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Which upgrades pay off when you sell your jet?
Put a gourmet kitchen in your house and a real estate agent will be able to give you a good idea of what you'll get back from your investment when the property sells. But what about upgrading the galley in your GIV? Or refurbishing the interior of a Citation III?
Calculating the value of capital improvements isn't as straightforward for a jet as it is for a home, but it's easier than it used to be, thanks to the growing transparency of the marketplace. Nowadays, information on virtually every jet for sale-including asking price, interior and exterior pictures and details on options and upgrades-are a few keystrokes away on the Web. And jet sales experts say owners need to consider such data carefully before investing in any improvements, if they care how much money they'll get back when they sell the aircraft.
"Certain upgrades do enhance value, others retain value and others may cost $500,000 and do absolutely nothing," said Dennis Rousseau, president of TRC Inc., in Albany, N.Y., which owns AircraftPost.com, a Web site that tracks medium- and long-range business jets for sale worldwide.
The key is determining which upgrades make economic sense "instead of just putting in something that pleases you," said Eric Roth, president of International Jet Interiors, an aircraft interior modification and refurbishment company in Ronkonkoma, N.Y. This is especially important in the current marketplace, because purchasers of used jets want an airplane that's ready to fly, with all the amenities already aboard.
"There's an interesting dynamic in today's market," said Johnny Foster, president of O'Gara Aviation Co., an Atlanta-based aircraft brokerage. "Five years ago, we saw prospective buyers who viewed a 'project' aircraft that needed updates as an opportunity to build the plane they wanted. In the last two years, the trend has shifted 180 degrees. A project airplane is viewed as more of a hassle."
Roth agreed. "Buyers are looking more for turnkey aircraft," he said. "That puts a little more pressure on sellers to take refurbishment under their wing."
Dovetailing with the "buy and fly" trend among jet shoppers, owners have become more savvy about the need for ongoing upgrades, allowing them to enjoy improvements in their aircraft while enhancing its future sales appeal.
"Ten or 15 years ago, economic planning was often driven by not spending money," said James Markel, board chairman of the National Aircraft Resale Association and chairman of San Francisco-based Apex Aviation, an aviation consulting and aircraft brokerage company. "Today's owner is appropriately budgeting and keeping up with upgrades. Everything costs them less in the long term and they get more out when it's time to sell."
Upgrades fall into four basic categories: exterior, interior, cockpit and engines. And the resale value of an improvement in any of these categories depends on the aircraft in which it's installed. For example, an in-flight entertainment system that buyers of a long-range jet might demand would add little value aboard a light jet, where short flights minimize the need for onboard diversion. And investments in older aircraft tend to return less than investments in newer ones, as buyers of vintage jets are driven more by price than by bells and whistles.
A jet's size and age notwithstanding, the purchase decision for most people initially is driven by appearance. Buyers want an airplane that looks good, inside and out. And that's where experts say investments in upgrades should begin.
"Since most buyers are interested in cosmetics, paint and interior are absolutely the biggest bang for the buck," said Marc Foulkrud, chairman and CEO of Avjet Corp., a jet sales consulting service and charter company in Burbank, Calif. But Foulkrud stressed that good looks alone don't close the deal. "Paint and interior get you in the door," he said. "All the other [options] are what finalize the transaction."
Investing in a good paint job is also important because paint quality is seen as a barometer of the care the aircraft gets. "Paint, in many people's minds, is an aesthetic complement to their maintenance concerns," said Foster. "If the paint is peeling, they assume maintenance has been neglected."
And the paint quality needs to be complemented by an up-to-date design scheme. "One thing that seems to help quite a bit in terms of curb appeal, for real estate comparison, is whether the cosmetics look contemporary," said Markel. "Typically, the airplane that has the more modern look sells fastest. Redoing the paint job common to what the manufacturer is putting out today will enhance the appeal."
An Inside Job
But suppose your old-style paint scheme is in fine condition and your upgrade budget is limited. Some experts advise putting money into the inside of the cabin instead of outside.
"When a potential buyer goes to look at an aircraft, chances are they've narrowed the selection to two or three," said Roth. "Those aircraft will be a similar year, similar serial number, have similar hours and similar equipment. Then the buyer will look for what makes a difference. Usually it's the quality of the interior. That's where [owners] spend the most time. They're not looking at exterior paint [during flights]."
Vintage jets with original interiors can benefit the most from a cabin makeover, with new upholstery, paneling, seats and divans. "What is returning the money in older aircraft is not necessarily technology, but more the aesthetic modernization features," said Foster. "The vast majority of the aviation fleet is 20 to 30 years old. A very large number are flying around with what were once pretty fancy outfittings, but today they lack the punch to be aesthetically pleasing."
