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Pre-Purchase Planning, Part 2

Cabin

Apply the same principles to the interior of the aircraft as you do the exterior.  Take time while the aircraft is powered up to functionally check every system in the aircraft (in today’s world that means manual seat adjustment, cabinetry latches and all door operations), check all lighting, switches, entertainment systems, monitors, galley equipment and water systems.  All systems must function within maintenance manual allowable tolerances as dictated by the manufacturer or as they are operationally equipped.  No items can be deferred in a pre purchase situation. 

If there are systems installed, but placed in an inoperable condition due to operator requirements then you should give consideration to technically removing them and seeing that they are not advertised at the point of listing the aircraft.  We see this with systems such as DVD and fax machines.  In some cases they were originally installed never used much and when they broke due to lack of use they are never repaired.  Operators feel, justifiably so, that they do not affect airworthiness and are costly to repair so nothing is done.  In a pre purchase they can be written up as a discrepancy (not airworthy), but an installed system on the equipment list and will have to be operable.  The same holds true of galley equipment.  Any collared circuit breakers or inoperable lights or switches will have to work.  

Be sure to check water drains and lav area for any signs of leaks or staining.  Pay particular attention to lavatory areas above and below the floor.  One of the biggest stop signs in a pre purchase is to find evidence of blue fluid in any area no matter how minimal.  If possible, take time prior to inspections to remove all stains and address any leaks no matter how minor.  

Cosmetic issues such as frayed carpets and worn leather or fabric will not need to be addressed, however, it is a good idea to have things cleaned and detailed prior to input.  Facilities will write up some cosmetic issues and although they will not be required repairs they detract from the overall impression of the aircraft.  

Prior to input it is also a good idea to determine what will be sent to the pre purchase with the aircraft and what is personal loose equipment that will be removed.  A good rule of thumb to consider – anything listed in the weight and balance equipment list such as life rafts, life vests, head sets and portable breathing equipment should be left on board (with paper work) unless special arrangements have been made in the contract.  Items such as Medaire kits, umbrellas, blankets, china and crystal can be removed.  If an operator has a Medaire subscription and the kit it is removed there will most likely be a discrepancy written for lack of a first aid kit.  A minimal one should be added prior to input.  It is a good idea to check tags and certification along with placards for all hand held fire extinguishers.  Along with that all original placards for evacuation, seat placement and door and cabinet operations should be checked and must agree with the original STC or certification of the interior regardless of 91 or 135 certifications.  Any cabin equipment operational manuals should be made available to facility personnel so things can be accurately checked for operation.  I see many discrepancies written for equipment operation that are in error due to the lack understanding on the part of the maintenance person.  The prevailing thought here is to keep the discrepancy list to a minimum, anything written up right or wrong must be dealt with by the facility to be cleared in the eyes of the buyer.

Pre-Purchase Planning, Part 1

This is the first in a series of blog posts regarding pre-purchase inspection planning.  These are, however, good ideas for all owners and departments to watch for throughout the life of your ownership.  Each post will focus on a different part of the aircraft.

Exterior

Start with a complete external aircraft walk around by maintenance personnel looking for small areas of missing paint, small dents and scratches, even if previously known (pay particular attention to all leading edges, lower surfaces of flaps from runway debris, and also the area around the baggage door).  If they do not have engineering dispositions already these will at the very least be written up and require engineering judgment during the pre-purchase inspection.  Also pay attention to any leaks from any area of any type of fluid (the biggest concerns here are blue fluid from lav area and hydraulic leaks) and any polished surface for corrosion (all surfaces should be polished just prior to input) as any pitted area will be a major concern.  Check engine inlets and fan blades for anything out of the ordinary.  Also all windows and windshields should be checked for scratches or delamination.  

For anything found during this inspection it would be best to address in house as minimally as possible for example touch up paint areas, polish or remove corrosion, investigate, repair and remove evidence of leaks.  Thought could be given at this time to evaluation of dents or scratches, larger areas unfortunately will require some sort of historical evidence as to how the dent occurred.  Any old notes or photographs from incidents (even minor) that you have should be assembled to help tell the story to a prospective buyer.  These are much easier to explain to a buyer with historical data, engineering support and a log entry than to be a surprise on the discrepancy list.  No matter how small they will probably be found and written up.  With the right steps they quickly become a non event.  

