““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
How to find the right aircraft broker
If you've thought about selling your aircraft, you have lots of company. This is a buyer's market-and a fast-changing one. "A Falcon 2000EX might be worth $22 million until a similar serial number appears for sale for $20 million and sells for $17.5 million, altering the entire market," commented one broker. Jeteffect's East Coast managing director, George Marburger, said the business has been so volatile lately that he almost feels like a day trader.
In an environment like this, you can't afford to sell an aircraft without the help of a good broker. Unfortunately, aircraft salespeople are a varied lot-some are well-educated professionals while others seem like rogues and potential swindlers. Brokers aren't regulated, which means anyone can call himself a broker. There aren't any Century 21-like franchises to look for, either. "We do breed the worst of the worst sometimes [in brokers], when there is a lot of money to be made," Marburger said. "But a good broker is part mechanic, pilot, accountant and even part shrink."
So how can you find such a broker? Word-of-mouth referrals are the most reliable, so begin by asking other owners for their contacts. Then call other industry professionals, such as attorneys or finance people, for their opinions. Another place to start a search is with the Web site of the National Aircraft Resale Association (www.nara-dealers. com), which lists 36 broker members. But the vast majority of the approximately 700 brokers in the U.S. aren't NARA members. You might even benefit from doing a Google search for brokers, which can offer easy access to photos and data about a sales organization.
Once you've collected information on a variety of broker candidates, it's time to cull the list to a manageable size and contact the most promising prospects. Keep a separate sheet of notes for each broker to organize the details. While an in-person exchange is always preferable, a broker's location may make that impractical. Telephone is fine; just don't resort to communicating only by e-mail regarding a deal as large as a business aircraft.
The most visible broker qualifiers are among the most important. Wondering how the brokerage will market your airplane? Track how it markets itself. If you didn't connect with the broker the first time you tried, how long did it take the salesperson to return your call? Dallas Aircraft Sales president Carl Neuzil remembers making as many as 40 phone calls to gather information on aircraft for a potential buyer. "It is not uncommon to hear back from only six or seven people even after that many calls," he said. Imagine how a broker who doesn't promptly return calls will respond to someone who's interested in your airplane. Another tip-off that you should pass on a broker is a post office box in place of a street address listing.
Pay attention to your rapport with a broker. If it's good, that should be apparent quickly, even on the phone. Make sure that a broker is experienced in selling big jets or turboprops, not just single-engine piston airplanes. Next, ask the broker for a list of aircraft he has sold in the past year. Ask, too, whether he has been successful enough over the past five or 10 years to warrant return sales engagements with customers. And don't forget to ask for-and call-references. "You wouldn't believe how few people do that," Marburger said.
Find out whether the broker is already carrying an aircraft similar to the model you're offering for sale. That could pose problems, especially when serial numbers are close in sequence, because such aircraft could have very different equipment, capabilities and prices. It could lead to another airplane being better promoted than yours. Still, carrying a few of the same aircraft might speak to the broker's depth of experience with your model. Problems could also arise if the broker is selling different models of competitive aircraft, such as a Falcon 2000 and a Challenger 604. Which one will the broker push harder?
Should you hire a big, well-known broker or a one- or two-person shop? That's a tough one. A big brokerage with 30 jets listed for sale might appear to be the best choice and may even seem to outclass the smaller company, but the smaller shop may offer a personal touch that the big brokerage doesn't.
Experts agree that any deal with a brokerage should be outlined in a document that explains not only who will do what when, but also under what circumstances certain things won't happen. For instance, who covers the cost of fuel and crew to demo an airplane based in Denver when a potential buyer wants to try it out on a trip from New York to Miami? What about those sales fees? Will the broker receive a flat sum or a percentage of the total price? A flat fee is just that-a known entity. The dollar amount on a percentage rises with the sale price, which could affect how some brokers handle your deal. A few companies, such as Boston JetSearch, provide professional advice only to buyers and sell no aircraft at all. Most sales organizations will work either side of the deal.
