As seen in Fly Corporate:
I am thinking of selling my Gulfstream IV. How can I determine its true resale value?
George Dubroux, Entrepreneur
As soon as an aircraft enters service, the asset begins to depreciate. Traditionally a safe guideline for market depreciation has been 3 to 4% per year. However, the current market for used aircraft can hardly be considered traditional. In addition to economic considerations, major maintenance, avionics upgrades, modernisation, engine programmes, total flying time and the number of cycles will all impact the baseline value of your asset. With proper planning and the right intelligence, resale value can be calculated in fairly short order.
A new Gulfstream IV (GIV) cost $21 M (€14.4 M) in 1990. Standard features include 13 passenger capacity, aft galley, forward and aft lavatories and an SPZ 8000 Flight Control System with dual FMS and Laseref. The standard engine warranty was five years or 2,500 hours, completion warranty one year, non-structural components (including avionics) five years. At some point, after the basic warranties have expired, assuming an annual usage of 500 hours, the aircraft will incur major capital expenditures for engine inspections (at 4,000 hours or 10 years), airframe check (72 month intervals), gear overhaul (5,000 cycles), avionics upgrades due to regulation and modernisation requirements, and interior refurbishment among other items.
Fleet Comparison Vital
As an aircraft ages you must compare it to the rest of the fleet. How many hours has it flown relative to the fleet, is it enrolled in an engine programme, what is the interior configuration, and have the avionics been updated recently? As of September 2009 the average total time of the GIV fleet was 8,600 hours, 20% were enrolled in an engine programme, 73% were configured with an aft galley, 71% were equipped with Satcom, while 8% had a Head Up Display. Drawing the fleet comparison model gives you a fairly good idea of how your aircraft compares. Excessively high time, a lack of major optional avionics, or an upcoming major maintenance event can all impact baseline value and ultimately resale pricing.
Armed with fleet intelligence you can then compare your aircraft to those currently available on the market. Don’t just compare it with other GIVs, but include competing makes and models. If you can purchase a Challenger 604 or Gulfstream IV SP for $12 M (€8.2 M), why would you pay near that for an older GIV?
The percentage of the fleet that is for sale will also affect value. As a rule of thumb, the baseline value assumes that around 10% of the available fleet is for sale. If it is less than this, the baseline value can be adjusted up – if its higher it needs to be adjusted down. There were 36 GIV aircraft, 16.8% of the fleet, on the market as of 10 September. Therefore the baseline value should be adjusted down around 7% to compensate.
Any prospective seller should ask themselves why their aircraft would sell before the 36 currently available. Current average time on the market for the GIV is 214 days, although 16 have been available for over a year. Recent major maintenance or refurbishment may give you an edge, but your pricing must be attractive, especially when compared to recent sales of GIV and competing models. In the case of the GIV, asking prices range from $7.9 to 12.9 M (€5.4 to 8.9 M) but twenty-one are listed without a firm price (Make Offer). There have been two sales in the past six months, both in the $9 M (€6.2 M) range (+/- 2%).
There are many factors that need to be considered before you price your aircraft. If possible, put a long-term strategic plan in place to track and monitor present value, fleet statistics and market activity on an on-going basis. Before you make major capital investments in your aircraft, first establish what impact it will have on the value of the asset, not only today but also longer term.
Never place an aircraft on the market at Make Offer and never price it near or above the cost of a new model. Doing either of these two things will cost you more in the long run.
Dennis Rousseau, Founder and President of AircraftPost Inc.