At this time it is also good to check maintenance manual requirements for all external placards and markings required by Part 91 certification.  If they are missing or faded and illegible they are much easier replaced in house than at a service center.  Other items such as tires should be checked for wear and cuts in the tread.  If it is certainly out of limits then it would be best to change, if it is close consideration could be given to leaving it.  A tire changed at a service center can cause added exposure to wheel issues which probably would not be dealt with.  Also be sure   that all lights are operable.  Maintenance Manual Limits will be applied to any issue found.  Wheel well areas should be looked over and the same law applied, any leaks or damaged areas investigated, repaired and cleaned up.   Things such as rusty bolts or hardware will most likely be written up.  Usually they will be dressed out by the service center, but sometimes this can require hardware replacement, spending a little time to dress the area and apply touch up paint can prevent that requirement.

First Time Buyers – more than just an acquisition

Yesterday we closed on two different aircraft. One was an acquisition for a first time buyer and it was one of two first time buyers we have been working with (the other project is still in process). We have a successful history of working with a lot of first time buyers and they are always fun projects. They are a lot of work and absolutely require a lot of attention. The end result, however, is worth it. And, in the end, our whole industry wins. During the acquisition a maintenance facility gets a prebuy, a lender gets a client, an attorney gets work, a broker earns a commission, an insurer writes a new policy, refurbishment shops potentially start new projects and that buyer hopefully becomes a long-term contributing member of our industry for years to come. It is truly exciting to see first time buyers start to come back into the market again!

There is a lot involved when working with a first time buyer including: setting the right expectations, helping them secure financing (if necessary), mission profiling, aircraft selection, buying insurance, tax and ownership strategy, hiring a crew, finding a hangar and navigating the aircraft acquisition process of which is full of unique intricacies. When we work with first time buyers we start with a thorough mission profiling process considering common trips and airports used, passenger loads and other operational requirements. Once we have narrowed in on a few aircraft types we work to make sure that they client has the correct budget expectations. Nothing makes the ownership experience sour faster than when a buyer has the wrong expectations about true ownership and operational costs. If the client is comfortable with the operational and budgetary details then we start a global aircraft search. With first time buyers we often help them source and interview crew and/or management companies and find hangar facilities. Additionally, we can and regularly do assist with sourcing financing and insurance and work with legal and tax strategists to build the right ownership and tax plans. These are all steps that are often in addition to the typical aircraft acquisition process which includes finding the best aircraft, conducting an initial visual inspection and records review, contracting the transaction, building a pre-purchase inspection program specific to the aircraft and its proximity to any major inspections and overseeing it on-site at the inspection facility, managing the paperwork required and preparing for and overseeing the closing process. In the end, the first time buyer is always shocked at how much work and how many different moving parts are involved to complete the transaction and start an operation.

I was on site for the closing at the maintenance facility where we did the prebuy and yesterday I met my clients at the hangar where they will keep the airplane. The new owners and their new pilot were beaming with excitement. Seeing them standing there smiling proudly knowing that we helped them through every step in the process and that we will be their trusted source for years to come in aviation made it all worthwhile.  I was and am proud to have been a part of their process. Today, they are already on their second trip with the airplane.  The owner told me yesterday after the first trip that having this aircraft has already made all the difference and he couldn’t be any happier with his decision to buy.

Robust or bust? To be or not to be? These are the questions.

Is this or is this not a recovery?  

I wrote an article recently about how to measure a recovery. In my daily conversations with industry players as well as prospects and clients this same subject comes up. Are we in a recovery? What shape is it? In financial circles we hear descriptions of a financial recovery’s shape as “V”, “W”, “U”. In other words will the recovery be as dramatic as the decline, might we have a double dip or will it be a sloped upward slow methodical recovery?

Hard to say although, however, you define or shape it, compared to practically no business over the preceding 15 months this seems like boom times! Still there are many obstacles to what might be considered a full recovery in our industry, this is where it starts. One deal at a time. In fact depending who you ask, the shape of the recovery may feel and be described differently. The new aircraft manufacturers might still report that 2010 will be problematic. They might feel as if the high pre-owned inventory levels still pull the speed of their recovery down. Many brokers and dealers selling older, higher time aircraft might still say they are having trouble defining the bottom of the market. Even a recent edition of AIN online speaks to a stalled recovery based on inventory not declining in the last two months. So plenty of talk of the “W” recovery. Yet I have to say our real activity and real sale trend is much more in line with a solid, steady recovery.

