Article by Pat Duggins, Vice President PAAO
A recent legal case involving damage to a helicopter was caused by the impact of a service truck while the helicopter was parked on the airport ramp. The owner of the helicopter was seeking damages from the service company. The owner had recently purchased the helicopter and had an annual inspection accomplished by an Airframe and Powerplant mechanic returning it to service.
This incident could have ended with an incorrect conclusion due to the reliance on a helicopter appraisal by the owner that omitted critical facts. In these situations, competency becomes essential to any helicopter assignment. Dependence on a helicopter pricing guide alone without understanding component details fails to produce credible, reliable, or believable results. In this instance, the subject helicopter, in an airworthy condition, would have had a market value of approximately $400,000. USD – but this helicopter was NOT in an airworthy condition. Nor was it cost effective to place it back in service.
In the aircraft appraisal industry, aircraft/helicopter appraisals are not regulated or controlled. Helicopter appraisals are distinctive because of the elements that impact value are unique. All aircraft/helicopters have a regulatory requirement for records of all life limited parts (14 CFR § 43.10 Disposition of life-limited aircraft parts). Identifying any out of service time periods and records of all the life limited parts are paramount to value
The attorney for the service company trusted an accredited, and presumably qualified, competent, and experienced helicopter appraiser to provide an appraisal report. The Professional Aircraft Appraisal Organization (PAAO) has published a set of Best Practices that any aircraft appraiser may follow and here, not following PAAO Best Practices resulted in an opinion of market value which was excessive given the facts. Specifically, not reviewing the necessary logbook maintenance entries and completing the necessary research.
The accredited appraiser’s failure to review ALL logbook entries for the subject helicopter (versus the previous year or two which appeared to be the case) along with a review of the time-controlled record cards for each of the Life Limited Parts resulted in an inaccurate and grossly excessive opinion of value. This model of helicopter has 99 each Life Limited Part that must be accurately tracked and documented. Almost 90% of a helicopters value is found in the Maintenance Time Controlled and Life Limited Parts because these parts are very expensive. NOT documenting this information resulted in ignoring several key value points which may indicate that the appraiser was attempting to provide a misleading report which is possibly a violation of the Uniform Standards of Professional Appraisal Practice (USPAP).
Fortunately, the attorney for the defendant employed the services of a PAAO qualified appraiser with the experience and qualifications for helicopter appraising. PAAO ethics state that ALL Associates, requires our appraisers to be competent for any assignment they accept. If the appraiser does not have competency, they are required to notify the client and a) refuse the assignment or b) indicate that they can obtain this competency before completing the report.
One of the most important parts of the PAAO Best Practices is the requirement of a physical inspection of the helicopter and the historical records validating a number of key value points – including the life of the helicopter. Field visits are somewhat unique in this industry and only required by PAAO Appraisers. A review of the logbooks uncovered the fact that this helicopter had been sitting for a 6-year period without being operated or preserved in a corrosive environment. There were no indications in the maintenance records that either the airframe, its engine or any components had been addressed in any way. Here is why this is important.
The manufacturer of helicopters and turbine engines have a short-term storage and long-term storage requirements to prevent damage and maintain airworthiness. Failure to comply with these requirements can result in helicopter and/or turbine engine failure. The engine and helicopter transmissions and gear boxes all have vents to prevent pressure build-up. These vent to the outside air allowing moisture to collect in the oil which leads to internal corrosion – and corrosion is NOT a good thing in ANY aircraft. Internal corrosion of any turbine engine, transmission or gearbox has a very negative effect from an airworthiness standpoint but also has a large negative impact on the overall market value of the helicopter.
The helicopter logbooks documented this period without operation and no record of storage or preservation in accordance with the manufacturer requirements. This fact was noted by the PAAO Certified Appraiser and documented in his report. Furthermore, the plaintiff had purchased the helicopter and hired a mechanic to complete an annual inspection. The draining of the oil in the engine, transmission, and gearboxes will NOT identify any internal corrosion. The mechanic in question retuned the helicopter back into service without addressing the fact the helicopter had not been properly inspected and removed from storage. In other words, the mechanic did not inspect for internal corrosion which might lead to failure due to noncompliance with required manufacturer inspections for continued airworthiness.
As a result of the mechanic’s efforts (or lack thereof), the market value of the helicopter was essentially $0, and the only real value was that of salvage value because it was not economical to repair this helicopter and return it to airworthy condition.
It is common in the aircraft appraisal industry to see ads for “accurate” results (the opinion of value is just that, an opinion and neither accurate or inaccurate), fast and/or cheap (meaning that they will not perform the necessary research thereby glossing over key value points). While we are all human and subject to mistakes, that is not the case here. Not understanding the maintenance impact of being inactive for an extended period resulted in an over-valuation of the subject helicopter. For the owner, he may have gotten a great price for the less than credible report, but that great deal is not what is on his mind now.
The take-away point is to ensure that a trained, qualified, competent and experienced appraiser is hire if the objective is to obtain independent, impartial and objective results that are credible and believable.