By Mike Simmons
Mike Simmons is an industry expert
Valuations based solely on price publications can lead to bogus price setting. Creditable appraisal reports accurately account for refurbishment and mods.
What is the average buyer, banker, or layperson to do if they need to know the value of a specific aircraft and why would you need to know? Many turn to numbers reported in price publications or the asking prices on aircraft sales websites, believing the information is accurate, but this can be an expensive mistake.
The growing refurbishment trend for aging airframes, plus the high prices of avionics retrofits, makes the valuation process even more difficult for the typical layperson. That’s why a formal appraisal report that’s skillfully prepared by a trained and experienced aircraft appraiser can yield more accurate figures than back-of-the-envelope guesstimates.
In this updated article, I’ll offer an insider’s look at the aircraft appraisal market and discuss how the pros determine the value of used aircraft. Additionally, I’ll show how full refurbishment labor and avionics retrofits impact the overall value of the aircraft.
Several years ago, I had a contentious discussion with a broker selling an aircraft that I appraised for a banking client. The broker challenged me because the appraisal results came in about 20 percent less than the negotiated price. It is common for appraisers to hear that the *&$%@$@ report came in too low and this case was not exceptional.
Keep in mind that I had no obligation to discuss the results of my analysis with anyone other than the client (who gave me permission to do so in this specific instance). Nor would I need to support someone else’s opinions – such as the broker’s – as they are NOT the appraiser of record and they have no responsibility for the manner in which they represent (or misrepresent) the subject aircraft; no accountability regarding “public trust”, nor are they required to stand behind their analysis whatsoever. The professional aircraft appraiser IS required to support their conclusions and analysis on behalf of the client as required or even in a courtroom setting as part of a legal case.
In this instance, the broker suggested I didn’t know what I was doing and said he was an expert at using a particular pricing publication. If I had only used the publication properly, he argued, the deal would have worked out fine. He went on about all the equipment that had been added to the aircraft as part of a recent avionics upgrade, and as he identified each item I checked to be sure I found it during my field visit and included it in my analysis. He simply added the cost of all this equipment to the specified “average retail” value noted in the publication in order to arrive at his final opinion of the aircraft’s value. Turns out, this was above the negotiated price – indicating that the buyer was getting a great deal. But, was he really?
When I asked if he accounted for the removed avionics equipment in his analysis, the silence on the other end of the conversation was deafening. As a so-called expert, he should know that the “average retail” value used as the starting point in the publication is nothing more than a mathematical model containing a specific configuration of avionics (usually factory original avionics), as well as other parameters. Without making any adjustments for this original configuration, he effectively equipped this single-engine piston aircraft with two autopilots, four Nav-Comms and two DMEs. That surely wasn’t representative of the subject aircraft.
I then asked him about the missing logbook I noted during my field research and how he or the price publication handled those situations. His response was that the logbook didn’t matter. I explained that missing logbooks and maintenance entries did matter, as roughly 30 percent of the aircraft’s life could not be accounted for in this instance. This made it impossible to verify the total airframe time, any previous damage history and other issues the aircraft may have been involved with during this period.
The market places a financial penalty on aircraft in these types of predicaments, but price publications don’t address these and other unique situations. The sales broker certainly didn’t and it was clear he was interested in setting a value that promoted a certain narrative. My objective as a professional aircraft appraiser was in reporting a creditable and reliable opinion of value – two very different objectives. I continued to explain that I was using a current database that was based on actual selling prices of similar aircraft. The database was developed for the sole purpose of appraising aircraft, versus numbers in a book that are based on information provided by subscribers.
He offered no compelling argument that my research and resulting opinion of value were incorrect, so my report would stand as written. Although this discussion occurred several years ago and involved a single-engine piston aircraft, it could have easily occurred yesterday and might have involved a business jet worth millions of dollars.
So, What Should the Typical Layperson Do or Use?
