As Published in BusinessAir Magazine
The current used jet market has reached the stage wher
e a relatively high percentage are in the throw away jet category. In general terms, it happens around age 30+-.
Let me explain. This age of aircraft is in the functional obsolescence stage of their life. The deterioration in their value is related to their increased operating costs, downtime, lack of parts support and efficiency.
In many cases they still have a physical life. They are not eaten up by corrosion or other outside physical detriments that make the plane useless.
They have economic life as they still meet the regulations within the environment they need to operate in. They are able to be upgraded to ADS-B and can fly in the airspace.
So by far the largest contributor to their demise is functional obsolescence. The cost of major maintenance is greater than the value of the plane. Another way to look at this is, anytime the cost of the plane is made up of 50-75% of the cost of major maintenance, you are functionally obsolescent.
The question becomes, at what point does it make sense to keep putting dollars into a piece of equipment that a majority of the value is the maintenance that was just done? Some would argue that if the cost of that maintenance is less than an upgrade to a later model aircraft with similar missions, then it is justified. If downtime and potential parts issues are not a concern, then they might have a strong argument.
The other way to look at this is to buy an aircraft that someone has spent the money on, and just fly to the next major inspection. Thus the throw away jet model. The real depreciation is the initial purchase price plus the routine cost of maintaining the aircraft less the salvage value before the next major maintenance event.
Some aircraft models that have avionics and other components that are readily available at a reasonable price are possible candidates. Aircraft with outdated avionics or limited production runs that do not have a good source of parts might be ones to stay away from.
There are opportunities in this market for fairly inexpensive transportation. You just go into the purchase with the idea you are the last owner and the next stop is the graveyard. With over 18% of the installed base of aircraft that are 30 years or older there certainly are and will be many opportunities.
We recommend doing a thorough analysis to understand the costs and limitations of this type of plan. An AD on the engine, as is the case on the 731-4 and -5 models, could make your throw away jet obsolete much sooner, if not on an engine program. While the throw away model might seem attractive, you possibly could have had a much better alternative for similar out of pocket costs. It is wise to do a detailed analysis rather just winging it.
Finally, these planes may be inexpensive to purchase, however they are not inexpensive to take care of properly. Buying a cheap jet and then being cheap on maintenance is a recipe for disaster.
Mike McCracken
President
Hawkeye Aircraft Acquisitions
