent. Mark V EGPWS, most of them had Mark VII EGPWS, which is a lesser system, provides less safety margin than Mark V. So, the Mark V is more expensive, had to adjust for that. Some airplanes have a cockpit voice recorder, some don't. So CBR, the particular airplane had an Aero-M SATCOM system. So, several of them had the ST3100. So, I had to figure out the difference between those. And then lastly, belted [unintelligible [00:36:49]. 

The reason for going through my list 27 adjustments and I'm sorry if it's boring, I know it is, but it speaks back to how you started talking about understanding the values, the wide variety that are out on Controller and ASO and all the other sites that have airplanes for sale. There are a lot of elements to deriving their value and they have to be considered. Every one has to be considered.

There are several types of value. Fair market value, orderly liquidation value. I actually do a 5 and 15-year liquidation value schedule for the banks. Suggested asking price, I do a lot of suggested asking prices for brokers and dealers. And predicted selling prices too. 

If I can establish the fair market value and then establish the suggested asking price based off that and it's a sales comparison based on eight different airplanes and looking at market trends, because the market approach, I'm adjusting airplanes have sold but when it comes to determining asking price and selling price, you've got to really take in the trends. And you're not taking in the trends when you do the spreadsheet to figure out adjusting the comparative sales to the subject airplane.

There's a lot of reasons why people ask for appraisal. Sellers wishing to put their aircraft up for sale, buyers wishing to know what price they should pay for a specific airplane, bank financing, tax assessment, estate or gift taxes. I did a fleet of 13 airplanes earlier this year for a company that the owner for decades is gifting the company and all its assets to his daughters. 

Obviously, there's tax due on it. So, I did a 13-airplane fleet for him for federal tax. Non-cash, charitable contribution, insurance claims, diminution, damage, total loss, and legal claims. So, those are the elements that go into determining the value of something.

Adam: Very interesting. It's very similar to what we do in maintenance. It's all dependent on the specific airplane and everything is on condition. Correct me if I'm wrong, but we can begin to assess the airplane's value based on the listing or the spec sheet for the airplane by looking at the year, make, and model and the total time on the airframe and the engine time. If there's any programs on the aircraft or avionics upgrades that they list, etc. We can use some of the specs that we get in the listing to begin formulating a value for the airplane. 

Then as we learn more about the aircraft, going through the FAA records or going through the logs and the maintenance records, and then eventually seeing the airplane in person, we can add and subtract value based on that. But ultimately, it comes down to having an idea of what the baseline value is. What's the starting point for that particular make and model? 

What is the airframe time worth? How much do we depreciate that per hour based on the average total time of the airplane? Or practical things that people can do themselves without really much assistances figuring out the value of the engine time.

We just take the cost of the overhaul and divide it by the TBO, and we can get an idea of dollars per hour plus or minus whatever that engine time is. It explains, like you say, why there's so much variance in the asking prices. And of course, an asking price is just an asking price, not necessarily the sales price. But the more prepared the buyer is and say in this case of someone looking to buy an airplane, the better off they're going to be knowing what they should be offering for that airplane, what's fair, and what can be realistically expected as an outcome for that negotiation. 

You touched on this as well. So, there's other times that we need to know the value of the airplane, insurance, tax, maybe some other legal reasons, etc. That's very interesting. So, I think that will really help people put things into perspective for folks that are just unsure how to approach this.

We're going to get into the pricing guys in just a minute. But first, can you tell us big picture, what some of the similarities and differences are between valuating a turbine airplane and valuating a piston airplane? Because the turbine aircraft have more going on in terms of variables that can affect the value. Can you just touch on that?

Jeremy: It's important to see an airplane when you're talking about buying. I actually went to the Philippines years ago to-- I was buying a Falcon 900B back when they had a lot of value. A client sent me out. When I went to buy an airplane, I'd go out and look at three different airplanes. I'd narrow it down to a shortlist of three airplanes with the full concurrence for the person I was working for. I’d go see the airplanes, I wouldn't pull any panels, wouldn't open anything up. I'd walk around, take a look at it. 

