Aircraft Sales Insights

By Brad Harris

When a client engages Dallas Jet International (DJI) to sell an aircraft, we don’t always broadcast the news.

In fact, many of our clients have good reasons NOT to have the availability or the sale of their aircraft a matter of public knowledge.

In the aviation marketplace, certain sellers cannot advertise their aircraft due to competitive pressures, public perception, or privacy / personal security issues.

Many of our clients, understandably, want to buy or sell an airplane, but do not want their name or their company featured in news items like this one. We work with each client, to create a plan for his or her specific timeframe and outcomes. If a client wishes to avoid publicity, we do our best to avoid it.

In most cases, it’s best to employ a two-stage aircraft marketing process.

Our Marketing Process is part of Step Seven in our High Level Aircraft Sale Process; after we’ve created a professional sales package and completed our market research.

Our Two-Phase Aircraft Marketing Process often offers the best opportunity for a favorable outcome.

 Phase One – “Off-Market” Aircraft Marketing

DJI has a proprietary network of brokers, bankers, members of various associations, and other personal contacts developed over years of working in the industry. Effective “off-market marketing” requires a professional sales package that includes a brochure, specifications sheet, maintenance history, status, and professional photography.

Of course, every situation and every aircraft is different, but we find that as much as 30% of the time, we find a buyer during Phase One, without ever publicly advertising the aircraft on a public website or classified service. In fact, many of the buyers in our network prefer to purchase off-market aircraft.

Many buyers choose to purchase aircraft that have not be advertised for sale, for many of the same reasons that many sellers choose not to “list” an aircraft for sale – they don’t want their name or their company featured in news items like this one:

Phase Two – “On-Market” Aircraft Marketing

If the aircraft does not sell within the timeframe in our prospect’s plan, (usually a minimum of two weeks) and our client’s situation does not preclude advertising the airplane publicly, we have many options for extending visibility.

Depending on our choice of a narrow or wide range of visibility, the options may include our website, www.DallasJet.com; the JetNet Aviation Market Intelligence service; the AmStat, Business Aviation Aircraft Market resource; the Aircraft Post; the Aircraft Shopper Online (ASO); Controller Magazine, social media outlets such as Facebook, LinkedIn, Twitter, and Google Plus, and Aviation Broadcast email broadcast service.

Each Situation Is Unique

It is important to select the appropriate advertising tools for the outcome that best meets our client’s needs in terms of time, price and discretion. To discuss the sale of your aircraft, please call our office at 817-520-4009 and let’s talk about your situation and objectives.

Almost all aircraft sales professionals tell you that they perform “due diligence” to help the aircraft seller get the very best possible outcome for the transaction.

And yet, few of these brokers or consultants will tell you what this “due diligence” is composed of!

Briefly outlined, this is the process we use at Dallas Jet International (DJI.)

Keep in mind that Due Diligence is the first in the twelve major steps in our Aircraft Sales Process. Each of the twelve steps includes numerous additional items. Download Anatomy of an Aircraft Sale for a high-level overview of the entire process. Some of these high-level processes include over a hundred steps.

Initial Conversation

Of course, every seller has a different situation. The objective of our initial discussion is to ensure we have a good understanding of our client’s objectives. Questions we will ask may include:

• How did you hear about us?
• What are your objectives for the sale?
• Do you have any needs or preferences regarding the timeframe for this sale?
• Is it your intention to trade, upgrade, or sell the aircraft outright?
• What are your financial expectations or needs for this sale?

Aircraft Questionnaire

We work with you and your team to complete a detailed questionnaire that includes the following items to name a few:

• Budget
• Range requirement
• Runways utilized
• Luggage requirements
• Aircraft equipment
• Aircraft maintenance cycles and history
• Aircraft engine status
• Damage history of records
• Completeness of records
• Inspection status
• Ownership history
• Regions of operations
• Passenger requirements
• STCs (FAA Supplemental Type Certificates, for any modifications)
• 337s (FAA Form 337 – Major Repair & Alteration Documents)

Every transaction involves balancing certain priorities. As an example, if a sale must take place quickly, that reduces our negotiation options for obtaining the best price.

Our philosophy is that aircraft sales is more about people, priorities, and great communication than it is about airplanes!   It is only by taking the time to clearly understand our clients priorities that we can obtain the best results and their continued loyalty and referrals.

Investing the time at the beginning of this conversation saves us, our clients, and others in the industry significant time and frustration in the long run!

On-Site Visit

While many aircraft sales professionals do most of the work “virtually,” DJI is committed to doing business in person. (Read more in this article.) Brad Harris, Shawn Dinning or Ralph Crosby visit every single airplane that we represent.

Our commitment to doing business in person is an important part of our reputation in the field. We have a more complete picture of the entire situation, and we can talk to prospective buyers and other professionals involved in the transaction from personal experience. We can speak from the position of having seen the airplane and verified all of the facts personally.

Research

In addition to seeing the aircraft personally, we also verify all of the facts, collect reports using several proprietary subscriptions, and use our experience from the hundreds of aircraft we have personally inspected, flown and sold over our many years of experience.

What’s Next

DJI creates a world-class marketing package, including a very specific procedure for setting the best price and acquiring profession photographs that will be utilized and described in future articles.

Curious about how DJI’s thorough Due Diligence process might make a significant difference to your situation? Give us a call at 815-520-4009 and let’s talk about it!

By Brad Harris

One question that comes up in our purchase process is this – “Should we get title insurance on the aircraft?”

Most people are familiar with title insurance from buying or selling a home or commercial property.

