SPECIAL AVIATION EDITION · 2016. 9. 3. · Bizjets not Business as Usual Daniel Hall, ASA 44 Spotlight on New Aircraft Appraisal Education Program The MTS Journal 48 Do Business

The Journal of the International Machinery & Technical Specialties Committee of the American Society of Appraisers

Volume 32, Issue 3, 3rd Qtr 2016

$35.00 ASA Members, MTS Discipline$50.00 ASA Members, Non-MTS Discipline

SPECIAL AVIATION EDITION

T H E M T S J O U R N A L

MTS Editorial Brad Hartsburg, ASA, CPPA, CSA

5

Foreword Louis C. Seno, Jr., ASA, Chairman Emeritus, JSSI

7

Pilatus PC- 12 Enduring Rolland Vincent

8

Helicopters: A Different Type of Asset Sharon Desfor, ASA, MRICS

13

Regulatory Impact on Helicopter Leasing Sharon Desfor, ASA, MRICS

19

Damaged Aircraft and Diminution in Value - Back to Basics Keith M. Bransky, ASA, ARM-MTS

25

ASA MTS Announcement The MTS Journal

31

Finding the Right Appraiser is as Easy as ASA Richard A. Berkemeier, ASA

32

The Past and Future of Compliance and Fraud in Aviation: Don’t Fly Blind Peter J. Turecek

34

Some Pitfalls of Aircraft Field Inspections Gordon R. Page, ASA

38

The TEMCO TF-51D Mustang - A Truly Rare Breed Gordon R. Page, ASA

40

Bizjets not Business as Usual Daniel Hall, ASA

44

Spotlight on New Aircraft Appraisal Education Program The MTS Journal

48

Do Business Jets have a Pedigree? Bill Dodrill, ASA

51

Aircraft Maintenance Condition and Asset Value Barbara A. Spoor, ASA

54

The Key to Your Aircraft’s (Future) Value David Wyndham

56

Valuing the Gulfstream G550 Carls Janssens

59

Aircraft- Identifying a Properly Preserved Aircraft George Kleros

63

Double Registration Change in the USA: Is It Worth the Hassle? Barrie Roesler, ASA

68

Market Turmoil for Heavy Offshore Helicopters Chris Wills

70

Contents

Volume 32, Issue 3, 3rd Qtr 2016 2


Corporate Aircraft: Valuing The Intangibles Bob Zuskin

74

Appraising Corporate Aircraft & Helicopters – Survey Inspections – What Is Required? David Crick, BSC, ASA

77

Oil Price – What Is It Going To Take To Get The Civilian Helicopter Market Back On Track? Kim Seward

82

LTSAs: the Hottest Trend in Aerospace Stephen Friedrich and Kyra Nyman

85

Archived Articles Available for Your Library Brad Hartsburg, ASA, CPPA, CSA

87

The MTS Journal Subscription Form 106



The International Machinery & Technical Specialities Committee

MTS Committee Officers John J. Connolly III, ASA - New Jersey - Chair Samuel Shapiro, ASA - Massachusetts – Vice Chair Karen M. Milan, ASA - Texas – Secretary

Paul Cogley, ASA – Rhode Island - Treasurer Robert W. Clark, ASA - Pennsylvania – Immediate Past Chair Richard Berkemeier, ASA – Rhode Island - MTS Discipline Governor David Crick, ASA – Australia - MTS Discipline Governor

MTS Committee Members Ildefonso Acevedo Reyes, ASA - Mexico Nuno S. Agostinho, ASA - Argentina Jamie Allen, ASA – IL Keith Bransky, ASA - GA Peter J. Campbell, ASA - MI Michael R. Crismyre, ASA - IL

William M. Engel, ASA - NY Brad Hartsburg, ASA - Canada Norberto J. Levin, ASA - Argentina Irina Rykun, ASA - Russian Federation Kevin S. Reilly, ASA - WI Harry J. Richardson, ASA - MI Alexander Ruden, ASA - GA

Charles W. Ruth, ASA - NM Joseph M. Santora, ASA - OH Bradley Schulz, ASA - IL Garrett Schwartz, ASA - CA John C. Wood, ASA – Australia

Emeritus Members Merritt Agabian, FASA - MA Kal Barrow, ASA - NY J.M. Clarkson, ASA - TX John Connelly, III, ASA - NJ

Melvin Fineberg, ASA - NV Alan C. Iannacito, FASA - CO William F. Jacobs, ASA - OR Norman F. Laskay, ASA - LA Leslie H. Miles, FASA - TX

H. Denis Neumann, ASA - CA Robert Podwalny, FASA - CA Barry Savage, ASA - OH Robert Svoboda, ASA - TX Victor Thompson, ASA - KY

American Society of Appraisers 11107 Sunset Hills Rd, Suite 310, Reston, VA 20190 800-272-8258 ext 125

Editorial Office: Fortress Machinery Appraisals and Consulting Inc. 24 Clover Lane, Calgary, Alberta, Canada T3Z 1G9

Business Office: Asset Valuation Source, P.O. Box 39 Rowlett, TX 75030-0039

© 2016 American Society of Appraisers. All rights reserved. For permission to reproduce in whole or in part, and for quotation privilege, contact ASA’s International Headquarters. Neither the Society nor its editors accepts responsibility for statements or opinions advanced in articles appearing herein, and their appearance does not necessarily constitute an endorsement.



MTS Editorial B r a d H a r t s b u r g , A S A , C P P A , C S A

I welcome you to the inaugural Special Aviation Edition of the MTS Journal for the 2016 calendar year edition Volume 32, Issue 3, 3rd Quarter 2016. This is an additional issue to our regular MTS Journal publication and does not carry any advertising, just great information about the aviation world according to industry experts and appraisers.

I wish to thank all of you that assisted with interesting articles for this issue, there is a lot of great information and we hope it assists you with your daily work and activities. We continue to look for interesting articles our members and readers want to learn from. If there is a topic you are passionate about, please do not hesitate to contact me. I am more than willing to work with you on your article.

To get things started we have industry mogul Lou Seno with a foreword addressing the challenges in this industry past, present and future.

Next, Rolland Vincent has an article on the Pilatus PC-12: Enduring Value.

Sharon Desfor, ASA, MRICS discusses Helicopters: A Different Type of Asset and a second article titled: Regulatory Impact on Helicopter Leasing.

