Its Worth More Every Year, Right?

True, used airplanes do appreciate smartly. But many owners squander modest gains by refurbing airframes and then selling.

The science of flight simulation has advanced mightily in the past five years.

Yet simulating aircraft ownership remains relatively unchanged: Just stand on your back porch and fling $20 bills into the breeze. To simulate a twin, use $50 bills.

But what the heck, as investments, airplanes easily beat the underlying inflation rate, right? And most appreciate at a pace to match, say, the Standard and Poors 500, so youll at least get back what youve got invested in the thing. Or so goes the reasoning when youre trying to sweet-talk your spouse out of the kids college fund to step up to a turbocharged retract.

Of course, when many owners sell, the bottom line falls woefully short and negative numbers are hardly unusual. Rather than adding up the columns and rows to see where it all went wrong, its less painful to drown your woes in a larger loan, which the bank is more than happy to provide.

So the question goes unanswered: Does the airplane really appreciate in a way you can take to the bank? Or are you just kidding yourself?

Ball of Yarn
In counting up the appreciation score, the first sticky problem is to determine what the airplane is actually worth. The Bluebook Digest, Vref and Aeroprice are places to start but because of market survey lag, they dont account for this weeks spike or sag in value or the local inventory. And they neither agree on price nor variability from airplane to airplane.

Just because the Bluebook says your Cessna 182 is worth $68,000, doesnt mean youll be able to sell it for anything approaching that number and the more impatient you are to unload it, the less likely youll get top dollar. Brokers and sellers consistently report that it takes weeks if not months of enduring tire kickers to sell an airplane for top dollar.

If you bought an airplane that was four to eight years old, the depreciation curve has bottomed out and the airframe starts to increase in value. That much is certain. But complicating the value formula is how to assess what you invested in the airplane and when, such as an overhaul, upgraded avionics or new paint.

Think of appreciation as a jaggy line that inches ever upward as the airplane ages. With few exceptions, improvements such as engine overhauls or state-of-the-art avionics merely prop up the curve for your particular airplane and keep it from flattening. They rarely pay back the cost of the original investment. In some cases, the cost recovery is too depressing to contemplate so…dont.

For the sake of argument, lets ignore value prop-up concerns and assume you bought smart and got lucky. Smart means you shopped for a low-time airframe with a newish engine and lucky means the engine didnt chew itself to bits on the flight home from the sellers airport.

How did you do, investment wise, over the past few years? It depends on what you bought, of course. We looked at the appreciation curves on 12 models, eight singles and four twins and arrived at some composite values. The singles include the Piper Warrior, Arrow and Lance, the Cessna 172 and 182, Bonanza V35, the Mooney 201 and for an older classic, the Aeronca Champ. The twins we examined include the Piper Seneca, Cessna 310, Cessna 421 and Piper Aztec.

Some assumptions: With the exception of the Champ, we assumed a 1978 or 1979 model bought 10 years ago at what the Bluebook calls average retail, meaning in the 5 to 7 range on a scale of 10, no damage history and with engine(s) close to mid-time.

The envelope please: Composite appreciation of those models during the 10-year period from 1988 to 1998 was a respectable 83 percent or an average of 8.3 percent per year. Not breathtaking, but not bad. (That average isnt consistent year-to-year; there are usually spikes and plateaus due to economic conditions and demand for a particular model.)

Of course, averages are only averages. Some models appreciated in value more than others. The twins as a group, for example, grew in value by 67 percent, while the singles appreciated by 82 percent. (We tossed out the Aeronca in the averaging; its too much of an aberration.) Yet some cabin class models, such as the Cessna 421, have easily kept pace with the most sought-after-singles.

If you bought a 421 in 1988, its worth 91 percent more today than when you took title. On the other hand, if you bought a 1978 Aztec F 10 years ago, youve beat the inflation curve but thats about it: For whatever reasons, the Aztec appreciated only 48 percent.