They may also lack sufficient soundproofing-another relatively simple upgrade that provides a good return, assuming you are stripping the interior anyway. "[Buyers] want a quiet airplane," said Foulkrud. "In 10- or 20-year-old airplanes, that's something you want to look at. When you do your cosmetic interior, for an incremental additional cost you can add soundproofing that makes a big difference in the cabin."
In newer, large-cabin aircraft, some of today's buyers want a high-end, integrated entertainment system. "[Buyers want] flat-screen LCD monitors, iPod players, DVD players, all presented through a great acoustic system or acoustically amplified system," Roth said. "In addition, laptops [onboard] are almost guaranteed as are Play Stations for the children. You need 110-volt AC power throughout the cabin for passenger usage, even if it's just for recharging the cell phone."
Fortunately, high-end entertainment systems are relatively inexpensive to install, making this a cost-effective upgrade in an appropriate aircraft.
"For a lot of our customers, having the ability to watch a movie on a long flight is something they'd like to do, but they don't care if it's the latest and greatest entertainment system," Markel said. "But if it's important to the buyer, that's one example of an upgrade that's easily retrofitted at a modest cost."
The retained value of these entertainment upgrades varies widely, depending on the aircraft model, however. "In the Citation X, if you add satellite TV, you're going to spend approximately $500,000," said Rousseau. "If you're the only [Citation X] that has it, are you going to get a return on the capital expenditure? The chances are no. The typical buyer is not looking for DirecTV and is not going to pay for it. But as you get into the [Gulfstream] G550 and the Global Express, those are the options people are looking for."
Demand for entertainment systems aboard large-cabin aircraft is being upstaged by interest in communication capabilities, however. "Everybody wants connectivity, so if you have some sort of broadband capability, that's a winner," Foulkrud said.
Roth agreed, saying, "We're getting a lot of calls for satellite-communication systems and data transfer for e-mailing."
But wiring an aircraft for broadband or satellite connectivity can be expensive, so before embarking on such an upgrade, owners need to carefully consider their own needs, declining technology prices and how long they will keep their jet.
Aircraft brokers note that the price of flight phone systems has declined, making them a cost-effective upgrade for owners who need this capability. A moving-map system to watch the aircraft's progress onscreen is also popular, though whether it needs to be the latest and greatest product or version is debatable.
"As much as I hate to spend the money, everybody still likes to have Airshow in the plane," said Foster. "That's a lot of money for something you sit and stare at."
"Airshow to me is not a big issue," counters Foulkrud. "The JetMap II from Honeywell is a good system. If they have a map system, that's all [the buyers] care about. It doesn't have to be the top brand."
Cockpit and Engine Upgrades
As areas for upgrades, the cockpit and engines are pretty much non-factors today, brokers say. In the front office, virtually all panels have been retrofitted in compliance with requirements for EGPWS (enhanced ground proximity warning wystems) and RVSM (reduced vertical separation minimum) equipment. The rest of the instrumentation is basically standard across models. The exception concerns enhanced vision systems in upper-end aircraft. "More and more [owners] are getting into this as an aftermarket installation," said Rousseau.
Also worth noting in a discussion of light jets is who sits in the front left seat. "A lot of smaller aircraft are owner flown," said Bryan Comstock, president of Jeteffect, Inc., a jet sales and acquisitions firm headquartered in Long Beach, Calif. "These guys just care what's up front." In such owner-flown aircraft, cabin amenities might count for little, while some upgraded avionics could be a selling point.
As for powerplants, engine conversion programs have led to improved performance on several aircraft, such as the Dash-4 conversion on the Falcon 50 trijet, updating the original engines with TFE731-4 models, or the Learjet 25 conversion using the Williams FJ44 engine. (The FJ44 is also being used in a program in development to re-engine the Cessna Citation II.) However, whatever their impact on aircraft performance, powerplant conversions provide a poor return on investment in the resale market and should not be installed as a means to motivate buyers. Likewise, investing in a manufacturer's engine-care program provides a good return as part of an ongoing operational program, but not if contracted specifically to attract a buyer at sales time.
With delivery positions for new jets-particularly large-cabin aircraft-extending well into the future, industry observers expect demand for good used models to remain high. But the arena is competitive, and each day a jet sits on the market the owner loses money. Aircraft brokers and consultants can advise owners on improvements and resale valuations in their model. In this environment, seeking such expertise may be one of the most cost-effective upgrades any jet owner can make.