Keith Bransky, ASA, ARM-MTS talks about Damaged Aircraft and Diminution in Value.

Rick Berkemeier, ASA has penned an article titled: Finding the Right Appraiser is as easy as ASA.

Peter J. Turecek has provided an interesting article on The Past and Future of Compliance and Fraud in Aviation.

Gordon Page, ASA, has provided two very interesting articles, one about Some Pitfalls of Aircraft Field Inspections and another on the famous warbird, the Temco TF-51D Mustang.

Daniel Hall talks about: Bizjets not business as usual

Bill Dodrill, ASA, discusses: Do Business Jets have a Pedigree?

Barbara Spoor, ASA, has sent an article titled: Aircraft Maintenance Condition and Asset Value.

David Wyndham deliberates about: The Key to Your Aircraft’s (Future) Value.

Carl Janssens has provided an informational article regarding: Valuing the Gulfstream G550

George Kleros has sent some great information titled: Inactive Aircraft- Identifying a Properly Preserved Aircraft.

Barrie Roesler, ASA, talks about: A Double Registration Change in the USA

Chris Wills discusses: Market turmoil for heavy offshore helicopters

Bob Zuskin chats about: Corporate Aircraft: Valuing the Intangibles

From Australia, David Crick, BSc, ASA has sent us an informational article about: Appraising Corporate Aircraft & Helicopters – Survey Inspections

Kim Seward has a different slant on the helicopter market with the article titled: Oil Price – What Is It Going To Take To Get The Civilian Helicopter Market Back On Track?

Stephen Friedrich and Kyra Nyman discuss long term service agreements in: LTSAs: the hottest trend in aerospace

And finally, the list of Archived Articles Available for Your Library by your MTS Journal Editor -- Brad Hartsburg



I hope that you enjoy this Special Aviation Edition of the MTS Journal! Check your calendars and attend the upcoming conferences and courses that are planned for this year and beyond. For more information, please see the ASA website: www.appraisers.org

Sincerely,

Brad Hartsburg, ASA, CPPA, CSA MTS Journal Editor Fortress Machinery Appraisals and Consulting Inc. Calgary, Alberta, Canada - 403-650-1122 E-mail - [email protected] Website - www.fortressmachineryappraisals.com



Foreword L o u i s C . S e n o , J r . , A S A , C h a i r m a n E m e r i t u s , J S S I

We are living in unprecedented times with respect to aircraft values. In fact, I recently saw aircraft values as being referred to as “unpredictable and in a freefall”. How does a prudent lender establish the correct down payment or structure the right amortization schedule when making a debt offering? How does a leasing company forecast an accurate residual assumption when pricing an operating lease? Never before in recent history has accurate equipment valuation become so critical. Banks and financing institutions over the past several years have very clearly made the transition, almost universally, to employing fully accredited and USPAP compliant ASA appraisers to help guide them through these very turbulent “skies”. To meet the industry’s ever increasing demand for qualified and credentialed individuals, ASA has partnered with Embry-Riddle Aeronautical University to expand the educational footprint of the Machinery and Equipment aircraft specific discipline. The first updated ME 201 course with begin on October 28, 2016 on site at Embry-Riddle’s Daytona Beach campus. ME 202 will be in early 2017 with the ME 203 and ME 204 classes to follow later in the year. In the

process, qualified candidates from the ISTAT organization will also be invited to participate in the offerings. Kindly refer to both the ASA and Embry-Riddle websites for additional details. Louis can be contacted at [email protected]

About the AuthorLouis “Lou” C. Seno is a life-long aviation enthusiast, aircraft owner, and advocate for general aviation. He holds an Airline Transport Pilot certificate along with a Cessna Citation Jet type rating, including single pilot endorsement. Accomplishing his first solo at age 16, Seno has accrued more than 6,500 hours of flying time in numerous piston and turbine aircraft and currently owns and operates a Beechcraft Bonanza Model F33A and Aviat Husky Model A-1B on amphibious floats.

A founding shareholder of Jet Support Services, Inc. (JSSI), Seno also served as the company’s president and CEO. He remains a special advisor to JSSI’s board of directors. Prior to JSSI, he held top management positions with the business aircraft units of Boeing Capital Corp. and GE Capital Solutions.

Seno has also provided more than 25 years of service to Embry-Riddle Aeronautical University (ERAU), in various capacities, including as its vice president of corporate relations and government affairs, and also as a member of ERAU’s president’s advisory board and board of trustees. He has served on a host of the university’s committees, including as chair of ERAU’s development committee, and also a member of its finance, flight safety and student life committees. Seno established the Office of Corporate Relations and Government Affairs at the university, and has represented ERAU extensively on Capitol Hill. He was recently invited to serve on the industry advisory boards of ERAU’s College of Business, and College of Engineering.



Pilatus PC- 12 Enduring R o l l a n d V i n c e n t

Synopsis: After more than 20 years in service with a worldwide fleet in excess of 1,300 aircraft, the Pilatus PC- 12 is a pacesetting business aircraft offering unmatched value retention in its market segment.

Business aviation stakeholders including owners/operators, lenders and lessors – have experienced significant fluctuations in the value of their aircraft throughout recent business cycles.

The purpose of this report is to examine and assess the state of the current market, highlighting key characteristics of the Pilatus PC-12 fleet and marketplace, and specifically addressing how the aircraft retains its value over time relative to its competition.

The Pilatus PC- 12 Fleet And MarketplaceThe single- turbine PT6- powered PC- 12 first flew in 1991, and was certified by Swiss and U.S. FAA authorities in 1994, with initial customer deliveries beginning that same year. ThroughJanuary 2016,

some 1,388 PC- 12s have been built, with 96% of that total (or 1,330 aircraft) remaining in service worldwide.

According to the latest JETNET aircraft database records, approximately 91% of the PC- 12 fleet is wholly- owned, while the remaining 9% is in shared and fractional ownership- type programs. By base location, North America accounts for 73% of the worldwide Pilatus PC- 12 fleet, followed by Europe (11%), Asia Pacific (6%), Africa (5%), and Latin America & Caribbean (3%). Eleven percent of all business turboprops in service in both North America and in Europe are PC- 12s, higher than in any other region.

