Are you in the market for a jet?
As you’re evaluating different aircraft, you may see that many have them have some sort of damage history. And the reality is…Many of the aircraft listed on the market will have those records.
Any aircraft without damage history will be sold quickly and most likely, off-market.
So how do you avoid buying a jet with damage history?
You don’t necessarily. Instead, you need to know that in a hot market, you’ll see more sellers unload their damaged aircraft. You’ll also notice that there still be buyers, ignoring the stigma of an incident or accident that usually comes with a slower market. In some cases, you may not be able to avoid buying a jet with damage history regardless of the market.
So what do you do about it? First, you need to understand the diminution of value.
In the market for a jet or other aircraft, turn to the experts at VREF to conduct an appraisal before you buy.
What Is Diminution of Value?
The American Society of Appraisers (ASA) defines the diminution of value as it relates to aviation as the form of economic obsolescence, measured by the difference in perceived value between a damaged aircraft from an undamaged aircraft. What diminution of value is not is the airworthiness or repair costs.
When you consider…What is diminution of value, it may be easier to think of it this way…
What would the seller have to drop the price by in order for you to purchase the damaged aircraft?
Now, the percentage or dollar value of diminution is subjective based on the following factors:
- The extent of damage
- Who repaired the damage
- The extent of engineering required and conducted to develop the repair
- What methods were used to repair or replace the damage
- Whether new or used parts were used
- The nature of the incident that caused the damage (moving vs static)
RELATED: The Difference Between The Diminution Of Value And The Cost To Repair An Aircraft
The Formula For Damage
So when it comes to calculating the diminution of value, the question of whether there is a formula damage comes into question. As the bearer of bad news, there is no formula. Why? Because it all depends on the extent of damage.
That’s why any accredited appraiser will conduct the following:
- An assessment of damage and repairs
- A calculation to determine the value impact
- An evaluation of the scope of work incorporated to address repairs
- A review of a variety of factors
- The biggest misconception that we want to address is that there is no direct correlation between repair costs and the diminution of value.
RELATED: What’s The Impact Of Damage On Aircraft Value?
Factors To Consider In Diminution Of Value
There are several factors that an appraiser evaluates when calculating the diminution of value. Those include:
- Years of production
- Aircraft total time
- The number of engine time/cycles
- Any engine maintenance programs
- Buyer/seller activity
- Condition of records
- Engine overhaul status
- Airframe time/cycles
- Recent sales trends
- Previous damage events
- What the current market looks like with the aircraft
What are the Different Types of Damage History in Aviation?
Not all damage was created equal. That’s why as aviation appraisers, we look at the types of damage history a given aircraft may have. These categorizations help appraisers, buyers, sellers, and financial institutions understand the situation and potentially how to navigate it.
Non-Deductible Damage History
This type of damage history typically occurs in the manufacturer’s custody. For example, a wingtip may be impacted during the manufacturing process. While the damage will still be marked in the permanent record, they will remove the damage and replace it – essentially making it brand new again.
Superficial Damage History
The next step up is superficial damage history. This happens anywhere outside of the manufacturing facility and it requires any repair or replacement of superficial parts. It’s fairly easy to mitigate as it doesn’t impact the airworthiness of an aircraft. Thankfully, time usually makes the damage go away when it comes to the overall value.
Hangar rash – dings, scrapes, etc. – is a good example of what superficial damage history looks like.
Minor Damage History
While no major structural damage occurs in this category, it’s up to the appraiser as to how they want to define the extent of damage.
Moderate Damage History
It’s key to note that there are 2 types of damage history that appraisers evaluate through the rest of the categories. There’s dynamic or in-motion damage. This happens when the aircraft is moving about on the ground, flying, or taking off/landing. The other type is static damage. Since the aircraft is not moving, it’s usually less serious than its dynamic counterpart. But after conducting thousands of appraisals, that isn’t always the case.
Depending on the severity, a hard landing, torn-off material, or total alteration may indicate a moderate damage history.
Major Damage History
Again, this categorization of damage history is entirely subjective to the appraiser. It may not be a total repair but may require a good chunk of repair or replacement to get the aircraft back to its original state.
Extensive Damage History
Under extensive damage history, there is major structural damage that requires total repair. An appraiser here is going to look deeply into a few things to determine the diminution in value:
- What the repair is or was
- Who did the repair
- Whether or not there will be extracurricular maintenance repair
If there is ongoing maintenance, you can expect a higher diminution of value for the aircraft.
What To Look For When Evaluating Jets For Sale
Now, there’s a lot that your appraiser will look at to determine the value of a jet. However, you also need to be aware of potential red flags.
If the jet you’re evaluating has had a recent paint job or the paint job looks sketchy, you may want to dig in to see if it’s covering up any damage.
The other red flag is to ignore potential issues when you’re distracted by the advanced technology and newly installed bells and whistles. When you remove those items, does the aircraft exist the way you need it to?
Of course, if the seller is refusing to share its logbooks or the logbooks are incomplete, you need to ask yourself what are they covering up?. Those records are what you need to rely on to see the complete history of the jet. Excuses of poor recordkeeping, damaged or lost records, or non-existent records should scare you.
Similarly, the seller may withhold complete photo documentation of the aircraft. Consider that they may be hiding something, and dig into it further.
Lastly, your gut is the thing you should always rely on if everything else fails. If it feels too good to be true, it probably is. Trust your intuition.
As always, an accredited appraiser will be able to help spot these red flags when evaluating jets for sale. While they can’t make the decision for you, they’ll be able to provide you with the information you need to make a smart investment.
Looking At Buying A Jet With Damage History?
At the end of the day, there are a lot of factors that need to be considered when buying a jet with damage history.
- Was the damage inflicted done statically or dynamically?
- Were the repairs done according to manufacturer recommendations?
- Did the damage impact the aircraft superficially or structurally?
- Is there ongoing maintenance associated with the damage?
- How much does the damage impact the value of the aircraft?
At the end of the day, buying a jet with damage history does not automatically make it a bad decision. To ensure that you aren’t caught in a financial stalemate, hire an accredited aviation appraiser to give you an unbiased opinion on the damage history and its market value. Contact VREF today for your jet appraisal.