You can sense if an airplane has been taken care of. This is just something I can't stress enough, especially for pressurized airplanes or your airplanes that have air-tight seals, you stick your head in. If it smells damp, walk away. There's a smell of mildew is usually a precursor of corrosion. And you didn't have to take a screwdriver to a panel, open anything up to know that/

And pictures too. It's amazing, especially in the Citation side of things. Cessna does a fabulous job of presenting the new airplanes at delivery and they take pictures of the airplane in the delivery center. Well, so many airplanes that maybe 5, 6, 10 years old, they're up for sale. You see them on the Controller or ASO, and they've got the delivery pictures showing what the airplane looks like. But the airplane is 10 years old. It doesn't look like that. There's no way. [laughs] 

So, you've got to go see them. When you're a buyer, you've got to be completely objective and extremely well informed. 

If you're not in possession of objectiveness and information, then I'm sorry, there's a high probability that there's immense disappointment and regret looming in your future. You can drop a lot of money into a bad airplane without realizing it.

Adam: It's just the way it is. It's human nature. What sells an airplane in a lot of cases, especially for owner pilots, is paint and interior and avionics. That doesn't speak to the structural or mechanical soundness of the airplane. It's just cosmetic stuff. Just harping on your point, we have to be objective, completely objective.

Yes, paint and interior matter, to an extent they have value of course. Avionics have value of course. But it's not the most important thing on the airplane by any stretch of the imagination. So, you've really got to be objective when you're looking at these airplanes and not drooling over the shiny paint, right?

Jeremy: I'm sure listeners and watchers of this webinar have heard the term "lipstick on a pig" or “making a silk purse out of a sow's ear.” That’s basically it in a lot of cases. You've got a problem and that problem is only solved with you buying an airplane or leasing an airplane. You know what your problem is, you know what those parameters are, so you've got to try and match the ideal airplane to those requirements, those parameters that you need to fill that specific need, that requirement, that problem. 

The problem is for you as a buyer, it's a compromise because it's highly unlikely you're going to find absolutely the perfect airplane to fill that requirement that you've got. You've got to get away from emotion. You've got to stick to your parameters. You know what you need to achieve. You've got to buy the right airplane for your needs. 

Cut the emotion, be clinical, and be objective. There's a lot of variations, connotations related to a specific make and model of airplane. 

You've heard the term "knowledge is king." Without having all the available knowledge known and understood by you before going to look at an airplane, you're immediately at a disadvantage.

Again, sellers should know what they've got or what you are up against from competing airplanes. They've probably looked at comparative airplanes against their airplanes and figured out where they fit into the market. And they know the strengths and weaknesses. If you don't know the strengths and weaknesses of not specifically that airplane but of that make and model, then you're lacking information, you're lacking the knowledge. 

Well, basically you could be starting out looking for an airplane, and you're looking at the wrong make and model from the very get-go because you haven't really done the analysis and understood all the parameters.

And there's always a dilemma between a buyer and a seller. I saw this 20 years buying and selling airplanes at JetBrokers. It makes me laugh because the parties are diametrically opposed to each other. They may be friendly, but the sellers' approach is always--especially with small airplanes or personally flown airplanes where the owners are really involved with the airplane selling. 

In corporate flight departments, this rarely comes up. But for personally owned airplanes, the seller is going to think-- they're going to say, “When Cessna built the Citation, they really took care and attention during the build, and therefore I can tell you that this is the absolute best Citation that Cessna has ever built. You'd be extremely lucky if you're able to buy it from me.” 

Also, this gets me every time. “I paid $3.5 million for that airplane. Over the last eight years since I bought it, I put over a million dollars of maintenance into that airplane. So, this airplane’s got to be worth at least $4.5 million by now. So, come at me, make me an offer,” which is crazy. Doing service bulletins, doing ABs, performing maintenance, you're maintaining a value, you're not adding value.

So, that's why you need a broker involved because the broker is the middleman. Instead of each party, the buyer and the seller getting upset with each other because they're throwing stones at each other verbally and they're rubbing up against each other-- and usually somebody that owns an airplane and somebody's looking to buy an airplane, they have a pretty big ego. They're pretty big people. They've got strong beliefs and ideas. So, if you're diametrically opposed to each other, it's going to be pretty dynamite. You need the broker to be there as the grease between two metal plates that are rubbing up against each other.

