What's It Really Worth?
You've found that dream aircraft in Trade-A-Plane, but is the seller's asking price anywhere near fair market value? In this article, an expert in aircraft appraisal explains how the pros determine what a used aircraft is really worth, and discusses each of the nine major "value factors" in detail.
In the search for your dream plane, one of the foremost considerations is value! If you're like most of us, you don't mind paying a fair price for anything you purchase. But in the case of an aircraft, it's often difficult to determine exactly what that fair price might be. Is the Skyhawk advertised above really worth $33,500? Fortunately, there is a logical, step-by-step method of determining aircraft value.
For any given make and model of aircraft, there are nine "value factors" that are the most influential in affecting the worth of any used piston engine aircraft:
Total Airframe Time
Avionics (and other equipment)
Interior: Appearance and Condition
Exterior: Appearance and Condition
Annual Inspection Status
Let's examine the Skyhawk in the classified ad with respect to each of these factors, and determine if the seller's price is in the ballpark. Let's assume that we've talked to the owner, and had a chance to examine both the aircraft and the logs. We'll analyze the value factors in the order that they would be entered if you were using our Aeroprice Software, but the basic principles discussed here apply to any market analysis.
Start With The "Average" Aircraft
The first step in the process of appraising an aircraft is to establish a baseline from which other component values may be added or subtracted. This is called the "Base" or "Average Retail Value", and fortunately an industry standard exists. The Average Retail specification allows for normal usage and average equipment. Differences between your aircraft and the "average" can then be easily calculated.
You can obtain Average Retail by consulting the bluebook, by using Aeroprice Software (which includes its own pricing database), or by using our on-line QuickQuote pricing service. If you don't have access to one of these, you can ask your broker or dealer or owners' association (such as AOPA or EAA) to look it up for you.
Average retail value is considered to include average airframe time, all original logs, good paint and interior, no damage history, an annual inspection six months old, and all AD notes in compliance. Since the value of an engine is a high percentage of the overall aircraft value , the standard also assumes "average" engine time (more on this later).
Some pricing guides assume an "average" avionics package, but experience shows that this is definitely not the best approach. As the fleet ages, and older aircraft are equipped with the latest avionics, the "average" package has become the exception rather than the rule. The modern avionics package now represents a significant percentage of the aircraft value, and should be properly calculated as such.
With most of the general aviation fleet over twenty-five years old, the distinction in values between model years is less important than it used to be. Even so, a 1980 Warrior is worth more than a 1979. Once you have decided on a specific aircraft, do some further research to determine the differences between different models and production years. (There are many good books documenting all of these.) In most cases, the next year's model carries a bit more, or goes a little faster, or was produced with a nicer interior. However, this is not always true, and some model years are more desirable than others.
Using Aeroprice Software, or our price guide, we determine that the average retail value of a 1976 Cessna Skyhawk is $33,320. (NOTE: This is not a current figure, and is used for illustrative purposes only.) We also check the aircraft serial number against the production serial numbers to confirm that it is indeed a 1976 model.
Just like a high-mileage car, an aircraft with high airframe time is worth less, and for many of the same reasons. Total time on the airframe affects the value only in respect to the average time on similar models of the same year. For example, if the average 1979 Skyhawk has 2,500 hours TTAF, one with 1,000 is more valuable, and one with 4,000 is less so.
If you purchase a high-time aircraft, keep in mind that it will be a higher-time aircraft when you sell and you will be forced to discount it accordingly. While your initial investment will be lower, your annual inspections will be more costly, and the aircraft is more likely to require expensive replacement parts as the airframe ages. Unless you're an experienced aircraft owner or an A&P mechanic looking for a project airplane, it's best to avoid such high-time aircraft.
Determining just what "average" is may be difficult, as different aircraft tend to be flown more or less than others. Without access to a bluebook or pricing software (both of which contain average airframe times), your best bet is to scan the ads in Trade-A-Plane. By listing the model year and TTAF (Total Time, Airframe) for a number of planes, you can derive a rough average for the model you have in mind.
