For aviation companies, it is crucial to know the real value of their aircraft because it can have a huge impact on their bottom line.
If you are seeking to buy, sell or just want to know where you stand, understanding the value of your aircraft helps you make informed decisions.
However, it is easier said than done. Aircraft valuation and appraisal is a complex process that requires considering various factors and using different valuation methods.
Importance of aircraft valuation
Aircraft valuation is a crucial part of owning or operating one. It is also crucial for business and financial reasons, as lenders often demand an accurate valuation of the aircraft prior to lending money.
On top of it, insurance companies use aircraft valuation to arrive at the amount of coverage required and the amount of premium to be paid.
Valuation depends on various factors such as age of the aircraft, its maintenance history, upgrades, industry trends and market demands.
It is important to understand these factors apart from the types of valuation methods which are covered in details below.
Factors that affect aircraft value
Your aircraft’s value is determined by several factors which include:
1. Age
The age of your aircraft is one of the most, if not the most, important factors that has a significant impact on its value.
Normally, newer aircraft are more valuable than older ones. The reasons are obvious. Newer aircraft tend to have the latest technology, performance capabilities as well as safety features.
Additionally, newer aircraft tend to be more fuel-efficient which saves on operating costs.
2. Maintenance history
How well maintained an aircraft is another significant factor. Aircraft that have a documented maintenance history are usually worth more than those that do not have a record of their upkeep.
This is because an aircraft which is well maintained is less likely to experience mechanical issues. This helps you save on repair costs and enhance the lifespan of the aircraft.
3. Upgrades
Upgrades can also affect the value of an aircraft. Upgrades can include avionics, engines, and interior features.
Upgraded aircraft are typically worth more than those without upgrades, as they have added value and appeal to potential buyers.
4. Market demand and industry trends
Market demand also plays a major role in determining the value of your aircraft.
Aircraft that commands a market demand are worth more than those that do not have such demand.
Moreover, trends in the aviation industry play a significant part as well. New aviation technology or better safety features could enhance the value of an aircraft.
Methods of aircraft valuation
There are three main methods used for aircraft valuation:
1. Market-based valuation
Market-based valuation is the most common method used to value aircraft. This method uses comparable sales data to determine the value of an aircraft.
An aircraft appraiser will go through similar aircraft that have been recently sold and use that data to come to a conclusion. This method is ideally employed for newer aircraft that have a lot of recent sales data available.
2. Cost-based valuation
Cost-based valuation is another method used to value aircraft.
In this method, the cost of manufacturing a new aircraft or the cost of buying a new aircraft is factored in. This cost is adjusted based on the aircraft’s age, condition, and other factors. This methodology is usually used for older aircraft that may not have recent sales data available.
3. Income-based valuation
Income-based valuation is the third method used to value aircraft. This method looks at the income potential of the aircraft, such as the revenue it can generate from charter or lease agreements.
The aircraft’s income potential is firstly determined and then that amount is adjusted based on industry standards and the aircraft’s condition. It is used primarily for aircraft used for commercial purposes.
The appraisal process
The aircraft appraisal process involves several steps, including:
1. Gathering information
The appraiser will gather information about the aircraft, including its age, maintenance history, upgrades, and market demand.
2. Determining the appropriate valuation method
Once the information is gathered, the aircraft appraiser will determine the appropriate valuation method to use.
3. Applying the valuation method
The appraiser will apply the chosen valuation method to determine the value of the aircraft.
4. Writing the appraisal report
An appraisal report will then be written by the appraiser which will include all of the information gathered. The report will also mention the valuation method used.
Choosing an aircraft appraiser
Professional aircraft appraisers are typically hired by aviation corporations to value their assets.
Selecting the correct appraiser may make or break your transaction.
Look for appraisers who have been certified by respectable organizations such as the American Society of Appraisers or the National Appraisers Association. Also, ensure that the assessor you employ has appropriate expertise assessing the sort of aircraft you own or operate.
Maintaining aircraft value
A value of an aircraft is dependent on the way it is maintained. Maintaining an aircraft well leads to maximizing its value.
That is why regular upkeep and upgrades are recommended. This helps in keep your asset in top notch condition.
Moreover, it is also important to keep pace with industry trends and technological advancements as they can have an impact on the value of your aircraft.
Conclusion
Let’s sum up the key things that we have covered about aircraft valuation and appraisal here.
· Determining the value of your assets is important for buying, selling and insurance purposes.
· Aircraft valuation rely on various factors such as its age, upgrades, maintenance history, market demand as well as industry trends.
· There are three main methods used to value aircraft: 1) Market-based Valuation, 2) Cost-based Valuation, and 3) Income-based Valuation.
· When choosing an appraiser look for one with experience with the type of aircraft you want to appraise. The appraiser should be certified by reputable organizations.
· Regular maintenance and upgrades can help maximize your aircraft’s value.
