What is the average buyer, banker or layperson to do if they need to know the value of a specific aircraft? Many turn to numbers reported in price publications or the asking prices on aircraft sales websites, believing the information is accurate, but this can be an expensive mistake.
The growing refurbishment trend for aging airframes, plus the high prices of avionics retrofits, makes the valuation process even more difficult. That’s why a formal appraisal report that’s skillfully prepared by a trained and experienced appraiser can yield more accurate figures than back-of-the-envelope guesstimates.
In this article, I’ll offer an insider’s look at the aircraft appraisal market and discuss how the pros determine the value of used aircraft. Additionally, I’ll show how full refurbishment labor and avionics retrofits impact the overall value of the aircraft.
Price Publications
Several years ago, I had a contentious discussion with a broker selling an aircraft that I appraised for a banking client. The broker challenged me because the appraisal results came in about 20 percent less than the negotiated price.
The broker suggested I didn’t know what I was doing and said he was an expert at using a particular pricing publication. If I had only used the publication properly, he argued, the deal would have worked out fine. He went on about all the equipment that had been added to the aircraft as part of a recent avionics upgrade, and as he identified each item I checked to be sure I included it in my analysis. He simply added the cost of all this equipment to the specified average retail value in order to arrive at his final opinion of the aircraft value. Turns out, this was above the negotiated price—indicating that the buyer was getting a great deal.
When I asked if he accounted for the removed avionics equipment in his analysis, the silence on the other end of the conversation was deafening. As a so-called expert, he should know that the average retail value used as the starting point in the publication is nothing more than a mathematical model containing a specific configuration of avionics, as well as other parameters. Without making any adjustment for this original configuration, he effectively equipped this single-engine piston aircraft with two autopilots, four navcomms and two DMEs. That surely wasn’t the subject aircraft.
I then asked him about the missing logbook I noted during my field research and how he or the price publication handled those situations. His response was that the missing logbook didn’t matter. I explained that missing logbooks and maintenance entries did matter, as roughly 30 percent of the aircraft’s life could not be accounted for. This made it impossible to verify the total airframe time, any previous damage history and other issues the aircraft may have been involved with during this period.
The market places a financial penalty on aircraft in these types of predicaments, but price publications don’t address these and other unique situations. The sales broker certainly didn’t, and it was clear he was interested in setting a value that promoted a certain narrative. My objective as a professional aircraft appraiser was in reporting a creditable and reliable opinion of value—two very different objectives. I continued to explain that I was using a current database that was based on actual selling prices of similar aircraft. The database was developed for the sole purpose of appraising aircraft, versus numbers in a book that are based on information provided by subscribers.
He offered no compelling argument that my research and resulting opinion of value were incorrect, so my report would stand as written. Although this discussion occurred several years ago and involved a single-engine piston aircraft, it could have easily occurred yesterday and might have involved a business jet worth millions of dollars.
While offering some resources, trade publications are seldom much help when appraising aircraft because the asking prices vary wildly. The same can be said for aircraft sales websites.
Many believe that publications or websites are the answer when the need arises to discuss market value, but publications are in the publishing business (versus the aircraft appraisal business) and generate their revenues from subscriptions. The small print in their disclaimer clearly states that the publication is meant to be a general guide only and should not be used to appraise a specific aircraft. This is due to the many variables involved, but the data tends to be used—or misused—for that purpose anyway.
There is no indication the publication data tracks anything more than what someone submitted to the publisher and no indication that the data has been validated in any way. Further, I have not found any consistency in the strategies behind the establishment of asking prices—other than finding the highest priced aircraft for that year model and then adding a percentage or two on top of that. In many cases, the advertised aircraft are simply priced excessively for what they are in the current market. There are also issues not addressed in value publications, such as missing logbooks and maintenance entries, which some evaluators tend to ignore. To the average buyer and seller, these errors wouldn’t be noticeable, but to the professional appraiser the errors can have a significant impact on the final opinion of value. This is one reason there are vast differences between the results of a professional appraiser and an evaluator. There is a difference.
Worth noting is aircraft that sell the fastest are generally those which are priced more in line with the current market. There are exceptions of course (warbirds and classics, to name a couple), but piston aircraft that are priced correctly tend to sell in about 90 to 120 days. Still, when I am acting as a buyer’s agent, I can’t ignore the advertised aircraft, but there are better valuation options out there and this is what buyers ask me to find. Additionally, I can quickly determine from the advertised aircraft which ones are priced within reason or may have undisclosed damage, for example.
Unlike real estate, where an appraiser might go down to the local courthouse to see what a similar piece of property sold for, there is no such resource for aircraft. Even if there were, the selling price alone would be somewhat meaningless without context. In other words, without a detailed inspection, it would be impossible to know the specific attributes of the aircraft in question with any certainty. Moreover, these attributes could have a major impact on the selling price—or the ability to get an improvement loan for the aircraft.