Amongst business aircraft OEMs with at least 1,000 aircraft in service, Pilatus experienced the fastest fleet growth in the industry over the past 10 years, expanding at a 9.9% compound annual growth rate (CAGR), versus 4.8% CAGR for the business jet fleet, and just 1.8% CAGR for the business turboprop fleet worldwide.

The following chart provides details on PC- 12 equipped list prices by model year from 2005 to the present. These are published annually by Business & Commercial Aviation magazine in their Purchase Planning Handbook, a standard reference in the business aviation industry.



Since 2005, PC- 12 new equipped list prices have increased 44%, in line with the introduction of the latest PC-12NG model incorporating a more powerful 1,200- shp PT6A- 67P engine, Honeywell Primus Apex cockpit, enhanced aerodynamics and higher speeds. B&CA list prices reflect the PC- 12NG model beginning in 2008. PC-12 new equipped list prices have increased at a similar rate to the direct competition over the last 5 years.

In the preowned market, a PC- 12 has sold 40% faster on average compared with the business turbo propfleet, based on the last 10 years of marketplace data. Since 2005, preowned PC- 12s have averaged 178 days- on-market before being sold, compared with 298 days for the worldwide business turboprop fleet.

In 2014- 2015, preowned PC- 12s have averaged just 129 days- on- market (about 4 months) before being sold, compared with298 days (about 10 months) for all business turboprops.

As of the beginning of 2016, just 4.8% of the worldwide fleet of PC- 12s was available for sale in the preowned market, significantly below the direct competition and the market in general.



The percentage of the fleet available for sale naturally fluctuates up and down in step with business cycles. Inventory- for- sale has returned to pre- 2007 levels for both the PC- 12 fleet and for the business turboprop and jet fleets as a whole.

Well- maintained, low- time aircraft continue to be in strong demand, and thePC- 12 aircraft as an almost cult- like following Amongst owner/operators who know it best for its design, build quality, reliability, range/payload, “bring it on” cargo door, and “go anywhere" airfield performance.

Pilatus PC- 12 Value RetentionThe PC- 12 stands out amongst its competition in retaining unmatched value over time. The relatively few PC- 12 aircraft that are sold in pre-owned markets are currently retaining 80- 85% of their original selling prices 10 years after factory delivery. This compares very favorably to other turboprops in the market.

Volume 32, Issue 3, 3rd Qtr 2016 1 0


PC- 12 residual values also hold up well against business jet competitors. Even 10 years after initial delivery, PC- 12s are retaining about 80% of their original value, substantially ahead of their competition.

Average annual depreciation rates for the PC-12 have averaged just 1.6% per year over the past 10 years, an industry- leading performance that uniquely differentiates the Pilatus PC- 12 from its competition.

*Excluding Pilatus PC- 12



The Bottom LineBusiness aviation stakeholders – including aircraft owners/operators, lenders and lessors – should take note of the unique market performance, competitive positioning, and value retention track record of the Pilatus PC- 12. With Swiss design expertise, high- quality engineering and production savvy, the PC- 12 has surely hit a market “sweet spot”, offering unmatched customer appeal and enduring value.

Data SourcesPre- Owned Retail Prices: Vref – Q4 2015 version

Note: Vref retail prices by aircraft model year represent market averages in $U.S. as reported by dealers, lenders, buyers and sellers during the previous quarter. Retail prices assume typical annual utilization (about 300 hours per aircraft per year), no damage history, original and complete maintenance logbooks, mid- life engines and maintenance inspections, and owner/operator compliance with all mandatory service bulletins and airworthiness directives.

New Original Equipped List Prices: Business & Commercial Aviation Purchase Planning Handbook

Fleet, Pre- Owned Inventory For Sale, and Days- on- Market: JETNET – January 2016

Prepared ByRolland Vincent President, Rolland Vincent Associates, LLC 7000 Independence Parkway, Suite 160- 3, Plano, Texas 75025 USA

Tel: 972- 439- 2069 (U.S. Central Time) e- mail: [email protected] | www.rollandvincent.com

Rolland Vincent Associates, LLC, an aviation consulting firm, draws from over 30 years of aviation experience, delivering trusted market research, strategy, business & product development, and industry analysis. We are here to help you understand customer needs and preferences, design products and services to delight your customers, and discover and seize business opportunities. We provide you with practical, intelligent solutions to unleash the power of your business and navigate for global aviation leadership. In 2010, we created JETNET iQ, a syndicated quarterly research and forecasting service for business aviation. Proprietary quarterly surveys of business aircraft owners and operators worldwide are cornerstone features of JETNET iQ.



Helicopters: A Different Type of Asset S h a r o n D e s f o r , A S A , M R I C S

When does a capital asset not look like one? When it’s also a commodity.

Helicopters fit neatly into this “not-category.” On the one hand, they are subject to federal legislation under the Title 14 of the Code of Federal Regulations, which requires federal oversight under the Federal Aviation Administration. They are also subject to manufacturers’ interests by way of limitations on flight usage and on parts manufacturing. On the other hand, they enjoy a worldwide free market with a supply and demand relationship, a 3-year backlog on new production, and $90+ per barrel oil, all driving the need for helicopter services through the roof. What’s an appraiser to do?

Understanding the Asset

Arguably the most famous definition of a helicopter is “an assembly of forty thousand loose pieces, flying more or less in formation.” Outside of the wry humor of this definition, the concept itself

actually has a profound implication in the residual life and value of a helicopter. A pressurized fixed-wing airplane expands and contracts each time it changes altitude, fatiguing the airframe with every flight. A helicopter is non-pressurized and so bears none of the hallmarks of airframe fatigue. Since it’s literally just a frame with components attached, it has no fixed economic useful life.

Economic Useful LifeIn the June 2005 issue of Rotorbreeze, one manufacturer made it explicit. “Bell Helicopter designs and builds commercial aircraft airframes specifically with no need for a scheduled or finite retirement life, either in calendar time or in accumulated flight hours… by operating the aircraft in accordance with the Bell-approved maintenance and overhaul recommendations, complying with the applicable bulletins recommended by Bell, and using only parts and processes acceptable to Bell.” Put simply, as long an operator can get parts for his helicopter, and he maintains it according to the approved maintenance manual, he can continue to fly it indefinitely.

