|What Happened to My Aircraft's Value?|
|Written by Roger Battistoni|
As the owner of MultiCorp Aviation (www.multicorpaviation.com), I specialize in helping buyers purchase aircraft, averaging up to six aircraft a month. This activity is in addition to assisting aircraft owners sell their aircraft, so my staff and I are very familiar with the market. I routinely receive calls from owners looking for a little free advice, which I am always happy to give. These people tend to be owners of fixed-gear, four-seat aircraft (such as the Cessna 172 and 182 and the Piper Warrior and Archer) built before 1986. Most of these owners call me for advice, because their airplanes are not selling. As each conversation unfolds, the discussion usually revolves around the owner’s incorrect assessment of their aircraft’s value. This then leads to a very in-depth discussion about the market as a whole and an understanding of what is driving the values of pre-1986 aircraft southward.
It Is Not the Economy
Many owners of aircraft incorrectly believe that the reason that their aircraft values are falling is because of the economy. If you were the owner of a business jet, I would have to agree with you; however, regarding the pre-1986 market, this is not the case. The economy will make aircraft sell slower, but, in most cases, it won’t drive down values unless there is a glut of used aircraft on the market. In fact, looking at the supplied information from RVI Group’s Aircraft Bluebook Price Digest, the typical four-seat, fixed-gear, pre-1986 aircraft doubled in value from the early 1990s until on or around 2003/2005. These values doubled because of simple supply and demand. New single-engine aircraft were not being produced in large quantities during that time and there was a demand for aircraft; thus, values started to increase. Owners were moving up from one type of airplane to another, the airlines were hiring, flight schools were training, and life was good. In fact, I remember reading numerous articles about how good aircraft were as investments. People were purchasing aircraft, flying them for a year or two, and selling them for more money than they originally purchased the aircraft for. Again, life was good.
Cessna started to produce new aircraft in 1997. However, looking at the data, that did not seem to have much of an effect on the values of single-engine aircraft. After all, most of the new 172s were selling for $100,000 more than a comparable pre-1986 aircraft. And, honestly, they were equipped about the same as an upgraded older aircraft; in essence, it was not a new product, just one that was updated.
So What Happened?
Two words describe what happened: Cirrus and Diamond. Unlike what Cessna and Piper were producing, which was basically updated legacy aircraft, Cirrus and Diamond were producing all-new aircraft. These aircraft were made with advanced materials; were much faster, roomier, more efficient, and, in some cases, better looking; had advanced avionics for the day; and, to top it all off, were selling for $150,000 to $160,000. Looking back at the Cirrus SR20, it was selling for $160,000 in 2003, came with dual Garmin 430s and a huge MFD, and had a parachute (Cool. Well, at least a lot of buyers thought that). At the same time, the typical 1986 Cessna 182 was selling for $115,000, and it had none of those advantages. Buyers started to flock to these new aircraft and away from the 30-year legacy market. As the Cessna 182 market and Piper Archer market started to shrink, the legacy four-seat, single-engine market, as a whole, started to decease. Complicating things further, as the new Cirrus and Diamond owners flew their aircraft, those airplanes, too, started to decrease in value, as all new aircraft do, thus making them more affordable. In fact, if you examine the market, it is easy to find some Cirrus SR20s selling for less than $125,000. This further compressed the market; after all, when 2003 aircraft are selling for $125,000, most buyers will want to pay substantially less for a 30- year-old airframe.
However, Cirrus and Diamond are not the only reasons why those legacy aircraft decreased in value; the new Cessnas and Pipers that were being produced had the same effect. Flight schools and universities, such as Embry-Riddle, purchased these aircraft, used them for a couple of years, and sold them at rock-bottom prices. Again, it was further adding pressure on an already-decreasing market. Recently, our company was tasked with purchasing a Cessna 172 for one of our customers. This customer originally wanted a 1970s-1980s aircraft. However, we were able to locate a 1999 Cessna 172, which our customer purchased for $45,000. Yes, it did need an engine overhaul, paint, and interior; however, the out-the-door price was $80,000, just $20,000 more than a typical legacy 172’s asking price on the market. When you take into consideration that most people finance their aircraft, the cost difference per month ended up being $145, a significant value for what he ended up purchasing.
It’s the Banks
Prior to 2008, a buyer could approach a bank, put as little as 5 percent down on an aircraft, and walk out the door with a loan. Banks did not care too much about the age of the aircraft; just as long as the aircraft could be substantiated on paper, the banks were happy, and the industry seemed happy.
That all ended in September 2008; the financial and banking system was forever changed. Banks have become increasingly conservative, now requiring a minimum of 10 percent down (in some cases 20-30 percent down), and on older aircraft, terms have been decreased to as low as 7-10 years. However, that is not what is causing the most problems to legacy aircraft owners; it is the fact that very few, if any, lending institutions are lending on aircraft built before 1975-1980. In fact, I am not aware of any financial institution (unless you have a special circumstance) that will lend on aircraft built before 1975, and in most cases, it will want the aircraft to be newer than 1980. This does not include situations where people have relationships with banks; I am speaking in general terms. This further complicates the environment for someone looking to sell their 40-plusyear-old aircraft; in essence, it has to be a cash deal. Talking to a banking official recently, the person indicated that the bank does not expect any change in its lending policies, because it views 30-year-old aircraft as unsound investments. Banks believe that the aircraft will continue to decrease in value. I agree in some areas; it really depends on the type. However, in general terms, I expect the four-seat, fixed gear aircraft values to retreat back to early-1990s values, not adjusted for inflation.
What Can I Do?
First, take a look at the market. If there are 50-plus of your aircraft on the market, it could be a long wait to sell your aircraft. In most cases, the cheaper aircraft will sell first. Also consider who is buying your aircraft. In my opinion, the middle class is being squeezed out of General Aviation, due to the additional costs of fuel, aircraft insurance, and the lack of financing. When you consider how many people are purchasing new $500,000-plus aircraft today (trust me when I tell you that there are a lot), the market for sub-$100,000 aircraft that are four-seat, single-engine, legacy aircraft is not that large.
To be successful in today’s market, you must first set a fair price on your aircraft, and don’t be emotional about the sale. At the end of the day, it is not what Aircraft Bluebook Price Digest or Vref says your aircraft is worth; rather, it is what the buyer is willing to pay for the aircraft. There is a tendency among sellers to believe that if they just let their aircraft sit on the market long enough, someone will pay what they want for the aircraft. I have experienced the opposite; the longer the aircraft is on the market, the less a seller will eventually obtain for their aircraft. Usually, when we are selling an aircraft, we will receive several offers in the first couple of weeks. If you don't see the same type of activity, it is a good indication that your price is not correct.
Finally, make sure you are listing the aircraft correctly. There should be at least 10-12 current pictures of the aircraft in the ad. As I tell people, take pictures at the 12, 2, 3, 5, 6, 8, 9, and 10 o'clock positions, one of the full panel, one of each side of the panel, and several of the interior. Before you take any pictures, make sure you clean out the entire interior; everything should be taken out, including headsets, charts, and things in the seat back pockets. After all, you don't see cars listed with paper, cans, and garbage all over the place. Also, if you are not including headsets or portables with the sale, remove these items, as well. Regarding damage history, disclose everything. Buyers are going to find out anyhow; it is better for everyone involved if honesty reins supreme (the same thing with missing logbooks).
Also, don't hesitate to callme at (954) 609-8825 if you have any questions; I am happy to give you my advice, it is always free.