What's Up (or Down) With Rates - August 2019

As you know, the Federal Reserve lowered the fed-funds rate 0.25% at their meeting at the end of July. I’d call the decrease the most anticipated – unanticipated – anticipated event of the summer.  As we chatted late last year, and early this year, the tea leaves showed a steady-handed Fed, with limited (to no) desire to raise rates any further.  Then, in March, the discussions in the markets of a potential rate decrease started surfacing (you may recall the James Mackintosh article from March 24, published in The Wall Street Journal which forecast a possible rate cut in 2019).  So, depending on your last check of the fed temperature (be it Spring of 2019 or fall of 2018), the cut last week was either completely anticipated, or unanticipated.

 What happened after the Fed meeting definitely caused the plot to thicken a bit. Ongoing trade negotiations and overall weakness appearing overseas has led to some volatility in the rate markets. I draw your attention to the 10 Year Treasury. While relatively flat around 2.00% through June and July, the benchmark rate has dropped to 1.64% as of August 12, nearing a 3 year low. While we do not price our loans off of the 10 Year Treasury, it is a good indicator of the general conditions of the rate world.

 The 5 year fixed rate product (which is our most commonly funded product) has seen a similar variance and decline that the 10 Year Treasury had. What’s the important take away? 5 year rates for customers are mirroring pricing we saw 3-5 years ago, when we were referring rates as “historically low”.

 As usual, what happens from here is anyone’s guess. Continued market volatility would most likely result in continued rate volatility. Of course this time last year we were discussing how rates were going to continue their steady march upward for the foreseeable future. There is some talk about another fed decrease before the end of the year, and once any adjustment on that front occurs, I’ll be sure to pass that along.

 Bottom line, as I’ve consistently mentioned, now is a great time to finance an aircraft.

- Commentary compliments of Mike Smith, Scope Aircraft Finance.


Why would I want to hire WildBlue to sell my plane, anyway?

Good question.

Can I ask the same question, in reverse? What is it you’re hoping that broker can do for you?

For example, do you want someone who can save you time by filtering through all the phones calls, inquiries, and looky-loo’s? Are you nervous about whether or not a purchase contract will protect your interests after the sale? Do you want to avoid getting bogged down in negotiations? Are you concerned that a price you accept may not be appropriate in an environment of rapidly changing market conditions?

We help with all those things. And more.

Equally important though is the attention-to-detail we place on the little things. Do you know how many people tell us we were the only ones to answer the phone (or call them back promptly)? Our customers routinely comment how thorough and consistent our communications system is. And they tell us that they really appreciate all of the guidance and advice we give them without putting pressure on them.

Isn’t that what you’re supposed to do?

We’ve discovered that the best way we can serve our customers is to do the things so many other’s won’t. It’s the little things that go a long way towards forging long-term customer relationships and one of the primary reasons so many of our customers have hired us over and over again.

If the little things make a difference to you then we’d be thrilled to work with you too. Why not give us a call at 888.773.4249. No pressure, we promise.

Sure your plane is increasing in value?

The General Aviation rumor mill is alive and well. Just like the old-timers who used to sit in the airport lounge swapping stories and analyzing landings, the Internet forums are chock full of “experts” who all have an opinion. One of the latest crazes is the “huge” increase seen in many aircraft values. Ever since AOPA ran a story recently on older 172 prices (and many of them have seen significant gains) a lot of folks are led to believe their winged-wonder has gone up in value too. Oh, if that were only the case.

Here’s a look at a sampling of 15 year-old singles, twins, and turboprops. All are 2004 models. Many have seen zero price change (according to Vref) in the last 12 months while others have seen modest gains, the highest of which is the 172S at 3.4%. That is contrasted by the ‘04 Cirrus SR20 which is down 4.17%.

% Change in Last 12 Months

2004 Models Only

Make no mistake though, airplanes are selling, and a few select year models are selling fast. Inventories for many planes are at all-time lows. Owners are flying more, flight schools training more, and businesses using them more. On the flip side there are fewer and fewer pilots every year, fuel seems to have bottomed out and prices are on the rise, and historically low insurance rates are creeping up again. Each one of these forces counters another and keeps the system in balance.

So, while valuations may be creeping up on some, there’s no rational reason to believe you should cash in your portfolio and invest in used airplanes. Nor is there an immediate reason to believe your plane will lose any significant value in the short-term. It really gets down to the reason to own a general aviation airplane in the first place…enjoyment. As long as you love owning — and can afford to do so — then why not keep your plane? But, if you think a knight-in-shining-armor is going to ride in and make you a ridiculous offer, well, you should probably keep your eyes closed and enjoy the dream while it lasts.

If you’re curious what the data shows for your airplane give us a call. We’d love to visit with you.


What's going on with aircraft interest rates?

From Mike Smith
Scope Aircraft Finance


In the last couple of weeks, the phrase everyone has been focused on is “inverted yield curve”. Put simply, an inverted yield curve just means that short term Treasury Bonds have a higher rate than longer term Bonds. Why is that of note? Many folks say that an inverted yield curve is an early indicator of an oncoming recession. On March 24, James Mackintosh wrote a piece for The Wall Street Journal, where he did an excellent job describing what an inversion really means:

 “It means investors think that the Federal Reserve is going to cut rates, so the current short-dated yield isn’t going to be sustained over the full 10 years. Since the 10-year discounts the average short rate over the period that should mean the 10-year falls.