While you should strive to locate (and be willing to pay a premium for) a "low-time" aircraft, there are cautions to be observed here also. Aircraft that sit idle for long periods of time are more susceptible to corrosion, rubber rot, and pitting of the cylinder walls and camshaft than those which are flown on a regular basis. If you locate a "low-timer", find out why. Was the airplane flown only a few hours per year on a regular basis, or did it sit idle for years (as in an estate settlement)? Examine the logbooks...the airframe time is (almost) always entered at each annual inspection. Simple subtraction will tell you how many hours this plane flew each year.
Total time is one of the items you should specifically ask your pre-purchase inspection mechanic to verify, as errors in addition are quite common in aircraft logs. Check the books for the installation of a new (or used) tachometer or hour meter, and cross-check the engine log entries with the airframe log.
Our software tells us the average total time for a 1976 Skyhawk is 3,185 hours. Since the advertised Hawk is 15% above that average, the software automatically makes a $607 deduction to compensate.
Your engine is the single most valuable part of your aircraft (in many ways). For appraisal purposes it is assumed that a "mid-time" engine is one that has achieved slightly less than half of its recommended time between overhauls. For a 2000 hour TBO, this mid-point will be 900 hours, and its valuation will be zero. Hours above the mid-point will result in a deduction, and low time engines will add to the overall value of the aircraft. Additional value is awarded for new, factory overhauled and remanufactured engines, and for those engines overhauled by nationally recognized facilities (Penn Yan, Mattituck, RAM, Victor, etc.)
There are, however, other factors to be considered when examining engine time and value. For practical purposes, an engine approaching TBO is considered to be "runout" by most buyers. No matter how enthusiastic the seller is ("runs great, compression's good, uses no oil," etc.), he is most likely the last person to buy an aircraft with similar engine time. There is nothing wrong with buying an aircraft with a "runout" engine, as long as some of the cost of a major overhaul is reflected in the purchase price. In fact, some people prefer to do it this way in order to start with a "new" engine that they and they alone have operated. Additional value is usually subtracted for a "runout", since having it overhauled involves inconvenience, downtime, and some degree of financial risk..
At the other end of the engine spectrum are those that are "0 SMOH." While this sounds like the ideal, remember that you will be the test pilot! The question to ask here is, "Who did the major overhaul?". Look for an overhaul by a shop with a good reputation; it's your best guarantee against future engine and warranty problems, and will make your aircraft easier to resell. If you are not familiar with overhauls and shops, ask your mechanic and/or other aircraft owners their opinions of the various well-known overhaul shops. You'll find that there are a handful of shops that most knowledgable people consider excellent, and some shops with less than sterling reputations. Find out what the warranty is, and whether it is transferable to you as the new owner. Additional financial value is often added for a "zeroed" or low time engine, because it makes the aircraft more attractive to potential buyers.
Sometimes you will find an engine that has been done by an individual mechanic or a small maintenance shop: "Mike from Mississippi" or such. While this is not grounds for refusing the aircraft (especially if everything else meets your requirements), you should give special attention to the engine during the pre-purchase inspection. Find out if the engine was overhauled to "new limits" or "service limits" specifications. (Some mechanics and small shops are capable of doing a better job than the major outfits, while some are just after a quick buck.) If you go with such an engine, you may wish to choose one that has a few hundred hours on it, and have your mechanic scrutinize it and the appropriate logbook entry. Find out if the accessories were overhauled at the same time (i.e., starter, alternator, magnetos, fuel pump, etc.) While there is no requirement to do so on a privately operated plane, it is frequently the sign of a caring, careful owner, and will provide you with both peace of mind and (hopefully) lower maintenance costs in the future.
See if the engine was overhauled prematurely (well before reaching published TBO). If it was, look in the airframe log during the same time period for any major repairs that could indicate a hidden damage history.
If the aircraft you're examining has a "first-run" engine that has never been overhauled, beware! Vital engine parts can corrode, and important seals dry out, when an engine isn't operated on a regular basis. That 1400 hour TTA&E Skyhawk may not be such a bargain when it needs a major overhaul 100 hours later!
Our Skyhawk is listed at 1652 SFOH (Since Factory Overhaul). (Another common synonym is SFREM which means Since Factory-Remanufactured.) While a remanufactured engine is always considered to be worth more than a "field" overhaul, this engine is so close to being runout that the additional value is insignificant. Keep in mind that if you buy this aircraft and fly it 75 hours per year, in 4 years it will be close enough to TBO to be considered runout. You will have to invest the money to overhaul it, or sell it as is.