But if there’s no Economic Useful Life restriction, how does an appraiser determine the physical deterioration of a helicopter? Given a specific helicopter, the most important determinant of value is the components’ time since overhaul or since new (TSO/TSN). This includes the dynamic components such as engines, transmissions, swashplate, main- and tail-rotor blades, driveshafts, and flight controls; the major airframe inspection; and consideration of whether any of the helicopter’s components are on a Power by the Hour (PBH) contract. PBH is essentially a prepaid maintenance agreement in which the operator sends the manufacturer a fixed hourly payment, and the manufacturer provides all overhauls and replacement parts. Because it includes scheduled maintenance, it is far more than an insurance contract, and carries far more weight when valuing the helicopter.

Other items that need to be considered are the helicopter’s mission and registration, equipment and avionics, major repairs and alterations (Forms 337), Supplemental Type Certificates, and compliance with application airworthiness directives and service bulletins. Most appraisers will take into account the helicopter’s age and total airframe time, but only as an indicator of general usage and condition. Also considered are the machine’s “cosmetic” condition for the paint, glass, and interior, in comparison to similar helicopters in the field.



All this information can be gleaned from the helicopter and its flight and maintenance logbooks, its component’s historical records (“hard cards”), its Certificate of Airworthiness and Certificate of Registration. This year’s winner of the Excellence in Communication award from the Helicopter Association International, Barry D. Desfor, has a pointed quip on this topic: “If the weight of the records doesn’t equal the weight of the helicopter, it’s obviously not airworthy.”

The flight and maintenance logbooks are the records of a particular airframe or engine. They record every minute of flight time, every component change, every overhaul and inspection related to that particular airframe or engine. The hard cards are the flight and maintenance records for each individual component. Every serial-numbered component has a hard card that follows it throughout its life, from birth to death, regardless of what helicopter the component is installed in at any given moment. Components move frequently from inventory to airframe, and from one airframe to another. It’s far faster to remove a component and replace it with a fresh one than to take a helicopter out of service while waiting weeks for an inspection or overhaul. This is as true of a small component such as a hydraulic servo as it is of a large one such as an engine. With so many component changes occurring at any time during a helicopter’s operation, individual records are required for every component as well as for the helicopter itself.

These required records are absolutely critical to the operation of a helicopter and its resale value. Any FAA inspector can shut down the helicopter at any time if he requests a record that does not exist or is inaccurate. Questionable records could do more than shut down the helicopter, they could shut down an entire operation. Clean, detailed, accurate records are a point in favor of a helicopter at its time of resale.

The Helicopter Resale Market What drives the helicopter market?

By far the largest driver of the helicopter market is offshore oil support. While not on a par with jets or business aircraft, the offshore operators fly far more than any other helicopter operators. For example, in the Gulf of Mexico, in an area only 125,000 square miles, there are 650 helicopters, supporting over 5000 platforms, and making 7500 trips per day. This comprises 2.1 million operations per year, carrying 2.6 million passengers per year in 380,000 flight hours. The North Sea fields even more helicopter operations. An average offshore helicopter flies 1000 hours per year. When you consider that each helicopter requires several hours of maintenance for each hour of flight time, that’s an extraordinary effort.

The oil industry is stretching farther and farther, to big rigs 150 miles offshore. To make these trips, helicopter operators are buying ever-larger helicopters with long-range fuel reserves, sophisticated electronic cockpits, and large payloads. These operators are moving away from short-range machines costing one to five million dollars that can carry 6-10 people, and into medium twins that cost up to eighteen million dollars and can carry up to 20 passengers.

Another significant market is Emergency Medical Services. The EMS sector alone uses over a thousand helicopters ranging from million dollar single-turbine machines that barely fit a single stretcher up to six-million-dollar medium twins that can carry up to 5 patients at a time, or can instead be fit with a flying emergency room. A new, rapidly growing segment is Search and



Rescue. SAR contracts are typically for ten- to twenty-million-dollar medium- to heavy twins with enough power to lift a great deal of sophisticated mission equipment including glass cockpits, icing conditions equipment, life rafts, Doppler auto-hover, rescue hoists and winches, emergency flotation gear, rappelling devices, and crews of 5 or more.

Other popular uses for helicopters include Electronic News Gathering, firefighting, construction, logging, aerial patrol, executive transport, mining, seismic survey and support, sightseeing, fish spotting, ranching, and agricultural spraying. These markets all play a role in determining marketability and therefore value as well, although none to the same extent as offshore oil support.

Cross-border Transactions

The helicopter market is, and has been for decades, international in scope. A typical helicopter buyer thinks nothing of hopping on a flight to Singapore or Brazil to examine a helicopter he’s considering for purchase. The costs to import a helicopter into a different country are inexpensive relative to the helicopter’s value, usually around $50,000 for the freight and certification into the new country. Because purchasers have always looked for the helicopter that meets their needs anywhere in the world; a practical international market has come about in reality. And while not a usual factor, in a “hot” market such as we have today, helicopters occasionally become commodities, reselling purely on their resale potential and commanding significant premiums just for the privilege of an early position on the factory’s assembly line. Operations, as well, are international in scope. There are multi-national operators fulfilling contracts in multiple countries, both with units registered in each individual country as well as helicopters crossing borders to perform specific jobs. The demand exists for these cross-border operations, but in today’s environment it is difficult to manage such operations due to restrictions written into their lease and finance contracts.

The main issue, obviously, is mitigation of the lender’s/lessor’s risk in allowing the helicopter to operate in multiple countries. Better regulations around the world, reciprocal agreements between the U.S. FAA and the civil aviation authorities of other countries, and treaties such as the Cape Town Convention and Aircraft Protocol, combined with the reputation of a high-quality operator, are all necessary when a lender or lessor is requested to permit cross-border operations across multiple countries.

Lender Comfort

Lenders and lessors, in turn, have their own set of responsibilities, whether the finance contract is restricted to one country or many. The lender needs to make sure his title is perfected, regardless of the country the helicopter is registered in or the countries it may operate in. He needs to track the asset quality on a regular basis. These means setting up and following through on a methodology and cost accommodation to monitor assets, including frequent appraisals. The lender should logically include the examination of the assets on a regular basis, whether setting up the inspection themselves or hiring an inspector or appraiser to do it for them. Because helicopters work in the field, away from convenient international airports, the lender’s representative needs to visit the helicopter in the field (whether that’s the jungle, the oil fields, or the construction site) in order to verify the maintenance and upkeep that will preserve and enhance the value of the unit.



