Search

Advertisement

Advertisement

Marketline Newsletter
For over 50 years, Aircraft Bluebook has been providing valuable information designed to give the most accurate, comprehensive and timely assessment of the aircraft market.
Advertisement

« Gulfstream Launches Preowned Aircraft Sales App | Main | Marketline Summer 2014: Contributor’s Perspectives in the Value Equation »

VALUING AN AIRCRAFT’S MAINTENANCE CONDITION

By Tony Kioussis | Asset Insight, Inc.

An aircraft’s maintenance condition represents its greatest value “wild card” and a figure that can dramatically impact the asset’s value. The challenge—whether you are a buyer or a seller—is to correctly value the asset’s financial exposure based on its maintenance requirements.

Aircraft Bluebook represents maintenance events as being fresh for most turbo prop and fan jet late model fixed wing aircraft in its descriptive “Base Average.” Calculating the financial exposure associated with all completed and upcoming scheduled maintenance events is a complex process. Additionally, to accurately complete such a task requires detailed knowledge of spare parts cost, Mean Time Between Failure (MTBF) rates for On-Condition components and flat-rate costs for maintenance inspections—just to name a few. Asset Insight, Inc., provides anyone holding, or planning to hold, a financial interest in an aircraft, a simple-to-understand, uniform methodology—an industry standard—for evaluating an aircraft’s maintenance condition based on a standardized scale.

Aircraft are assets whose values are heavily influenced by their maintenance conditions. Asset Insight has developed a proprietary Asset Grading System Process (patent pending) that derives an Index (the “Asset Insight Index”) allowing for an objective “maintenance condition” comparison between aircraft. The actual value of an aircraft remains to be determined by the buyer, seller or other party related to the transaction (e.g., appraiser; lessor; insurance firm). Asset Insight offers a tool that simplifies complex technical/maintenance data into standardized, actionable, financial figures—the Asset Insight Index—that provides the ability to compare any aircraft’s Index to that of any other aircraft. In turn, this offers the opportunity to optimize an asset’s overall financial performance by:

  • Objectively analyzing and grading an aircraft’s technical condition
  • Comparing any aircraft to another aircraft as well as to the average value of similar make/model aircraft listed for sale
  • Proving and, if desired, improving an aircraft’s technical rating
  • Justifying the ask or offer price for an aircraft

Asset Insight’s standardized grading system could be viewed as a “credit score” for an asset. Essentially, the better the aircraft’s maintenance condition, the better the asset’s Index, resulting in the following value for Asset Insight services users:

  • For an aircraft owner, the ability to treat a hard asset as a financial instrument. Because the Asset Grading System Process is based on a uniform scale for all aircraft, the Asset Insight Index allows one to grade and compare any aircraft to another aircraft. 
  • For an aircraft financing entity, be it for a loan or a lease, the Index provides a mechanism for grading and evaluating an asset it is considering funding as well as the ability to track that asset’s potential maintenance cost (exposure) should a client default during the term of the loan or lease or upon lease termination.
  • An aircraft management company can provide quarterly updates to its clients regarding their aircraft’s maintenance statuses, how they compare with the average, like models, aircraft listed sale and what scheduled maintenance expenses to anticipate during the forthcoming 60 months (providing their clients with a valuable planning tool).
  • An aircraft broker is better able to justify pricing recommendations to a client and perhaps why some additional maintenance may be advisable to better position the aircraft in the market and/or increase the asset’s value.
  • An appraiser has a useful, objective tool by which to gauge an aircraft’s maintenance condition, allowing for a comparison to aircraft currently on the market as well as values for recently-traded aircraft.
  • A maintenance facility can use the Asset Insight Index to help sell the value of their maintenance services. By conducting a major inspection, by refurbishing the interior and/or by repainting an aircraft, its owner would see an improvement in the aircraft’s Asset Insight Index (the same way paying off a debt would raise an individual’s credit score).
  • An hourly cost maintenance services program provider is given the ability to independently prove the Program’s value to a client not only when quoting a Buy-In Fee, but also on a regular basis to remind a client of the Program’s value (irrespective of the funds residing in their accounts).

This simple-to-obtain, web-based, cost-effective service is currently available by specific serial number on more than 100 aircraft models (www.assetinsightinc.com). Concurrently acquiring an optional  Comparative Aircraft Index report detailing the Financial Exposure for similar make/model aircraft listed for sale allows one to determine if the aircraft’s Financial Exposure is greater or less than the industry average. That difference in Financial Exposure Value represents the value to be added or deducted from the average price of all similar make/model aircraft listed for sale.

Asset Insight translates complex technical data into actionable financial information and addresses a piece of the valuation puzzle that has been missing. Using this new tool, anyone with a financial interest in an aircraft is now able to manage the investment as a financial asset.