That isn’t quite the same thing as predicting recession, since the Fed can cut rates without recession. Indeed, the two times that yield curves inverted on most measures without recession were in 1998 and 1965-66, both times when the Fed slashed rates and the economy continued to grow.”

 Additionally, in the March Fed meeting, the Fed minutes showed that they now forecast zero rate hikes in 2019. If Mr. Mackintosh’s interpretation is correct…we may actually see a rate CUT this year. (Note: these are forecasts, time will tell what happens!)

 So what does that mean for aircraft finance? In our loan programs, we’ve seen a similar shift occur in our rates. As an example, on April 3, 2017, the 2 year fixed rate we offered customers was 0.63% lower than the 5 year fixed rate we offered. As of April 2, 2019, the 2 year rate was the EXACT SAME as the 5 year rate.

 This flattening was partially due to a recent drop in the 5 year rate. Put simply, even without Fed action, the market volatility has resulted in slightly lower 5 year rates for customers than we had earlier this year, and last year. While rates are off their historic lows, they remain lower than historical averages.

 Bottom line: It’s still a great time for your customer to finance an aircraft purchase, and we’re ready to help them find the best option for their needs.

Mike Smith may be contacted directly at 800-357-5773.


I have to buy a plane in 3 weeks!

(No….you don’t.)

Every now and then we hear from a buyer who is “going to buy something this week” or “has to have something by the end of the month” or is a cash buyer and is “going to move quick.”

Why? What’s the hurry?

If you’re a buyer, can I share a tip with you? Don’t make those comments. I get that some of you use deadlines as a negotiating technique. I understand that in the past you may have found others who will jump through untold hoops because you want to move fast. That may work in other industries or with other companies but, generally speaking, it’s seen as a red flag in the aircraft sales world (at least in ours).

Airplanes are complex machines that require time to purchase. Inspections are necessary, qualification for insurance must be verified, financing obtained, title searches completed and so on. Wanting to move overly fast through this process is a set up for failure.

We recently had a prospect who was seeking buyer’s agent services tell us he absolutely had to have a plane in 3 weeks. We discussed this yet he was still adamant about his timeline. I respectfully declined the business. The last thing we want is for him to fail — and this is exactly what was going to happen.

So, instead of imposing an arbitrary deadline on your aircraft search, why not set a baseline for the type of airplane you want? You can either filter existing “for sale” listings or hire a buyer’s agent to help you find an off-market opportunity. Once found, exercise due diligence without forcing an unreasonable schedule. Because unexpected maintenance typically causes the first two years of aircraft ownership to be the most expensive, you’ll be glad you did.

Looking for a free ride?

There’s been a lot of talk and publicity lately about FBO’s who practice predatory pricing and who are driving piston aircraft out of certain airports.  Their ramp fees, minimum fuel purchases, and outlandish fuel prices are only possible because of the tight monopoly they hold on their host airfields. Those of us at our home airport in Kansas City had to put up with this before the city decided to install self-serve 100LL pumps and finally allowed a second FBO to enter the arena.  We now have some of the lowest priced avgas in the area.

Equally unfortunate are those pilots and operators among us who think that they should be able to use all the services and facilities that hard-working and honest FBO operators provide without ever having to spend a dime.  They show up, occupy valuable ramp space, use the pilot lounges and flight planning rooms, take advantage of the restrooms, want to use the courtesy car, and even have their passengers park their own cars for extended periods in the provider’s parking lot. Yet, they are the first to complain when assessed a fee.  Frankly, they’re like a welfare deadbeat who cheats the system and, while they’re doing it, complain their benefits don’t include beer and cigarettes.

My policy when travelling away from my home airport is to always buy gas from the local airport businesses.  I’ll even pay extra for full-service just as a way to show my appreciation for their presence which almost always makes my travel easier.  That’s not to say that I don’t shop for prices and review ratings before finalizing my plans; I do. But I refuse to be someone who operates like the entire aviation infrastructure is there for me.  Personally, I’m thankful for those entrepreneurs who are trying to keep their airport businesses afloat and I want them to succeed. You should too.

The next time you’re at a new destination and need services -- however minor -- take a few minutes to look around and estimate the cost the operator is bearing on your behalf.  Then, break out your wallet and buy some gas.

First Rights of Refusal

A growing trend in the aircraft resale business in the first right-of-refusal (FROR) clause in aircraft sales agreements.  What are they?  And, should you sign one?

In an effort to gain repeat business from an airplane buyer, the FROR basically obligates you, the aircraft owner, to contact your selling broker, dealer, or manufacturer and give them first rights to either buy your airplane back or to market it on your behalf for a pre-set fee.   Their thinking, of course, is that it will be a future sale for them that they will not have to get by other, more expensive, means.  This is far cheaper and easier for them than it is to court your business over the next X number of years only to have you decide to use someone else or sell it yourself.  Many larger brokers and dealers, and even a manufacture or two, are inserting FROR clauses into their purchase agreements.

Personally, I think this is a lousy practice.  It does not cause the reseller to earn your business nor does it guarantee that this will be the best situation for you.  Maybe you've found someone else who you prefer to work with.  Or, maybe you can get a better deal somewhere else.  With a FROR, it doesn't matter what is best for you.  These clauses are there for the betterment of the reseller, not you, and for that reason alone they are a practice WildBlue will never engage in.