Residual Values

In addition to the current asset value, lessors in particular are hungry for supportable residual projections. While a crystal ball would certainly come in handy, appraisers are generally stuck with past history and a strong knowledge of current and historical resale trends.

While every appraiser has his own approach to examining history in order to project future values, a fairly normal approach from a Blue Book’s perspective would look something like this:

• Begin by obtaining sales pricing data from owners and operators, lenders and lessors, resellers, brokers and original equipment manufacturers worldwide and compiling them into the Blue Book.

• Assemble several decades’ worth of Blue Book values into a further database of historical pricing.

• Adjust the historical data for inflation to current dollars.

• Perform one set of calculations comparing the 2007-dollar values to both current and trended historical replacement cost.

• Perform another set of calculations comparing the current Blue Book values to current replacement cost new (RCN).

• Compare the two sets of figures for reliability and feasibility and assess the results in light of historical and economic trends.

• Apply the resulting percentages to the (trended) RCN for the appropriate year of manufacture of the helicopter.

• Factor anticipated inflation into the results as defined by the lessor or lender.

Regulations

There are a three new(er) regulations and one major recent treaty that factor into a helicopter valuation: the new IRS guidelines for a “Qualified Appraiser,” which may require the appraiser to acquire additional accreditations and/or continuing education units; FAS 157, which created a new definition of Fair Value which can’t help but impact appraisers’ and lenders’ outlook on Fair Market Value and which was discussed extensively in the July-August issue of Valuation Strategies; and the forthcoming FASB/IASB revamp of FAS 13/IAS 17, which will redefine risk and reward lease accounting. Once the framework for the FAS



13 replacement is agreed to in principle, appraisers are likely to be inundated with requests for residual value analyses so that lessors can comply with the likely on-balance-sheet structure.

The recent treaty that factors into the value equation is the Cape Town Convention.

The Cape Town Convention

The Convention on International Interests in Mobile Equipment and Aircraft Protocol (the Cape Town Convention), which took effect in March 2006, has added yet another wrinkle to the way lenders, buyers, and sellers register their interests in aircraft in many countries. The Cape Town Convention was designed to create an international legal framework for the four main issues facing security interests in mobile assets: creating, prioritizing, and enforcing security interests, and the jurisdictional rules that govern them. The Convention has two main benefits. The first is the International Registry for the Aircraft Protocol. The other is the treaty itself. Each ratifying country is essentially agreeing to subordinate its own legal framework for ownership in favor of the agreed-upon legal framework in the Cape Town Convention, subject to various optional declarations adopted by each country.

There are four main features of the treaty: 1) the criteria for creating an “international interest” (a security agreement, title reservation agreement, or leasing agreement); 2) a first-to-file priority rule based on the International Registry; 3) the default remedies for creditors and quiet possession rights for debtors; and 4) the jurisdictional rules.

Imagine that, pre-Cape Town, a commercial bank in the US extended a loan on a helicopter into a country with a very different legal system than our own. If the borrower defaulted on the contract and the lender needed to repossess the asset, he was subject to the laws of the borrower’s country as regards his rights to repossess. Yes, he had a contract, but he also knew that if things went badly he was going to have trouble getting the asset back without a great deal of time and money.

Under the Cape Town Convention, if the asset is registered in one of the ratifying countries, the lender or lessor will have clearly stated rights and remedies under the treaty. No repossession is ever simple, but it’s certainly easier when the lender’s/lessor’s remedies aren’t illegal by the standards of the country from which he’s repossessing!

The rights of the creditor when the debtor is in default on an aircraft now include deregistering the aircraft and arranging its export, taking possession or control of the aircraft, selling or granting a lease in the aircraft, and collecting or receiving income or profits from the use or management of the aircraft.

The benefits of legal recourse to the lessor or lender seem fairly obvious. What are the benefits to the lessee or borrower? The economic theory is that if it is safer to lend or lease into other countries, then it will become more desirable to do so, which will in turn give easier credit access (and theoretically lower credit cost) to borrowers and lessees around the world. There is no evidence yet of these benefits developing, but there is hope that they should appear when the number of countries ratifying the convention passes a saturation point, particularly those capital-rich countries who might indeed lend or lease across borders.



Like the Uniform Commercial Code, the Aircraft International Registry (IR) is the listing of security interests on collateral involved in secure transactions. However, the Aircraft IR lists only one security interest for each asset. The interest listed is the first-to-file, not necessarily the primary lienholder. Interests registered with the Aircraft IR have legal priority over unregistered interests. Pre-existing interests are not applicable.

To date, machinery appraisers have not historically run a title search on the assets they appraise. The Cape Town Convention and its International Registry raise the question of whether appraisers will wish to add title searches to their research.

Conclusion

A helicopter is a fascinating but quirky asset, not exactly like airplanes, ships, yellow iron, or any other machinery. Although it bears much commonality with airplanes, it has several different properties. The more utilitarian viewpoint of its buyers makes it less vulnerable to wear-and-

tear deductions from the value. The vast number of components, each with a separate maintenance schedule, makes careful, line-by-line component analysis a requirement. The different market sectors, utilizing their individual requirements to determine their “ideal” helicopter, combine with the pressure-cooker of today’s high demand and low supply to create a complex web of betterments and detriments to a helicopter’s value. And the maze of federal codes and agencies, regulations and treaties, insists upon a deeper-than-skin-layer analysis of consequences of potential acquisitions and potential uses in a variety of different countries and cultures. Understanding the helicopter and its resale market, its function in the world and the needs of its operators, and the needs and requirements of the lenders and lessors who bring life to this small industry, are all critical aspects to a viable determination of this odd little machine’s value.

About the Author

Sharon Desfor, ASA, is president of HeliValue$, Inc., (www.helivalues.com) publisher of The Official Helicopter Blue Book®

and the only full-time helicopter appraisal service in the world. Ms. Desfor is also Vice Chair of the Leasing and Financing Subcommittee of the Helicopter Association International.



Regulatory Impact on Helicopter Leasing S h a r o n D e s f o r , A S A , M R I C S

“One of my great ambitions before I die is to fly in an aircraft that is on an airline's balance sheet.”