While offering some resources, trade publications are seldom much help to the layperson when attempting to arrive at a value for a specific aircraft. Usually an owner sees that a “similar” aircraft is listed for $X and believes that THEIR aircraft MUST be “better” and adds some percentage to the reference aircraft’s listed price. The next seller sees this new listing and has the same reasoning thereby increasing THEIR asking price – and the cycle continues. The reality is that the first aircraft used for reference was overpriced and misrepresented in the first place, so any subsequent listing are most likely based on misleading or incorrect/incomplete information.
Many believe that publications or websites are the answer when the need arises to discuss market value, but publications are in the publishing business (versus the aircraft appraisal business) and generate their revenues from subscriptions. The small print in their disclaimer clearly states that the publication is meant to be a general guide only and should not be used to appraise a specific aircraft. This is due to the many variables involved, but the publication’s data tends to be used – or misused – for that purpose anyway. The combinations and permutations of airframe time, engine times, equipment, mods and so forth cannot be accounted for with the simplistic tools available on most of the publisher’s websites.
There is also no indication the publication data tracks anything more than what someone submitted to the publisher and no indication that the data has been validated in any way. There are also issues not addressed in value publications, such as missing logbooks and maintenance entries, which some evaluators tend to ignore, or they use a “flat percentage deduction” – both of which are incorrect on many levels. To the average buyer and seller, these errors wouldn’t be noticeable, but to the professional appraiser the errors can have a significant impact on the final opinion of value. This is one reason there are vast differences between the results of a professional appraiser and an evaluator. The methodology is different, the responsibilities and training of the two parties are very different and the levels of research are different. In addition, the source data can also be different.
Worth noting is aircraft that sell the fastest are generally those which are priced more in line with the current market. There are exceptions of course (warbirds and classics, to name a couple), but piston aircraft that are priced correctly tend to sell in about 90 to 120 days. Still, when I am acting as a Buyer’s Agent, I can’t ignore the advertised aircraft, but there are better options out there (from a value perspective) and this is what buyers ask me to find. Additionally, I can quickly determine from the advertised aircraft which ones are priced within reason or may have undisclosed damage, for example.
The Aircraft Appraisal Industry
The aircraft appraisal industry is unregulated, which means that anyone can claim to be an aircraft appraiser without any background, experience, knowledge, or training. Literally, anyone you happen to meet on the street or elsewhere could be an aircraft appraiser at the snap of a finger AND offer their services to the general public! There are also no standards regarding appraisal reports so technically any “number on a napkin” or any spoken value is technically an aircraft appraisal.
In court cases, it is common for the other side to present someone who writes “hundreds” of aircraft appraisal reports every year. But, let’s analyze this point a little further. When someone says, as an example, that they can write 300 reports a year, that is roughly one report a day (excluding holidays, weekends, etc.). I know from experience that it usually takes a full day – AT LEAST – to complete the field visit and research the logbooks. It may take another day, or even two, to complete the market research, validate the information for the report and then complete and edit the report for a client. So, the “one report a day” metric tells me quite a bit about the level of research and report writing that these individuals accomplish. They may sign a report every day that was written by someone else on their staff or write a number on a napkin every day but it is doubtful that on an individual level they are completing the necessary analysis and research for their client.
The Aircraft Appraisal Process
Every project is unique but my process is based on the PAAO Best Practices and it is more involved that what many would expect.
It begins with understanding the Scope of Work and the purpose of the appraisal. For example, this report may be for donation purposes or to address an aircraft that has been damaged and is now involved in a legal case or the bank may want to know the value “as is, where is” along with the value once all improvements are completed. In other situations, the client may want to purchase the aircraft or finance the aircraft and just wants to know its market value. As simple telephone call stating that they need an aircraft appraisal for N12345 is inadequate and can lead to miscommunications between the client and the appraiser.
