Here’s a riddle for you: “When does a GII and a GIII go up for sale at the same price?”
What I want to look at is what really goes into establishing a price. Even though you don’t report one to JETNET, we all know that you DO have a price in mind. So how do you arrive at it?
Price determinations go much further than just looking at the total time and age of the aircraft. What my more educated sources have told me is that they look at what the aircraft actually will cost in the relatively short term. This is the place for me to say that the assistance of an experienced and knowledgeable aircraft broker is essential for the accurate assessment of bottom line valuations since they know what to look for now in order to prepare for the real costs facing the buyer tomorrow.
First and foremost, each aircraft deal is a unique adventure. Generalities can offer direction, but the real factors at play are specific to the projected maintenance costs, the underlying condition of the aircraft itself, the seller’s needs, and the buyer’s requirements and budgets.
The primary factor for valuation is the status of the required hourly and calendar maintenance. For example, when assessing the value of a Gulfstream II, you need to know the status of the 72 month inspection for example. The aircraft may have a price tag on it of $1.2 mil, but if this inspection is due shortly, the buyer’s exposure jumps to $2 mil. Similarly, the engines have their own required overhauls that substantially effect value. Scheduled maintenance requirements apply across the board to all manufacturers.
The next thing to evaluate for properly pricing a pre-owned aircraft is the interior condition. Prices for sprucing up the cabin can range anywhere from a simple re-rag costing under $200,000 to complete refurb that could exceed $500,000.
Another issue that was mentioned was compliance. Will that aircraft meet future regulatory requirements? What will be the cost of compliance, or even the likelihood of being able to comply as in the need for Stage III hush kits for Gulfstreams?
Placing the aircraft within its competitive market position is truly an exercise in financial weight and balance.
For the record: The entire spectrum of pricing pre-owned aircraft has been up front in my mind a lot lately. I have been a vocal proponent, as many of you know, for putting prices on the aircraft you have for sale and not playing the “make offer” card. It certainly helps us with our market analysis to have real prices so it’s selfish on my part, and yet, I think it sets you in the class of “I know the market and the value of your aircraft”. Anyway, this “make offer” thing has been an issue I have been dancing with for a long time and haven’t convinced a lot of you, so let’s move on at least for now.