Be careful.  FROR clauses are often glossed over, if discussed at all.  Should you see one in a contract for an airplane you are purchasing, simply tell the seller that such a clause will have to be stricken from an agreement if they wish to close the deal.  Most will comply yet a few are likely to hold to their guns.  If so, it will be up to you to decide whether or not the airplane you're buying is worth losing rights as a future seller.  

Are deposits expected when purchasing a used general aviation airplane?

You've searched and searched.  You've read every ad on every plane.  Your head is spinning with all of the details but somehow, someway, you've finally found the "perfect" airplane and are ready to make an offer.  Even better, your offer (or the seller's counter offer) has been accepted and you're ready to move to the next phase.  But what is the next step?

In most instances the next step involves placing a deposit on the aircraft.  Sometimes the seller prefers to handle the deposit and sometimes it's the broker or dealer.  Frankly, we prefer that deposits be held by a neutral third-party (i.e., an independent title and escrow company) to give all involved a sense of safety that the funds will be held (and refunded, if necessary) in accordance with the terms of the purchase agreement.  Deposits give the agreement validity.  In most states a contract is not valid unless some type of "consideration" is received from the buyer.  "Consideration," in terms of an aircraft purchase agreement is akin to a deposit.  Without the deposit the seller is unlikely to be legally bound to the agreement and may sell the aircraft to another party.  Check with your attorney.

So, how much of a deposit should you expect to place?  Sometimes it's as little as five hundred dollars.  Other times, depending on the situation (type of airplane, extent of inspections required, distance the plane has to travel to an inspection location, etc.) it may be as much as 10% of the purchase price.  The deposit is normally credited to the purchase price of the plane at closing.

Can a buyer lose a deposit?  In a word, yes.  But that's a rare occurrence.  Deposits are normally there to protect the seller in the event the buyer (or their representative) damages the plane during the inspection, cancels the agreement without paying the inspection facility, or other instances where the seller will have to settle the buyer's unpaid debt.  In any case, make sure any agreement you sign clearly stipulates that the deposit is fully refundable unless any of the aforementioned circumstances arise. 

The seller is putting their airplane on the line for your inspection and they expect something in return for you.  Deposits are perfectly normal, and without them, your "deal" is unlikely to go anywhere.



What do airplane buyer's look for?

Do you know what the #1 thing savvy buyers look for when they’re searching for a used airplane?

It’s not all the bells and whistles.  

It’s not over-hyped sales speak.  

It’s not even the lowest price.

It’s consistent and honest communications.  That’s right, they want straightforward answers and they want them quickly.  If the buyer senses that the seller -- whether a individual or a broker -- is glossing over important items, paints the rosiest picture possible, only provides positive information, shows the best pictures or those that have been photoshopped, or in an other way isn't forthright, they will move on...quickly.

Consistency in communications is paramount and that consistency is usually not developed after just one or two aircraft sales, but after dozens, or hundreds.  It takes time and effort.

I can't even begin to think how many buyers have told me stories of planes they went to go see only to find them to be horribly misrepresented.  The owner either didn't disclose pertinent information or glossed over it hoping the buyer wouldn't notice.  Unfortunately, I've heard those same stories about other brokers in the busines.  That’s why so many aircraft owners hire WildBlue to help them sell their airplanes.  We go the extra mile to develop reliable listing information, place ads, answer phones, and interact on social media…so you don’t have to.  We talk with buyers over and over again…sometimes year after year…and give them the time they want…so you don’t have to.  We help them figure out which type of airplane is the best fit for them…so you don’t have to.  And we qualify them, lead them through the negotiation process, prepare paperwork, help them with pre-purchase inspections, and make sure all of the I’s are dotted and the T’s are crossed…just so you don’t have to.  

So, whether you hire a broker to help you with the sale (and we do hope you'll hire WildBlue) or if you choose to do it yourself, know that consistent, reliable, and honest communication is what buyers expect.  Without that foundation you can rest assured they will look elsewhere.



The lost art of gratitude.

It's easy to go through life and take things for granted, isn't it?  It's human nature to expect things without giving one ounce of thought as to how they got there or why we should deserve them in the first place. 

I don't know about you but people who show no thankfulness to others, or for the things they do, wear me out.  They're draining to be around and often tend to be so self-centered that they suck the joy right out of life when you're in their presence.  I'll bet you're even picturing someone like that right now.  Unfortunately -- and maybe this is just a function of my age -- this lack of gratitude seems to be ever more prevalent.

Please know this:  whether you're a client, a prospect, a friend or one of the many vendors we do business with, we're sincerely thankful for your presence in our lives.  You enrich us with different perspectives, teach us new ways of being servant minded, and help us to rememeber that while business is important it is not the most important thing in life (it's not even in the top 3). 

I never want WildBlue to be thought of as one of those "ungrateful you-know-whats."  To all of you that we've been blessed to know over the years, THANK YOU.  It's hard to express how grateful we are for all that we've been given but you can rest assured that we will try.

Let me encourage you to take an extra second or two to look someone in the eye, smile, and maybe even shake their hand while saying "thanks."  It will make their day just a little bit better.  It will make your day just a little better too.  And it might even remind someone else to make the effort as well.

"Thank you."  See, it wasn't that hard, was it?





2017 End of Year Market Commentary

Autumn is traditionally the best time to sell an airplane.  Buyer's are looking to make year-end decisions, often for tax reasons, and 2017 has has been no exception.  In many ways, Q4 2017 has surpassed previous years by a wide margin.  Is it because of an overall strong economy, the prospect of lower taxes, pilot medical reform, the need to upgrade capital equipment, rising aircraft prices, or all of the above?  The bigger question is whether or not this momentum will continue in to 2018?