– Sir David Tweedie at the Empire Club of Canada, 25 April 2008

Had Sir David only flown in a helicopter seven years ago, his wish would easily have come true. Today, however, he might have the same difficulty finding an operator-owned helicopter as he had in 2008 finding an airline-owned jet. Fleets of the mega-operators like Bristow and CHC are already over 20% leased, and that number is growing rapidly with goals of 35% over that market segment.

It may seem self-evident, but in addition to the general economy, the strength of the US dollar in relation to other major currencies, the price of oil, and the rig count, the availability of capital is a critical element in helicopter values.

In the past decade, regulators have brought sweeping financial, accounting, and banking reforms:

• Sarbanes-Oxley in the U.S. (with similar regulations following rapidly in Canada, Germany, South Africa, France, Australia, India, Japan, Italy, Israel, and Turkey);

• Basel II and III;

• New accounting standards in both U.S. GAAP and IFRS;

• And now the U.S. is seeing the beginnings of the regulatory initiatives arising out of Dodd-Frank, like risk retention rules, the Volcker Rule, credit rating agency reform…with more rules still to be written.

Below are just two of the sample headline articles last year:

During the credit recession, the extent of losses exceeded expectation and raised questions regarding the validity of loss=given defaults (LGDs) reported by banks, based on the underlying collateral. Regulatory agencies felt that the specific bank did not have enough historical information with the level of detail needed to differentiate varying levels of less with different collateral – i.e. they didn’t have enough “had” deals within any one category in order to establish parameters around it. Therefore, banks were required to reduce their support on collateral and assign higher levels of loss. What this also meant was that banks had to allocate a higher level of risk capital to those transactions,” Mesches explains.

- Alta’s Mesches to Discuss Potential Solutions to Bank Requirement for Assigning Loss in Defaults (ELFAonline.org)



Consolidation in the aircraft leasing business has also affected liquidity by reducing competition. In the past two decades, GE Capital bought either the entire business or the aircraft portfolios of Boeing Capital, Debis Financial, CIT Group, Merrill Lynch and Citi Capital. To counter that contraction, Bank of America and Wachovia entered the helicopter finance market.

Chase (JP Morgan) and Royal Bank of Scotland were consistently vital players in the aircraft finance business for more than a decade.

But then in 2009, GECC got out of helicopters, Royal Bank of Scotland got out of…well, everything, Wachovia was bought by Wells Fargo, who mostly does trusts, Chase reduced their helicopter deals…

So who rescued the helicopter industry?

The vast majority of money in the helicopter industry over the past five years has come from private investors. Richard T. Santulli cut his teeth in helicopters in the 1980s and figured he knew the business. He watched the major players leaving helicopter finance in 2008-2009. In 2010, Santulli left his spot (number 3 or 4, depending on which analyst you listened to) at Berkshire Hathaway, and decided to recreate the aircraft operating lease model in the microcosm of the helicopter world, creating Milestone Aviation Group. In the past five years, several others followed his path, and since then, all growth in helicopter finance has been in the operating lease market.

The top six of these operating lessors are:

(Helicopter Investor One Minute Week, May 8, 2015)

1. Milestone Aviation Portfolio at end of 2014: $2.8 billion Number of helicopters at end of 2014: 168 Orders and options: $3 billion (131 helicopters)

2. Waypoint Leasing Portfolio at end of 2014: $1 billion Number of helicopters: 100 Orders and options at end of 2014: $1 billion

3. Lease Corporation International Portfolio at end of 2014: $ 260 million Number of helicopters: 15 Orders and options at end of 2014: $1.3 billion

4. Macquarie Rotorcraft Portfolio at end of 2014: $260 million Orders and options at end of 2014: $270 million

5. Lobo Leasing Portfolio at end of 2014: $200 million

6. Amur Helicopter Services Portfolio at end of 2014: $100 million



There are a number of regulatory issues coming up in the next several years that are likely to impact the availability of capital, and therefore the ability to close a helicopter deal.

The Basel Committee is working on serious revamps to capital requirements - again - and something new called TLAC, for Total-Loss-Absorbing-Capacity requirements (http://www.americanbanker.com/news/law-regulation/ready-or-not-here-comes-basel-iv-1071503-1.html), which will impact bank lending and leasing.

At the end of last year, American Banker Online started reporting on the Basel Committee’s newest efforts, and not in a good way.

Ready or Not, Here Comes Basel IV

By JOHN HELTMAN DEC 3, 2014 1:50pm ET

Over the next three years, regulators are poised to make sweeping alternation to the existing Basel III international accord, including raising the risk-based capital ratio, revising risk weightings, and moving away from model-based assessments as part of a revamp of the capital requirements for operations, market and credit risk.

The stability board said it will issue a plan for total loss-absorbing capacity – a standard that includes capital and convertible debt and is designed to help make it easier for regulators to seize a failing behemoth. Regulators are calling for TLAC to be at least twice the Basel III total risk-based capital of 8%. -American Banker Online

Last August, Financial Times was reporting the same thing.



November, Financial Times also published the first part in a series about the dismal future of banking. They query whether the banking industry’s decline “is just a blip induced by excessive regulation; … a return to normal after an exceptional pre-crisis boom; …[or] the slow death of banking.”



In addition, the Basel Committee, the European Commission, the Financial Stability Board, the G20 (shall we play “You Name the Financial Body?”) are pondering new rules on shadow banking. (http://www.wsj.com/articles/as-fed-shines-light-on-shadow-banking-its-regulatory-limits-get-laid-bare-1419193684)

Stripped of the fancy words, shadow banking is just banking activities by non-banks. It’s a pretty big deal. From 21 trillion Euros in 2002; to 46 trillion Euros in 2010 – or if you’re from the United States, $25bn in 2002 to $60bn in 2010. And it’s still rising. And it’s not just a U.S. issue. The top three regions affected by shadow banking are Europe, the US, and China. Japan, Canada and Brazil also have notable shadow banking economies relative to their traditional banking economies.



The European Commission has written a Green Paper on the topic, and it has some scary things in it. The terms “undertake further work on the resolution of,” and “explore the need for any appropriate resolution arrangements” are pretty ominous verbiage for a regulatory authority, indicating an urge for sweeping regulation.

The rotorcraft leasing industry is a classic example of shadow banking, and the potential for regulatory involvement that can create a new liquidity crisis should be frightening to anyone involved in the financing of the helicopter industry. The 2008 liquidity crisis did as much to drive the helicopter market to a standstill as the global economic collapse.