So the more I think about it the more that I realize that I am not sure at this point it is important to try to draw a picture of the recovery path. I think it is far more important to just speak to a positive change and a brighter outlook and keep working hard and selling one aircraft at a time. So we can drop the Shakespearian references and just embrace the change.

As an industry we also must not forget to stay very focused on the regulatory, tax and security issues that are all around us and must be addressed by each of us. Let me remind you to go often to the NBAA website, www.nbaa.org and stay up and in tune with all of these critical industry issues. A couple of other industry focused websites are the NBAA/GAMA sponsored site, “No Plane No Gain” www.noplanenogain.org and “Alliance for Aviation Across America”, www.aviationacrossamerica.org. Your continued vigilance to our industry needs and challenges is critical to a continued recovery industry wide.

Being proactive….

It is easy to think that the ads that we run, listings on AMSTAT and JETNET, emails we send out and postings on websites are all of the aircraft marketing that we need to do in order to sell our clients aircraft.  When we rely strictly on those venues we end up being only reactive.  But, why shouldn’t we.  Can’t we expect that if a broker or attorney is working with an aircraft buyer that they will review those venues to find the available offerings for their clients?   

I often try to work through a list of approximately 80 brokers, dealers, lenders and attorneys with proactive phone calls.  It is nice to stay in touch with my friends and respected peers in the business.  More importantly, it allows me to tell them about new listings, changes in motivations and trends in the market.  And, I can learn the same from my contacts.  I often find many brokers and other influencers who are talking to prospective buyers, but who because they are busy have not had a chance to search the markets.  With a short discussion I get an opportunity to point out the value and advantages my clients’ aircraft represent in their respective markets.  In a series of calls I also find that I regularly have an opportunity to connect two other brokers with a buyer and a seller that might match up because I have taken the time to learn what people are working to buy and sell.  I also find that in return, as this network of brokers around the world are talking amongst each other, that they also point prospective back to my sellers’ aircraft because I have taken the time to proactively promote the listings and benefits.

I don’t believe in sitting back to be reactive in an aggressive world.  Success only comes from being proactive and it continues to reap great benefits for our clients time and time again.  It actually helps everyone in our industry if we are all regularly talking and sharing information about our active projects and trends that we are witnessing.  I look forward to continuing to be doggedly proactive in efforts to promote our clients listings and in turn help them sell faster and for the highest possible price in the aircraft’s specific make/model market.

Distractions.

Maybe, “distractions” is too harsh a word to describe wishful thinking. This market recovery is really no different from others in the past. Activity was down for an extended period of time. With little transaction activity we had lower prices. For a while it seemed as if you could just put up the gone fishing sign. The phone did not ring.  During this period of dormant activity certain planes for sale seemed like a screaming deal; almost even as if there must be a mistake. Especially when they did not sold in the first moments they appeared on the market. Call them motivated sellers, call them desperate sellers, call them real sellers given all of the external forces in the prevailing economy. Then finally a few people stepped up in the middle of an awful economy and bought the offerings and made remarkable buys.

Now jump ahead to the recovery of the market. The time when buyers start to amble back on to the market playing field. They are drawn back in by what is perceived as the bottom of the market being recognized. By the way that bottom is almost always above where the few desperate sellers were forced to sell in the middle of the downturn. Content with the prices albeit higher than the desperate offerings, buyers start to buy. So what is the distraction or the wishful thinking in a recovering market? This week alone I have had over 10 calls from people who have told me my current recovery period offerings where priced too high. They go on to quote specific serial numbers and manufacturer offerings. They tell me they have special inside information about these offerings. Some of the calls even came attached to low offers that were sent to me for planes I have for sale!

We take the time to check out each and every one of these claims. It is critical that we have the most accurate market intelligence since this is first and foremost what our sellers as well as buyers are looking to us to deliver. Not one single case of these reported pricing calls was correct. So in at least 10 calls and emails telling us about the deals of yesteryear, prices that seemed too low even buy the worst of times pricing standards was actually correct. Now let me go back to the title of this blog. I am not sure that the word distraction isn’t just perfect for this phenomenon. You know the old saying if it seems too good to be true it probably is. Well here we are with information that just may be too good to be true!