Going on specifically to your question, the differences between a piston and turbine aircraft. When you are looking to move out of the piston world into the turbine world, obviously apart from costs which are enormous compared to piston aircraft, the operational differences are these, especially if you're an owner flown. Your total flight time will be based upon and recorded as weight off and weight on wheels.

Tach time is not used. Tach time is inaccurate. At best, the tachometer always accumulates more time than a weight-on-wheel switch or an air switch. It works for the middle airplanes, but it's not relevant with the turbine airplanes. It's required weight off and weight-on wheels. Or landings are going to be counted apart from touch and gos. Really, there's methodology behind it because you need to start tracking cycles because the cycles are critical to the engine life. 

The engine is hour or calendar based for certain inspections, but there's life-limited parts in the turbine engines. Discs, mainly discs, they could be compressor turbine discs, they could be spaces, they could be combustion liners, the shafts. Basically, things that go really, really fast at very high temperatures, they've got a cycle life and you've got to track that. 

So, you go from the piston world where you might record landings, but it's pretty rare to religiously having to track your cycles because the engine life is governing by it. You're going to go from having an annual inspection and you may keep three logbooks - airframe, engine, propeller. You're going to get to a point where you cannot physically keep in your head the maintenance schedule of your airplane, or your mechanic. It's physically impossible because there's a lot of parts and components in a turbine airplane that have to be tracked. 

They have to be tracked for hours, dates, cycles, and so forth. Therefore, you're going to become very intimate with a computerized aircraft maintenance program.

Back in the old days, before computers-- I'm actually old enough to remember this, and I did some D checks on big airplanes that wasn't computerized. You literally had these massive great boxes at work stands that had 4x5 index cards, and every tracked item on that airplane, including inspections, your A, B, C, D, E, F, G inspection, whatever, had their own cards. But every component, every flap drive actuator, every wrist pin for the landing gear.

Everything had its own 4x5 card and you kept track of it, and you'd write on it, the last action on it, and that's how you kept track of the airplane. It's immensely labor intensive. So, you go to a computer system. You can either buy it commercially, where you basically fill out paperwork, send it to the people that analyze it and track it, and it's online or you use Excel or a similar software program but you're going to have to start tracking it.

Also, your maintenance is going to be broken down and you've got to make a decision when you buy a turbine airplane, how much you're going to fly? Do you need to be on a high-volume, high-utilization program, maintenance program, maintenance schedule? Or, is your use going to be minimal and you need a low-utilization program? Most manufacturers provide a choice between the maintenance program that you decide to maintain your airplane out there. 

High utilization, you're minimizing downtime. So, you're breaking-up will be done over probably a four-year-period in two phases. They're probably monthly phases, every 30 days, every 50 hours. But you can achieve those items in a day. One or two mechanics can do it in a day as opposed to putting the airplane down for a month each time when you do all the phases altogether. But you need to make that decision.

If you're flying a piston twin and your altitude you start letting down, you're very mindful of shock cooling. You're not going to have that issue with a turbine engine. They usually don't shock cool. The Garrett TPE 331, when I target towed it, was a 441 I used. When you shut down, got out, you had to move one-propeller blade width. Otherwise, there was a potential for the centrifugal compressor to warp amazingly enough as a heat sink, but that's the only issue I've come across. They don't shock cool. You can come down like a screaming eagle and you can go up like screaming eagle and not worry about shock cooling.

Foreign object debris. That's a big deal. You may have been worried about chips in the propeller before, but you have a stone, a bird, a nut, or a bolt go through a turbine engine, is going to tear it out and it's going to be extremely expensive. Fortunately, insurance covers FOD. We call it FOD, foreign object damage. 

But you've also got to be mindful that before you may have flown under cumulonimbus clouds trying to skirt around a storm to avoid turbulence, and you may have hit a little bit of hail but you're relatively slow speed but if you're at high speed, and you've got jet engines, turbine engines, and ice goes into that engine, it's going to tear the inside of that engine out. So, FOD is a big deal. But really, those are the operational considerations.

