Let’s assume that you’ve decided that aviation is in your future. The thought of going fast, maximizing your time, and increasing the company’s bottom line appeals to you and aviation is the one solution to your time problem. Now, what airplane should you buy? How do you go about starting the process? How much will it cost? All of these questions are valid, and a wise purchaser will do well to become highly informed. As I’ve helped many people with their purchase decision, here’s my thoughts on how it’s done right…
Do the mission analysis. Is a $0.99 44oz Big Gulp at the local convenience store a “good deal”? It is super-cheap and a good way to get lots of soda, but do you really need the soda? If you buy something you don’t need, even if it is sold at a “low cost”, it might not be a “good value”. In the same vein, there’s lots of “good deals” on the aviation market, but if the airplane doesn’t provide a solution to your needs, it is a total waste. Before you get started looking at airplanes, take a look at your travels in the last year. How many trips did you take? How much do you anticipate in the next year? How many people should travel with you on a regular basis? Determining individual needs are fairly easy, but with a company, it is a much more complicated problem. It is often wise to seek the counsel of an aviation professional (like Casey Aviation!) to help make this assessment. Some items to consider are:
Value of time: For a company, the people who normally fly airplanes are the ones who are the highest wage-earners. Consequently, an accurate analysis should include a cost-per-hour for the people who will fly the most. For instance, compute the annual earnings for the people you anticipate will fly, determine a “per-hour” cost, and then contrast the lost time by using airlines.
Traveling efficiency: Would multiple-stop trips benefit you or are all of your trips “out and back’s”? In a given travel scenario, using airlines might allow for 2 meetings in 3 days. Using business aviation, you might have 6 business meetings in those same 3 days. So, combining trips (which is far easier by owning the airplane) can allow you to see more people in a shorter amount of time allowing more business to be accomplished by fewer people. One company I helped get into business aviation was able to grow their company while not creating more managerial/executive positions within the company. This company realized a cost savings by keeping a flat business hierarchy while growing the business.
80% Rule: I’m not sure this is a “rule”, but it is solid advice. When considering your aviation needs, buy the amount of performance that will allow you to fulfill 80% of your needs. For instance, if you normally travel with 3 people, but sometimes fly with 8. Then buy a Jetprop instead of a King Air 200. The extra 5 seats will cost you dearly! If you normally travel 500 miles, but occasionally travel 1200, buy an airplane that has 800 miles of range instead of the one that has 1500 miles of range. The ability to travel farther will cost you dearly. Buy an airplane that will solve 80% of your travel needs, and then rent an airplane for those times when you need a “20%” advantage. It will be far cheaper for you.
Casey Aviation will assist you in determining your aviation needs. We’ve got lots of experience helping clients, and it starts with accurately knowing your needs.
Do the homework: Once you’ve determined your needs, it is then time to start learning. To make a really good decision, you’ll need a vast amount of information. Talk to other owners, hang out at the airport and talk to pilots who actually fly the airplanes, go online and search information, read trade publications…just get smart! Do your best to weed through the information and sources to find out who really does and doesn’t know the facts. Take a ride in an airplane you are considering before purchasing! Do whatever it takes, but get really, really smart about the various airplanes that might be good solutions to your aviation needs.
Do the math: There’s LOTS of expenses associated with aviation, but there is simply no other way to go FAST in this world. If you want to go fast, you do want an airplane. But, the cost of going fast is exponential. By that, I mean that every time you go double the speed, the cost will quadruple. Know the numbers and don’t be afraid to ask the hard questions. Some jets on the market are very affordable to acquire, but are INCREDIBLY expensive to operate. Know all the costs before taking the plunge into aviation, and be ready for the expenses to hit each month. If in doubt about affordability, definitely go slower! I always advise customers to buy less airplane than they need if this purchase is the first airplane purchase.
Broker or no broker? There is a real need in the marketplace for aviation sales brokers, especially if you have limited knowledge of aviation and don’t have the time/desire to gain that knowledge. Bottom line…don’t buy an airplane from a position of ignorance. If, however, you are informed and able to sample the market, you can save some money by buying on your own. Broker’s sell airplanes in which they can make money, and they make money by selling the airplane at a premium and buying it at wholesale.
Top reasons to hire a broker:
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- You don’t have intimate knowledge of the aviation market
- You know which type of airplane you desire and the broker you trust has specific knowledge of that type of airplane
- You believe the broker will have the ability to bring different airplanes to your awareness that may not be on public forums
- Above all, you don’t want to make a big mistake
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Top reasons to avoid a broker:
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- The cost of the airplane will probably be more with a broker
- You are intimately knowledgeable of the aviation market
- You don’t know a broker that you trust
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Casey Aviation does help people find the right airplane for our clients by using all available resources. Our goal at Casey Aviation is to provide a fabulous long-term aviation experience to our clients. So, when our clients come to us with a desire to buy an airplane (or move up in airplane), we scour the market and help them all along the way from desire to ownership to ongoing operation. Sometimes we use brokers and sometimes we don’t.
It’s all about who you know: 80% of the airplanes that no one else wants are on Trade-a-Plane, Controller, and Barnstormers…and that is not a compliment! There’s nothing wrong with these sites, and we’ve bought many airplanes through their excellent service. However, many of these airplanes have been on the market for a long time because they are over-priced or have a major problem and have been turned down by many others. The best purchases are always made by hitting the streets, calling aviation contacts, and putting out “feelers” to let others know what you’re looking for. I’ve found many airplanes this way. I call type-instructors, premier maintenance facilities, and local FBO’s to find airplanes that are either new to the market or (better yet) not even on the market. Many times these people can give you lots of “inside information” about the airplane so you’ll know what you are getting into.
