Understanding Aircraft Valuation
How is aircraft appraisal done?
The worth of an airplane is the amount that someone is paying for it. However, when you are applying for a loan, it is not affected by the price you pay for an aircraft. Your loan application will highly depend on the value given by aircraft appraisers if you are buying a business aircraft.
Appraising a business aircraft involves many factors which the buyer or the bank does not want. Appraisers are an independent party. When appraisers set the value of an aircraft it is its real value and not influenced by what somebody else wants.
The kind of value the client is looking for is first determined by the appraiser. Usually, the client is an insurance company or a bank, who may be looking for the orderly liquidation value, the fair market value, the scrap value, or the forced liquidation value. The bank policy usually determines what type of value they ask for.
Even if two jets are of the same year and model, the usually don’t have the same appraised value. The value of the aircraft is highly dependent on its condition. If one has an engine program and the other has none or if one is on the ground but the other is flying, the value of the aircraft is affected. The paint job on both aircrafts will affect their value. So if there are 2 aircrafts of the same year and model, you should not expect them to have the same value but there are many factors that an appraiser considers to give its final value.
There are paperwork and logbooks that appraisers inspect. In these files, the appraiser will look for incidents that can affect the aircraft’s structural integrity. If the records reveal that the aircraft had a heavy landing, then there is a possibility that the aircraft’s structure is damaged. They will also inspect maintenance records since this can also affect the aircraft’s valuation. In theory, there will be no value given to an aircraft that does not have a logbook or records. This is why it is important to keep records for the aircraft.
Appraising an aircraft’s value can only be done by a few people. Those who want to be a member of the American Society of Appraisers can take valuation courses to be an accredited one. Usually aircraft appraisers belong to the aviation industry or have an aviation background but you can find some also who are from the finance industry. The appraisal process is a specialized skill but every aircraft owners should understand the appraisal process. For aircraft owners to better manage the process, it is important for them to know how appraisals are done.