Page 24 - Volume 15 Number 2

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That higher risk allowance will be manifested in a higher estimated cost to perform the work and obviously, result in a lower purchase price than the seller anticipates.
For those items that must be accomplished, such as scheduled inspections, engine/prop overhauls, and airworthiness issues, it is important to keep in mind that the money has to be spent. The seller hopes to get the cost back and the buyer hopes the cost will be less than
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planned. The best compromise is for the seller to include completion of the items within the agreed upon price. That way the seller takes the reduced risk through knowledge and experience with the airplane, immediately recovers at least a large portion of the cost from the sale proceeds, and limits the time that the money is out of pocket.
But, what about those items that don’t have to be done, but that may contribute to a successful sale in
the shortest time. These are items that preempt buyer objections such as paint, interior, and annoying squawks, or items that are strictly optional as such as additional or updated avionics, passenger amenities, and aftermarket STCs such as speed kits. Since the money doesn’t have to be spent by either seller or buyer, the decision becomes increasingly difficult to make. Here is where the decision has to be weighed in light of several subjective measures.
Overall Market Conditions
In normalized market conditions, an early indication of a pending market shift is buyer preference for completed airplanes versus those that require work to put them in service. Assuming stable market conditions, the degree of completion leans toward those aircraft that may require some work but mostly involves personalization, which can include paint and interior, avionics and cabin equipment.
As a market weakens and market inventory increases, buyers become more demanding for a completed airplane since there are more choices to select from and buyers have the market leverage. It is during these times that in order to compete, sellers will require more upfront investment. Conversely, as the market strengthens the requirement for a completed airplane weakens, and those desires shift more to items of personalization.
Current market conditions are unquestionably on the weaker side, which indicates that a high level of completion is appropriate. This is reinforced by the fact that the current market seems to prefer later-model, lower-time airplanes. This logical migration to the higher end of any make and model makes sense because with many airplanes available at depressed prices, the high end is where the best values lie.
Financing has also changed from what we have known as normal
FEBRUARY 2011