The other problem is the aircraft appraisal industry is unregulated, which means that anyone can claim to be an aircraft appraiser without any background, experience, knowledge or training. Surprisingly, there are no requirements to physically examine the aircraft or any logbooks when slapping a value on it.
The NAAA Standard
Back in the 1970s, several bankers questioned the accuracy and detail of the aircraft value publication of the time and needed something more detailed and accurate when financing and leasing aircraft. The result was an aircraft valuation database, along with a process that collected actual selling prices of aircraft from creditable and reliable sources, which also included specific details about the aircraft itself. It’s important to note that these details were obtained from physically examining the aircraft and its maintenance records.
The details were compiled in a comprehensive report, which included a calculation page and the appraiser’s signature. Over the years, the gentleman who developed this system turned it into a national service organization and began certifying members to be aircraft appraisers long before there was any type of certification process for the appraisal industry.
Around 1980, the NAAA (National Aircraft Appraisal Association) was born and while it has undergone a number of changes since then, this organization still continues to collect and track actual selling prices of aircraft as they related to specific configurations—the only organization to do so.
The NAAA gets its data from a number of sources, including sales information from the banking industry, NAAA members, trusted industry sources and extensive market research. With roughly 200-plus members across the U.S. and around the world, the NAAA performs the majority of appraisal reports compared to other organizations, meaning the association collects a tremendous amount of data every month.
Today’s database supports thousands of makes and models of fixed- wing and rotary aircraft over a number of years, along with an extensive set of avionics equipment values. All data is updated on a monthly basis for NAAA members (versus quarterly releases for price publications). In addition, the NAAA is also the only organization to require its members to physically examine each aircraft and its maintenance logbooks whenever an aircraft appraisal is needed. This requirement is unique to this industry, and field research is critical when the need arises to support the final opinion of value.
The NAAA found out long ago that banks have no reason to inflate or deflate selling prices, plus it has an unbiased, trained professional gathering key data points, versus random persons submitting a few key pieces of data that cannot be validated, which might be the case with price value guides. As with value publications, there are other proprietary parts and sources to the NAAA process, but the NAAA data was put through rigorous tests when the market took some dramatic turns over the years, performing rather well compared to the value guides.
It’s important to point out that the NAAA process of appraising aircraft is fundamentally different from others, which tends to create confusion. Essentially, NAAA members start each appraisal project with a clean-sheet approach and electronically build the aircraft based on the findings of the field research. This is why field visits are a critical part of the process.
Other evaluators use websites or publications, which employ a very different starting point. The model being used in that instance uses parameters such as mid-time engines, average airframe time and the aircraft being equipped as it left the factory. Newer aircraft aside, few aircraft meet that criteria today, so the evaluator must make adjustments to the model—a point in the process where errors can and do occur—because those adjustments impact the final result. Using the publication properly would take quite a bit of effort on the part of the evaluator to complete in a creditable manner, but many evaluators simply don’t put that much effort into the exercise and it clearly shows in their analysis.
Refurb Realities
The recent aircraft refurbishment trend is one area of particular interest because banks are routinely asked to provide financing for these projects, and many don’t understand how these improvements impact the overall market value once the work is completed. Owners and buyers also struggle with this same issue of nailing the aircraft’s value after major improvements.
Other than airworthiness and certification matters, the aircraft refurbishment industry is also unregulated and when we are discussing the airframe itself (versus just the avionics equipment), the term “refurbished” can take on any number of activities, along with various quality factors—all of which can impact the aircraft’s market value.
The unfortunate reality for any refurbishment shop choosing to work on a specific aircraft is that there are a number of factors that can’t be changed no matter how much material and workmanship is put into the effort. These factors include the year, make and model of the aircraft itself, the total time of the airframe, the aircraft’s previous damage history, plus its maintenance history and related records.
For a number of evaluators, the easy choice is to look at the shop’s invoice or the value publication’s stated “add for” notation and simply add this amount to the publication starting point. This approach would be incorrect and would overvalue the aircraft—an attempt to set, versus report its value. In these situations, professional appraisers have to separate the maintenance-related efforts from the enhancement efforts and consider the quality of workmanship in the evaluation of the aircraft.
For example, a new paint job or interior may look good from a distance, but if the quality of workmanship is poor, these attributes will not provide a considerable increase in the overall value of the aircraft, regardless of what shop may have actually completed the work or how much someone paid for the effort.
Another good example includes the mods involving engines (replacement of the stock engine) because simply adding the price of the mod stated in the price publication would generally include the engine value as well. The proper adjustment would be to mathematically remove the stock engine from the aircraft and then adjust for the new engine, based on the type and time since overhaul. Without making this type of adjustment, the evaluator has effectively doubled the number of engines on the aircraft.