So, what types of airplanes are driving this activity?  This commentary will reference the piston and single-engine turbo prop markets only.  Buyers want consistency, pedigree, and recency. 

They want consistent and frequent operation.  Airplanes that have sat for extended periods, even if low time, are not attractive.  A misconception among sellers is that buyers want low time engines but that's only half of the story.  What they really want are engines that have been frequently used.  A low time engine with minimal use over an extended period is considered a gamble by most buyers.

They want pedigree, meaning thorough, capable, and first-rate maintenance.  They want more than minimal maintenance.  If you're one of those owners who brag about your $1,000 annual then you're going to be in for a surprise when buyers don't appreciate your frugality.

And, buyers want recency.  In other words, they want an updated panel (it doesn't have to be state-of-the-art though), they want a 30 year old airplane to have an upgraded interior, and they want to feel like they're buying a plane that doesn't look like it's a blast from the past.

Consistency.  Pedigree.  Recency.  How does your plane measure up?


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Why hire an aircraft broker?

There’s always debate on this subject, especially on the various owners forums.  Some people say absolutely yes, some say absolutely no, and the rest are somewhere in between.  Even though aircraft brokerage is my business I’m not one of those who will tell you that is the right decision for everyone.  And -- just to get the white elephant out of the room -- yes, there are a few dirtbags in this business.  There are also a lot of very fine, hard working people who want to do the right thing and who pour their souls into helping their clients.  

Buying and selling seems to trigger a lot of emotions.  Throw an airplane into the mix and sometimes those emotions run high.  A lot of brokers are unfairly blamed for things over which they had absolutely no control or knowledge.  This is akin to the real estate agent who gets blamed for the broken water heater after the sale.  How were they supposed to know  Point being -- in today’s bombshell throwing social media world -- you can find less than favorable comments on just about anyone.  If you can’t, they probably haven’t been in the business long.  Dig deeper to find out how a prospective broker handles situations, take the time to actually speak with those who have worked with them, and think critically.  

But back to the question of whether or not a broker is right for you and/or your airplane. Let’s take a look at the 6 most important considerations.  The assumption here is that the broker has a long-standing reputation for great customer service and is not in the business to quickly flip an airplane.

  1. Time.  Even the easiest planes can take a lot of time to sell.  Make sure you have the time.  Figure 40+ hours to stage the plane, take good pictures and video, copy the records, develop the marketing materials, post the ads, call known prospects, answer calls, prepare offers and contracts, renegotiate after an inspection, coordinate delivery, etc.  Here’s a recent example: Within a period of 8 days I took over 30 calls and emails on a Beech A36.  Many of those callers were asking the same questions over and over again.  I don’t mind, it’s my business.  But even at just 15 minutes per call I spent over 7 1/2 hours of my time -- and that doesn’t include the other work I did on that plane.  If your time is valuable or in short supply then maybe you should consider hiring a broker.

  2. A second opinion.  Most reputable brokers keep meticulous records on previous sales and market history.  They use this data along with current trends and forecasts to give you a very clear idea of a likely sales price and time-on-the-market.  You can use them as a sounding board and they can help you see things objectively.  They can also advise you about upgrades you’ve been considering.  I’ll get calls from customers who want to spend money on an upgrade they think will help them sell their plane.  More often than not I encourage them to save their money since their return on investment is almost always well below 100%.

  3. Notes & Databases.  Reputable brokers keep copious notes and databases.  We know who’s in the market, which buyer’s are always looking for that “smokin’ deal”, what the scam-artist tactics are, which maintenance shops are good (and which ones to stay away from).  When you sell a lot of airplanes you collect a lot insider market knowledge that can be very valuable.

  4. Returned communications.  I’ll bet I get a comment a week from someone who told me they couldn’t get so-and-so to return their call.  Sometimes they’re referring to brokers (which is inexcusable) but often it’s from individual owners.  If you’re busy, often out of cell coverage, work nights, or have other reasons why you can’t respond in a timely manner, then maybe you should considering having someone help you.  

  5. Objectivity.  I always cringe when someone tells me their plane is “the best one out there”, “a perfect 10”, or that there’s “absolutely nothing wrong with it.”  Hey, we’re all human and we sometimes miss things.  It’s rare that I don’t discover something about a plane that the owner didn’t know.  Buyer’s want to hear the truth and they are skeptical about so-called perfection.  A good broker will take the time to go see your airplane personally.  If you’re one of those people -- and this happens -- who want to hide or conceal something about your plane then a good broker is not for you.  They will find out and should disclose that info to prospective buyers.

  6. Experience.  An experienced broker will know how to handle contracts, extensions, revisions, foreign purchases and different countries bureaucratic requirements, ferrying, closing, inspections, etc., etc. and they will be able to advise you every step of the way.  We know where the potholes and roadblock lie and can often see them a long way off.

A good broker can be well-worth his/her money, sometimes multifold.  You absolutely must perform due diligence before committing to a brokerage agreement though.  If you’re the kind of person who handles your own investments, sells your own homes, and likes to do everything yourself while never taking counsel from anyone else then you’re not the kind of person who would be a good fit for a brokerage relationship.  A broker is there to help you expand your team, to give you some of your time back, and to broaden your perspective on things you may not have previously ever thought of.  And a good broker should always act in your best interests and be willing to tell you “no” when all you you really want to hear is “yes.”

