Factory fresh or preowned

Buyers' Guide » 2008
The higher price of preowned aircraft may drive some buyers to consider model
Tuesday, July 1, 2008 - 5:00am

After carefully analyzing your travel patterns, budget and a host of other factors, you've concluded that you need an aircraft. Now comes a decision that can be at least as tough: Should you buy new or used?

The respective benefits of purchasing a factory-fresh or preowned aircraft are relatively straightforward. The wild card is the market at the time of purchase. But before considering the effect of market conditions, let's review the basic benefits of buying new and used aircraft:

Reasons To Buy New

You can customize to your heart's content. As the buyer of a new aircraft, you get to choose the paint scheme, interior configuration, fabrics, leathers and optional cabin and cockpit equipment. This can be a major advantage if you have unusual design preferences that you're unlikely to satisfy in the preowned market. But consider resale value when configuring the aircraft-like a house, a jet may be harder to sell if it's unusual than if it's a more conventionally configured model.

Repairs won't break the bank. A new aircraft comes with a warranty covering the airframe, engines and avionics, typically for five years, as well as the interior and many components, usually for two to five years. Repair and maintenance costs will be negligible during the warranty period.

Also, if you want to put engines on the engine manufacturer's after-sale maintenance program, such as GE's OnPoint Solutions, Honeywell's Maintenance Service Plan, Rolls-Royce's Power by the Hour program or Pratt & Whitney Canada's Eagle Service Plan, consider that it's less expensive to do so when the powerplant is new. Such service contracts provide fixed, guaranteed engine maintenance costs and usually result in higher resale value. Independent companies, such as JSSI, also provide hourly cost maintenance programs.

You won't face unpleasant surprises. New aircraft generally prove more dependable than preowned models. They are less prone to unforeseen maintenance problems that may be costly and disruptive to operations.

You'll get state-of-the-art equipment. New jets have the most advanced avionics, engines and systems available for the aircraft at the time of manufacture. This can translate into a more mission-capable, cost-effective and comfortable jet. An enhanced-vision system, for example, can enable landing in challenging weather that could otherwise force diversion to an alternate airport. A more capable cabin pressurization system reduces the fatigue of flying. And the latest engines provide better fuel efficiency.

"The GIV-SP can do an excellent job, but the new G450 has so many more goodies on it," said Matt Hartnett, vice president for preowned aircraft sales at Gulfstream Aerospace in Savannah, Ga. Hartnett cited the G450's improved range, altitude capability, fuel efficiency and amenities.

You'll smile when you sell. New aircraft typically cost more than preowned models (though not always in today's market), but the resale value is commensurately higher for aircraft you purchase new. This is especially true if you sell while the airplane is still under warranty. Before sticker shock deters you from buying a new aircraft, consider its entire lifecycle cost.

Reasons To Buy Preowned

You won't spend years twiddling your thumbs. The range of preowned aircraft on the market gives you access to a wide variety of jets that can likely fulfill your missions. Moreover, it's typically quicker to get into the sky in a preowned aircraft. While it can be time-consuming to go through the pre-buy inspection that should be part of the purchase of any used aircraft, it doesn't take as long as waiting at the back of the line-sometimes for several years-after reserving a delivery position for a new airplane.

You'll likely pay less and get more. Preowned jets typically have a lower purchase price, enabling you to buy an airplane even if you couldn't afford a new one. And used aircraft often deliver comparatively better value. A 10-year-old airplane will arrive at its destination at just about the same time as a new model making the same flight, yet the cost of the aircraft will be significantly lower.

You can say good-bye to manufacturer service centers. As a buyer of preowned aircraft, you have a greater choice of service options. To keep from voiding warranties, owners of new aircraft are obliged to use only factory-owned or -approved service facilities. But other service providers qualified to work on a given aircraft may be more conveniently located, less expensive, deliver better service or offer other advantages. Some such facilities actually have higher standards for tolerances of repaired parts and offer more comprehensive warranties on their work than do the aircraft manufacturer shops.

Turning oldies into goodies can save money. Though buyers of new aircraft can configure them at the factory, the great variety of aftermarket refurbishment products and programs enables buyers of preowned jets to upgrade or update the airplane to like-new condition. When you factor in the lower purchase price, this can represent a large savings over getting the same equipment in a new airplane.

"We think there's really no difference in reliability and maintainability of the [preowned] aircraft," said Doug Oliver, director of corporate communications for Wichita-based Cessna Aircraft, which sells both new and preowned Citations. "A lot of service centers are chock full of airplanes getting avionics upgrades. So customers might think they're getting something a little more state-of-the art with a new aircraft. Sometimes that's true, sometimes it's not."

Dealing with Today's Market
As noted earlier, the wild card in the new-versus-used decision is the state of the marketplace. This affects availability, price, financing options and other factors.
"It's not like cars," said Tom Clark, owner and president of Tulsair Beechcraft in Tulsa, Okla., which sells both new and preowned aircraft. "The number of airplanes [available for purchase] is so small that the population of buyers can affect the price."

And right now the market for jets-both new and used-is exceptionally strong.