Our software tells us this engine is at 83% of TBO, and computes a deduction of $4,665. (This figure includes an hourly correction from mid-time as well as a small additional value for the remanufacture history.)
Avionics and Equipment
As the fleet ages, and older aircraft are equipped with the latest avionics, the "average" package has become the exception rather than the rule. The modern avionics package now represents a significant percentage of the aircraft value, and should be properly calculated as such. A good avionics package can add many thousands of dollars to the value of any aircraft.
While Aeroprice starts with a "core" value that includes only a transponder and encoder, some price guides include an"average" avionics package in the average retail value. If you're using such a guide, you'll first have to determine exactly what that "average" package consists of. Then, if you've replaced that old Cessna nav/com with a new digital KX-155, you'll need to first subtract the value of the old unit, then add for the 155. If the entire original package has been upgraded, it can be quite difficult to get an accurate appraisal using the "average avionics package" method..
Most buyers are looking for an IFR radio package, even if they're not instrument rated. If you're one of these, avoid the temptation to buy a plane with VFR radios (for a lower price) and then add your own. Remember that the instant you install that brand new KX-165 in the airplane, you now own a used KX-165. (It's analogous to driving a new car off the lot.) The person who eventually buys your plane will care little about the age of the radio...his major concern will be "does it work?". Be patient and keep looking until you find what you want. It'll save you money, and the airplane will be easier to resell.
One note of caution in regard to GPS (and some LORAN) units. Many owners do not understand the difference between "certifiable" and "certified". When you install that WhizBang 500 IFR Certifiable GPS in your aircraft, you may not use if for IFR flight until it is certified. This certification requires either an STC or FAA form 337, as well as an FAA approved flight manual supplement specifically for this unit in a particular aircraft (as designated by N-number in the supplement). The cost of doing this can run from $2,000 up, and adds considerable value to the panel. Don't be fooled by paying too much for an installed "certifiable" unit.
Airframe mods and other items can influence the value of an aircraft. Such things as long range fuel. engine pre-heaters, speed brakes, air conditioning, intercoolers and three-bladed props all add some value. Don't be fooled by other items...a new battery or magneto may be nice to have, but replacing these items is really only routine maintenance. A wise buyer might deduct value for a magneto that needs replacing, but would never add value for one that works: it's supposed to!
If you're faced with assigning a value to a mod or equipment item without a guide, here's the acid value test. Picture two identical aircraft on the ramp. They have the same airframe and engine times, avionics, paint and interior. The one without the widget is priced at $35,000. How much extra would you pay for the one with the widget?
Our Skyhawk is equipped with the Cessna "NavPak", as well as a LORAN and DME. (With the proliferation of inexpensive GPS units and the threat of shutdown hanging over the LORAN chains, the value of a LORAN has dropped dramatically!) A phone call to the seller confirms that it has dual Cessna 300 series LED nav/coms, one with glideslope, a Cessna 300 ADF, King KN-64 DME and a Century 1 autopilot. In addition it has the 54 gallon fuel option, skylights, carb ice detector, standby vacuum and a Tanis engine heater.
In real-life aircraft appraisal, avionics value adjustments do not reflect the cost of new units. More realistically, they reflect the average additional premium a buyer is willing to pay for these items previously installed in this year and model aircraft. Our software has automatically added $3,528 for the avionics. It has also added $1,504 for the extra fuel and equipment. If you're using another pricing guide at this point, you're lost, as there are no "adds" listed for these items!
If you were buying a used car, you would hardly expect it to look like it did when it rolled off the assembly line. The same is true of a used aircraft. Keep in mind, however, that it can cost anywhere between $3,000 and $9,000 to repaint the average four-place plane. If you want one that looks like new, you'll have to pay the price.
One of the most common buyer's blunders is to believe that the
appearance of an aircraft is an indication of the overall care of the previous owner.
While there are seemingly logical reasons to make this assumption and it might even be
true in certain cases, it ain't necessarily so! Just as in the used car business, a
smart seller will "puff up" his airplane for the sale...this may include a quick
and cheap paint job for the purpose of covering up defects.
|EXTERIOR RATING SCALE
New or Like New (10): Paint is shiny with high gloss. Looks like (or is) new. No scratches, chips or fading. Airframe has no dents or ripples. All glass is completely clear, with no crazing or scratches.