Logs and Records

Aircraft logs and records are almost as valuable as the aircraft itself.  I was at a client’s hangar this week reviewing an aircraft and its logs and records as we prepare to bring it to the market next week.  The aircraft is an early Falcon 2000 and the client is one of the oldest, largest and most well respected corporate flight departments in the country.  This flight department is unique as they have extensive in-house maintenance capability including their own repair station and large maintenance and inspections department.  The in-house chief inspector told me (as I was just starting to look through a very thick logbook) that they document everything in great detail, maybe even to a fault.  It took a while to complete my records review and it might be intimidating to a buyer due to the volume of detail, but once they read the entries and understand what they have there will be no unanswered questions and there will be no mistaking what a great asset they are contemplating buying.  When I finished my review I was convinced that this was one of the best cared for Falcon 2000’s in the global fleet (and I am now proud to represent two great and respectively different Falcon 2000s – this one and s/n 82).  As I read the logs for this Falcon 2000 and thought about the chief inspector’s comment I was reminded that you can never over document anything regarding an airplane.  In my opinion, the more detail the better. 

You don’t have to be a large flight department with in-house maintenance to have good records.  A single pilot operation for a smaller plane can also have good records.  It takes time, dedication and a detailed focus to maintain them.  But, as I said above, good records are worth almost as much as the aircraft itself.  Poorly kept records can negatively impact the true value of an aircraft and the ability to sell at all.  Regularly review your records.  Keep 8130 tags with entries.  Keep all 337’s well organized.  Make sure that you can easily review maintenance tracking software and find logbook entries for past inspections and that they correspond.  Make sure that the logbooks are legible and that the aircraft hours and entry dates are all correct and in order.  Verify that if there is an entry for a part of an engine that comes off, there is also one when that part or engine goes back on.  And remember, the more detail the better.

One more thought about logs and records regarding damage or repair history.  You will never be able to explain away damage history or repairs. You can’t talk away the impact of non-standard inspection criteria.  But, if well documented you can certainly minimize the impact on the value of the asset.  From a sales perspective, if the broker representing the aircraft understands what they have because of good documentation and can explain it to a buyer right up front (and it isn’t too terribly serious), they can often help keep the focus on the strengths of the offering.  It is the unknown that scares people.  When there is no explanation of what happened or why, a prospective buyer will have much greater concern and apprehension.  If, however, you have pictures of a given event and/or explanation that become part of permanent records of an aircraft a buyer will hopefully be able to understand it and feel comfortable with what happened and how it was handled.  The more serious the event or repair the more serious the impact on the value of the asset, but good records might help someone stay focused (price dependent) instead of just running for the door.

New Business

You never know where new business will come from.  All I can ever do is keep pursuing it.  We don’t look at any sale as a single event, but as an opportunity to build a long-term relationship.  That also means that we always look out for our clients’ best interests over our own including often telling them not to take certain deals if they are not right.  The long term relationship is worth far more than the short term gain of a single sale. Most of our business is from past clients and referrals.  Other new business, however, comes from people who find us online, see our ads, read our articles, attend our speaking engagements and from my outbound cold calling and follow up. 

In late 2008 and 2009 many of our competitors told us that they were taking extended time off because nothing was happening.  To me, that was an invitation to work harder, make more calls and build more relationships.  It sounded like an invitation and roadmap to success.  I never wish anyone ill will, but if they weren’t going to call owners, then I was going to and as a result hopefully come out of the recession stronger and with a greater piece of the total aircraft sales pie.  And, I believe that it paid off!  It also helps that we have 36 years of successful experience and recent sales to speak about and support our value proposition.

Of course, calling someone and finding out that day that they need help buying or selling is a great thing, but I’m still going to be here buying and selling airplanes for years to come.  Getting to know someone today might not turn into business today, but I will welcome the business and be excited for it whenever the operator needs our help in the future.  I have been talking to the head of a flight department that I originally cold called several years ago.  Over the last year, we have been talking with a little greater frequency as he was preparing for a transition based on a pending new delivery.  Early last week he asked for a proposal to help him sell his existing asset.  At the end of last week, he told me that they intended to hire us.  He also called a reference that I provided.  That reference was from one of my all time greatest cold-call successes.  It was large public company whom I coincidentally called one day when they were in the process of selecting a broker to help them buy and sell.  We immediately prepared and hand delivered a proposal to that client and eventually won their business to help buy and sell several large body aircraft.

You never know where you might meet someone or who you might call that can potentially turn into new business and consequently, I never stop looking.  As a result, we continue to win new business one sale and one phone call at a time.  I am proud of our successes, but will never rest on the past.  Each sale and each call is an opportunity to build a long-term relationship.  I look forward to talking to you and helping you in any way that I can, even long ahead of a time to buy or sell.