What surprised us was how much the humble Aeronca Champ appreciated. If you bought a decent one in 1988-say a 7AC-youve more than doubled your money; the Champs value grew by 140 percent. If only you had the prescience to pick up a dozen at $7000 in 1988…

A Dose of Reality
Now for the harsh light of reality. If you bought a mid-timer 10 years ago and you flew it 125 hours a year, you paid for at least one overhaul. And if the paint was a 6 then, its probably a 4 now or its still a 6 and you paid for a paint job. You probably replaced a navcom or bought some other avionics geegaw whose value to a potential buyer will be but a fraction of what you paid for it.

Lets use the example of a nice low-time 1978 Arrow you bought in 1988 for $35,500. Today, the same airplane in similar condition is worth $61,000 or 72 percent more than you paid.

Since you majored the engine, you can either figure the $15,000 cost of the engine overhaul as a routine ownership expense and count your money and be happy or knock it off the bottom line and figure your true appreciation at 30 percent or 3 percent a year. If you painted the airplane ($6000) and installed a recent-model Stormscope ($5000) but kept the avionics and interior otherwise the same, the airplane might fetch $65,000, less the $11,000 you spent to install that stuff. Bottom line: You break even, more or less.

On the overall scale of airplane ownership adventures, thats not a bad outcome. Think what a thrill it would be to sell your car for what you had in it or to walk away from anything related to aviation dead even. The mere concept brings a tear to our eye. When a whiff of escaping whole wafts on the evening breeze, why foul the air with vulgar discussion of what else you could have done with the money?

A wise owner finding himself in this circumstance will keep the calculator and financial pages away from a spouse who might question the assertion that airplane values track, say, the Standard and Poors 500. Using that benchmark conservatively, the $35,500 invested 10 years ago would now be worth $155,000 less taxes. (No paint or overhaul required.)

Mistakes Were Made
Through unforeseen circumstances, many an owner has taken a quick and painful bath on an aircraft purchase. You find the airplane you want, do a thorough pre-buy and 100 hours later what appeared to be a perfectly sound engine tosses a cylinder out the side of the cowling. It happens. The risk is unavoidable.

But many owners douse themselves by over investing in modest airframes and/or fixing up a tattered pig and handing the keys to a buyer at a fire sale price a year or two later.

Lets take another example, the 1979 Seneca in our Dirty Dozen. As twins go, the Seneca is an average appreciator but doesnt hold a candle to the hottest singles. Even so, buy wisely and you can come out of it a little better than even.

But if you buy wrong or fix up and sell short term, you can easily turn pennies of honest-to-goodness black ink into many dollars of red.

Consider the owner who bought a 1979 Seneca three years ago, with low-time engines and old avionics. Who can blame him for wanting to replace those radios and maybe add a panel-mount GPS? Might as well spring for a new paint job to keep pace with the panel.

Three years ago, the owner bought the Seneca for about $95,000. The improvements add up to $21,000, $14,000 for the avionics and $7000 for the paint. That means the owner has $116,000 invested. If the owner gets the bug to sell after the refurb, he might get lucky and get $110,000 for a net loss of 5 or 6 percent.

The bath gets seriously wet if an engine lunches or the twin turns out to be a hangar queen, spooking the owner into selling after dumping several thousand into the airplane to get it right.

For an owner or a seller, the lesson is simple: If you plan short term ownership-say less that three or four years-keep the improvements cheap and skin deep or do none at all. Paint refurb or an inexpensive interior is a good idea, a pair of new KX-155s and an autopilot are not. Above all, dont let the avionics get above the airplanes raising.

You dont build a $200,000 house in a $100,000 neighborhood, says Bill Hemmel, of Aeroprice, the leading online and software-based aircraft evaluation service. Its the same with avionics. If you put a new KX-155 in a Warrior, you now have a used KX-155.

The economics are brutal. According to Aeroprice software, if you add a KX-155 to a 1978 Warrior, the hull value increases by $2000 if the box is brand spanking new. But the avionics invoice will probably total $3500.