Above Average (9): Shows minor chipping or wearing, but paint overall has high gloss. Small scratches apparent upon close inspection around high use areas. One or two small dents in acceptable places. Some scratches may be visible on windshield or side glass.
Average (8): Paint is sound and solid, but with some wear and chipping evident, particularly around leading edges, cowling(s), and high use areas. Minor oxidation is evident, but can be brought to a shine with polish. A few small nicks or dents on leading edges or cowling(s), perhaps with minor visible repairs. Windshield or side glass may be slightly hazy or crazed along edges, but there are no visible stress cracks. Looks good from a short distance.
Below Average (7): Paint is solid but oxidized and dull overall with many chips visible. Fiberglass wheel fairings and/or wingtips slightly crazed. A number of leading edge or other dents. Could be improved to average with touch-up and repainting in a few places. Some repairs or dents visible. Windshield or side glass milky around edges or has scratches or minor cracks.
Poor (6 or below): Many dents, scratches. Large areas show bare aluminum. Aircraft leaves a trail of oxidized paint chips on takeoff. Most likely needs painting.
Our base aircraft is assumed to be in average condition both inside and out. "Average", as used here, means the aircraft will show the same signs of normal wear and tear that similar aircraft of its age and flight time will. Most individuals and dealers use a 1-10 scale to rate the paint and interior, with a "10" being the way it looked when it rolled out the factory door. Over the years, however, this scale has been seriously corrupted. (When was the last time you saw a plane represented as a "5"?) In today's market, an "8" is more likely to reflect the average. As with engine times, financial adjustments are made over or under this average condition. (See rating scale sidebar at right.)
While it is your own personal standards (and finances) that will determine your satisfaction with the look a particular plane, keep in mind that you will probably want to resell it without painting. Look for paint that is solid (if not shiny). Leading edges and cowlings are the first places to start chipping/peeling, and defects of this sort are common. Touching them up is relatively inexpensive, and will help preserve the exterior for resale later. Often mediocre overall appearance can be dramatically improved by repainting just the trim stripes.
Older aircraft have often been repainted. Ask your mechanic to determine whether the craft was stripped/painted or merely sanded/painted (what we call a Scratch-and-Paint). The former is obviously preferable, and will hold up better, but sand/paint can be equally pleasing and durable if it was done correctly on top of a good base. If it is a re-paint, look closely...did they paint over the screws because they were rusted? Did they remove all decals/nameplates, or just spray over them? Were all rubber seal strips masked off? Were the control surfaces rebalanced? And finally, is the paint job entered in the logbooks, along with color samples and/or paint numbers? It is usually the exception rather than the rule, but a logbook painting entry shows conscientiousness on the part of the owner and the paint shop. Most aircraft are supposed to have the control surfaces rebalanced after painting, a step all too often skipped by cheap shops. Ask your mechanic if this rule applies to your potential purchase.
Finally, unless you're buying an acrobatic or racing aircraft, avoid the custom paint scheme. An upgraded scheme is common and usually acceptable to most buyers, (A 1980 scheme on a 1970 airplane, for example), but the majority of aircraft buyers are very conservative people. Even though the scheme may be striking and well executed, it may cause you grief and delay when reselling.
Our Skyhawk has been freshly painted by a reputable shop, with complete stripping and control balance duly logged. There are no runs, drips, or "orange peels", and the paint surface is hard and shiny. All the screws have been replaced with stainless, and rubber seals masked off. The paint scheme is standard, as well as the colors, and overall it is a delight to see on the ramp. We select "New/Like New" for the exterior, and our software adds slightly more that half of the cost of repainting to the value of our aircraft, or $4,028. Like a fresh engine, a new paint job adds some psychological value above and beyond the straight dollar computation.
|INTERIOR RATING SCALE
New. Like New (10): Looks and smells new. Seats show no use or wear whatsoever. Headliner is immaculate, and rugs retain full pile with no apparent wear.
Above Average (9): Near new condition. One or two small stains apparent upon close inspection. Colors bright, headliner clean with no cracks or stains. Signs of usage but not wear on rugs, kick plates, seat cushions.