WATCHING THE SIGNALS

Over the last 18 months every one of us in this industry thought in terms of doomsday scenarios. It seemed our entire world as we knew it was crumbling. The industry seemed to stand still. Because aircraft transactions were down so were prebuys. Speaking of maintenance shops having fewer prebuys, they were also suffering from a marked decrease in aircraft utilization. If the fleet flew less, the proximity between maintenance events that were hour or cycle driven grew farther apart. The decrease in corporate utilization put less demand on the entire universal fleet. This lower demand trickled out to the supplemental providers. Charter hours over all dropped as did the hours put on the fractional fleet. Nothing seemed positive.

Today there is a renewed optimism about the recovery of our industry. Utilization seems to be inching back up. There is a slight buzz in the air. The buzz is the activity that follows a return to higher utilization. This blog piece is not going to be about any specific part of the recovery or what could make it more robust. This is more about how each of us should watch the return of business and capture even if slight at first the return of the activity. I do believe that when our market started to dive, most if not all of us where caught by surprise. We did not have any clue about how deep, how fast or how broad the market would unwind. By the way there where signals then about the demise, I am just not sure we were prepared to watch or understand them. How many of us said back then (2 years ago ), this can’t last forever. Just that utterance should have been enough to stop saying it and start acting on shoring up our reserves. Most did not. Let’s not get caught off guard with the signals of the recovery.

Here are a few signals to watch for and act on. If you are a charter operator and your fleet has dramatically shrunk due to aircraft being sold and not replaced, start to cautiously add planes back. If you are a maintenance company, start to make the calls again to the owners and operators. Even start calling the brokers, remind them you are open for business. If you are a paint and interior shop start to notice what I believe will be a trend with respect to typical fleet transition timing. Many people who had for years traded for new aircraft every 5 years may now be switching from that policy to a more as needed basis. This longer period between trades may increase the frequency of a paint and interior shop visit. Bottom line…time to come back from the brink.  It is time to pull out of the doomsday planning and plan for and be an active part of the recovery. See you on the other side!

Read your audience

I took a sales class in business school years ago.  A decade later I still think about it often.  As a matter of fact, of all that I learned in college the lesson I learned in this class might have been my most valuable; read your audience.  Actually, the semester long study was about personalities and how a sales person will have greater success if you can quickly learn your client’s motivations and style. 

In my business I try to pay attention to a prospective client’s style or a prospective airplane buyer’s attitude.  If I’m showing an airplane to a buyer I can either sit on board or stand way back.  When I receive an offer from a prospective buyer, I try to respond within the format of the document that they have sent.  If it is long and complex then we can detail all of the business points.  If it is short and simple, I work to protect my client’s best interest while not making the document too detailed.  My goal is to keep the focus on the primary objectives of the task.  You can only do it if you read your audience and try to understand their goals and objectives before you respond.  It pays off every time.

The most challenging time I have implementing this lesson is when responding to requests for proposals (RFP).  Without any sort of real interaction or knowledge of who will ultimately review the proposal and who will make a final decision it is hard to have any idea of the recipients’ motivations.  It is easy to factually answer questions.  It is hard, however, to understand what will ultimately drive their choice.  Of course all aircraft sellers want to find the broker that will best represent their interests and sell the aircraft.  But, I don’t know if they are ultimately looking for the best personality fit, a long term relationship or the lowest cost provider.  None are bad, they are just very different.  Over the years, we have won some and lost some RFP processes.  Most of the time the prospective client’s decision is made without any discussion and are based solely on the response in the written proposal. 

We were recently selected as one of three finalists in an RFP process.  The prospective client asked all three finalists to fly out and meet with them in person.  Last week my technical director and I flew out to meet with the selling company.  I was proud to be included on the short list both because I had clearly done a good job in preparing the proposal and because of the respected peers whose company I was in.  Regardless of who wins the business I know that it made a difference for me and for the seller to sit across from each other.  We were both able to better “read our audience” to best understand each other and see who was the best fit for the project.  Hopefully this week we will learn who won the business.  Regardless, the seller had three good choices and I know that whoever wins will be the best fit for the seller because of the chance to really get to know each other by sitting across the table from each other. 

The parting thought is not about requests for proposals, but it is about reading your audience.  In anything I do in my world I try to always read my audience before engaging.  It is strange to think that it has been a decade since I graduated college, but I like that after all this time I am still thinking about and practicing the lesson learned.  I should try to find my old professor and send him this post.  I know he would be proud!

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