Thats hardly a good tradeoff. A new WX-900 Stormscope might add $2700 to the selling price but cost twice that to install. Similarly, a new paint job will return half what it cost, if that.

This equation favors the patient buyer. If you find an airplane thats equipped nearly as you want it with a low-time engine and with nearly new paint and interior, youll probably pay a premium price.

But youll get the new stuff at half what it would cost to install new, courtesy of the previous owner. If you negotiate aggressively, the airplane will be on the correct value line when you buy it and will resume appreciating or at worst will flatten for a year or two before resuming the inevitable climb.

Timing Counts
With investment value in mind, whens the best time to buy? Should you buy a satisfactory airframe with a run-out engine and do the overhaul yourself? Or find one with a 100-hour engine and let the seller take the hit?

Actually, theres a slight advantage to buying the runout and majoring it yourself, but its a very close thing. Runout engines tend to depress the airframe value below true market value while an engine with fewer than 100 hours tends to inflate it slightly above average.

At 200 or 300 hours, the advantage of that freshly overhauled engine begins to evaporate. If you buy and overhaul and the cost balloons even slightly, however, or you add on some extras such as new hoses, youll have more invested in the airplane after the overhaul than its worth, but not much more.

But lets say you buy an airplane with a 600-hour engine that crumps in 50 hours. Now youll take a hit from both directions. You paid a slight premium for that engine but the airframe instantly drops to the runout-engine value. By the time you replace the engine, youll have substantially more invested in the airplane than its worth.

In that sense, buying an engine thats past mid-time actually makes sense because as the engine value declines, so does the airplanes overall value. If you make it to or past TBO, you come out ahead.

Heres the math: A 1978 Mooney 201 with average time and equipment but a zero-time engine is worth $73,433, according to Aeroprice. (Bluebook has it at $77,000.) With the same equipment but a runout engine, the value drops to $59,000 and the difference between the two values is more than the cost of overhauling the engine, with an economy overhaul, at least.

If you bought in at 600 hours-airframe value about $69,000 at that point-and the engine lunched right away, say goodbye to $9000 in value. Youll have to spend another $13,000 to zero the engine at which point the airplane will be worth $73,000, versus $82,000 invested, thus accounting for the $9000 delta.

Had you bought a 1400-hour engine that blew up right away, youd have gotten the airplane for $62,000. After you paid for the overhaul, youd have $75,000 invested in an airplane worth about $73,000. Youd still be in the red but by a lot less.

Some buyers-and dealers-take advantage of this when selling a ratty airframe with a fresh engine. It may make more sense to sell that good engine or trade it out for a serviceable runout and some cash. The corollary: The cheapest way to re-engine may not be an economy overhaul but a good used engine, which might deliver 75 percent of the service for 50 percent of the price.

Buy Right, Sell Right
So whats a poor owner to do? We see two strategies. One is to ignore all of this, accept that aircraft ownership is a form of incurable madness and merely write the checks.

The other is to buy or sell with these trends in mind and if youre going to embark upon major fix-ups, keep the airplane as long as you can. Time heals all wounds and that applies to ill-conceived airplane investments, at least some of the time.

All things considered, we think counting on appreciation rates between 3 and 6 percent a year is realistic. But thats a very fragile percentage. Buy the wrong radio, have some cylinders go soft or even lose the logbooks and it evaporates into thin air.

Some airplanes appreciate much better and some-twins, for example-do a little worse. For every owner weve talked to who reports a handsome windfall on selling a cabin class twin or turboprop, we know of a half dozen owners who, if they didnt lose their shirts on a single, at least got a few buttons ripped off.

If you keep the airplane long enough, the inexorable rise of the appreciation curve will eventually catch up. At the very least, the value will increase enough to turn a bath into a mere toe dunking.

And in this business, that aint bad.

Also With This Article
Click here to view the Avcon Appreciation Index.

-by Paul Bertorelli