Should the Manufacturer Be Your Broker?
What about using your aircraft's manufacturer as the sales broker? It's reasonable to expect that the manufacturer's staff will be experts on airplanes that their company built. Disagreement exists about how well this arrangement might work, however. Jeteffect's George Marburger warned about conflicts because an aircraft manufacturer has a "vested interest in selling a new airplane." Dallas Aircraft Sales president Carl Neuzil said he thinks the manufacturer could price an aircraft too high because it wants to demonstrate that it retains value well, which also helps sell more new airplanes.
Who Else Might Help You?
As in real estate, an attorney isn't a necessity to keep the details of an aviation deal in line. In fact, industry jokes abound about lawyers who made a great aviation deal go south. "There are attorneys out there with good reputations and then there are those who make things difficult," said Jeteffect's East Coast managing director, George Marburger. "But with the larger and more expensive aircraft, sellers and buyers will frequently use an attorney." Industry experts also warn sellers to think twice about involving the flight crew in the transaction. Some think the crew should certainly offer their expertise, but could well prove to have personal conflicts aimed at protecting their job.
As you shop for a broker to help you sell an aircraft, you may hear mention of so-called back-to-back transactions. As BJT columnist Jeff Wieand explained in an article in our December 2008/January 2009 issue, these deals separate the buyer and seller by putting a transaction between their exchange. In other words, the owner sells to a middleman, who then resells to the ultimate buyer. As a result, the middleman gets what is essentially a commission but neither buyer nor seller knows how much it is.
Clearly, as Wieand noted, such arrangements offer the potential for abuse. If the middleman pays you $10 million for your airplane and turns around and sells it for $12 million, both you and the final buyer might be upset if you knew the extent of the markup. Aircraft sales are not government regulated, and a handful of brokers may well use back-to-backs to cover up unscrupulous aspects of a deal.
But that's not the whole story, say some brokers, who consider back-to-backs a legitimate tool for times when sellers don't want to pay commissions but don't care what brokers charge for their aircraft so long as they get the price they're after.
"Back-to-back transactions are sometimes necessary," said Toby Smith, a vice president at Houston aircraft broker JBA Aviation. "If neither [seller nor buyer] will consider paying for a broker's services, the agent who brings the buyer is essentially forced to obtain compensation out of the proceeds of the sale.
"In a buyer's market," Smith added, "sellers are often more than willing to pay a reasonable commission if a broker can help them to move their aircraft. Back-to-back transactions are much less frequent in a buyer's market like the one we are in today than they have been in recent years."
Most brokers would rather not buy or sell using back-to-back transactions simply because such deals force them into a liability daisy chain they'd rather avoid, according to Michael O'Keeffe, a senior vice president at Banyan Air Service, an FBO in Fort Lauderdale, Fla., that also manages and sells aircraft. For instance, if an issue arises with the airplane after the sale, who should the buyer call--the middleman or the original owner? The answer isn't always clear.
"To me, back-to-back transactions are not dirty words, though," said O'Keeffe, who this year is serving as chairman of the National Aircraft Resale Association. "I just think a handful of brokers have given us all a bad name" because of how they have abused the practice.
JBA's Smith said the practice is rarely necessary, anyway. "In my 11 years with the company, I can remember only one instance where a back-to-back was necessary," he said. "The deal involved the trade of multiple aircraft and we agreed to a back-to-back to let title pass through our company to facilitate the trade."
While many reputable dealers agree there's a need for the occasional back-to-back, they stress that transparency is the best option whenever possible. "All parties are better served knowing how much is being paid for an aircraft and where all the money is going," Smith said.
To the vast majority of aircraft brokers, the entire process is about making sure the client is happy enough to come back for another deal on another day. "Our lifeblood is repeat customers," O'Keeffe said. "It is our job to be stewards of our aviation community and educate owners about everything they should know."