On the most recent episode of GlobalAir.com's video series, President and CEO Jeffrey A. Carrithers talked with Jeremy Cox of JetValues-Jeremy about aircraft valuation. According to Cox, 2022 has been a stellar year for aircraft sales and valuation.
"The definition of value is the monetary relationship between properties and those who buy, sell or use those properties," Cox said. "In this case properties being aircraft, and it's expressed as an opinion of worth or value of a property at a specific time."
According to Cox, the specific time of an appraisal is very important. You need to determine the date because the value can be different six months, or even a month later.
"Appraising an airplane today in September 2022 is a lot different from a market standpoint than it was in 2020, or at least 2019, before the pandemic," Cox said.
The aircraft valuation process starts with determining the need or purpose of the valuation. Cox needs to know what the client's purpose is for the appraisal.
"There's no difference whether it's a Piper Cub or a spacecraft, the same process to performing an appraisal is involved in every type of aircraft I deal with," Cox said.
After determining the need for the appraisal, Cox generates an engagement letter and then attains the FAA files and researches the aircraft. He will then check out total time, maintenance records, modifications and ownership history.
"If there are inherent issues which are specific to the aircraft, if I don't consider them, then I'm going to come up with an incorrect value," Cox said.
Next, he prepares the appraisal. At this point, he will determine the approach to value. There are three approaches to value - market, cost, and income. The income approach is the rarest. Cox has only done a few income valuations.
Step number four is preparation of the report. Here he outlines the fair market value -which is the number that results from a sale between a willing buyer and a willing seller - or the orderly liquidation value - which is the gross amount of money that can be expected when a seller is compelled to sell at a specific time. Orderly liquidation value is often used for bank financing. The report can also include the monthly lease rate, hourly lease rate and depreciation.
Carrithers asked Cox what he thinks is the biggest factor when determining the value of an aircraft.
"Pedigree," Cox said. "An airplane owned by the Queen, god rest her soul, is worth a lot more because of its history than one that is just a standard citation."
Carrithers agreed that pedigree is important.
"If it comes from a corporate flight department that we know," Carrithers said, "we know everything has been done on the airplane correctly, that's what I call pedigree."
Cox also suggested not making the paint and exterior "weird," or doing unique modifications. He also mentioned that bad maintenance and bad repairs will damage a plane's value.
Carrithers asked Cox his prediction for how the market will finish out 2022. Cox laughed and said, "as frantic as usual."
"I normally do about 100 airplanes a year, "Cox said. "I'm well and truly past the 100 aircraft mark and here we are in early September."
Cox said he talks to brokers daily for his work and the biggest problem they are finding is the lack of inventory. With the lack of supply and high demand, comes increased prices.
Cox said what we are seeing in the industry is "now" pricing and "now" values.
"The now values, now prices are probably back to where these airplanes should have been if we had not had the financial crisis," he said.
Cox went on to say that aircraft prices are 30%, 40% and in some cases 50% higher than they were pre-pandemic.
Be sure to watch the entire interview to hear more from their discussion.