Market Value, Fair Market

Value (FMV) Defined

An Aircraft Appraisal Could Unlock

Your Key to VALUE

Buyers, sellers, brokers, insurance companies, lawyers, estates, corporations, partnerships, banks and lending institutions and more care about the market value of aircraft, with good reason. A certified appraisal can bring confidence in an aircraft resale market is a dynamic environment with prices that can change from month to month. Knowing the real market value for your aircraft is a huge key to success when you’re selling. If your aircraft is overpriced, you’ll miss out on great offers without knowing it. And if you price your aircraft under the current market, you could leave a lot of money on the table. There are many intangibles that should be considered. These include the availability of a particular aircraft model, airframe damage history (or lack thereof), estimated time remaining before engine, propeller, appliance overhaul replacement or inspection is due, historical maintenance records and history and quality of refurbishments, exterior paint and interior cabin upgrades. Individual aircraft popularity, mechanical condition, and damage history will all affect aircraft market depreciation. These are general rules and that in any given situation these rates will vary considerably. Regardless, market depreciation is a significant part of the cost of owning and operating an aircraft.   Market Depreciation is a widely changing variable based on the value of the aircraft asset in the marketplace. Until the asset is sold, no one really knows the exact market value of the aircraft. Once an asset is sold, the difference between what the asset was purchased for and the eventual selling price is referred to as Market Depreciation. Aircraft, unlike automobiles and other equipment, tend to retain more of their value for a longer period of time. There are three things to know about Market Depreciation. Timing is a big factor. The economic markets are in constant flux. Aircraft values hold their own or even increase with strong economic conditions. In an economic downturn, aircraft prices call fall as quickly as the stock market. As a general rule, aircraft prices tend to follow the larger business cycles. When businesses are growing and profitable, demand for aircraft increases. As demand increases, the available supply will decrease, and then used prices will rise. When the business cycle declines, the reverse is true. Market Value and Fair Market Value are also known as CURRENT MARKET VALUE if the value pertains to the time of the analysis. It is the appraiser’s opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. MARKET VALUE assumes that the aircraft is valued for its highest, best use, that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. Furthermore, it is the aircraft’s most probable price which it should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition are: 1) buyer and seller are typically motivated; 2) both parties are well informed or well advised, and each acting in what he considers his own best interest; 3) a reasonable time is allowed for exposure in the open market; 4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5) the price represents the normal consideration for the aircraft sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Until the aircraft is sold, market depreciation is an estimate. Guides like Vref and the Aircraft Bluebook Price Digest are useful tools in tracking these values. When using these tools, keep in mind that the base prices are for average aircraft with mid-life time on the major components and excellent-to-good paint and interior condition. It is generally accepted that during an aircraft's first 10 years, the market depreciation per year for aircraft will be as follows: • Business Jets 4% per year • Helicopters 5% per year • Turboprops 6% per year • Pistons 6% per year