How To Buy an Aircraft

Buyers' Guide - China Edition » 2013
While purchase price is important, a more important number is often the total cost of the airplane over the time you plan to keep it.
While purchase price is important, a more important number is often the total cost of the airplane over the time you plan to keep it.
Tuesday, April 9, 2013 - 3:15pm

With a house, your requirements play a big role in determining what you buy. You need such basic amenities as bedrooms, bathrooms and a kitchen. But emotion also drives your purchasing decision. No one really needs a 3,000-square-meter home with marble floors, refrigerators that connect to the Internet and floor-to-ceiling windows; these things are aspirational. They make a statement about you and your preferences.

An aircraft can deliver an even bigger statement and it’s relatively easy to get too emotional in the choices you make, no matter how much research you’ve done and how carefully your accountant and lawyer have reviewed the numbers and documents. Few who buy 11,000-kilometer-range, 15-passenger jets regularly use them to their full potential. Yet when these aircraft taxi onto a ramp, they stand above the rest. They have presence. The temptation is often to buy more aircraft than you really need. If you or your company can afford this, great. Otherwise, choosing something closer to what you actually require may save you from losing or never enjoying the unparalleled convenience, safety and security a private aircraft provides.

That said, the first question is whether to buy new or used.

If you plan on leasing an aircraft, if cost certainty is important and if you plan on flying much more than 400 hours a year and can’t afford any down time, choose a new model. New aircraft typically have warranties that coincide with the length of a lease, especially if you select manufacturer financing. A new aircraft purchase or leasing package often includes flight and maintenance crew training. Manufacturers are particularly attentive to their new customers because they want to put them in another aircraft five years down the road.

The older an airplane gets, the more it costs to maintain. Buyers should be particularly careful when buying anything more than 15 years old, advised David Wyndham, a director with the U.S. aviation consulting firm Conklin and de Decker. Aircraft between 15 and 25 years old typically require costly and lengthy maintenance inspections, engine overhauls and corrosion repair. Anything older than 25 years will have availability issues due to maintenance.

New aircraft, compared with really old aircraft, typically have lower life-cycle costs. They also have quieter engines and burn less fuel. Their cabins are more comfortable. Their avionics provide pilots with superior situational awareness. Their parts are more robust and last longer.

New aircraft are far from a panacea, of course. There is the small matter of price. True, initial customers for a model typically receive discounts but that’s at least partly because the first airplanes off any production line generally have a few issues. Some of these, such as with the Learjet 45 and Falcon 7X, have been serious enough to temporarily ground entire fleets. (They were resolved in the cases of these models, which went on to earn good reputations.) Today, thanks to computer design and simulation and extensive instrument bench testing, new airplanes, even the lower serial numbers, have fewer problems. But you can’t eliminate them all.

In any case, while the purchase price is an important number, a more important one is often the life-cycle expense—the total cost of the aircraft over the time you plan to keep it and the hours you plan to fly it. You can get projections for this data from Conklin and de Decker and several other sources, for both new and used airplanes.

Just because an aircraft is new, it doesn’t mean you can’t negotiate a favorable deal. Manufacturers typically have customers who delay their deliveries and they’re generally eager to move these aircraft quickly. If an airplane is already off the production line, the urgency increases, particularly in the fourth quarter, as the clock ticks down on year-end sales bonuses and commissions. This is a prime opportunity for buyers to negotiate a good deal.

Think of buying an aircraft in the same way you might think about purchasing a house.

With a house, your requirements play a big role in determining what you buy. You need such basic amenities as bedrooms, bathrooms and a kitchen. But emotion also drives your purchasing decision. No one really needs a 3,000-square-meter home with marble floors, refrigerators that connect to the Internet and floor-to-ceiling windows; these things are aspirational. They make a statement about you and your preferences.

