Each aircraft has three values.
What’s an airplane’s value? The old adage of “whatever it sells for,” may not be entirely true. There are several perspectives to take into consideration; specifically, three, the seller’s, the buyer’s and the lender’s. Aircraft sellers typically add up every option that is on their aircraft to determine total value. A lender may disregard many of those items because he or she knows if the aircraft is repossessed, buyers will not care about many of them. As a result, Seller values are usually the highest number, while lender values for the same aircraft are usually the lowest and the buyer typically comes up with a value somewhere in the middle and usually where the actual sales price is.
A common item added by a seller to the total value is new paint and interior upgrades done in the last several years. However, unless this has been done in the last six months, most lenders don’t add value because they assume the paint and interior are excellent. For that matter, the buyer may not even like the new months-old paint scheme, and may plan to repaint the aircraft or personalize it once it is purchased, thus providing no additional value to the buyer either.
The seller may have recently installed a Garmin 430, but the buyer plans to replace all the avionics and doesn’t give credit for the recent Garmin 430. The seller may be proud of the engine monitor but the lender knows most buyers would give little or no value to the item and thus give no additional credit in their evaluation. The buyer may not want it. The lender, anxious to make a quick sale if the aircraft is repossessed, will not add value to aircraft unless there’s value in the marketplace.
The lender will loan only an amount he or she is reasonably certain can be recovered if the aircraft is taken back from the owner. The buyer wants to pay only for the features he or she needs, for example the previously mentioned Garmin 430, if it has WAAS, yes. However, if not, typically no value because the buyer would likely look to upgrade to a 430W unit. The seller wants credit for absolutely every item on the aircraft and that’s understandable, but it may not be reasonable.
Did you change your piston engine to a turboprop under a supplemental type certificate (STC)? That ought to add value, right? Yes, but maybe not as much as you think and most likely not as much as it cost to do the conversion. In particular, higher dollar STC’s like a Blackhawk conversion or a JetProp conversion will require greater scrutiny by lenders, typically in the form of an appraisal that looks at the overall market, recent sales comps and other information in order to properly assess value. Depending on the STC, sometimes these modifications will be heavily discounted by the lender because they only appeal to a small portion of the market.
While modifications and additional equipment may seem to make the aircraft more valuable, if an aircraft becomes too customized, those modifications will only be of value if the seller deems them valuable. Recognizing that aircraft have different values for the seller, lender, and buyer can ease misunderstandings at the time of sale.
Whether you are financing an aircraft purchase, refinancing or just interested in estimated value on your aircraft, your colleagues at AOPA Aviation Finance are ready to help. If you need a dependable source of financing or refinancing with people who are on your side, just call 800/62-PLANE (7-5263) or visit aopafinance.org.