We might be facing worse in short order.

About the Author

Sharon Desfor, ASA, is president of HeliValue$, Inc., the world’s most trusted helicopter appraisal firm, and publisher of The Official Helicopter Blue Book®, the accepted standard for helicopter resale pricing information.

Sharon was recently elected International Secretary/Treasurer of ASA (American Society of Appraisers). She has participated in leadership roles at ASA for the past decade, at HAI longer than that, and before that, at the Helicopter Foundation for fifteen years.

Sharon enjoys teaching finance people about the helicopter industry, and helicopter people about the finance industry. She lectures frequently for aviation/finance conferences, and writes for magazines in the aviation and appraisal industries.

Sharon is an Accredited Senior Appraiser of the ASA, is past Chair of the Helicopter Foundation International and of the HAI’s Finance & Leasing Committee, and served as Editor of HAI’s finance handbook, Helicopter Funding: Assembling the Pieces of the Puzzle.

www.helivalues.com [email protected] +1-847-487-8258



Damaged Aircraft and Diminution in Value Back-to-Basics K e i t h M . B r a n s k y , A S A , A R M - M T S

Over the years there has been a little published on the niche subject of appraising damaged aircraft. Even within writings dealing with the broader subject of aircraft appraisals in general, too often the important consideration of how to properly analyze aircraft damage and diminution in value receives brief mention or none at all. This dearth of published knowledge and the lack of industry accepted methodologies for dealing with aircraft damage is unfortunate not only for the aircraft appraiser but also for the appraiser’s clients, insurance companies, and the legal system.

Damage diminution appraisal assignments require strong technical knowledge and complete understanding of the various factors that must be considered. There are no cookie-cutter approaches to aircraft damage diminution. In this back-to-basics article I will highlight some of the important concepts, factors, and considerations.

Damage Diminution Claims – Then And NowWhen I first became involved in aviation over forty years ago, it seemed that aircraft damage diminutionclaims were the exception rather than the rule. Today, damage diminution proceedings often begin before the paint is dry on the damage repair. In most cases an insurance company, attorney, or the aircraft owner will engage an appraiser to develop an opinion on the diminution in value suffered as a result of the damage.

Diminution In Value DefinedIt is commonly accepted that if two aircraft are sitting side-by-side which are identical in every way except that one has a history of damage, the aircraft with damage will command a lower price. This difference in value between a damaged aircraft and an identical undamaged one is referred to as the diminution in value.

Insured Parties Seek RecoveryAs an aircraft appraiser, I am often contacted by insurance companies or attorneys representing a client whose aircraft has suffered damage that potentially involves a diminution in value claim. Usually by the time I am contacted, either the aircraft is already at a maintenance facility undergoing the necessary repairs or it has already been fully repaired and returned to an airworthy condition. In most cases the insurance company has either already paid or agreed to pay the repair bill in accordance with the insured’s policy. However, most insurance policies written for aircraft hull damage normally do not cover any associated diminution in value (this coverage is available separately). When the insured party realizes it will not be reimbursed for the diminution in value suffered, they begin to explore their options for recovery.

Most Aircraft Damage Occurs On The GroundAlthough it might be assumed that damage events only occur to an aircraft while in flight, almost all of the diminution in value cases I have been involved with were aircraft damaged during movement on the ground or when the aircraft was stationary. A majority these cases involved aircraft that were being pulled by ground personnel with tractors (known as “tugs”). The repositioning of aircraft too often results in wingtips hitting hangar doors or other aircraft (especially in crowded hangars), aircraft tails striking overhead obstacles, wings striking light poles, hangar walls, etc. These seemingly minor impacts, even at walking speed can result in serious damage and expensive repairs.



Case Example 1

I was involved in a case where a Gulfstream G-IV (a large corporate jet) was being towed to a new parking spot. As it was being towed, the aircraft accidentally became disconnected from the towing tractor. The ground personnel immediately realized this and tried to stop the aircraft, but the taxiway was on a slight downhill incline and the aircraft slowly rolled forward and collided with the tractor that had been pulling it. Although it impacted the tractor at barely 1 MPH, the inertia of the slow moving aircraft on the sharp corners of the tractor resulted in multiple punctures to the fuselage and

right wing (see photo 1). The end result was a multi-million dollar repair at the Gulfstream factory and an aircraft that was out of service for many months. I became involved in the case when the aircraft owner made a diminution in value claim against the Fixed Base Operator that was towing the aircraft when the damage occurred.

Diminution In Value Not Formula DrivenWhile damage to an aircraft is a serious matter it must be approached logically, especially as it relates to diminution in value. Contrary to conventional wisdom, diminution in value from damage cannot be accomplished by simply applying a universal percentage deduction of 10% or 20%, or by looking up a number on a chart; there are too many factors to consider. In fact, The Aircraft Bluebook price guide no longer includes damage deduction charts and instead advises the reader to engage “an experienced appraiser” when assessing the fair market value of a damaged aircraft.

Common Factors Aircraft Appraisers ConsiderJust like snowflakes, no two damage events are the exactly the same. However, when determining the amount of value diminution suffered by a damaged aircraft, there are some common factors the appraiser must consider and reconcile. These factors include:

• The type, extent, and cause of the damage.

• The method and quality of repair.

• How long ago the damage occurred.

• How the repair was recorded in the aircraft’s maintenance logbooks.

• The sales market for the aircraft type that suffered the damage.

Let’s examine these factors further:

Type, Extent, and Cause of Damage: Understanding the type, extent, and cause of damage is the first step in determining the amount (if any) of diminution in value. Aircraft damage can range from a superficial dent in a non-structural area to major damage requiring extensive repair to structural portions of the airframe. Methods used to determine the level of damage are often neither obvious nor clear-cut and can require the review of highly technical repair documents. Engaging an individual with an aircraft maintenance or aeronautical engineering background can be helpful in these situations. In general, the more

Photo 1. This resulted in a multi-million dollar repair and an aircraft out of service for many months.



invasive the damage and repair, the greater the diminution. Sometimes a little detective work is required to determine the exact cause of damage, especially when a logbook entry is vague or incomplete. In these cases, cross-checking the aircraft in the NTSB aviation database can often assist in providing a clearer picture of the damage history. The cause of the damage can have an effect on the market’s perception of the damage itself. Was the aircraft damaged as a result of a publicly reported accident or incident? Were there any associated deaths or serious injuries? Was it a dynamic or static damage event (i.e. was the aircraft moving or stationary)? Determining dynamic or static damage is of utmost importance to insurance companies since aircraft insurance policies are written specifying coverage for either “aircraft in motion” or “aircraft not in motion.”