Differences between a piston and a turbine airplane is cost. That’s really the biggest differentiation. Let's take the Cessna 421. I'm going to compare the 421 to a CJ, CitationJet 525. You got the Continental GTSIO-520K engines on a Cessna 421. Tt has a TBO of 1,200 hours and will cost $75,000 to overhaul or exchange it every three years. I'm basing this on 400 hours' utilization a year. Keep that in mind 400 hours a year, comparing the 421 to the 525. Every three years, you're going to be buying an overhaul or doing an overhaul exchange. 

If you change the oil and filters every 100 hours, sparking plugs every 300 hours as well as cleaning the fuel injectors and performing general light maintenance on the GTSIO-520K, you're going to add another 7400 bucks in a 1200-hour interval. So basically, you're looking at $68.67 per engine hourly cost. 

What I've done is, I've taken the $75,000, I've taken the $7,400, added them together, divided by 1200 hours, which is a TBO on that engine to give me $68.67. 

But you've got to add the propeller as well because it's not a complete propulsion system without the propeller. So, you do a propeller and governor overhaul every five years. So, at 400 hours a year equals 2,000 hours of propeller operation. Basically, when you adjust it out, you add another $3.75. So, your total hourly rate for each power [unintelligible [00:56:39] is $72.42 an hour. If you buy an older 525 Citation jet, the Williams FJ44-1A engine, this is an engine with two possible schedules. 

So, remember I touched on that where basically if you're on the total assurance program, TAP, or if you self-insure determines basically-- when I say self-insure, you don't pay the money ahead for the impending hot section and overhaul and other maintenance done, igniter plugs and things like that, which are covered by TAP. 

Basically, you're putting money in the bank, and you know that you've got these events coming up and you've got to have the money to cover. But if you self-insure, you've got a 1750-hour hot section and a 3500-hour overhaul. If you are in the TAP program, you've got a 2500-hour hot section and a 5000-hour overhaul. It does make a big difference. 

The maintenance costs on a TAP engine, it'll basically cost you $550,000 every 12 and a half years, so basically you result in an equivalent engine hourly costs of $110 per hour. You went from $72 to $42 an hour with a GTSIO on the Cessna 421. With the Citation jet, you are at $110 per hour. That's when you're paying to Williams or Textron through the TAP program. But the reality is, you're probably going to be paying an agreed rate that's probably $150. So, in truth, it's really $150, not $110. If you are without the program, you're going to be less than $150 an hour but like I said, you've got a different TBO.  

Bottom line, the engine reserve maintenance costs of a turbine engine are at least double what a piston engine is. 

There's the kicker. So, I've gone through all that boring stuff, about the difference between the engine hourly rate, but the bottom line is, you're going to pay at least double for turbine-powered airplane for its engine than you are a piston-powered airplane.

Then, you've got basically fuel consumption. A CJ will burn three times what a 421 will burn. It's 44 gallons per hour in cruise for 421. It's a 141 gallons per hour for CJ. At $4.99 per gallon for 100 low-lead and $4.48 a gallon for JET A-- I've seen it lower than that, but the national average when you go to globalair.com, and you look at their fuel prices, they've got the average, I use those averages and those were current as of Friday. You look at the cruise speeds, it's 240 knots for the 421 and 350 knots for the CJ. 

Then lastly, airframe maintenance. It's about triple in the case of a CJ versus a 421. Basically, the hourly cost for airframe maintenance on a 421 is $353 an hour and the CJ is $915 an hour. So, you're at double and triple. [chuckles] Engine is a double, airframe is triple.

Adam: The 421 is already an expensive airplane to be flying around to begin with, compared to, say, what some of our listeners might be flying like a 182 or Bonanza or something. So, there's some major differences there. And also, I'd like to point out that the TBO on a jet engine is mandatory, as opposed to a piston engine which is recommended and also on condition. But a jet engine TBO depending on what program it's on is mandatory. So, that's a big difference too.