An aircraft can deliver an even bigger statement and it’s relatively easy to get too emotional in the choices you make, no matter how much research you’ve done and how carefully your accountant and lawyer have reviewed the numbers and documents. Few who buy 11,000-kilometer-range, 15-passenger jets regularly use them to their full potential. Yet when these aircraft taxi onto a ramp, they stand above the rest. They have presence. The temptation is often to buy more aircraft than you really need. If you or your company can afford this, great. Otherwise, choosing something closer to what you actually require may save you from losing or never enjoying the unparalleled convenience, safety and security a private aircraft provides.

That said, the first question is whether to buy new or used.

If you plan on leasing an aircraft, if cost certainty is important and if you plan on flying much more than 400 hours a year and can’t afford any down time, choose a new model. New aircraft typically have warranties that coincide with the length of a lease, especially if you select manufacturer financing. A new aircraft purchase or leasing package often includes flight and maintenance crew training. Manufacturers are particularly attentive to their new customers because they want to put them in another aircraft five years down the road.

The older an airplane gets, the more it costs to maintain. Buyers should be particularly careful when buying anything more than 15 years old, advised David Wyndham, a director with the U.S. aviation consulting firm Conklin and de Decker. Aircraft between 15 and 25 years old typically require costly and lengthy maintenance inspections, engine overhauls and corrosion repair. Anything older than 25 years will have availability issues due to maintenance.

New aircraft, compared with really old aircraft, typically have lower life-cycle costs. They also have quieter engines and burn less fuel. Their cabins are more comfortable. Their avionics provide pilots with superior situational awareness. Their parts are more robust and last longer.

New aircraft are far from a panacea, of course. There is the small matter of price. True, initial customers for a model typically receive discounts but that’s at least partly because the first airplanes off any production line generally have a few issues. Some of these, such as with the Learjet 45 and Falcon 7X, have been serious enough to temporarily ground entire fleets. (They were resolved in the cases of these models, which went on to earn good reputations.) Today, thanks to computer design and simulation and extensive instrument bench testing, new airplanes, even the lower serial numbers, have fewer problems. But you can’t eliminate them all.

In any case, while the purchase price is an important number, a more important one is often the life-cycle expense—the total cost of the aircraft over the time you plan to keep it and the hours you plan to fly it. You can get projections for this data from Conklin and de Decker and several other sources, for both new and used airplanes.

Just because an aircraft is new, it doesn’t mean you can’t negotiate a favorable deal. Manufacturers typically have customers who delay their deliveries and they’re generally eager to move these aircraft quickly. If an airplane is already off the production line, the urgency increases, particularly in the fourth quarter, as the clock ticks down on year-end sales bonuses and commissions. This is a prime opportunity for buyers to negotiate a good deal.

A good used airplane will still cost less and can save you millions. According to the aircraft price data service Vref, there are plenty of bargains to be had. In 2012, typical savings on airplanes built 10 years earlier were as much as 60 to 70 percent for models such as the Hawker 800XP and the Falcon 50EX.

However, the process of acquiring the right preowned airplane is generally far more involved than a new aircraft purchase. Selecting the wrong used airplane can be annoying, say, when the toilet pipes freeze, or costly when, for example, an engine needs to be overhauled ahead of schedule. In extreme cases, it can kill you.

So unless you’re a licensed airframe and powerplant aircraft mechanic with detailed knowledge of the type of airplane you’re thinking of buying, you need to find an outside expert—an individual or organization well versed in the make and model you want to buy. You might think this would be someone who works for the company that makes the airplane—and you would be mostly wrong.

This is particularly the case with aircraft that are no longer in production. Many of the most knowledgeable in-house experts have long since retired or found other employment. Fortunately, many independent maintenance shops specialize in particular aircraft models, with knowledge handed down from the old salts to the young guns. There are pilots who have flown these airplanes for 10 to 20 years or more and can take one up and wring it out after the mechanic green lights it for a test flight. Certain insurance brokers likewise specialize. So do training providers and refurbishment houses.

Finding the right team, whose members don’t have conflicting interests, and putting them all together to work for you can be a daunting task, but it is no less necessary than having a skilled team perform due diligence when making any other type of investment. You need someone to quarterback that team—probably a management or consulting company or a broker. But how do you find the right one?

