Don't be Surprised by Aircraft Sales Expenses

While most markets are staggering under the weight of excess inventory, some of the more popular models in the small and midsized cabin classifications are holding their values despite abundant supply.  Examples include: CJ3 and early CJ2s.  Their values held steady at no change in the most recent edition of the Blue Book. Likewise, in the turboprop arena, the same edition shows older model King Air B-200 and C-90 and all PC-12s are also holding steady values.

Steady values could indicate that the bloodbath may be coming to an end but selling an airplane is still a formidable task.

If you are one of the sellers trapped between the jaws of the selling vice -- high inventories on one side and few buyers on the other side, how do you go about getting the best net price for your aviation asset?  Should you hire a broker and pay his fee despite your asking price being near the bone?  Alternatively, should you turn the marketing and sales efforts over to a member of your staff, maybe your pilot or your sales manager?  The answer is neither obvious nor perfect.

In a price-sensitive market, it seems risky to take on an additional sales expense in the form of a brokers commission. The simpler approach seems to reduce the asking price until a buyer surfaces then handle the remainder of the process internally.  Further, aircraft owners are generally entrepreneurs who are, by their nature, self-reliant.  They most often tend to choose the latter approach; but there is a valid argument that those sellers that choose to go it alone are enticed by the top line rather than carefully examining the entire process down to the bottom line.

The aircraft sales process is fraught with expenses that are both surprising and hard to estimate accurately at the outset

The first decision for a seller to make may be the most crucial and most perplexing  naming an asking price.  Most sellers determine their asking price by referring to the Blue Book or V-ref, comparing their airplane to the typical unit in its fleet and cross checking the results with airplanes advertised on Controller.com or some other bulletin board web site.

Unfortunately, they end up chasing the market and spending needless amounts of money in holding costs.  The Blue Book and V-ref are carefully researched references but they are, by their nature, a lagging indicator.  By the time their editors have compiled the data, analyzed it, sent it to the printers and distributed the final product; the market has changed.

The best source of up to the moment information is from someone that is researching daily.  Brokers are constantly communicating with their colleagues and customers.  They typically know what sold yesterday, last week and last month  and for how much.  Their research is constant and, more importantly their information is current.  After all, the editors of the Blue Book and V-ref poll the brokers to get the information they need for their publications.

The next most important question a seller should ask himself is whether to re-paint his airplane and refurbish or replace the cabin interior?  It is hard to write a check for improvements that are solely for the buyers enjoyment; yet if new paint and a re-rag would save six months of holding expense, maybe it is a worthwhile investment.

The next item in the sellers checklist of preparation for the market and an item often overlooked, is the presentation of the logs.  They should be orderly, well indexed and complete.  Organizing the aircrafts records can be a time consuming project and, of course, translates into an unforeseen sales expense.

Once the airplane and records are ready for buyers scrutiny, then comes the process of fielding inquiries.

Either the seller or a member of his staff is going to devote untold time answering phone calls and emails from advertising respondents.  Whoever is assigned the additional tasks of sending out spec sheets, photos and maintenance reports cannot be devoting their full attention to the job for which they were hired.  Staff time spent away from primary duties is a cost that is very difficult to measure when the seller closes the books on the transaction: but worse yet, staffers seldom devote any time or effort to follow-up.  Once the specs have been sent, the prospect falls through the cracks.

The prospects that surface are certain to have questions and concerns that are best answered by someone with a broad base knowledge of the entire class of the subject airplane.  For example: a prospect calling the owner of a CJ2 might also be considering a Premier 1 or a similar Lear product.  The CJ2 owner is not typically prepared to discuss performance characteristics, options, cabin configuration or direct operating costs of a Premier 1 or Lear 31A and then draw comparisons to his airplane.  A broker has probably sold a similar model and knows the answers to typical objections offered by potential buyers.  In fact, the broker can usually anticipate specific buyers objections in most cases because hes heard them all.

Once the buyer steps forward and an initial agreement reached, the airplane typically goes to a pre-purchase inspection of some type.

The pre-purchase inspection phase of the process yields more seller disappointment and frustration than any other.  Choosing a service facility that will render a fair, objective, thorough and reasonable report can be a crapshoot.  Maintenance facilities must disclose everything they see to avoid potential liabilities.  But, care should be taken to select a facility that will keep discrepancies in their proper perspective.  Small things should get a comment and no more, while important issues should be emphasized.

The buyer typically wants to use a facility that will write up every little thing so the he can use the report to obtain sellers price concessions while the seller wants to use the facility that has been maintaining his airplane.  The aircraft owner sells his shop for the pre-buy inspection by asserting that they know the airplane best; but is it wise to have a shop check their own work?

Most brokers can suggest a facility that will be fair and thorough.  The brokers experience from prior sales and pre-buy inspections; when it comes to selecting a site for the pre-buy, is often the ingredient that holds a sale together.

Large or small, the pre-buy inspection squawks present a hazard to the successful completion of the transaction at worst and usually become sellers unanticipated expense.

If the deal survives the pre-purchase inspection, it goes to the closing phase of the process.

The closing event is most often handled via an Aviation Title/Escrow Service that prepares necessary documents, insures that the terms of the purchase contract are obeyed on both sides, and files the documents appropriately.  The escrow fees are usually predicable and represent a very small percentage of the total cost of the transaction.

In the end, the seller usually feels an overwhelming sense of relief once he delivers the airplane to the buyer.  He typically is just happy to have the whole episode behind him but if he applied a careful analysis throughout, he more often than not, is surprised by the totals in the expense column without factoring in the holding costs.

Perhaps cost containment is a leading reason that brokers are involved in eight out of ten aircraft sales transactions.