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Driving Forces Behind Aircraft Retirement
Aircraft frequently outlive the manufacturer life estimates, sometimes by multiple decades. This is great news for owners and operators who are looking to stretch their investment and helps maintain lower cost options in the used marketplace. However, as some of these aircraft approach 40+ years of faithful service, the shadow of retirement grows larger. So what happens if you’re holding onto an aircraft that is ready to make its last flight? How do you know it’s time? Let’s take a look.
All Good Things Come to an End
Aircraft frequently outlive the manufacturer life estimates, sometimes by multiple decades. This is great news for owners and operators who are looking to stretch their investment and helps maintain lower cost options in the used marketplace. However, as some of these aircraft approach 40+ years of faithful service, the shadow of retirement grows larger. So what happens if you’re holding onto an aircraft that is ready to make its last flight? How do you know it’s time? Let’s take a look.
Walking a Fine-Line
The decision to retire an aircraft is not always as simple as a life-limit on the airframe, in fact, it’s usually a complex decision. There are three driving forces that drive the depreciation of an aircraft (in appraiser terms: “obsolescence”) that are worth explaining.
Physical Depreciation
This is the factor that is most obvious. As a plane ages, so do its parts. Sure, we can replace or rebuild a majority of the components, but things like the actual airframe will continue to wear down over time. Having an aircraft remain outside of the hangar for extended periods or failure to properly preserve the aircraft during inactivity can accelerate physical depreciation.
Economic Depreciation
Economic depreciation is best categorized by the loss in value by factors that are external to the aircraft. A great example is the FAA NEXTGEN requirements for 2020. For some older (but perfectly good) business jets, the cost to equip ADS-B Out by 2020 outweighs the value of the aircraft. Some older Learjet’s may have a “hull” value of $250,000 and ADS-B compliance may cost over $200,000 or there may not be an upgrade path at all.
Functional Depreciation
Functional depreciation is (basically) the loss in value of the aircraft when compared to a newer, more efficient model. A Citation II manufactured in 1980 will cost substantially more to operate than a newer Citation Bravo with more advanced components and more fuel efficient engines, therefore that value will be lower on the less desirable model.
when should you retire your plane?
It isn’t usually one single factor that forces an aircraft into retirement, but a growing number of each of these forms of depreciation until it is simply not economically viable to operate the aircraft any longer. Sure, that 40 year old biz jet may absolutely be airworthy and fly your ideal mission, but add in the growing cost of maintenance and a multi-hundred-thousand-dollar ADS-B Out solution and that value proposition quickly fades away.
Understanding the specific depreciation factors affecting your aircraft is complicated and retiring an aircraft without some advanced planning can be costly. If you own an older aircraft it’s critical that you maintain a pulse on the marketplace specific to your aircraft. Older aircraft can be a great value, but being blindsided by an expensive retirement can quickly wash away any money you saved.
If you own an older aircraft, here are 4 tips to stay ahead of the curve
Check model-specific trends quarterly. Did 10% of the fleet get retired in the last few months? That could be a sign that it’s time to sell.
Understand your maintenance schedule. Is your plane coming up on a heavy maintenance item (“D-Check”)? It might not be worth investing hundreds of thousands of dollars if the aircraft will need to be retired before the next major maintenance event.
Have a plan. Understanding your options ahead of time can save you a huge amount of heartache in the end. Do you want to be the last owner of this aircraft? Do you plan on donating this aircraft to a charity? Parting it out for salvage? Moving it to the desert? Answering these fundamental questions will help guide your ownership and will drastically improve your experience.
Talk with an accredited appraiser. Having someone in your back pocket with a constant pulse on the market is invaluable when your aircraft is near the end of its life. Appraisers are also connected with huge swaths of resources like salvage centers and museums and can provide solid unbiased guidance to help you make these tough decisions.
In the next blog, we’ll take a look at some of the uses aircraft have beyond the sky and the desert graveyards where thousands of aircraft rest untouched.
Author:
Cameron Tipton, ASA
co-founder/accredited senior appraiser
Flight level partners
Fly or be Flown?
Businesses sometimes look to its employees/managers/owners to pilot their business aircraft. While this is often an attractive solution, there are special considerations to make before deciding not to hire a professional pilot.
a candid look at piloting your business aircraft
For some of our clients, the choice to purchase a business aircraft is based entirely on their ability to fly it themselves. The freedom of going straight from the boardroom to the airport to fly home after a long day is a huge advantage to aircraft owners, but choosing to fly yourself may not always be the best option.
Embraer Phenom 100
You May Not be Fit to Fly
During flight training your instructor will spend considerable time reviewing what it means to be mentally fit for every flight. Traveling for business can be very stressful. That big pitch you’re going to make after you land, upcoming year-end deadlines, a conversation you need to have with an employee when you get back… all of this can become consuming - is your head really wrapped around everything going on in the cockpit? Maybe, maybe not. These thresholds are different for everyone - but being able to stop yourself and realize you’re unfit to fly is an important part of being a safe pilot.
Cessna Turbo Stationair
Sacred Work Time
For many private flyers, aircraft ownership is about gaining back lost time. Using your new found time to fly an airplane may not be attractive. Sitting in the back catching up on work in relative solitude is often cited as a leading factor in owner satisfaction.
Cirrus Vision Jet, SF50
You’re Not Interested in a Second Career
At Flight Level, we may be one of the biggest advocates of private aviation - we understand the value it adds and encourage nearly everyone we encounter to give it a shot. We also understand that becoming a pilot is a major time commitment, a resource that business-people are often lacking. In an earlier blog we talked about how insurers rule the skies and often limit the type of aircraft you can fly - despite holding the appropriate certificate (albeit, for good reasons). If you have your eye on a shiny Pilatus when you start flight school, you may find it could be years of flying experience before you sit in the left seat.
despite all of this, many owner-pilots would never go back to a passenger seat
For any one negative there are dozens of positives. Flying yourself offers the ultimate flexibility and can be a substantial cost-saver over hiring or contracting professional pilots. Ultimately, individual circumstances should dictate your decision to fly, or be flown, but going in with an understanding of the big picture will keep from encountering costly disappointments.
Cameron Tipton, ASA