Aging Business Jets and the Value Problem

How old of a business jet aircraft is tooold? 

Older business jet aircraft are an interesting value proposition.   It is important to understand a few terms to better understand values today, where they might go, and some background on the drivers.

Physical Life—The number of years that a new property will physically endure before it deteriorates or fatigues to the point of being unsuitable for its intended use.  i.e. Corrosion

Economic Obsolescence—Or external obsolescence, the loss in value or usefulness of the property caused by factors external to the property.  i.e.  New regulations

Functional Obsolescence—Depreciation in which the loss of value is due to factors inherent in the property itself, technology, operating costs, changes in design and lack of utility.  i.e. Examples are engine efficiency, avionics capability, lack of parts, downtime and operating costs.

The old straight pipe jets obsolescence was easy to recognize as the engines were loud and not fuel efficient.  Fan powered jets marked a new generation with greater range, lower sound levels and more thrust.  A layman could see the difference. 

We have entered into a phase of the market this time that is slightly different and more difficult to discern than in the previous example.  Engine technology has improved, however the delta is smaller.  Other factors are still in play with older airframes becoming increasingly more expensive to maintain, certain parts becoming more difficult to procure, increased maintenance downtime, corrosion issues, and avionics packages that are not only more expensive to maintain, in certain parts of the world the airspace is becoming more restrictive and the upgrades to fly in the airspace are expensive.

The results while not as easy to see, are just as real as before.  Simply put, these older planes still have physical life, however they have or in the short term will become either functionally obsolescent or economically obsolescent. 

The old adage you can buy a lot of maintenance for the cost of an upgraded plane needs to be carefully evaluated.  A plane is a capital investment and similar to other capital investments there is a point of diminishing returns where you really are putting good money after bad.  What is that point?  Performing a life cycle cost analysis complete with cost of capital is one of the better methods to understand if you are wasting money on the current aircraft.

This is the reason that when the aviation market is fully recovered we will not see a large uptick in the 20+ year old aircraft.   It will be cost prohibitive to spend the money to keep these planes flying when other viable options at much lower operating costs and a life cycle costs including cost of capital are available.

Whether you calculate these costs or not, the marketplace will, and often exaggerates the costs further decreasing values.   For planning purposes the goal should be to change to newer technology aircraft prior to the current aircraft’s functional or economic obsolescence and retain more value than waiting until salvage value.

Hawkeye Aircraft Acquisitions LLC can help with the analysis and acquisition.