Average (8): Clean but obviously used. A few small rips or stains are obvious. Rug may be matted in high use areas, and kick plates show obvious signs of wear. Can be made attractive, but will never become impressive.
Below Average (7): Seats have major stains or rips. Rugs matted, fabric frayed in high use areas. Headliner may have a few water stains or minor tears. Looks worn and used even after cleaning.
Poor (6 or below): You wouldn't put your mother-in-law in it. Small rodents are at home. Most likely needs a complete interior.
Once again, consult the interior rating scale at right.
As with the paint, expect an average amount of wear. Inspect not only the seats, but the carpet, side panels, and headliner. A typical rug replacement for a four seat aircraft will cost around $3-500 without installation, and complete interiors can go as high as $4,000. Besides normal wear, look for fading — aircraft parked in sunny climates will frequently show serious color discrepancies on one side of the interior. Look for water stains on the headliner and rug — these could be a sign of a leaky window or door seal. While you're inside looking out, check each of the windows, front and back, for hazing, crazing and cracks.
The condition of the avionics and instrument panel should also be closely inspected. While it is possible to replace avionics face plates and panel covers, it is expensive. Pay particular attention to the glare shield (it's difficult to replace without removing the windshield on most aircraft).
Our Skyhawk interior is described as "fair." Upon inspection, the side panels, headliner, and rear seats are in fair-to-good condition, but it seriously needs both front seats reupholstered and a new rug. A substantial deduction of $903 is in order.
If you're using Aeroprice Software, you can just select "Below Average"; the
calculations will be done for you.
If you've been flying for long, you've learned that there are a wide variety of interpretations of the term "downwind". The term "damage history" is equally flexible...it seems to mean many different things to many people. Damage can refer to anything from a wing tip dented in the hangar to wing replacement after the crash! Most of the time, however, this refers to major damage history: gear-up landings and the like.
Damage history is probably the second most misrepresented item of an aircraft's specifications (airframe/engine hours are first). While you should make sure to ask the seller if his aircraft has ever been damaged, don't count on getting a correct answer. Often the current owner may honestly not know of a previous accident, and his mechanic has never noticed the repair. And sometimes the repairs are "hidden" in technical terms in the middle of a crudely scribbled annual inspection entry.
(Our favorite logbook entry said only: "Aircraft repaired as necessary after off-field landing". That was all. No parts listing, no form 337, no other log entry, no clues!)
Damage repairs are supposed to be entered in the airframe and/or engine logbooks, but it is a rare entry that reads as clearly as "Left wing leading edge repaired after bird strike." The cause of the damage is usually not apparent, and an entry may say as little as "R&R Piper part #28- 675732". Unless you know that this part number is the entire wing, and that "R&R" means Removed and Replaced, you may unknowingly buy a damaged aircraft.
The repairs required to fix major damage, such as a serious landing accident, requires the filing of FAA form 337 ("Major alteration or repair") with the FAA. A copy of this form is supposed to be kept with the aircraft records. If you become aware of a damage history from the logs, look for the accompanying 337, as it will usually contain a more complete detailed description of the repairs involved. Not all 337s are damage-related, however, as they are also required for avionics and many other installations. Sometimes the 337s are missing entirely, but don't despair: for a small fee and a phone call to the FAA Records Branch in Oklahoma City, the feds will send you a microfiche copy of all records for any aircraft, usually within a few days.
Most first-time buyers are somewhat shy about damage history, and will insist on buying an aircraft without it. However, if the airplane fulfills your requirements in all other respects, properly repaired damage should not be a deal-breaker. You should make sure that repairs were made with factory parts by a well- respected shop and well documented. There are always other aircraft available with no damage history, and the asking price should be adjusted accordingly.
The amount of a damage deduction is dependant upon several factors, including the severity of the damage, the type of aircraft (it's usually more important to an A36 owner than a Cherokee 140 owner), and the age of the incident/repair. As the years and airframe hours accumulate, the curse diminishes, but for a major damage incident it never dissipates entirely.
Your mechanic should be looking for signs of damage when he examines the logs during the pre-purchase, and should examine the aircraft with this in mind as well, as there are occasions when repairs are made with no entry.
