How to make the most of your next aircraft investment within the current tight supply environment
November 10, 2021 By Phil Lightstone
During the past 20 months, aircraft values have been on the increase. Buying an aircraft can be as simple as handing over a cheque to the seller, receiving the keys and a bill of sale. This approach is fraught with risk and potential hidden costs. New aircraft from the factory come with warrantees to provide the owner with piece of mind and that new aircraft smell. The journey into aircraft ownership begins with selecting an aircraft that meets your mission, useful load, number of seats, fuel consumption, powerplant, service ceiling, avionics, condition of the paint and interior, length of ownership before upgrading, and budget. From a Business Aviation (BA) perspective, operating costs (cost per nautical mile) needs to be balanced against capital acquisition costs. In a highly competitive charter environment, increasing margin per passenger enhances Net Profit or cost contributions.
The hunt for that just right aircraft begins with education. Online shopping tools like Canadian Plane Trade, Trade-A-Plane, Controller, as well as local brokers and airframe manufacturers like Cessna, Diamond, Embraer, Bombardier and Piper (to name a few) are a starting point. Critical to picking the right aircraft is engaging an aviation broker who can help guide you through the acquisition or sale process. Stan Kuliavas, Vice President, Sales and Business Development, Levaero Aviation, explains, “For the average aircraft buyer, buying a $5 million home is easier than buying a $1 million aircraft.”
During a seller’s market, with low aircraft inventory and long wait times for new aircraft delivery, picking the right broker is critical to ensuring a smooth(er) transaction. Kuliavas recommends engaging with a broker who is a member of International Aircraft Dealers Association (IADA). All members of IADA are accredited dealers who meet rigorous standards and must be re-accredited every three years. Jim Gregory of IADA, explains, “Comprising only seven per cent of the world’s business jet dealers, IADA dealers buy and sell over 40 per cent of aircraft transactions by dollar volume, averaging over 700 transactions and US$6 billion in annual volume. Recently, IADA members actually registered over 1,200 global transactions, worth more than US$10 billion, in the 12-month period from April 2020 to March 2021.”
Critical to picking the right aircraft is to see it and have a test flight. Aviation conferences and expos like SUNnFUN, AirVenture, NBAA and CBAA (to name a few) are great venues to see the latest aircraft. As with buying a used car, it’s not desirable to purchase a used aircraft sight un-seen. Here’s where a broker can help you with the purchase, remembering that the seller is the broker’s customer (most of the time). Purchasing an aircraft close to home simplifies the process and reduces some out-of-pocket costs. Anna Pangrazzi, President of Apex Aircraft, reports, “My challenge with first-time buyers is not to throw water on their dreams, but provide insightful guidance about flying and aircraft ownership for low-time pilots.”
Levaero Aviation offers aircraft buyers a fee for service aircraft acquisition program, where the buyer is their client. For acquisitions, Levaero charges a flat fee, rather than a percentage of the acquisition price. Their job is to secure the best possible overall aircraft for the client and that does not always mean it will be the least expensive option. In a flat-fee scenario, a client never has to question their broker’s motives if a more expensive option was recommended. Conversely, in selling a client’s aircraft, Levaero prefers to charge on a percentage basis. Levaero is there to assist with every step of the acquisition or sales process. Their expert market knowledge allows Levaero to help clients secure more favourable acquisition or selling prices than they would on their own. The company’s process involves seeing the transaction through to the end, including pre-purchase inspections. Kuliavas reports, “These approaches allow Levaero to truly be on the same team as our client.”
Ray Nissan, former CEO of Cybermation Inc., a Canadian software company, owned a Cessna Conquest to facilitate the business transportation needs of his employees and his personal needs. To simplify his regulatory and operational requirements, Nissan utilized a charter management company to facilitate the Air Operator Certificate process for his turbine aircraft and to offer the aircraft for charter services, contributing to the aircraft’s operating costs. As an aircraft fleet owner, Nissan added an Eclipse Aerospace 550 twin turbine jet aircraft to his fleet. “The Eclipse jet is more cost effective, safer and more comfortable than other aircraft I have owned,” he explain.
There are a number of companies like Skyservice, Levaero and PrivateAir that provide end-to-end aircraft management services, inclusive of acquisition. PrivateAir, founded in 2008, a wholly owned subsidiary of Levaero, provides aircraft management services (AMS), and a complete solution to aircraft ownership. Its AMS is tailored to their client’s needs, and provides charter services to help offset aircraft costs. Its business model uses a management fee structure with costs (hanger costs, pilots, insurance and maintenance) as a flow through without margin. This delivers a business relationship providing transparency to clients. PrivateAir’s boutique offering allows clients to customize a solution to their needs, such as parking their aircraft at airports close to their businesses or homes versus specific airports.
Clients are part of the air crew interview process to ensure that their dedicated air crew aligns with their needs and personalities. PrivateAir has 34 full-time pilots on its payroll. The goal of the service is to allow clients to maximize their aircraft both for pleasure and business purposes.
“I started working at Levaero over 20 years ago as an employee, enjoying every day,” says Robert Arnone, President and CEO, Levaero. “When the opportunity presented itself, my partner and I bought the company.”
If you are unable to engage a broker to represent your interests, and for aircraft located far from your home, consider an entity like Savvy Aviation, which offers a managed pre-purchase service (SavvyPreBuy). Savvy’s service is offered on piston (US$750), turboprop (US$1,500) and turbojet (US$2,000) single-engine aircraft, as well as piston twins (US$1,500), plus the cost of the mechanic’s time to perform the pre-purchase inspection.
The service follows a well thought out progressive process designed to make a go-nogo decision early during the process. Using a three-phased approach, phase one (no cost) focuses the buyer on finding the right aircraft out of a number of candidates through performing a preliminary logbook review. Once the aircraft is on a Conditional Offer to Purchase, phase two delivers a firewall forward review of the aircraft and logbooks to provide an unbiased view to the condition of the powerplant and history of the aircraft. If phase two is successful, phase three begins, focusing on the airframe.
This approach is designed to provide a fair assessment of the aircraft, including repair costs with the goal of supplying the buyer with accurate information and guidance as to who should pay for which repairs.
Mike Busch, President of Savvy, reports, “As a rule, the pre-buy must be done by a shop experienced with the make and model; and who does not have a prior relationship with the seller and broker. We have found a first-time buyer phenomenon; where the buyer falls in love with the aircraft, picturing in their mind that they already own the aircraft, but knows that a pre-buy is needed.”
Once you’ve found an aircraft, is the aircraft Canadian registered or will it be imported into Canada? Importation will add more cost and complexity to the purchase. An imported aircraft will be required to comply with Transport Canada standards.
FAA and Transport Canada regulations may vary causing unforeseen speed bumps, impacting capital costs and time. When buying, escrow services and lien checks should be utilized to ensure that you obtain an aircraft with a clean title. Do not forget to consult with your lawyers and accountants to ensure that the contractual agreements fairly represent both buyer and seller and that the budgets are accurate, inclusive of all taxes (including the new, pending Luxury Tax).
Moving up the ladder from single-engine turbine aircraft such as Piper M600, Daher TBM940 and Pilatus PC-12 to intercontinental aircraft, adds more complexity and steps to the acquisition process, regulatory compliance, maintenance and daily management of the aircraft. Flight departments, whether internal or outsourced, provide skilled assets to ensure the aircraft is operating at peak performance while safeguarding passengers and flight crews. The first step to stop an aviation incident is to select the right aircraft for your mission. Trusted advisors acting in your best interests, especially for uneducated first-time buyers, can help ensure that the acquisition process has as few speed bumps as possible. | W