Understanding Aircraft Valuation
How is aircraft appraisal done?
If you are buying an aircraft for a certain amount then that is its value. The price that you are paying for an aircraft does not affect your loan application. Banks usually call accredited aircraft appraisers for the valuation of an aircraft if you are applying for financing to buy a business aircraft.
There are many factors involved in apprising a business aircraft which the banks or the buyers don’t want. Appraisers are an independent third part that has its own way of appraising value. Appraisers are independent and is not influenced by any other so they are able to appraise the real value of the aircraft.
One of the first things that the appraiser needs to determine is the kind of value that the client wants. Usually, the client is an insurance company or a bank, who may be looking for the orderly liquidation value, the fair market value, the scrap value, or the forced liquidation value. The bank policy usually determines what type of value they ask for.
If there are jets of the same year and model, you cannot expect them to have the same value. The value of the aircraft is highly dependent on its condition. If one has an engine program and the other has none or if one is on the ground but the other is flying, the value of the aircraft is affected. The paint job on both aircrafts will affect their value. Even though two aircrafts are of the same year and model, they can have two different appraised values depending on the factors used by the appraiser to evaluate them.
There are paperwork and logbooks that appraisers inspect. Incidents that affect the structural integrity of an aircraft is looked for by an appraiser in the files. For example, one thing that can damage the aircraft’s structure is a heavy landing. They will also inspect maintenance records since this can also affect the aircraft’s valuation. Theoretically, an aircraft will have no value if it has no paperwork or logbook. And this is why records are very important when it comes to aircraft appraisal.
There are only a few people who can truly appraise an aircraft’s value. If you wan to be a member of the American Society of Appraisers then you need to be accredited by taking valuation courses. Aircraft appraisers usually have an aviation background but there are some who belong to the finance industry. It is more beneficial to an aircraft owner to understand the appraisal owner even if it is a specialized skill. They can better manage the process if they know what is involved in an appraisal.