Page 25 - Volume 15 Number 2

Prop O/H
Refurb Carpet New Paint
New Carpet
market conditions. It is increasingly difficult to secure financing for improvements. Why? Lenders are very reluctant to increase their exposure to potential market devaluations while financing improvements that provide subjective value increases.
All things considered, in today’s environment, it seems that the best alternative is for the seller to absorb the upfront costs for those items that are required for resale of the airplane. In doing so, however, there is a long-standing reality that the cost of engine overhauls can’t be fully recovered at time of resale.
The seller might just as well use the airplane for the first 200 hours or so after engine overhaul since the value of the overhaul won’t be diminished in that period of time. If the airplane is hangared and kept clean, the same can be said for paint. However, new interior and major scheduled inspections should be fresh since their value will decrease rapidly with use.
Engine O/H
Avionics Squawks
HSI
Specific Market Conditions
The specific market conditions are reflective of overall market conditions – only more exaggerated. The same rules and guidelines apply but are magnified. For example, if the make and model is in high demand, the requirement for a completed airplane is lessened whereas a low market demand airplane requires a high level of completion irrespective of overall market conditions.
Since the focus can be concentrated, each item comes under closer scrutiny and tighter evaluation. High demand normally means fewer choices so the advantage favors the seller and the inverse is true for low demand airplanes.
Airplane Specific Condition
In weak overall market conditions, specific airplane condition is of extraordinary importance regardless of specific market conditions for the make and model. Even with high demand models, those with a desirable pedigree, complete well-
organized logs, favorable operational history and other marks of a quality airplane will rise to the top. This quality allows the seller more latitude in determining the upfront expenditure necessary for resale.
At the opposite end of the spectrum, a low-demand airplane with sketchy pedigree and unfavorable operational history will have a tough time regardless of engine status and other highly sensitive valuation factors. For these, the seller has little option but to increase the value as much as possible by fronting the costs for not only the required items, but for discretionary items as well.
The costs to make improvements to an airplane to prepare it for resale, whether required or discretionary, can be significant. The seller’s decision as to who pays those costs is as difficult and the costs can be significant. If the airplane must be sold, there may be little choice but to absorb those costs to attract a buyer and recover as much of the cost as possible.
If the sale is discretionary, the decision can be a difficult one with many factors to consider. It is the seller’s choice as to how to present the airplane to the market. Accordingly, it must be thoughtfully
c o n s i d e r e d .
T &T •
Dane C. Jenning, president of Tandava Aviation, served as head of Cessna’s used aircraft operation for 14 years. He has performed 6,500 turbine air- craft evaluations for prospec- tive business aircraft purchas- ers and has been involved personally in 650 transactions during his 20 years in the busi- ness. Jenning has more than 3,000 hours as a commercial multi-engine pilot with a Ci- tation 500 Series type rating. He holds a degree in corporate finance from the University of Wisconsin and a master’s degree from the University of Texas. You can reach Jenning at (888) 733-7161 or dane@tan- davaaviation.com.
FEBRUARY 2011
­TWIN & TURBINE • ­23