Mesinger Pulse – “The Financial Impact of a Non-Standard Configuration”
This is a tricky one. Depending on the total available inventory and active buyers at the time of selling a plane with a non-standard interior configuration the financial impact can be more or less significant. I thought I would take this article to point out some of the areas of valuation we as aircraft professionals as well as appraisers of our industry deal with.
A non-standard configuration could be better described as a less popular configuration in relation to the entire fleet’s predominate configuration. Each manufacturer offers many variations of interior layout at production, including Forward or Aft Galley’s; Forward and aft lavatories or both; Forward crew rest areas; Four-place conference groups or not. When we look at aircraft on the resale market it becomes pretty clear what are the most popular or more often selected combinations.
Most manufacturers would say that regardless of the type of plane or category, seventy to seventy-five percent of the planes completed new follow a pattern of completion that provides what then becomes the most popular or standard configuration layouts. That leaves some twenty-five to thirty percent of the layout completions from new deliveries with a combination of layouts that could be labeled non-standard or less popular.
It is important to note that at completion when new the standard or more popular configurations are not more expensive than the new delivery non-standard or less popular combination of layouts. They just represent what the buyer of the new plane liked and wanted. It is only when these planes go to the resale market some number of years later that they begin to be differentiated by resale price for the standard verses non-standard configuration.
Regarding resale value, just because an aircraft has a non-standard, by percent of the fleet, configuration does not mean it is worth less IF you find a buyer of like mind . I have gone to the market many times over the years with a plane that by fleet numbers has a less popular configuration and Bingo! I find the person that has actually been specifically looking for this configuration for months. Remember, often due to the small amount by percentage of planes that may have been configured this way, a buyer may find that their perfect plane is not always readily available. In fact the wait for this perfect plane may be longer if that buyer is not willing to bend on configuration preference. So, believe it or not if the perfect fit is found it can sell quickly with no financial impact.
Usually when we value an aircraft with layouts that may not be considered standard or as popular by count we do not just give a random dollar deduction, but rather footnote the layout section to draw attention to the percent of completions like the one we are dealing with. Then we let the market appetite for that configuration help to quantify the impact later in the selling process. It would be unfair on day one to burden the aircraft with an arbitrary deduction until the market speaks to us based on demand for that configuration at the time of sale.
Ultimately two things show up fairly quickly. Either we get strong evidence based on few calls or many calls with prospects saying that configuration will not work and will not be considered. Both are signs that this offering will most likely stay on the market longer due to a lack of interest in this layout and time on the market will absolutely lead to a lower sale price based on a continuing declining market.
After some period of time on the market, with no solid activity, the potential of expanding the universe of buyers can be created by price. This is the part that can be very tricky. Now we must actually assign a number to this anomaly. Let’s look at the math. There is no way to create a price that embraces 100% of buyers. The goal here is to just expand the market by some 2-3%. Remember we are only really looking for one buyer. The seller of course wants to be very measured in this price discussion so as not to leave anything on the table in a sale. Also, from the perspective of the seller, one must remember that they were the ones that bought this plane new and had it configured the way it is, so they are not as inclined to accept that it may not be as popular now. There are two sides to this. First, convincing the seller to affect the price based on the less popular layout to expand the universe of buyers and then, finding the buyer who agrees with the reduction in price. We are always successful in this balancing endeavor.
We are most successful when the match of buyer and seller is made by not just finding the buyer based on price but also finding the buyer based on logically defining the layout to match within reason a buyer’s needs. The best example of that would be in selling a long-range aircraft without a forward crew rest area to a person that really does not fly regular long-range trips. In that case the lack of that designated space has less real mission fulfillment importance.