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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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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.

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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?

Wrong.

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.  

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