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Aircraft Financing Revealed. Tips and tricks to help you navigate the process.

by Mike Smith
Scope Aircraft Finance

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For a majority of aircraft buyers, an aircraft purchase may not be possible without financing, and financing is not possible without a bank.  The finance process can go several directions, and it all depends on the individual applicant as well as the bank they are working with. Regardless of which bank you work with I believe there are a few key ways you, as an applicant, can prepare for the process, which hopefully makes it as enjoyable as possible.


Fill out the application completely and answer all the questions on it

In most cases, the questions on the application are on there for a reason. If any part of the application is left incomplete, it could slow down the underwriting process, or worse, result in the lender creating false impressions of your financial picture.

If there is something, say something

There is no such thing as a perfect credit. Everyone has some complexity or moment in time where something happened. If you did have a hiccup in your financial past, mention it up front.

Don’t be offended by follow-up questions

Just like you don’t know us, we don’t know you. The underwriting time is an opportunity to get to know each other. Follow-up questions do not mean the bank is on a path towards a decline, it probably means the lender is making best efforts to learn about you so he or she can accurately provide financing solutions for your purchase.

Give them (the right amount of) time

Sometimes, approvals take some time. If you know that financing will be part of your purchase plans make sure to begin the application process as soon as possible. Even if you have yet to settle on a specific aircraft, the bank can offer a pre-approval and be ready to move once you select your aircraft.

Work with them

Contrary to popular belief, banks are not out there to “get” you. In our shop we look at every loan opportunity as a partnership and, since we’re in the business of funding loans, we want to work with our customers to do just that.

When I was a kid and played T-Ball, the last words my dad would say to me before I ran on the field was “remember, no matter what, just have fun.”  I pass the same words along to you through your aircraft purchase journey, whether it includes financing or not. No matter what, just have fun, and enjoy the world of general aviation!


Issues Faced By An Aircraft Owner as Viewed By a Financial Planner

by Stewart S. Koesten, M.S.F.S., CFP®, CIMA®
KHC Wealth Management


Not all financial planners know much about aircraft ownership, and others may discourage the idea of owning an aircraft.  They’re the ones who say if it floats or flies, rent it.  Not bad advice but let me share my story with you.

I used to rent, but it became impossible to plan ahead.  The FBO I rented from had a small fleet of rental aircraft that were also used for flight training.  They were well maintained, but that meant your need for the aircraft might conflict with their need to do a 100 hour inspection.  It got unmanageable and unreliable so I decided it was time for me to look for an alternative.  
I considered existing flying clubs in the area, fractional ownership and direct ownership.  I felt owning my own aircraft was preferable.  One problem with owning an aircraft is the amount of flying you think you’ll do.  I seldom fly more than 100 hours a year.  That’s really not enough to keep an aircraft mechanically healthy and the costs per hour reasonable.  I looked for an aircraft partner, and I found a great partner in my personal dentist.  The good doctor (seriously) was elbow deep into my mouth one day and asked, knowing I was a pilot, whether I’d be interested in partnering with him in his Bonanza.  It was hard to respond at the moment, but in time we developed a fine relationship with mutual respect for the aircraft.  That’s important.  Having a partner who abuses the aircraft can be a very bad and likely costly situation.  Along the way we added another great partner, and between the three of us we were able to fly around 250 hours a year.  Eventually the Bonanza became a turbo-Aztec.  Two of us are still in that partnership but today we own a Twin Cessna 414.   

No aircraft is perfect, but we found the large Cessna meets 75% of our mission requirements.  It is fast, pressurized, turbocharged and seats grandparents, children and grandchildren on the same flight.  It has legs too.  At 65% power, with five on board we can go just under 1000 statute miles.  We own the aircraft outright through our not-for-profit S-corporation.  We are set up as a flying club, and can have as many as five members.  The system works for us.  I maintain the books and records, and my partner maintains the maintenance and avionics.  We chip in a monthly amount for insurance, income tax preparation, oil changes, hangar rent, and annual inspections (the fixed expenses).  We pay in $100 for every hour we fly for engine and prop reserves (variable expenses), and we pay for our own fuel as used.  

When I fly for business my company reimburses me sufficiently for the expense of using the aircraft.  I don’t play games with taxes, and we keep good financial records.  I’ve never attempted to depreciate the aircraft since it isn’t used exclusively for business and I’d rather not get into a debate when audited.  All in, our aircraft runs about $500 an hour to fly.  That’s a bit less ($50/hour) than average for a large Cessna but our annual inspections, hangar costs and annual maintenance expenses have been considerably less than in other locations around the country.  That’s still a lot of money so it is important to make sure you can cash flow the routine expenses.  Occasionally, there are surprise expenses, and having extra resources to meet your obligation is critical both from a financial point of view as well as just feeling comfortable with the situation.  

Having an aircraft partner has been great, but what really works for us is that our schedules match up perfectly.  Seldom do we conflict.  We are respectful of each other’s need for the aircraft, and occasionally swap dates to accommodate each other.  We fly together sometimes.  
Recently, I’ve discussed with my own financial planner how to factor flying expenses into my retirement plan.  Here’s how I’m thinking about it.  If my financial plans indicate that I cannot afford to continue flying when I retire, then I’ll work part-time to fund my flying expenses.  When I can no longer work, or I am not physically able to fly then I will hang up my flying suit and discontinue part-time work.  Until then, working part-time is a great way to fund my love of flying that I would not otherwise be able to fund in my baseline retirement plan. Talk about motivation!

