““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
How to buy an airplane
Think of buying an airplane as an exercise akin to building a house or purchasing an old one.
With a house, your requirements play a big role in determining what you buy. You need such basic amenities as bedrooms, bathrooms and a kitchen. But emotion also drives your purchasing decision. No one really needs a 30,000-square-foot home with marble floors, refrigerators that connect to the Internet and 20-foot-tall windows; these things are aspirational. They make a statement about you and your preferences.
An airplane can make an even bigger statement and it’s relatively easy to get caught up in the moment, no matter how much research you’ve done and how carefully your accountant and lawyer have crunched the numbers and reviewed the documents. Few who buy 6,000-nautical-mile-range, 15-passenger aircraft regularly use them to their full potential. Yet when these aircraft taxi onto a ramp, they stand above the rest. They have presence. The temptation is often to buy more airplane than you really need. If you or your company can afford this, great. Otherwise, rightsizing your selection may save you from losing or never enjoying the unparalleled convenience, safety and security a private aircraft provides.
That said, the first question is whether to buy new or used.
If you plan on leasing an airplane, if cost certainty is important and if you plan on flying much more than 400 hours a year and can’t afford any down time, go new. New aircraft typically have warranties that coincide with the length of a lease, especially if you select manufacturer financing. A new aircraft purchase or leasing package often includes flight and maintenance crew training. Manufacturers are particularly attentive to their new customers because they want to put them in another airplane five years down the road.
The older an aircraft gets, the more it costs to maintain. David Wyndham, a principal in the aviation consulting firm Conklin and de Decker, said buyers should be particularly careful when buying anything more than 15 years old. Aircraft between 15 and 25 years old typically require costly and lengthy maintenance inspections, engine overhauls and corrosion repair. Anything older than 25 years will have availability issues due to maintenance.
New aircraft, compared with really old aircraft, typically have lower life-cycle costs. They also have quieter engines and burn less fuel. Their cabins are more comfortable. Their avionics provide pilots with superior situational awareness. Their parts are more robust and last longer.
New aircraft are far from a panacea, of course. There is the small matter of price. True, initial customers for a model typically get discounts but that’s at least partly because the first airplanes off any production line generally have a few issues. Some of these, such as with the Cessna 441, Learjet 45 and Falcon 7X, have been serious enough to temporarily ground entire fleets. (They were resolved in the cases of these aircraft, all of which went on to garner good reputations.) Today, thanks to computer design and simulation and extensive instrument bench testing, new airplanes, even the lower serial numbers, have fewer problems, but you can’t eliminate them all.
In any case, while the purchase price is an important number, a more important one is often the life-cycle expense–the total cost of the aircraft over the time you plan to keep it and the hours you plan to fly it. You can get projections for this data from Wyndham’s firm and several other sources, for both new and used aircraft.
Just because an airplane is new doesn’t mean you can’t negotiate a favorable deal. Typically, some customers decline their delivery positions and manufacturers are generally eager to move these aircraft quickly. If an orphan airplane is already off the production line, the urgency increases, particularly in the fourth quarter, as the clock ticks down on year-end bonuses and commissions. The calendar can be a cruel beast, but you can make it work for you.
A good used airplane will still cost less and can save you millions. According to the aircraft price data service Vref, bargains abound. You can purchase a 2002 Hawker 800XP for as little as $3.5 million–70 percent less than its new price. A 2002 Gulfstream IV-SP can be had for less than half of its new price. A 2002 Falcon 50EX that sold new for $19.5 million now costs $7.6 million. However, the process of acquiring the right used airplane is generally far more involved than a new aircraft purchase. Selecting the wrong used airplane can be annoying, say when the toilet line freezes, or costly when, for example, an engine doesn’t survive to the recommended TBO (time between overhaul). In extreme cases, it can kill you.
So unless you’re a licensed airframe and powerplant aircraft mechanic with detailed knowledge of the type of aircraft you’re thinking of buying, you need to find an outside expert–an individual or organization well versed in the make and model you want to buy. You might think this would be someone who works for the company that makes the airplane–and you would be mostly wrong.
This is particularly the case with aircraft that are no longer in production. Many of the most knowledgeable in-house experts have long since retired or, in the wake of the recent economic unpleasantness, found other employment. Fortunately, numerous independent maintenance shops specialize in particular aircraft models, with knowledge handed down from the old salts to the young guns. There are pilots who have flown these airplanes for 10 to 20 years or more and can take one up and wring it out after the mechanic green lights it for a test flight. Certain insurance brokers likewise specialize. So do training providers and refurbishment houses.
Finding the right team, whose members don’t have conflicting interests, and putting them all together to work for you can be a daunting task, but it is no less necessary than having a skilled team perform due diligence when making any other type of investment. You need someone to quarterback that team–probably a management or consulting company or a broker. But how do you find the right one?
