Why valuation experts add value
Should an aircraft appraiser be on your transaction team?
Brokers typically play the role of appraiser, using their knowledge of the marketplace to set or counter an airplane’s price. But today, with the collapse of historical pricing models, the dearth of sales and the intensely private nature of the transactions, establishing an aircraft’s value is difficult.
An appraiser’s appeal is the prospect of receiving objective, rigorously documented value analysis that any financial institution would recognize. Indeed, if your transaction involves financing, the lending institution is certain to engage an appraiser. Therefore, “better to get the information now,” says Jim Becker, an appraiser with Elliott Aviation, “because if the appraisal doesn’t come out, it could kill the deal or force you [if you’re the buyer] to put in more of your own money.”
Even when financing isn’t an issue, a seller might want hard data on value before shopping for a broker, Becker says, while for buyers, “it wouldn’t hurt to at least have a discussion with an appraiser” before committing millions to an aircraft whose value hasn’t been independently evaluated.
Though “a lot of people have the technical knowledge” needed to value aircraft, says appraiser Rich Newton, “they haven’t learned the methodology of arriving at an accurate opinion of values.” Unfortunately, that can apply to appraisers, too. “You can call yourself an aircraft appraiser,” he adds, “and not know tip from tail.”
Newton, director of aircraft appraisals for Axiom Aviation in Cleveland, and Becker, with Elliott’s Moline, Illinois facility, are both accredited senior appraisers with the American Society of Appraisers (ASA). Recognized for rigorous standards of conduct and practices, ASA represents appraisers in more than half a dozen disciplines, from gems and jewelry to business valuation. About 50 members are aircraft appraisal specialists.
Among other traits, an aircraft appraiser should have some form of certification, be expert at reading logbooks, and be experienced in the realm of damage diminution, the inexact science of determining the impact of damage on aircraft value, Becker says.
Newton advises buyers and sellers to ask for samples of an appraiser’s reports, understand his valuation methods, and find one with “the ability to communicate his results effectively.”
Also, note that the reason an aircraft is being sold affects its value, something a qualified appraiser appreciates. “If the owner wants to sell in 60 days, that really is a different definition of value than fair market value,” Newton says. “It might be orderly liquidation value, or forced liquidation value.”
An appraisal usually costs $3,000 to $8,000. The fee shouldn’t be tied to the asset’s value, though appraisals for larger aircraft typically cost more because there’s more to evaluate. Newer aircraft, with few log entries to examine, should cost less to appraise than comparable older aircraft. An appraiser needn’t physically examine the aircraft, as long as sufficient data is provided.
Of course, you’re free to ignore an appraiser’s advice, though doing so could imperil the deal or your money. The customer “has the final say,” Becker says. “But when you’ve got the valuation all laid out in a grid, it’s difficult to argue.”
James Wynbrandt is a private pilot and longtime BJT contributor.