Our Skyhawk seller tells us that a hangar door fell on the right side of his aircraft in 1987, and the outboard section of the wing was repaired in a factory jig. This is considered moderate (not major) damage, and we will enter it as such. Our software calculates a deduction of $1,166.
So much of an aircraft's value is contained in its logbooks that the courts have ruled them to be an integral part of the aircraft! Unless you are a very sophisticated buyer, you should avoid like the plague any aircraft without logs that are original and complete. Beware the logbook that begins "Original logs lost, total time (or engine time) certified to be...", or "reconstructed from work orders." No matter how complete the records might be, they are still not original. Think long and hard before buying an aircraft without complete and original logs: no matter what price you pay, it will take much longer to find a buyer later on.
If the aircraft logs are not complete, you can no longer be sure of the total time. Worse still, an aircraft with missing airframe logs may have been the victim of a major damage accident. If the engine log is missing, you must assume the engine to be in need of a major overhaul.
Have your mechanic examine the logs during the pre-purchase inspection: it's what you pay him for. You will want to verify the airframe time, engine time, engine and airframe serial numbers, production year, and damage history (or lack thereof). In addition he should check the annual date, static and/or transponder checks, and Airworthiness Directive compliance. Close examination can also reveal something of the aircraft's history: where it lived, whether or not it was used as a trainer, etc.
Our Skyhawk comes with complete, original logs, so we'll continue to examine it.
Annual Inspection Status
Annual inspections are an unpleasant but unavoidable fact of life for an aircraft owner, and can sometimes be unbelievably expensive. Annual status usually falls into one of three categories: "Fresh with sale," "Mid-time", or "Coming up shortly."
"Fresh with sale" — Dealers are most likely to include an annual inspection in the purchase price, as it is not uncommon for them to own an aircraft that is currently out of license. It makes no financial sense for them to do a fresh inspection, then watch it slowly expire as the aircraft sits in inventory. Since they are paying for it, they will usually perform the annual in their own shop, or one where they do a lot of business. In order to avoid the "Paper Annual", the wise buyer will inspect the shop where the annual is to be done, and check on their reputation with other local aircraft owners. Make certain that all the discrepancies found during the pre-purchase inspection have been addressed. A fresh annual will relieve you of a great deal of worry (and expense) for the next twelve months, and give you a sense of security about the mechanical condition of your new aircraft.
"Mid-time" — Probably the most common status, and one that usually provokes the least anxiety, particularly if the airplane has been actively flying. Our "average" aircraft assumes a 6 month old annual.
"Annual due" or "Out of annual" — If the annual is due within a month or two, you can sometimes get the seller to pay for a fresh one. Obviously this will be done at the shop of his choice. (See "fresh annual" above.) We do not normally recommend that you purchase an aircraft that is out of annual, as this may involve an FAA ferry permit, several days or weeks of downtime, and some expensive surprises!
You may hear claims of a recent extensive (i.e., expensive) annual inspection. Although this can be a sign that the present owner is finicky and meticulous, it may also indicate that the aircraft was (or is) a mechanical disaster. It can often be the very reason he decided to sell! Since it is difficult to know which of these is the case, try to be objective — don't let this claim influence you one way or the other. After all is said and done, you will end up owning the aircraft in its present mechanical state. Evaluate that status with an eye toward the future, not the past — those bills have been paid by the present owner, and may or may not have added value to the airplane.
Because it is impossible to predict the cost of any annual inspection, even our software can't calculate the value. It's something you and your mechanic (who does the pre-purchase inspection) will have to estimate. Luckily, our Skyhawk seller tells us that his annual is due in seven months, which fits the mid-time profile.
Our Completed Appraisal
Having accounted for all of the important "value factors," our Skyhawk appears to be worth slightly more than $35,000. The seller's asking price of $33,500 is actually about 4% too low. The owner either needs to sell, or (more likely) he hasn't kept up with the latest market changes in the value of his aircraft, and doesn't realize he's leaving money on the table. If this aircraft gets a clean bill of health at the pre-purchase, you could feel very comfortable paying even the full asking price of $33,500.
Keep in mind, however, that this isn't always the case. Often you'll find aircraft listed with asking prices that are way to high or too low...sometimes by 25% or more. That's why the prudent buyer will never make an offer on a used aircraft without going through a detailed pricing analysis like the one we just did.