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Aviation History
1986
1986 - 0265.PDF
•.,^-MUM,..:£JM>.J What price a used aircraft? The values of used aircraft fluctuate, some types proving better buys in some years than in others. Ian Goold asks what governs prices. Four reasons why some general-aviation machines hold their value better than others are suggested by Bernie McGowan, chairman and senior editor of Aircraft Bluehook-Price Digest in Oklahoma City. First, acceptance; popu larity in the marketplace is important, because some aircraft will always find a ready market. Used Gulfstreams, for example, are the only aircraft for which owners can get more dollars than they paid for them as new machines five or ten years ago. According to McGowan, a 1975 Gulf- stream II will fetch slightly more than its original purchase price. Gills bought in 1980 can command almost 25 per cent more dollars. The only other business jet going for more than its original price (discounting inflation) is the French Dassault Falcon 50. Few other aircraft remotely approach what might be called a break-even factor. Two piston singles which have done well over both five- and ten-year periods are Beech's A36 Bonanza and the Piper Archer (see tables on page 24). Types which hold values better than others are Gates Learjet 35/35A, Cessna Citation 500, Beech King Air C90 and Baron 58, Piper Navajo Chieftain, Cessna 182 (fixed gear), and Piper Warrior. Other important considerations, according to McGowan, are replacement FLIGHT INTERNATIONAL, 1 February 1986 cost (new prices soared during the early 80s), the number on the market (some aircraft were not built in large numbers and will never be plentiful), and inflation. His company bases its judgements on regular market surveys. A questionnaire goes out every three months to a thousand dealers in the USA. Over at Omni Jet Trading in Rockville (Maryland), senior sales director Robert Rockwood lists different factors. His Number 1 is "technology relative to year of build", followed by exclusiveness, and the size of market for the type. Rockwood cites the Gulfstream II (which he regards as old technology): the Gil still holds value compared with the other types because "it has literally no competitor except, say, a Boeing". Some types have a high appeal to what Rock wood calls "marginal operators", but do not command a high value since they are not to be found in major corporate flight departments. At the end of the day it all comes down to supply and demand. "Take the Cessna Citation II; that is a very popular aircraft. It enjoys a high trade, more than 100 a year are traded. It has a lot of appeal." Can these principles be used to predict whether an aircraft is likely to be a good buy in terms of depreciation? McGowan is non-committal: "Yes, and no. The future is always tough to predict. Last year Gulf- stream and Gates Learjet dropped prices by 20 per cent to reduce inventories. [In such situations] the customer doesn't know what he ought to pay. It was a short- term factor, but threw the market into a tailspin. We're still feeling it now." McGowan and Rockwood agree that all factors must be considered. They apply in all situations, says Rockwood. The Canadair Challenger and Rockwell Sabre- liner 65 are illustrative: for both types the value is artificially depressed because production is threatened or has closed. Five years ago, the Sabre 65 had been valued at around $5 • 3 million. Today it is worth between $1-8 million and $2-3 million. "The price should be $2-7 million-$2-8 million." In fact value is lower because the aircraft is out of prod uction, and because it was not certificated in all areas. "No one's going to pay to have it approved," says Rockwood. How important is residual value to buyers of new aircraft? McGowan says that companies consulting his Aircraft Bluebook organisation constantly ask what inflation rate they should use. He deals with all levels of personnel— chairman, chief pilots, and accountants. "They are all conservative," he says. Omni Jet's phones ring constantly with "people asking what aircraft are worth", says Rockwood. "Twenty-three years in the business gives us some feel." According to McGowan, residual value is most important to the moneylenders. In Rockwood's experience it is not "a prime consideration, a deciding factor". Most work on residual values is done for banks, financiers, lessors, dealers, and brokers, McGowan finds. "They need to forecast values for tax purposes". Loans on aircraft are made over five, seven, or even ten years, says McGowan. Where aircraft provide collateral, then future residual value will influence leasing rates, Rockwood says. He agrees that com mercial attitudes to business aircraft are conservative, with almost all written-down 23
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