Establishing Value for Business Jets in the “New” Economy – Part 2

Part 2 – Market Price vs. Market Value:

As previously mentioned, Baseline is the value at any given point in time [over a 30-year life cycle], factoring in nominal depreciation and major maintenance events specific to that make/model.  At the end of the 30-year cycle (+/-), value will be ascertained by ‘the sum of the parts’.  This theorem has been proven time and again with 30/40 year old aircraft.

There are two distinct pricing components in the used aircraft market, Market Price and Market Value. Market Price is based on what a buyer agrees to pay, with emphasis on time and place.  In the case of limited supply and high demand, some buyers are willing to pay more than ask price and in some cases more than the cost new.  This is evidenced where actual selling prices (aka Market Price) are plotted over time, as seen in the 1995 thru 1999 run-up prior to the dot-com debacle in 2000 and the increase from 2005 thru 2008. It should be noted, although the GIV is used as an example, the increase in Market Price applied to all Electronic Flight Instrument System (EFIS) equipped aircraft in the medium and long-range category.

Click on graph for larger view.

Market Value takes into account a confluence of varying dynamics. Its core is derived from Baseline Value and is influenced by market conditions, percentage of the fleet on the market, future availability, market for competing makes/models, selling price trends, et al.  Market Value  resides (+/-) between Baseline and Market Price and can be plotted and shown as ‘Market Influence on Value’.  It should be noted that ask prices do not influence Baseline or Market Value.

Click on graph for larger view.

The one fundamental that applies (or should apply) with respect to business jet value is the following:  Market Value should never exceed the cost new, or go below salvage value.   In Part 3, we will demonstrate the corollary between market indicators and selling prices.

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