"Demand around the world is very high," said Ralph Aceti, director of communications at Dassault Falcon in Teterboro, N.J., which sells preowned as well as new Falcon jets. "It's not just in the U.S.-Russia, India and Europe have this new sense that a corporate airplane is a very productive tool." In fact, marketers and financiers of business aircraft are using the term "BRICK countries" when talking about the five new hottest international markets: Brazil, Russia, India, China and South Korea.

The unprecedented demand for business jets has had a major impact on buyers of both new and preowned aircraft. Delivery positions for new models are stretching into the next decade. Buyers who might prefer a factory-fresh aircraft may not be able to wait, forcing them into the preowned market. Meanwhile, demand in that market has dried up supply, particularly of late-model aircraft, and led to sharply higher prices.

As a result, some used aircraft may cost more than factory-fresh editions of the same model. A new Gulfstream G550 costs about $45 million and wouldn't be delivered until around 2010, noted Bryan Comstock, a columnist for this magazine who is managing director of Jeteffect, an aircraft sales and acquisition company in Long Beach, Calif. Meanwhile, a low-time preowned G550 available today is priced in the "low 50s."

For those who absolutely, positively must have a new aircraft and aren't willing to wait, delivery positions are sometimes available. Buyers who've put down a deposit on a new airplane may have a change of plans requiring them to sell their slot. Likewise, investors sometimes make a deposit for an aircraft with the intent of selling the position for a profit. Some firms specialize in bringing together buyers and sellers of delivery positions, and manufacturers themselves often help customers sell or swap such positions. Usually positions change hands before aircraft options are selected, so the buyer who takes over the delivery slot can configure the jet. But be prepared to pay a healthy premium for cutting ahead in line.

The higher price of preowned aircraft may drive some buyers to consider models that should be avoided because, while they may get the job done today, they could be more difficult to sell tomorrow, particularly if the market reverses course.

The tight market might also cause shoppers to be more willing to look at airplanes that require refurbishment. However, many completion and refurbishment centers are themselves booked up because of the hot market, and getting an aircraft refurbished may consequently take an unacceptably long time. Be aware that even getting a pre-buy inspection will likely be time intensive owing to these market conditions. And if you come across a preowned aircraft that fits your needs and budget, remember it's a sellers' market, though recently it has been cooling some.

"The biggest mistake I have seen in this market is that people are losing deals because they're trying to negotiate [price]," Comstock said. "Even brokers. They're not used to the current market. I've seen guys lose three or four airplanes for their clients."

Finally, no matter what kind of aircraft you're in the market for, avail yourself of expert help. Otherwise you could make a multimillion-dollar mistake.

"It's a complex process, whether buying new or preowned," said Michael Chase of Chase & Associates, an aviation consultancy in Louisville, Texas. "You better have your act together and know what's going on. And you better have someone who can help you through the purchase."

The pros and cons of being an early buyer of a new aircraft model

New aircraft models generate lots of excitement and interest. But David Wyndham, vice president and co-owner of aircraft data company Conklin & de Decker in Orleans, Mass., argues against buying any new model until all of its bugs have been identified and rectified.

"If you're interested in the latest design, be patient and sign up for around
serial number 75 or later," Wyndham said. He cited five reasons for his advice:

1. The aircraft may incorporate unproven technologies that create unforeseen
challenges to implementation or certification.

2. Problems in integrating new systems may not be recognized until the first models enter service.

3. If parts unexpectedly fail, replacements may not be readily available.

4. Preliminary design specifications may not be met in the final certified aircraft, so you may not experience the performance that led you to order it in the first place.

5. The delivery date is likely to slip as the manufacturer addresses issues caused
by the above reasons. If time is of the essence, a wait of several months beyond the original delivery date may be unacceptable.

"Let the first few dozen owners deal with all the new-model teething issues and then you can grab the polished product," Wyndham said.

He stressed that he was referring to clean-sheet designs-not "evolutionary" aircraft like Cessna's CJ1+, which evolved from the Citation 525. Clean-sheet jets that have commenced deliveries recently include the Eclipse Aviation Eclipse 500, Dassault Falcon 7X and Cessna Citation Mustang.

Spokesmen for some manufacturers disagreed with Wyndham."

"If it's from a company that has demonstrated time after time that it can address the issues with a new design, you remove some of the concerns that might come from an aviation company that perhaps has never done it before," Dassault Falcon's Ralph Aceti said. "The first 75 order holders [for the Falcon 7X] satisfied themselves it was the right airplane," he added.

"If you buy a new airplane, chances are you get introductory pricing and a lower cost of ownership," said Cessna's Doug Oliver. "Sometimes it's fairly substantial and would offset any minor service bulletin or changes that might come out in the first year. The first customers have had well over 100 hours of squawk-free flying with the Mustang."

FILED UNDER: 
Share this...

Add your comment:

By submitting a comment, you are allowing AIN Publications to edit and use your comment in all media.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
 

Quote/Unquote

“You want to make sure with a race in which you'll be flying home with other drivers that you don't crash into them. It's happened before, and it can make for a little bit of a tense situation.”