Avionics upgrades are also an area owners wrestle with, especially in light of the upcoming ADS-B requirements. Simply adding the new list prices for the equipment being installed, along with all the related labor, would be incorrect and would overvalue the aircraft. For the professional appraiser, it becomes a question of what is presently in the aircraft (if the upgrade has been completed) or what is coming out versus what is being installed (if the upgrade is being planned). The cost of labor to install the new equipment is generally irrelevant because the market provides no credit for labor. Once anything is permanently installed in the panel, it is considered used. The fact that the equipment was new X-number of years ago is also irrelevant.
The question to be answered is: What is the equipment presently worth today? In extreme cases, I have observed the aircraft’s market value actually decrease after an avionics upgrade and the reason was pretty straightforward. It was a single-box upgrade where one piece of new avionics equipment replaced a number of other older ones. The new equipment certainly made the aircraft more marketable and functional, but the older equipment had value too, and the overall difference (what came out versus what was installed) was negative.
The important point to consider is understanding what the upgrade path looks like—what is being installed and what is being removed— to get a better sense of the outcome. To understand the overall market value of the aircraft once the project is completed really requires the services of a professional appraiser that knows the avionics market and is familiar with the airframe in which it is installed.
Market Value
At this point you are probably thinking that the problem is solved and the only thing anyone needs to do is hire an NAAA appraiser to understand the aircraft’s market value. Not exactly.
Market value is the price that a knowledgeable and willing buyer/seller will agree on under normal market conditions, with neither party being compelled to act. This is an important distinction because two parties can agree on a number that has nothing to do with market value. There are individuals such as brokers, dealers and bankers who really do not want to know the market value because it will kill the deal, the seller will lose money (could have sold it for one amount, but now has to take another) or impact the bank’s ability to finance the deal. Brokers and dealers are not bad people, but face it—their objective is to get as much money as they can for the aircraft. This is not the objective of the unbiased neutral appraiser.
In my view, an NAAA appraiser is the only person in the transaction who can discuss the aircraft’s market value in an impartial manner. Everyone else has a financial bias to some degree.
The term market value, used by professional appraisers, requires three conditions to be present. The first is a willing and knowledgeable buyer and seller. The second involves normal market conditions and the last condition, as stated, is that neither party is being compelled to act. If any one of these conditions is not present, then we are no longer talking about market value. In this regard, some individuals have turned the manipulation of these conditions into an art form for obvious reasons.
Think about the salesperson who said “I had someone looking at that very aircraft just the other day.”
Although the statement may be true, the communication of this comment is an effort to put pressure on the buyer, thereby changing one or more of the conditions, which would impact the perception of market value.
No Free Lunch
Defending an appraisal report containing unpopular results is something the professional appraiser runs into routinely. I remind banking clients that they may not like the results of the report, but they can trust it and I have no issue defending my findings. Evaluators have very few of these challenges. After all, they are providing a number that everyone wants or likes.
On the other hand, there are a number of individuals who have a keen interest in knowing the market value of the aircraft they are getting ready to purchase or finance, or when there is a legal question. Think diminished value from a damage event, for example. Who should these people contact, what should they expect and when should the appraiser be engaged?
The fundamental expectation anyone should have when hiring a professional aircraft appraiser is that they will physically examine the aircraft along with its records and provide a signed report of their findings. Anything less speaks to the professionalism of the appraiser and their approach to the project. Most NAAA members are found through the association’s appraiser finder tool on the NAAA website (www.plane-values.com) and this would be an excellent place to start.
My advice is to work with an appraiser before negotiating any purchase price. Knowledge is powerful and in situations where I have helped clients in the purchase of their aircraft as an agent (versus brokers who are paid a commission based on the selling price of the aircraft), knowing the estimated value based only on the information in the ad determines whether or not a field visit is in order, along with attributes that may not be included in the ad.
The results of the appraisal report, which involves a field visit along with related research, helps determine if an offer should be extended and for how much. It may include specific issues to be addressed in the purchase agreement and prebuy inspection.
The appraisal report also makes the financing proceed much smoother and there are generally fewer surprises if the seller has been forthcoming in their information. If the seller has not represented the aircraft honestly, this is revealed very early in the process. Knowing the aircraft’s value as early as practical can save clients from unnecessary travel, wasted prebuy inspections or overpaying for the aircraft in general.
It’s important to recognize that there is no free lunch. Hiring a professional will cost much more than $25, or the typical cost of a web-based analysis. The appraisal fee structure should be based on the type of aircraft under consideration (piston single versus business jet, as an example). It may also depend on the appraisal problem to be solved (legal proceedings, high time aircraft or donations), the amount of research needed, plus travel-related expenses.
Some believe that the price paid for the appraisal cannot be recovered in any savings. This may be true on the very low end of the scale, but there is also the cost avoidance of making an uninformed decision that should be factored into the equation. Remember, market value involves a knowledgeable buyer. Bad decisions can be far more expensive than the price paid for the appraisal.
Michael Simmons is a senior certified aircraft appraiser, NAAA trainer and the president of Plane Data, Inc. He flies a Cessna Cardinal based in North Carolina.
