Originally published as a blog for AINsight for Aviation International News on 11/3/23
When our daughters or sons bring home a new significant other, we look them up and down and then start a line of questioning: “So, tell us about yourself?” On and on with the hope of learning if your child has found the right partner. Is this newfound relationship going to be a solid partner? The pedigree or foundation is fundamental to anything one wants to become associated with. It could be a house, a building, or a business. Will it be a good fit? Will it add value to your portfolio? Is it resaleable? Can it enhance your asset base?
Now let’s talk about how the last few years might have taken the eye off the pedigree ball and what this might become as a differentiating factor going forward for our fleet of aircraft. When prospects hire us to acquire an aircraft, we set up very rigid criteria for the search. It always starts with pedigree. Who owns it? Has the owner provided for the best maintenance and operational excellence? How many owners has the plane had and do they all represent high quality people and operations? Next of course, we dig deeper into the maintenance and the history. Has there been any damage and to what severity? A further hard look at repairs and any non-standard reoccurring inspections because of the repairs. Where in the world was the plane operated? On and on with questions that help us differentiate the good ones from the mediocre ones, and even the must stay away from ones.
I know you all must be saying I am preaching to the choir by now. Why drive so deep into areas you must all know? Well, here comes the twist! Starting with the pandemic and the surge of first-time buyers who seemed all bent on capturing 100% bonus depreciation, our available inventory was worn totally thin. In fact, often there would only be one or none of a specific category of plane on the market. Feeding frenzies ensued. Bidding wars and price escalations were the norm. But here is one more thing that became the norm. A shift away from the basic hard questions that should have been asked and whose answers should have been a guide. Foundation, history, operational history, and repair history. Buyers were so desperate to get a plane bought even if it did not quite meet the mission or check all the boxes. The priority for many shifted to just buying a plane. I began to hear questions like, “Are third world countries so bad to buy from?” “Was that damage really that bad?” “Is an engine program really that important?” “So what if it was not a recognizable past owner?”
Many critical questions were overlooked and the idea of the plane being able to close and provide the buyer with the depreciation seemed all that mattered. So, what happens next to these planes? One day they will come back on the market and those planes that were purchased that could not check all the boxes concerning pedigree and history will start to stand out less positively than those whose boxes were checked with the right answers. Values may begin to separate, and the cream will rise to the top. Those buyers who ignored the right questions and the right answers may find that there was a cost to that path. Those that asked all the right questions and respected the answers even if it meant not buying at that moment, but waiting for the boxes to be checked, will be rewarded with the added value that comes with patience as well as all the right due diligence.