A good aircraft broker will give you a complete acquisition plan. This includes a list of models that suit your mission, along with information on their features and benefits, strengths and weaknesses, direct operating costs, refurbishment costs and market history. He or she should also be able to assist you in minimizing your tax liability, finding an aviation lawyer to draft the purchase agreement and setting up the ownership structure, placing the aircraft on a charter certificate if you wish to make it available for charter and locating a qualified flight crew if you need one. The broker should have the answers for you on what types of modifications and refurbishment make sense for an aircraft of the vintage you want and which ones will put you financially upside down in the airplane. Finally, he or she should be able to give you a list of customer references for both himself and the mechanics he plans to use to conduct the pre-buy inspection.

Once you or your representative (broker, consultant or management company) have put your team together, the fun begins. As you sort through the plethora of available aircraft—this is still a buyer’s market—you can save a lot of time and headache by asking yourself two key questions: Who owned the airplane? And how did they use it?

Not every used aircraft on the market was operated by a respectable company with a flight department that pampered it with in-house maintenance, but those that were almost always represent great buys and deliver few if any surprises. The same is true of aircraft enrolled in programs that provide maintenance at fixed prices for the engine or whole airplane, such as Honeywell’s MSP and JSSI’s “Tip to Tail” plans. The aircraft manufacturers also offer programs. Cessna’s ProParts covers airframe and avionics parts and consumables. Its ProTech program covers labor for scheduled and unscheduled maintenance at Cessna-owned service centers. Hawker Beechcraft offers Support Plus Parts and Support Plus Parts and Labor. Customers can tailor their packages to incorporate engines, propellers and auxiliary power units. Other programs include Gulfstream’s PlaneParts, Dassault’s Falconcare and Bombardier’s Smart Parts.

Generally, these programs are transferable to new owners. The application and monthly fees for used aircraft are based on time in service, a review of the logbooks and an inspection of the airplane.

These programs do more than take the uncertainty out of maintenance costs; they ensure that scheduled maintenance is done right and on time. Aircraft enrolled in these programs can command a sales premium of 10 percent or more and rightfully so. You shouldn’t necessarily rule out buying aircraft that aren’t in these programs, but they do require more scrutiny.

Appearance also matters. After all, your airplane is an extension of your brand and you want it to look fresh, clean and up-to-date. You can get that “new airplane smell” with fresh paint and interior. ­Conversely, a cosmetically unappealing 10-year-old airplane will sell for a lot less. According to Vref, a 2002 Gulfstream GIV-SP or 2002 Falcon 900 EX with an old interior will sell for up to $1 million less than one that has had a refurbishment. Good paint is even more important. Invariably, an aircraft with deteriorating paint has an underlying corrosion problem and that can be very expensive. Bad paint jobs that merely mask corrosion are even worse.

Fresh overhauls and inspections, or their absence, will respectively also add or deduct value. Overhauling both engines on the 2002 GIV will run you $1.8 million; overhauling the landing gear will cost another $300,000. The C check maintenance inspection on a 2002 Falcon 900 EX will run around $250,000.

You need to carefully weigh all of these variables when making an offer on a used aircraft.

However, depending on your lift needs, a third path may also be worth investigating. No longer is the choice just new or used. You can opt for a remanufactured aircraft. These come in two main flavors: bring your own airplane to the remanufacturer or allow it to buy and refurbish an aircraft for you. The Total Eclipse and Nextant are two recent programs that fall into the latter category. Eclipse Aviation is delivering two Total Eclipse light jets per month. For $2.15 million, customers receive a remanufactured aircraft with new paint and interior, the Avio IFMS, a factory warranty, an engine service plan and replacement of problematic parts. The $3.795 million Nextant 400XT is a Beechjet 400A/Hawker 400XP refitted with more-fuel-efficient Williams International FJ44-3AP turbofan engines, Rockwell Collins Pro Line 21 avionics and new paint and interior.

Whatever purchasing path you follow, just be sure to keep your emotions in check, do your homework and get expert help. Buying any airplane involves a big expenditure, but it gives you a priceless commodity: time. As such, this can be one of the most gratifying and productive purchases you’ll ever make.

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