Well, you can ask your friends at the country club. Or the National Aircraft Resale Association (NARA) can help. NARA members subscribe to a strict code of ethics and the organization has a library of documents written by industry experts that cover all aspects of the purchase decision. NARA can provide you with a list of brokers and any corresponding list of aircraft makes and models that are their specialties.
A good broker will give you a complete aircraft acquisition plan. This includes a list of aircraft that suit your mission, along with information on their features and benefits, strengths and weaknesses, direct operating costs, refurbishment costs and market history. He should also be able to assist you in minimizing your tax liability, finding an aviation attorney to draft the purchase agreement and setting up the ownership structure, placing the aircraft on a Part 135 certificate if you wish to make it available for charter and locating a qualified flight crew if you need one. He should have the answers for you on what types of modifications and refurbishment make sense for an aircraft of the vintage you want and which ones will put you financially upside down in the airplane. Finally, he should be able to give you a list of customer references for both himself and the mechanics he plans to use to conduct the pre-buy inspection.
Once you or your representative (broker, consultant or management company) have put your team together, the fun begins. As you sort through the plethora of available aircraft–this is still a buyer’s market–you can save a lot of time and headache by asking yourself two key questions: Who owned the airplane? And how did they use it? “Pedigree” is an important factor broker Josh Mesinger considers in evaluating a used aircraft and so should you.
Not every used aircraft on the market was operated by a Fortune 100 company with a flight department that pampered it with in-house maintenance, but those that were almost always represent great buys and deliver few if any surprises. The same is true of aircraft that are enrolled in “power by the hour” engine-maintenance plans such as Honeywell’s MSP and whole-aircraft maintenance plans like JSSI’s “Tip-to-Tail” program.
The aircraft manufacturers also offer programs. Cessna’s ProParts covers airframe and avionics parts and consumables. Its ProTech program covers labor for scheduled and unscheduled maintenance at Cessna-owned service centers. Hawker Beechcraft offers Support Plus Parts and Support Plus Parts and Labor. Customers can tailor their packages to incorporate engines, propellers and auxiliary power units. Other programs include Gulfstream’s PlaneParts, Dassault’s Falconcare and Bombardier’s Smart Parts.
Generally, these programs are transferable to new owners. The application and monthly fees for used aircraft are based on time in service, a review of the log books and an inspection of the airplane.
These programs do more than take the uncertainty out of maintenance costs; they ensure that scheduled maintenance is done right and on time. Aircraft enrolled in these programs can command a sales premium of 10 percent or more and rightfully so. You shouldn’t necessarily rule out buying aircraft that aren’t in these programs, but they do require more scrutiny.
Cosmetics also matter. After all, your airplane is an extension of your brand and you want it to look fresh, clean and up-to-date. You can get that “new airplane smell” with fresh paint and interior. Conversely, a cosmetically unappealing 10-year-old airplane will sell for a lot less. According to Vref, a 2002 Gulfstream GIV-SP or 2002 Falcon 900 EX with an old interior will sell for up to $1 million less than one that has had a refurbishment. Good paint is even more important. Invariably, an aircraft with deteriorating paint has an underlying corrosion problem and that can be very expensive. Bad paint jobs (hint: the paint bubbles) that merely mask corrosion are even worse.
Fresh overhauls and inspections, or their absence, will respectively also add or deduct value. Overhauling both engines on the 2002 GIV will run you $1.8 million; overhauling the landing gear will set you back another $300,000. The C check maintenance inspection on a 2002 Falcon 900 EX will cost $250,000.
You need to carefully weigh all of these variables when making an offer on a used aircraft.
However, depending on your lift needs, a third path may also be worth investigating. No longer is the choice just new or used. You can opt for a remanufactured aircraft. These come in two main flavors: bring your own airplane to the remanufacturer or allow it to buy and refurbish an aircraft for you. The Total Eclipse and Nextant are two recent programs that fall into the latter category. Eclipse Aviation is delivering two Total Eclipse light jets per month. For $2.15 million, customers receive a remanufactured aircraft with new paint and interior, the Avio IFMS, a factory warranty, an engine service plan and replacement of problematic parts. The $3.795 million Nextant 400XT is a Beechjet 400A/Hawker 400XP refitted with more-fuel-efficient Williams International FJ44-3AP turbofan engines, Rockwell Collins Pro Line 21 avionics and new paint and interior.
Whatever purchasing path you follow, just be sure to keep your emotions in check, do your homework and get expert help. Buying any airplane involves a big expenditure, but it gives you a priceless commodity: time. As such, this can be one of the most gratifying and productive purchases you’ll ever make.