Owning an aircraft is expensive, but with careful planning and analysis you can choose the right aircraft.  Choose one that you can afford (first and foremost) and one that meets 70% or more of your mission.  There are financial planners who know little about aircraft ownership or financing.  If you are considering buying an aircraft make sure your financial planner and CPA are familiar with the financial and tax issues involved.  


What's the Most Important Strategy for Selling an Airplane?

There’s been a lot written over the years about the best strategies for selling airplanes.  The advice covers everything from updating paint and interior to avionics upgrades to showcasing the latest features and benefits for prospective buyers.  You name it, it’s been covered.  Let’s cut to the chase though.  What really is the bottom line when it comes to aircraft sales?  No mystery here….it is the bottom line.

In other words, what are you planning to ask for your plane?  There absolutely must be a logical reason (and one that can be supported) behind your pricing.  There are things you can do to boost the value, but if the airplane is not priced properly then it really doesn’t much matter because buyers who perceive you’re out in left field won’t even call.  What you originally spent on the plane, the sum total you’ve invested since you bought it, what you owe on the plane, what you need for retirement, and what others may be asking all have no bearing on what your asking price should be.  The asking price should reflect what similar aircraft have actually sold for and be at a point that will not place the new owner upside down if they have to repair or upgrade items you’ve neglected.  It must be based on depreciated prices for installed equipment and only include the value for tangible items (ie, not the cost of labor to install).  Unfortunate is the owner who overpaid for their plane (or who have invested way too much in it) and are holding on to the hope that some other poor sucker will come along and overpay too.

You may find yourself in a situation where you want to sell your plane but the numbers just don’t add up.  Whatever you do, don’t put it on the market hoping that some magical buyer will pay your unjustified price.  The best thing you can do is to keep flying the plane and then reevaluate the sale at a later time.  This often happens when an owner has just dropped a small fortune into maintenance related items.  If you’re pricing your plane as if everything is working then you get no added value bringing things up to standard.  Offers will negatively reflect any deferred maintenance however.

A good aircraft broker will help you with price the plane properly based on experience and market data.  A better aircraft broker will acknowledge that pricing is not an exact science and will agree to list at a slightly higher number than they normally would (for a short period of time) to make sure nothing is being left on the table.  Sometimes an owner/seller needs to experience first-hand feedback before coming to grips with market realities.

If you’ve read between the lines then you can see the importance of keeping a positive cash position in any aircraft you own.  Owners who are highly leveraged often have a difficult time selling a plane for what it’s worth.  They have enough cash flow to continue funding the payment but not enough cash to actually sell.   Over the years I’ve seen far too many people turn down a slightly lower price than they wanted only to have the next offers come in even lower.  That, my friends, is a tough and unenviable position to be in.

Bottom line though is the bottom line.  Price the airplane appropriately and you will most likely be rewarded with a shorter time to sell, more offers to consider, and with any luck, a higher net sales price when all factors are considered.


Does “Pedigree” Maintenance Matter?

Pedigree Maintenance – the kind of maintenance done by a shop that has a solid reputation and that specializes in your type of airplane – can make a big difference when it’s time to sell. 



I was having lunch with a good customer and friend today and we were discussing his recent Piper Mirage acquisition.  “I sure hope you take your new plane to one of the top Malibu/Mirage shops at least every other annual,” I said.  “It can make a big difference in the sell-ability of your plane when the time comes.”

He nodded.

A specialized shop understands the intricacies of your make and model.  They see enough of them to be able to identify trends and spot irregularities long before your local mechanic may notice anything is wrong.  And they’re good at predicting and warning you about potential squawks based on the way you operate your aircraft.

Sure, your local guy may be the best in the business.  Everyone likes to think their guy is better than everyone else’s.  That’s natural.  But your guy probably isn’t known anywhere else, may not have done extensive training for your plane, and may not have the resources to have multiple eyes look at your plane during a single inspection.  How much billable time do you want him to spend learning on your plane anyway?  However, “specialized” doesn’t necessarily mean “factory authorized” or “service center.”  Many of the best shops have no OEM affiliation.

While it may be overkill to take your plane to the specialty shop for each and every maintenance event, it should net you a quicker sale (and time means money) when future buyers see the work has been done by someone with widespread acceptance and experience.

In this case, perception is everything.


Cheap or Good?

Speaking only for myself – I can imagine that others may feel the same way – one of the most frustrating, and frankly counter-productive, first questions a buyer can ask is, “so, what’s the lowest you’ll take for that thing, anyway?”


I mean, you don’t know a thing about the airplane other than what you’ve seen on the ads.  More than likely, you haven’t taken the time to dig into the logs or speak with the mechanic to see what type of maintenance has been done on the plane.  You certainly haven’t seen it yet.    Have you even considered the possibility that a “cheap” airplane or “smoking deal” may cost you more in maintenance, upkeep and upgrade than you’ll ever save on the front end?

When a buyer asks me this question within our first few minutes of conversation I automatically lower my expectations of that prospect and begin to discount their legitimacy.  Experience has taught me over and over again that this question is often asked when little research has been done, when they suffer from price myopia, or when the buyer can’t think of anything else to say. I've also found this question to be reflective of their ability to financially qualify for the plane in the first place. 