Unlike real estate lenders, most aircraft lenders don’t require title insurance, so airplane buyers rarely even know about it, let alone purchase it. That can be a big mistake.

Jeff Weiand,
AIN Online, The Case for Aircraft Title Insurance Seems Compelling, October 2013

 While more common for turboprop aircraft like the King Air or Cheyenne, title insurance is much less common for jet aircraft. In fact, only about five percent of turbine aircraft are covered by title insurance.

There are two reasons for this:

• The cost of title insurance is based on the aircraft’s “book value.” Ten percent of the cost of a jet can be substantially more than ten percent of the cost of a turboprop aircraft, particularly an older one.
• Jets tend to have a shorter list of previous owners. Turboprops, the workhorses of the aviation world, can have very long service lives and a long string of owners.

As the economy has changed, however, it’s become more common for even high-end jets to have longer service lives and a longer list of previous owners. So in some cases, title insurance is becoming a more attractive option.

Many of the reputable aircraft sellers who provide great support for buyers will make no guarantee of clear ownership outside the “term” of their own ownership. They may not be aware of liens or complications from previous owners.

Consider this example, a jet that had been owned by several owners including Wells Fargo, a finance investor in the UK, CVS, and Office Depot.

The new buyer might discover that a tax lien had been placed on the aircraft in the UK. This out-of-country lien would not have been filed with the FAA, and therefore escaped notice through several transactions in the United States.

However unlikely this scenario might be, the probabilities are of little comfort when they affect you directly!

Note:   Title Insurance Is Not Obtainable for Every Aircraft.

DJI recently had a client consider a Citation XLS+ that had a previous owner located in Mexico. The title insurance company did not consider it an acceptable risk and declined to insure it.

Our client declined to purchase the airplane.

Aircraft Title Insurance – Decision Factors

Some of the factors that add into the decision to purchase (or require) title insurance are these:

• Does the aircraft have multiple previous owners?
• Has it ever been registered outside the U.S?
• Are any of the previous owners no longer in existence, not public, or have a history of bankruptcy or other issues?
• Do you have any reason to suspect tax or mechanic liens?

Each “yes” answer makes title insurance a more important consideration in the transaction.

If you’ve made a decision that aviation title insurance is required, who should purchase the policy?

Technically, it does not matter. Title insurance covers the aircraft, not any particular owner. Any affected party can use the aircraft title insurance policy binder number and the insurance would cover any claim specified by the terms of the policy.

That said, if there is a lender involved in the transaction, the buyer is typically required to pay for title insurance.

Of course, title insurance is only one of a great many factors in a successful aircraft transaction. DJI’s detailed process, experience and relationships are key to ensuring a good experience with no surprises for our clients.

Aircraft prices are still declining, making beautiful slightly used airplanes even more attractive.

By Brad Harris

Sales and listings are definitely picking up, but aircraft prices remain flat, or in the case of older aircraft, continue to decline.

Many brokers have seen an uptick in the number of transactions; indeed, Dallas Jet International (DJI) is finishing up its busiest summer ever in 15 years of doing business.

The typical lifecycle of a business jet is 3-5 years with its first owner, who will then likely upgrade to a newer or larger aircraft. Many corporate and charter fleets have reached the end of that cycle and those one-owner aircraft are back on the market, creating an excellent opportunity for second owners who want a nearly-new aircraft at a very attractive price.

While this is great news for buyers, it can mean that sellers, particularly of older aircraft, won’t be able to sell their aircraft at a price as high as they had hoped.

Mark Phelps of Flying Magazine describes the scenario – the more aircraft on the market, the lower prices dip.

The most recent numbers for used business jets show the total number for sale has stayed level over the past several years – around 2,500. There were 1,662 jets for sale in September 2007. Compared with the first quarter of last year, there has been a 4.2 percent decrease in the number of sales (transactions) for jets, and the average time on the market is 71 days longer, despite a 3.3 percent decrease in average asking price. Transactions for turboprops were down by 8.8 percent compared with Q1 last year, but average asking price is actually up by 18.7 percent.

Used Business Aircraft Are Still a Good Buy, Mark Phelps, Flying Magazine

In the last few years, older aircraft are typically sold in growing markets such as Latin America or Asia, or even Africa. But the market (especially for older aircraft) has been increasingly saturated as that pool of used aircraft becomes larger.

Another wrinkle impacting prices of 10-20 year old aircraft is the difficulty financing older aircraft. Many financial institutions use the “rule of 20” in financing aircraft.

Many (aircraft finance providers), after all, got third-degree burns from repossessed aircraft collateral or returned leased aircraft following the 2008 market debacle, and as a result many follow the so-called “rule of 20,” according to which the financed aircraft and the loan (or lease) term must both be less than 20 years. Why? So that if the lender has to repossess or otherwise comes to own the financed aircraft, it doesn’t have to go out in the market and try to sell a decades-old jet.

Business Jet Finance Report, James Wynbrandt, Business Jet Traveler

Many would-be buyers are out of the market if financing is unavailable. Many companies and individuals are still reluctant to part with cash. (See Despite Rosier U.S. View, Cautious CFOs Still Reluctant to Untie Purse Strings, Matt Egan, Fox Business)

We can’t expect stabilization or improvement in this sector of the market until after this oversupply is absorbed.

Our advice?

Now is an excellent time to purchase a slightly used aircraft. It may still not be the optimal time to sell; but give us a call at 817-520-4009 and let’s talk about your specific circumstances. The more we know about your situation, (and the further in advance we are aware of your needs) the better advice we can give.