Mesinger Pulse: Buy a Plane to Keep It
Unless you are in the business of buying and selling aircraft, the title of this article seems obvious. But does the reality of the title play out in all cases? It is not unusual for a prospective buyer to ask when considering an aircraft to purchase, “what will this plane be worth in a year if I elect to sell it?” That is not such a bad question. However, that question often turns into a reality during a buyer’s first year of ownership for a myriad of reasons.
The reasons an owner might want to sell at various times during the course of their ownership might include health, the sale of the company that owns the aircraft, and economic reasons that may have not been foreseen at the time of the acquisition to name a few. Those are plausible reasons that are mostly beyond the buyer’s control. The reason that also stands out, and is not out of the buyer’s control, is that they simply bought the wrong aircraft for the mission. This is a very unfortunate reason and one that could have been anticipated from the beginning.
Poor planning or no planning for the mission fulfillment is typically the culprit. Like most of my fellow professionals, when addressing the needs of especially the first-time buyer, they build a needs assessment that takes into consideration mission, annual use, and budgeting for the asset. In fact, in some rare cases we actually talk a first-time buyer out of buying, at least under the current analysis. Some of the obvious reasons for that decision could be not enough annual use to justify a whole aircraft purchase, or the right aircraft for the mission may be out of the affordability of the buyer. We believe that one should buy based on fulfilling 50-70% of the clients flying needs. There is no such aircraft that will typically meet 100% of the mission without over buying for some percentage of the mission.
Without that critical mission and use analysis the buyer will probably just be lucky if it all works out as hoped. More likely a buyer will throw their hands up and declare a need to sell and reacquire this time based on the analysis. This frustration could also create a situation where the buyer thinks business aviation is just not good and they walk away entirely which would be unfortunate for the buyer and the industry at large. The other unfortunate part about selling your aircraft after just one year may be an overstated residual loss based on the fundamentals of that particular year. As aircraft are pieces of machinery they do consistently depreciate over time and some years hit harder than others. Over the long term, or at least 3-5 years the loss rate could be more even overall, but the optics of a loss in a first year can add even more angst to a buyer who for whatever reason has decided to sell during or at the end of year one.
As all of you know who are reading this, our industry provides a terrific way to travel the world safely, securely and put you ahead of your competition and in front of your client better than any other method of travel. Sure, communicating via phone is OK but closing the deal typically comes from literally sitting with the prospect or client. This fact cannot be disputed. What also cannot be disputed is the fact that ownership from an economic standpoint seldom pans out when someone buys a plane and has the annual residual loss as well as all of the start-up costs including commissions, inspections, spare parts costs and ground support equipment, staffing and training, and then finds out that the plane they bought is wrong for the mission. Buying not at all or buying the right plane to start with is always smarter and more perfect than buying the wrong plane. This seems simple yet I promise this sound sage advice is not always adhered to and hence the title of the article. Buy a plane to keep it and buy a plane to get the most economic benefit from it.