Once the Scope of Work is determined, the pricing is quoted and accepted by the client by way of an engagement, the research begins. Before I leave the office, I begin pulling as much public information as possible such as all 337s on file with the FAA, accident and incident reports from the FAA and/or NTSB, any ads placed by the seller, the type certificate data sheet (if needed) along with any market related information such as how many aircraft are for sale, the range of asking prices and so forth. Pulling all of this information helps me begin to establish my Computed Base Airframe Value or the starting point for my modeling efforts. The Computed Base Airframe Value is a term used by PAAO Appraisers and it is NOT the Average Retail Value found in most publications. These two numbers represent two very different models or configurations. Essentially, the Computed Base Airframe Value is a model stripped of value points such as the avionics, the engines, paint, interior, etc. so you should expect a number much lower than the Average Retail model used in most publications.
I also focus on setting up the appointment to view the aircraft and its records. The “key contact” is identified by the client and they have access to the aircraft and its records. I specify what I need to complete my field work and set a date for the visit. I found early on that it is more professional to set an appointment and your expectations instead of just “showing up” unannounced as some have done which triggered local law enforcement. It also opens up a dialogue about any items which cannot be produced during the field visit such as logbooks which may be missing or kept elsewhere.
The field visit involves photos of the aircraft along with photos of questionable items (dents, corrosion, rips, tears, etc.) which may impact the report. Other items are carefully documented for inclusion into the report and analysis. Once the physical review of the aircraft is completed, the logbooks are reviewed and digitized for later analysis. The original equipment list and the current equipment list are also captured. This is also an excellent time to see if all 337s with the aircraft’s records match the information currently on file with the FAA. Occasionally, there are modifications or repairs which have no corresponding 337s on file. These can be serious issues which may need to be addressed as part of your analysis. I keep wondering, what do those evaluators, who DON’T complete a field visit and find these types of attributes, document in their reporting???
After the field visit is completed and all information is collected, it is time to head back to the office and begin writing the report. However, I first need to develop my Computed Base Airframe Value now that I know the original avionics and other key details that go into that analysis. Comments in the report focus on supporting the condition identified (in other words, what does a rating of “Good” really mean) and any items such as damage history, missing logbooks, missing entries, questionable entries, etc. are documented and evaluated. Where is all this information found? It is found by looking at the aircraft and by reading the logbook entries.
After all, if you see that a logbook ends on date X and the next logbook begins years later, it is obvious that you have missing books or entries. If an entry states, for example, that repairs were initiated to the fuselage floor supports, etc. to address an event involving a forklift which ran into the side of the aircraft (yes, this actually happened), then you are looking at a serious damage event. The questions now involve how it was repaired as was the repair noticeable?
The report itself may need to be written to certain standards or specifications. I mentioned earlier that the aircraft appraisal industry was unregulated so there is no governing body who will “smite” the appraiser for putting a number on a napkin. However in legal cases, the question will arise about what guidelines or standards were used to develop an opinion of value and complete the report. For these and other situations, the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines suffice. For other situations a format of reporting used by the PAAO will be adequate for most piston aircraft.
The PAAO and Why It Is Important
The Professional Aircraft Appraisal Organization (PAAO) grew out of a previous organization that had been in existence for over 30 years and trained hundreds of aircraft appraisers on a global basis.
At the end of 2018, this organization closed its doors but several of its members started a new organization in 2019 – The Professional Aircraft Appraisal Organization, LLC (PAAO). The PAAO was established in an effort to not only promote the public trust in appraising aircraft but also offer a “counterweight” to other organizations that treat aircraft as heavy machinery and train their appraisers to never leave their office (read desktop appraisal reports). The PAAO founders discovered that the process used by the previous organization was legitimate in that it employed a “modeling” concept which essentially disassembles the aircraft into its critical value points, evaluates each of those value points and then electronically reassembles that aircraft to arrive at a credible, reliable opinion of value that can be easily supported because field visits are required as part of the research effort. The PAAO approach varies significantly from the methodology which uses publications or their web evaluator tool because of the many datapoints collected, evaluated and reported on.
