Buying aircraft, whether private or commercial, can be a complicated, time-consuming process with potential for plenty of twists, turns, pitfalls and surprises along the way. Thorough due diligence is crucial before purchasing decisions are made; the values involved mean errors can cost millions of dollars.
That is where IBA comes in. We help our clients address wide-ranging valuation issues, from strategic fleet selection, sell and buy side transactions and operational decisions, through to annual portfolio monitoring and financial compliance. The combination of our specialist valuation skills with unparalleled commercial and industrial expertise means we can achieve deeper insights into the true value of an asset and give our clients greater confidence and assurance. We take pride in our knowledge and experience: we understand complex valuations and share our insight so clients can make informed decisions.
How can we quantify the value of ‘BizJet’ pre-transaction due diligence and full valuation appraisals?
A recent BizJet transaction tells the story of a client reviewing a prospectus to finance a 2002 build Bombardier Global Express aircraft. On paper, the transactions looked promising but when the full appraisal revealed some critical issues, the value of the aircraft reduced significantly from US$ 6,289,000 to US$ 3,086,000.
In May 2018, IBA group was appointed to support the due diligence of a prospectus to finance a 2002 build Bombardier Global Express aircraft and to provide our independent opinion on market value. A desktop appraisal using a set of assumptions established a market value of US$ 6,289,000 for the aircraft. These included the expectation that the two Rolls-Royce BR700-710A2-20 engines were enrolled on a maintenance programme and that the aircraft was in a fully serviceable and airworthy condition with no outstanding maintenance requirements.
On further investigation, IBA’s research found the aircraft had been grounded for over a year and had therefore not flown. To minimise the client’s risk and exposure, we carried out a physical inspection of both the aircraft and its technical records to calculate a market value that reflected its true condition.
The inspection revealed that, far from being airworthy, the aircraft had significant outstanding maintenance issues which would be costly both financially and in man-hours to rectify:
- Overdue 15, 60 and 180-month checks
- The engines were not enrolled on a maintenance programme
- Unresolved airframe and engine AD/SB tasks
It went on. Fuel tank sampling showed up mycobacterial contamination after analysis. The extent of this contamination throughout the fuel tank and system was not fully known and any potential additional internal corrosion unclear. Our thorough examination of an aircraft presumed initially to be worth US$ 6,289,000 further uncovered the following:
- The number one engine fan intake was unserviceable and had to be replaced
- The left-hand engine low-pressure fan case required replacement due to corrosion
- Pitting corrosion on the right-hand wing fixed leading edge needed further investigation
- The hydraulic bay had fluid from the hydraulic pump which required more checks
- A sheared rivet at the left-hand thrust reverser drain hole needed to be looked at
- The left-hand engine low pressure compressor case front acoustic lining was lifting and required a new low-pressure case module
- We tested wing fuel tanks for micro-biological contamination and found them to be affected, though the extent was unknown. Verification could be established only through cleaning and further inspections
- Light surface corrosion on the air intake lips of both engines left and right demanded examination
- Light surface corrosion on the left engine thrust reverser required investigation
- There were outstanding Aircraft Directives
From a starting point of US$ 6,289,000 based on typical assumptions, the outstanding maintenance issues and engine enrolment fees slashed the aircraft’s realistic market value in half to US$ 3,086,000.
Had the client relied on a desk top appraisal rather than the full physical inspection and technical records examination IBA conducted, they would have paid US$ 3,200,000 in excess of the aircraft’s true value. A very costly mistake.
With over 30 years market and commercial experience combined with six ISTAT qualified appraisers, our expert valuation team advises on all aspects of valuing aircraft and engines. We have a deeper understanding of the market than any other aviation practice.
We deliver independent valuations for clients by coordinating effective, consistent and measured capability through our online intelligence platform IBA.iQ and resources across our group. We provide an unfailingly high level of service and a commercial perspective supported by insights and experience we gain through engaging in numerous global aviation projects, large and small, every year.
You can find more information about how we can help your business here on our website at www.iba.aero. Here we also have a broad range of insight articles, on-demand webinars and events.
For more information please email Youcef Berour Minarro, ISTAT Certified Appraiser, Senior Analyst, BizJets, firstname.lastname@example.org