Some say there are no dumb questions.  Honestly, I’m not so sure about that.  What I am sure about is that there are dumb times to ask certain questions.  Buying and selling is a lot like dating.  There are just certain questions you don’t ask until you get to know someone first.  Know what I mean?  Should you forget that basic principle, you’ll likely find that to be your last date…or worse.  Educate yourself first.  Try to get as much of the big picture as you can before jumping right to the bottom line.  You’ll undoubtedly find the other party more receptive and appreciative of the efforts they’ve made to maintain their airplane. 

So, if you call and ask me that question, don’t be surprised if my response is, “Do you want a cheap airplane, or do you want a good airplane?”  Because there’s a difference; a BIG difference.  Happy and successful aircraft ownership is based on understanding the costs involved, not just the price.



How to Handle the Sale of an Elderly or Ailing Family Member's Airplane

It’s not easy to watch a family member age.  It can be particularly difficult if that person still retains assets that, at some point, must be liquidated; even more so if there is an emotional attachment to those assets.  The same issue applies to loved-ones who become unexpectedly sick or incapacitated.  Airplanes represent a particularly challenging set of choices that will have to be made.  This is not a situation I envy or look forward to dealing with myself, yet it is a fact-of-life for most of us…or at least it will be. 

I have never met an aircraft owner who did not perform substantial due diligence before finalizing a purchase.  We all want to know what we’re getting ourselves into and, ultimately, that we got a fair deal.  Many aircraft owners are very savvy business people, investors, and professionals.  We all like to think that we make good decisions and that our “investments” are wise ones.  Much of this is based on expectations and our own personal bias.  After all, a good investment for one person can be a sink hole for another.  Aircraft owners, especially those who bought their airplane before the turn of the century, were used to consistently appreciating aircraft values.  You could buy a plane and, except for unusual circumstances, sell it for at least as much as you paid for it.  But, the burst of the internet bubble coincided nearly exactly with a ramp up of manufacturer production (which provided new units to a stagnant inventory) and with the slow but steady loss of general aviation pilots.  According to Vref Value Reference, complex singles increased in value by 27% from 1994 to 2000.  From 2001 to 2009 they declined by nearly 35% in value.  Since that time the trend has been nearly flat with a 5% overall increase -- most of which was recorded before 2011.  The light twin index has been similar while the turboprop index has been more volatile.  Thus, many owners who either bought prior to the 2000 decline or those who spent the majority of their aircraft ownership career prior to 2000 may have unrealistic expectations about the value of their aircraft.  This, combined with the effects that aging has on our cognitive abilities and heirs who want to get as much as they can, often results in a situation where aircraft are retained for far too long amid declining values and aircraft carrying costs.

Let me share a recent example with you.  I have a client, we’ll call him Ted, who is looking for a 2000-era Piper Malibu Mirage.  He’s got about $500,000 to spend and, like all buyers, wants a fair deal.  We recently identified a possible candidate, went to do a quick visual inspection to see if the specs matched reality, and made an offer contingent on a full pre-purchase inspection.  The seller, who was represented by a very capable and reputable broker, was firm at $500,000.  Given the specs and recent market activity, this is a plane that should sell for $440,000 to $460,000.  He (the seller) had already turned down an offer of $485,000.  Our offer was at $459,000 and you can probably imagine how that was received.  The elderly seller, it was discovered, was in failing health and had a strong notion of what he thought the plane was worth.  Unfortunately, he was wrong.  Now, he’s in the hospital and his non-flying children are in charge of the sale.  They have now dropped the price (well below the first offer of $485,000) and are still sitting on the airplane.  I was told again that they are “firm” on this price and there is no room for negotiation, even though the plane is still over-priced.  We’re not looking for a steal, mind you, just a price that matches the market.  According to JetNet, insurance and depreciation alone for a Malibu Mirage exceeds $23,000 annually.  Every month they wait to sell is a hidden $1900 loss to their bottom line.  This doesn’t include the negative perception buyers have of airplanes that don’t fly regularly or the cost of recurring annual inspections.  Holding on to the plane another 6 months will probably cost them more than taking our $459,000 offer would have, and they would have freed up substantial emotional capital by getting the plane off their minds.

Here’s another example.  This one worked out better.  My client, Ben, was diagnosed with terminal cancer just prior to listing his A36 Bonanza.   He was fairly realistic about the value of the plane yet still held on to a pre-2000 aircraft value paradigm.  Unfortunately, Ben’s health took a turn for the worse and he was admitted into the hospital.  He recognized his diminishing capacity and turned the sale over to his son who was a non-pilot.  His son looked at the sale of the plane as a business transaction and tried, however difficult, to remove all emotion and sentiment from the plane.  As such, when a reasonable offer came in, Ben’s son was prepared to accept.  His wise decision probably saved Ben’s family a lengthy period of turmoil over the plane since shortly after the sale Ben passed away.  His family and his estate no longer had to worry about the disposition of that sizable asset.

So, whether you’re the aging owner of an airplane or have a family member who is, keep in mind these observations:

·        If you haven’t received an offer near the price you want in the first 4 months of the airplane being for sale, you probably never will. 

·        Planes need to be flown and ones that have been sitting for lengthy periods of time will scare away potential buyers.

·        There are carrying costs (insurance, hangar, operation, maintenance, and depreciation) to aircraft ownership.  These costs almost always exceed any hoped-for increase in aircraft value.

·        Don’t let the airplane go out of annual.  If you do, you might as well tell prospective buyers you can’t afford the airplane and are desperate.