It costs money just to search for an airplane: The second you commit to searching for an airplane, the costs start adding up. Logistically, it is always simpler to find an airplane that is near you, simply so you don’t have as much traveling costs. You will probably look at quite a few airplanes that you don’t buy, and you will have to pay to go and see these airplanes. Spending LOTS of time at the outset really qualifying airplanes for purchase is absolutely required. The deeper you look into an airplane, the greater the chance you might find that one disqualifying factor that keeps you from making the purchase. Demand the seller provide you with lots of recent pictures, copies of logbooks, maintenance data, and aircraft history. Validate the condition of the paint, interior, and engine BEFORE arranging for a visit. I’ve seen LOTS of money spent on airplanes that were mis-represented or somehow ended up not being a candidate for purchase. If a buyer won’t take the time to provide you with accurate data, walk away. On a large airplane purchase, traveling costs are only a small amount of the overall purchase costs. When buying a smaller airplane, just looking at an airplane can push the purchase price beyond the point of acceptability.
Pre-purchase inspection: No matter which airplane you intend to purchase, always…and I do mean always get a pre-purchase inspection by a mechanic that you trust. Do not skimp on this all-important step in the purchase process. I often negotiate an annual inspection to be conducted as the pre-purchase inspection. More often than not, I require the seller to pay for 1/2 the annual inspection as this forces the seller to have “skin in the game”. If a seller will not agree to such an arrangement, he is almost assuredly hiding something that he knows will be found in an annual, and you don’t want to buy that airplane.
Things that affect airplane value: Determining value for an airplane can be difficult. But, there are tools to help you. “VRef” and “Aircraft Bluebook” are two industry-leading providers of aircraft value information. My personal favorite is “VRef”, but that is because I’ve used them a lot in the past and am familiar with their style. You’ll want to be very familiar with the following information when determining aircraft value:
- Airframe time (AFTT): This is the total time that is on the airframe and is expressed in hours. For most airplanes, 200 hours per year is a good average. So, if an airplane is 30 years old and has 4,000 hours, it was under-utilized and has more value. If it had 11,000 hours, then it was used extensively and the value of the airplane goes down.
- Engine time: Turbine aircraft have hours expressed in Time SInce Overhaul (TSOH) and time SInce Hot Section Inspection (SHSI). Piston aircraft have hours expressed Since Major Overhaul (SMOH) and Since Top Overhaul (STOH).
- Maintenance history: All logbooks must be present and must be well documented. Any missing logbooks detract from the value of an airframe. On some airframes certain maintenance facilities are clearly superior and a logbook filled with their name are highly prized for the maintenance history is trusted.
- Damage History: Damage History, especially major damage history or recent damage history will devalue an airplane significantly. The simple fact is that if there are 10 airplanes on the market and 1 has damage history, its seller will have to deeply discount the price in order to sell. Don’t make the mistake of paying retail for an airplane with recent damage history, you’ll almost assuredly eat the cost difference when it is time to sell. Here’s a cool website where you can look up an aircraft’s history of damage.
- Known costly items:Some airplane types have certain equipment that is a known costly item, or has an inspection that costs a whole bunch. For example:
- Mitsubishi – Windshields: A windshield on an MU2 can cost $50k…so you’d better know the condition of the one on the airplane you want to buy.
- King Air – Gear inspections: Called “6-year gear inspections”, this inspection can cost $35k or more. So, a recent 6-year gear inspection adds value and an airplane that is soon due this inspection will demand a lower price
- Malibu – Exhaust System: A typical Malibu exhaust system will cost $10k, and it will last about 1,000 hours. So, if the airplane you want to buy has 1,000STOH and no mention of a new exhaust anywhere in the logbooks, you had better be ready to cough up $10k in the near future
- Wing boots: WIng boots are a big expense on airplane that has them installed. Be sure to know the condition of the boots.
- Paint/Interior: The quality of the paint is expressed as a numerical value on a scale of 1 to 10. Any VRef book will relate what a “6” means as opposed to a “7” (or any other number). At its best the numerical scale is subjective, but it does allow for some basis of understanding between a buyer and seller. As the buyer, I’ve noticed that sellers almost always over-state the condition of their airplane…always knock off 2 full points from whatever the seller tells you!
Negotiating the purchase price: My standard approach is to negotiate a purchase price with the stipulation that the seller will pay for 1/2 the pre-purchase inspection (or annual) and fix all of the “airworthy items”. “Airworthy items” are items that are required to be working for the airplane to pass an annual inspection. It sounds pretty cut-and-dried, but it is not. For instance, let’s say the mechanic finds low compressions on 3 cylinders, and suspects valve-guide wear, but the compressions are just above the manufacturer’s limit. It is airworthy, but everyone knows that the cylinders will have to be replaced soon. So, I always leave room for negotiations after the pre-purchase inspection. If the list is too long or too costly, always leave yourself the ability to renegotiate or walk away from the deal.
Ferry costs: Often forgotten, a plane must be moved from the seller to the buyer, and possibly to the maintenance facility that performs the pre-purchase inspection. These costs can mount quickly, especially if the pilot and pilot-expenses are to be paid. Often a ferry flight requires an overnight trip, rental car, and an airline trip for the ferry pilot.
Taxes: I always recommend a person consult a tax-advisor when buying an airplane. In Texas, there is a nice website that details the taxes associated with buying an airplane: http://www.window.state.tx.us/taxinfo/taxpubs/tx94_168.pdf
Be sure to read the part about an “occasional sale” as this could possibly allow no sales or use tax to be levied.
Casey Aviation fields lots of questions about aircraft purchases from prospective buyers. Be sure to give us a call to more deeply discuss the intricacies on the purchase process, or to let us help you with your aircraft acquisition.
