At VREF, we often hear this question being asked…
What’s the difference between the diminution of value and the cost to repair an aircraft?
Unlike other vehicles, repairing an aircraft can be a far more expensive and extensive process than many people are prepared to deal with. Nevertheless, both must be considered to determine the true value of an aircraft.
Main Differences Between Diminution Of Value And Cost To Repair
There’s a reason why professional aircraft appraisers don’t always like to use the term “cost to cure”. This is because the word “cure” has an association with surefire certainty. In aviation, there is no way to consider cost based on the complete accuracy of dynamic factors without a proper evaluation. This makes “cost to repair” a more accurate description of determining whether repairs are feasible when compared to the diminution of value.
After repairs are performed, the next question to ask is…
Has the aircraft returned to its original production standards?
If so, there should be no problems moving forward.
But if the answer is no, it could impact its value moving forward.
Debunking The Myth Of Using Set Formulas To Determine Deductions For Damage Of An Aircraft
Because the stigma associated with damaged aircraft is lessened in a hot market, it’s important to research or have the following performed before purchasing an aircraft:
- Hire an ASA-accredited appraiser for an aircraft appraisal
- Access aircraft logbooks
- Explore an aircraft’s complete damage history
There is a big difference between determining damage regarding airworthiness versus damage history from an appraiser’s standpoint.
When an ASA Accredited Appraiser handles the diminution of value for an aircraft, it is imperative to know that the results are NOT based on a set formula.
The general process for an aircraft appraiser is as follows:
1. Assessment Of Damage & Repairs
Step one in the diminution process is exactly why it’s essential to have a reputable, experienced, unbiased, and qualified aircraft appraiser. Using a simple formula (which doesn’t exist) cannot truly justify the deduction of value on an aircraft because of its damage history. This is because of the level of complexity that aircraft provide. There are so many ongoing components and factors that must be accounted for combined with the professional assessment of someone who is knowledgeable in the field of aviation.
2. Scope Of Work
You must use a scope of work to address all repairs. However, remember that not all maintenance facilities are viewed equally. During this step, knowing who and what process was followed to make repairs is important. The reality is that few professionals specialize in structural damage repairs for aircraft.
In fact, as newer planes require increasingly advanced technology, many repairs are made by the manufacturer to ensure comprehensive repairs. This part of the process also means taking an in-depth look at an aircraft’s logbook(s) for detailed information.
Additional factors to consider include:
Production year (newer aircraft may be impacted by damage much more than an older aircraft)
- Airframe time/cycles
- Engine overhaul status
- Condition of records
- Buyer/sales activity
- Recent sales trends
- Aircraft total time
- Engine time/cycles
- Engine maintenance programs
- Previous damage incidents
- Aircraft in the current market
In line with maintaining accurate records, previous incidents reported could potentially speak to the level of care given to the aircraft being assessed
Someone who maintains carefully organized records of their aircraft and keeps up with its routine maintenance and similar services is more likely to have an aircraft in good condition that could be worth more than one of a similar make and model that has otherwise been poorly maintained or cared for.
3. Determine The Value Of Impact
What would the aircraft be worth with zero damage? Now, according to all findings, what is the aircraft worth with all damage taken into account?
Whatever result is determined by an aircraft appraiser takes into account these two questions in addition to everything else discussed so far.
For buyers, it’s important to pay attention to listings that say, “No known damage.” This term doesn’t necessarily mean there is zero damage. Conduct your own research and ask the seller for the aircraft’s logbooks to review.
Criteria For Assessing Aircraft Damage
There are 8 criteria an appraiser will look at when assessing aircraft damage.
1. Determining Static Or Dynamic Damage
Static damage is caused while the aircraft remains stationary. Dynamic damage is caused while the aircraft is moving or in flight. The difference between the two is critical as damage caused to the same area can be much more or less severe depending on its movement or lack of motion altogether.
2. Method & Repair Quality
If anything were to happen to your aircraft, you may turn to your local shop. However, depending on the severity of the damage, it may take certain skills and knowledge to repair.
3. How Long Ago Damage Occurred
Details and logbook information matter when it comes to former aircraft damage to get a full idea of what exactly happened and how severe the damage was. If the damage happened 40 years ago, for example, it shouldn’t heavily impact the aircraft’s determined value.
4. Previous Damage Existence
A few things to know about previous damage is that multiple damage events are not cumulative. Then, a second event will be a smaller percentage than the first event. As an example, multiple prop strikes due to various factors may be able to be mitigated and seen as isolated events.
5. How To Repair & Record Maintenance Records
It is important to be upfront about disclosing aircraft damage with the following procedures followed:
- Proper documentation by the repair facility or the person who did the repairs
- Copies of all engineering data, 337s, 8110s, EASA forms, etc.
Especially when going to court, having the right paperwork to prove a case is half the battle.
6. Current Market & Aircraft Type
A slow market leaves more room for negotiating. But if you are going to buy an aircraft with damage, then document everything possible with copies. When it’s time to resell, you’ll have the data you need already collected to make the next buyer comfortable purchasing your aircraft.
Remember that the value of an aircraft will also depend on existing damage and whether it is common for that particular aircraft type. As an example, training aircraft are more susceptible to damage. But business jets would not typically have an extensive damage history. The more expensive the aircraft, the more impactful damage can be on its value and performance, especially when it comes to structural damage.
7. Cost Of Repairs & Repair Facility
When the cost of repairs outweighs the value of the aircraft, it may be considered scrapped or salvaged. But buyer beware as this does NOT mean they cannot be purchased and resold on the open market.
An airplane can be made airworthy again, however, you must understand what you’re considering when it comes to buying a plane with previous damage. For example, buying an aircraft with damage on its record could affect your ability to acquire insurance coverage.
8. Maintenance Procedures & Ongoing Or Additional Inspections
Buying an aircraft that requires extra maintenance care because of its previous damage history is an unpopular decision for a few reasons:
- Added maintenance and/or inspections mean more downtime
- Extra maintenance and/or repairs mean more expenses
- Can be tough to resell
It’s a serious element to consider when thinking about making this type of purchase.
Aviation’s Trusted Appraisal Professionals
VREF has completed thousands of appraisals for aircraft of all types, makes, and models. If you’re thinking about purchasing an aircraft, it’s essential to know the facts before you buy.