·        Planes generally don’t increase in value by any meaningful amount.  Don’t take it personally or think you’ve somehow made a bad financial decision if your plane is not worth what it once was.

·        What you’ve spent on the airplane, how much you owe, the total cost of upgrades, or what you need for retirement have little-to-no bearing on what the airplane is worth.

·        Comments like “I’ll keep it before I give it away” or “I’ll make it a lawn ornament first” are emotional statements that will cost you time and money.  At some point, even for the most stubborn of us, reality kicks in and you will realize that continuing down that path will be far more expensive than you originally thought.

·        Waiting for “the market to go back up” is not a strategy either.  For every 10% market decline it takes 11.1% to regain.  History demonstrates many 10% losses but few 11% gains.

·        And, finally, just because your close relative thinks the plane is worth X doesn’t make it so.  Seek, and listen to, the advice of a professional who is in that market.  Get second and third opinions if you need to. 

Every situation is different.  What’s important to remember here – regardless of whether you’re the aircraft owner, an heir to the sale, or estate executor – is that those who handle the sale from a business perspective and try to remove all emotions are the ones who fare the best.



What are the first two words in “Good Customer Service?”

Of course, the answer to the question in the headline is “Good Customer.”  Easy enough right?


Why?  Because far too many people demand good customer service without actually being a good customer.  They are rude, arrogant, condescending, and boorish.  They are entitlement minded.  They’ve conned themselves into believing that they actually deserve good customer service without having to give anything in return.  They’ve become that person you’re embarrassed to go out to eat with.

How did we forget basic civility in this country in such a short period of time?  Why is it we think we are special, that we know more than previous generations, and that our expectations are justified?

Don’t agree with me?  Take a look around the next time you’re at a restaurant and watch how patrons treat the wait staff.  Think about how you’ve treated a vendor whom you’ve never met in person.  (Anonymity can easily foster this type of behavior – social media diatribes are a case in point).  Watch how the gate agent is treated the next time you’re at the airport.   I’m not talking everyone here, but it probably won’t take you too long to find someone who fits this description.  Heck, I find myself guilty of such actions from time to time.  We all do.  But enough is enough.

My intent here is not to get into what’s happened to our societal norms, values, and behavior.  What I want to do is to help each of us see where we fit into this equation and what we’re each doing to foster this unhealthy environment.  And it starts with expectations.  Who told you things were going to be perfect all day long?  Did someone, somewhere, whisper in your ear that you have a right to demand perfection from others yet expect grace when it comes your own shortcomings?  I’ll bet your mom didn’t teach that you shouldn’t ever have to wait.  Nor did your dad tell you things wouldn’t go wrong.  If they were good parents they probably told you things like “get over it”, “suck it up”, or “treat others the way you want to be treated.” 

Just to set the record straight, I’m certainly not writing this article based on experiences with my customers.  I’ve got a very deep respect with those who do business with me and vastly appreciate their perspective and experience.  And, almost without exception, I’ve found them to reciprocate on every level.  I like to think that folks in my industry are a notch above others, but I may be slightly biased.  My comments are however based on casual observations from daily life.  Traveling.  Going to the movie.  Eating out.  Waiting in lines at the airport. 

May I encourage you then, the next time you’re faced with a less-than-perfect customer experience, to put on your best face, lift up those who are serving you, and get out of the paradigm that you’re owed something and are not getting it.  In other words, get over yourself, roll with the punches, and appreciate the efforts of others.  Do that, and I’ll bet you’ll notice an improvement in the customer service you receive.  


Top Overhauls Add Value to My Plane, Right?

Do top overhauls add value to your piston-engine airplane? This is a question I get a lot and the answer is almost always “No,” however a lot of owners/sellers don’t want to accept that answer, presumably because they’ve just spent thousands on engine work. “But I have new cylinders,” they say. “Isn’t that worth something?” Yes, it is, but you’re starting from the wrong baseline. You see, this type of engine work simply brings the value back to that of a fully functional engine and gives it marketability. In other words, if you didn’t do the top overhaul, the engine would be worth less and largely unsellable. Doing the “top” it does not add anything to the value of the engine.

“Why,” you ask?

The answer is simple. A top overhaul does not reset the engine TBO (Time Between Overhaul) interval.  It is simply a stop-gap measure designed to do one of two things: 1) replace ailing cylinders in the hopes the engine will make it to TBO when a full overhaul will be needed or 2) to help an owner get more time out of an engine that is nearly timed out but still running well.

The rub, of course, is that you often don’t have the luxury of whether or not to do a top overhaul. That’s why it becomes very important to weigh the cost of a top overhaul against the cost of a complete engine overhaul. Depending on your engine and mechanic, a top overhaul can easily run three thousand dollars or more per cylinder. Have 6 cylinders that need replacing? Then it doesn’t take long to figure out that you could be throwing good money after bad if you’re getting close to your engine’s TBO. Have lots of hours left to TBO? Then it might make sense to do the top overhaul instead of blowing more cash on a full overhaul. For many engines, especially those that are turbocharged, a top overhaul near the mid-point of the engine life should be planned for. Without getting into the engine operating technique debate, suffice it to say that a mid-life top overhaul is a fact of life for many engines.

I too wish top overhauls added value. But alas, this is aviation and as with most things, there is rarely a positive return on investment (unless you factor in safety, peace-of-mind, joy of ownership, etc). Spending money doesn’t make you money but it can keep you from losing more money.

What do you think?