by David J. Wyndham, Vice President and Co-Owner, Conklin & deDecker
Do you own a car, home, boat or plane? Then you are an asset manager.
Most of us think asset management deals with financial assets such as stocks, bonds and mutual funds. But it should also include physical assets. Asset management of a physical asset includes the entire life cycle, starting with its acquisition, continuing during its use and to its retirement or sale.
As an aircraft operator, you are responsible, in whole or in part, for the value of the aircraft. How you operate, care for and maintain the aircraft will have a significant impact on its value.
Regarding an aircraft, anyone who touches it has a part in maintaining its value. When dealing with the asset management of an aircraft, you will make many decisions as illustrated by the following questions:
- When is it appropriate to repair, overhaul or replace parts?
- Which optional service bulletins should you implement?
- When is it time to refurbish the interior and paint?
- When should you sell your aircraft?
Regardless of the many decisions, it is important to recognize that aircraft asset management has four main components:
- Operational — What is needed to keep the aircraft reliable and safe?
- Regulatory — Is the aircraft compliant with applicable airworthiness regulations?
- Financial — What is the market value of the aircraft?
- Ownership — What is the return on the investment and what is the quality of the experience?
Following are some of the more common and important areas in the asset management process to consider that can affect the value of your aircraft.
Proper maintenance is essential. This involves more than just meeting the regulations to have a safe, airworthy aircraft. Regulations set only the minimum standards. To maintain its value, the aircraft must be kept in top operating condition for both the routine care and the major maintenance of the aircraft. Anyone who has gone through a pre-buy can tell you that the aircraft in impeccable condition goes through the process smoothly. Find something amiss in the pre-buy and you keep looking. An aircraft that is well maintained and looks well maintained will command the higher value. Also, who does the maintenance is just as important as what was done. Maintenance is not the place for dealing with the lowest bidder.
Proper maintenance records are required. In addition to the regulations, what would be the value of an aircraft if it were missing all of its maintenance records? Again, the regulations specify what records must be kept and in some cases, for how long. This regulation meets the spirit and letter of the law, but does not sufficiently maintain the aircraft’s value. The more complete and thorough the maintenance record, the more secure the value of the aircraft. Uncertainty causes a loss of value. Proper maintenance records detail the entire maintenance history of the aircraft and what is on paper should accurately reflect what is in the hangar.
If there is damage history, how was it documented and corrected? Was the damage repaired or replaced with new? Has the aircraft been returned to service in the same or perhaps better condition? Damage history, if fully documented and accounted for, need not be the kiss of death for an aircraft’s value. Properly documented damage repair that shows a return to the manufacturer’s specification can negate or reduce the loss of value of known damage history.
Proper record keeping also means proper security of the records. You should have some sort of backup of aircraft records stored off-site. With many operators maintaining their records on computers, this should be easy. Paper records should be scanned, indexed and stored off-site. When the aircraft and records go to an off-site maintenance facility, keep a backup copy locally. Although it’s rare, aircraft do leave the maintenance facility missing some of their records. If that happens, you can get into some expensive arguments about who was responsible and how much the lost records are worth. How much can lost or incomplete maintenance records cost? The answer lies in another question. How much is that aircraft worth if you cannot prove its airworthiness?
Proper upgrades and enhancements can add value. What is the service bulletin status of your aircraft? Beyond the mandatory service bulletins lie a number of optional service bulletins. Which ones add value to your aircraft (i.e., are popular for your model)? Have you added or upgraded the avionics? If so, is the aircraft a unique design or is it brought up to newer standards? In dealing with art, a one-of-a-kind piece is essential to its value. With aircraft, it is not. Non-standard modifications do not add value. They may be essential to the mission, but uniqueness in an aircraft is not a selling point.
Proper record keeping is a common theme here. Impeccable records are important not only in knowing the aircraft is well maintained, but in proving the value of the aircraft. The aircraft itself must be well cared for and match the documentation exactly.
Asset management should be part of the aircraft planning process from the start. All too often, asset management is only considered when it’s time to sell the aircraft. Rather, it is an essential part of the entire life cycle of an aircraft and if properly implemented, it can pay off by enhancing the aircraft’s value.
*This article originally appeared in our newsletter October 2010.