PAAO aircraft appraisers also write reports for several aircraft types and not just those that burn Jet A fuel. This is important because it differs from other organizations that focus primarily on turbine aircraft. When looking at the number of aircraft registered in the U.S., piston aircraft make up about 66% – 75% or so. Focusing on turbine aircraft tends to omit a large number of aircraft which still require consideration for purchasing and financing. Dollar-wise, the turbine aircraft are more of a focus to the banking industry but that can be a little short-sighted as many of the newer piston singles are approaching six figures – even exceeding six figures depending on the options selected. In addition, those individuals who purchase piston aircraft today may very well be seeking turbine aircraft down the road.
Those who finance aircraft may want to seriously consider developing relationships with piston aircraft buyers and owners for a long- term strategy. PAAO Appraisers are trained to appraise piston aircraft FIRST before they are allowed to appraise and report business jets and turboprops.
The aircraft refurbishment trend is one area of particular interest because banks are routinely asked to provide financing for these projects, and many don’t understand how these improvements impact the overall market value once the work is completed. Owners and buyers also struggle with this same issue of determining the aircraft’s value after major improvements. Other than repair, airworthiness and certification matters, the aircraft refurbishment industry is also unregulated and when we are discussing the airframe itself (versus just the avionics equipment), the term “refurbished” can take on any number of activities, along with various quality factors – all of which can impact the aircraft’s market value.
The unfortunate reality for any refurbishment shop choosing to work on a specific aircraft is that there are several factors that can’t be changed no matter how much material and workmanship is put into the effort. These factors include the year, make and model of the aircraft itself, the total time on the airframe, the aircraft’s previous damage history, plus its maintenance history and related records.
For many evaluators, the easy choice is to look at the shop’s invoice or the value publication’s stated “add for” notation and simply add this amount to the publication’s starting point. This approach, of course, would be incorrect and would overvalue the aircraft – an attempt to set, versus report its value. In these situations, professional appraisers must separate the maintenance-related efforts from the enhancement efforts and consider the quality of workmanship in the evaluation of the aircraft.
For example, a new paint job or interior may look good from a distance, but if the quality of workmanship is poor, these attributes will not provide a considerable increase in the overall value of the aircraft, regardless of what shop may have actually completed the work or how much someone paid for the effort. Another good example includes the mods involving engines (replacement of the stock engine) because simply adding the price of the mod stated in the price publication would generally include the engine value as well. The proper adjustment would be to mathematically remove the stock engine from the aircraft and then adjust for the new engine, based on the type and time since overhaul. Without making this type of adjustment, the evaluator has effectively doubled the number of engines on the aircraft thereby overvaluing it.
Avionics upgrades are also an area owners wrestle with. Simply adding the new list prices for the equipment being installed, along with all the related labor, would be incorrect and would again, overvalue the aircraft. For the professional appraiser, it becomes a question of what is presently in the aircraft (if the upgrade has been completed) or what is coming out versus what is being installed (if the upgrade is being planned). The cost of labor to install the new equipment is generally irrelevant because the market provides no credit for labor or the choice of the shop doing the work. Of course, once anything is permanently installed in the panel, it is considered used. The fact that the equipment was new X-number of years ago is also irrelevant.
The question to be answered is: What is the equipment presently worth today? In extreme cases, I have observed the aircraft’s market value actually decrease after an avionics upgrade and the reason was pretty straightforward. It was a single-box upgrade where one piece of new avionics equipment replaced a number of other older ones. The new equipment certainly made the aircraft more marketable and functional, but the older equipment had value too, and the overall difference (what came out versus what was installed) was negative.
The important point to consider is understanding what the upgrade path looks like – what is being installed and what is being removed – to get a better sense of the outcome. To understand the overall market value of the aircraft once the project is completed really requires the services of a professional appraiser that knows the avionics market and is familiar with the airframe in which it is installed.
At this point you are probably thinking that the problem is solved and the only thing anyone needs to do is hire a PAAO Appraiser to understand the aircraft’s market value. Well, not exactly.
