Don't Buy A Cheap Plane Cheap, Buy A Great Plane Cheap

When a market is on the rise we often speak of glass ceilings. You know that invisible top price that no one could ever imagine any pre-owned aircraft could go above. Then it does. We as aircraft professionals watched with amazement, as the market in the late 90's and early 2000's kept moving up, redefining the top. Is there any more predictability in the bottom of the pre-owned market? I thought I would look at several indicators of the overall pre-owned fleet and try to identify those components that effect or create the best values. In an up market it is easy to set the glass ceiling. It is the price of the new aircraft from the factory. Believe it or not, in a rich demand, low supply market, just sheer availability of like-new aircraft created upward pressure against the glass ceiling. In some cases people paid more for a like-new aircraft than they did for the brand new one. So the low time newest planes had a value that was either defined by the new aircraft from the factory, or worse, created the starting point for the value of the like-new plane. In fact Bluebook, Price Digest has a special pricing consideration for what they call a "Prime Condition Adjustment". This adjustment gives between a 5% and 25% advantage to those aircraft against the rest of the aircraft in that segment. The advantage is somewhat subjective, however, it is clear that a greater value is given to what is considered to be the aircraft just driven on Sunday to church. Low time against the fleet, great avionics and great aesthetics. So there is even a danger of buying a cheap plane for too much! But those are not the kinds of problems buyers are facing in the current market environment.

So much for an up market. Now let's talk about the current market. When I look at aircraft to buy for my clients I use several criteria. First I look at the total percent of the fleet that is for sale. This helps me determine the vulnerability of any given segment. For instance, as of this writing, I looked at the King Air 200 market. Currently there is 17% of the fleet for sale. In the Citation II market there is 16% of the fleet for sale. That is huge. In fact in all segments of the market, supply is at an all time high. Pretty exciting!

But wait, how do you find a great plane in all this supply? It can almost seem as though you are a kid in a candy store. Ever come out of a candy store as a kid and all you had was a stomachache? Now back to the aircraft market. Read the ads, "My owner says we will be the next one to sell", "Must sell by year end", "Best offer this week". Of course this is the part in my article were I suggest the help of a skilled aircraft professional! One must know that success should be inevitable for the buyer. But do not measure success on price alone. Buy the best plane cheap. Here are the ways we separate the aircraft that are for sale to make sure we are getting the best.

First, for at least a minute, don't look at price; look only at benefits. Lowest time, best avionics, best pedigree, best records and as long as we are setting the benchmarks, no damage. As I mentioned earlier in this article, in a favorable market these benefits would cause the aircraft to have a greater value based on the "Prime Condition Adjustment" from Bluebook. In this market it is the true separator between buying a "Cheap" plane cheap or a "Great" plane cheap. There should be no reason to pay an adjusted up value for these benefits.

Now take those aircraft that make that cut and begin to build your matrix down. Maybe the lowest time is out of your budget. That is OK, so one should work down through the fleet as follows. Determine the average time on the fleet segment you are reviewing. If you cannot afford the lowest time, highest serial number, then shoot for average time. Most aircraft have an average use per year of about 350 hrs. This of course can vary and does tend to be higher as you move into the jets and then higher again into the larger jets.

Now look at the age range of the aircraft you are reviewing. If it is a 10-year old plane, the average time should be between 3,500 hrs. to 5,000 hrs. depending on the previous criteria. So try to buy around average. One might decide to go a little above average if that number is in close proximity to overhaul expense. Better to try not to pay retail dollars for an aircraft that just had full overhauls that you may never take advantage of during your ownership. So maybe you will find an aircraft with 500 to 1,000 hrs. since overhaul. Albeit a little above average time, it is a better value I assure you.

The same applies for buying under the average. Unless the buy opportunity considers the full cost of impending overhauls, don't make that expense yours. Therefore, plan to buy a plane with at least two years of your average use before addressing the hot section or overhaul expense. Looking ahead at noise or regulatory considerations can also help you decide about even buying into that fleet segment at all.

So now to wrap up. Go at this with: eyes open, a skilled aircraft professional at your side, while trying to spend as few retail dollars as you can by taking advantage of a plane the past owner has made all or most of the improvements that you would want done. Don't be distracted by price (at least at first) and be ready to say NO to a seller that does not fully understand the market forces. Remember a saying I use all the time. If it were the last plane to sell I would be out of business when it sells. There is always another opportunity to buy a great plane cheap!

L & L International

Don't Buy A Cheap Plane Cheap, Buy A Great Plane Cheap

Gulfstream