The term market value, used by professional aircraft appraisers, essentially requires three conditions to be present. The first is a willing and knowledgeable buyer and seller. The second involves normal market conditions and the last condition, is that neither party is being compelled to act. If any one of these conditions is not present, then we are no longer talking about market value. In this regard, some individuals have turned the manipulation of these conditions into an art form for obvious reasons.
Think about the salesperson who said, “I had someone looking at that very aircraft just the other day.”
Although the statement may be true, it is somewhat unimportant. The communication of this comment is an effort to put pressure on the buyer, thereby changing one or more of the conditions, which would impact the perception of market value. When acting as a Buyer’s Agent and hearing that remark, I generally ask “Should I cancel my appointment to see this aircraft since someone else has an interest in it?” Usually the answer is, “No, you are welcome to come on out.” So, why mention someone else at all???? Certainly if someone put’s money on the aircraft or signs a Purchase Agreement before I can complete the field visit, I would want to know before I leave the office. Otherwise, those comments tend to be “noise” unless they convey information about the subject aircraft.
In my view, the PAAO Appraiser is the only person in any transaction who can discuss the aircraft’s market value in an impartial and objective manner. Everyone else has a financial bias to some degree.
No Free Lunch
Depending on an appraisal report containing unpopular results is something the professional appraiser runs into routinely. I remind banking clients that they may not like the results of the report, but they can trust it and I have no issue defending my findings. Evaluators have very few of these challenges. After all, they are providing a number that everyone wants or likes, and this is a very easy thing to do. However, developing this type of result or report is not only unethical and unprofessional, it is a violation of the public’s trust. If the evaluator or appraiser is not following any ethical guidelines or professional behavior or if they are uninterested in maintaining the public trust, then the concepts of credibility and reliability are meaningless.
Remember, there are no industry requirements regarding aircraft appraiser qualifications.
On the other hand, there are individuals who have a keen interest in knowing the market value of the aircraft they are getting ready to purchase or finance, or when there is a legal question. Think diminished value from a damage event, for example. Who should these people contact, what should they expect and when should the appraiser be engaged?
The fundamental expectation anyone should have when hiring a professional aircraft appraiser is that they will physically examine the aircraft along with its records and provide a signed report of their findings. Anything less speaks to the professionalism of the appraiser and their approach to the project. Most PAAO Appraisers are found through the PAAO Professional Aircraft Appraiser Finder tool on the PAAO website and this would be an excellent place to start.
My advice would be to work with an aircraft appraiser before negotiating any purchase price. Knowledge is power and in situations where I have helped clients in the purchase of their aircraft as an agent (versus brokers who are paid a commission based on the selling price of the aircraft), knowing the estimated value based only on the information in the ad determines whether or not a field visit is in order, along with attributes that may not be included in the ad.
The results of the appraisal report, which involves a field visit along with related research, helps determine if an offer should be extended and for how much. It may include specific issues to be addressed in the purchase agreement and prebuy inspection. The appraisal report also makes the financing proceed much smoother and there are generally fewer surprises if the seller has been forthcoming in their information. If the seller has not represented the aircraft honestly this is revealed very early in the process so that serious buyers may proceed or pass on this aircraft. Knowing the aircraft’s value as early as practical can save clients from unnecessary travel, wasted prebuy inspections or overpaying for the aircraft in general.
It’s important to recognize that there is no free lunch however. Hiring a professional will cost much more than $25, or the typical cost of a web-based analysis. The appraisal fee structure should be based on the type of aircraft under consideration (piston single versus business jet, for example). It may also depend on the appraisal problem to be solved (legal proceedings, high time aircraft or donations), the amount of research needed, plus travel-related expenses. Some believe that the price paid for the appraisal cannot be recovered in any savings. This may be true on the very low end of the scale, but there is also a cost avoidance of making an uninformed decision that should be factored into the equation. Remember, market value involves a knowledgeable buyer. Bad decisions can be far more expensive than the price paid for the appraisal.