Similarly, helicopter policies are written for either “rotor in motion” or “rotor not in motion.” Therefore, an aircraft moving under its own power when a damage event occurs must have “aircraft in motion” coverage or the insurance company will not pay the repair bill. Note: Some aircraft operators opt to self-insure for all or a portion of the hull-damage coverage (e.g. they self-insure the first million dollars of loss). To the aircraft appraiser however, whether aircraft damage was dynamic or static is of lesser importance. In the final analysis, something is always moving when damage occurs and either dynamic or static aircraft can suffer major structural damage (see photo 2). Thus, while the cause of damage must be considered for its effect on market perception, it is far more important for the appraiser to properly assess and analyze the resulting damage itself.

Photo 2. Dynamic vs. Static? Whether an aircraft is parked when a hangar roof collapses (as shown here) or whether it is taxiing under its own power when a wingtip strikes an object… something is moving when damage occurs. Dynamic vs. Static damage considerations are far more important to insurance companies paying claims than to aircraft appraisers determining diminution in value.

Method and Quality of a Repair: The quality of the repair to a damaged aircraft is the next factor to consider. Was the repair done at a manufacture’s repair facility to factory standards using new replacement parts or was it done by a part-time aircraft mechanic working out of a converted delivery truck? I have seen fine work done by independent mechanics, but the market generally places greatest value on a repair done at a manufacturer’s repair facility. Note: aircraft maintenance facilities can vary in repair expertise and work quality (see Case Example 2).



When determining the quality of a repair, questions to be asked include:

• Were damaged components repaired, or were they completely removed and replaced with new? Example: If a damaged flight control such as a rudder was completely replaced with new instead of repaired, there is often no diminution in value.

• Is the completed repair externally visible? Examples: Was an area of damaged skin patched or completely replaced? Does the paint on the repaired area perfectly match the rest of the aircraft?

• Was the repair to “factory new standards” or to “field standards?”

• Does the repair require any special recurring inspections related specifically to the repair?

Case Example 2

I appraised a Cessna Citation (a small corporate jet) for diminution in value after its rudder skin had been replaced by a FAA Certificated Repair Station. The repair to the tail was so poorly done that the edges at the bottom of the rudder skin did not align perfectly (see photo 3). Furthermore, the paint on the repaired areas was mismatched. This is unacceptable and resulted in an increased diminution in value.

How Long Ago the Damage Occurred: As a general rule, the more recent the damage the greater the effect on diminution. As an aircraft damage repair ages it becomes “seasoned.” The longer that time elapses after a repair, the less impact it has on value. Eventually with the passage of enough time, certain types of damage history no longer have a material effect on value.

How the Damage Repair was Recorded in the Maintenance Records: The Federal Aviation Administration (FAA) is the agency in the United States that regulates all matters related to civil aviation. This regulatory power includes mandating the requirements for recording the repair of aircraft damage. How damage repair was recorded in the maintenance records can have a significant effect on the amount of value diminution. For example, was FAA 337 Form filed? A 337 Form is a “Major Repair & Alteration Form.” Once a 337 Form is submitted to the

FAA, the aircraft has a permanent public record of a major repair that is easily accessible to a potential buyer. However, while an aircraft mechanic is required to submit a 337 Form to the FAA whenever a repair is performed on damage that meets the FAA’s criteria of a major repair, a FAA Certificated Repair Station is not required to submit a 337 Form for the same major repair per FAR 43 Appendix B (b). In these instances, cross-checking other sources can often provide additional information about a damage repair that was recorded in an aircraft’s maintenance records (see Case Example 3).

Please note that the FAA does not define major or minor damage to an aircraft. However, the FAA does define a “major repair” in FAR Part 43 that states: “Repairs to the following parts of an airframe and repairs of the following types, involving the strengthening, reinforcing, splicing, and manufacturing of primary structural members or their replacement, when replacement is by fabrication such as riveting or welding, are airframe major repairs.” This FAA repair definition is quite broad and is not what an appraiser would want to use as sole justification for a diminution opinion. For example, what is a primary structural member? This is not defined in FAR Part 1 and open to interpretation. Furthermore, it must be reemphasized that the FAA is defining the repair and not the damage itself. This is a subtle but important difference. For example, a small bird-strike or light “hangar-rash” might require a “major repair” if the damage occurred on a rib tip. Should a “major repair” of minor damage result in major damage diminution? In most cases it would not (see photo 4). This is but one example of why aircraft appraisers should not solely rely on FAA repair requirements when analyzing damage and the diminution in value. Remember, the FAA is in the airworthiness business, not the valuation business. diminution in value. Appraisers must use their experience, knowledge, and discretion in these cases.

Photo 3. Sometimes repair quality is measured in millimeters.



Case Example 3

I was appraising a Beechcraft King Air (a twin-engine turboprop) when a particular maintenance entry in the logbook caught my eye. Buried deep in the entry was a line that indicated two skin panels had been replaced and repainted. No reason for these skin replacements was given (nor was that information required) and no 337 Forms had been filed as a FAA Certificated Repair Station had performed the work. All I had were the part numbers of the two skin panels and a rather sparse description of the repair itself. Checking the part numbers with Beechcraft, I learned that the replacement skins were installed on

the underside of the aircraft. As I dug into the situation further, I learned that during the same time period, both propellers had been sent in for overhaul and both engines had been removed for inspection. I now surmised this was either a gear-up landing or some type of structural failure. Additional investigation revealed that the nose gear had collapsed after a component failure. I have seen a number of similar situations during my many years of appraising aircraft. In most cases, what was not entered into the logbooks often screamed louder to me than what was entered and prompted me to dig deeper.

The Sales Market for the Damaged Aircraft Type: If the current sales market for a particular aircraft type is strong and active, the effect of damage can be mitigated significantly. In fact, in a hot sales market certain types of damage might be completely overlooked as they relate to value. Conversely, in a slow sales market where many aircraft of a particular type are available for purchase, that same damage will become a major negotiating point and have a larger negative effect on value. Additionally, for retrospective appraisals, the diminution analysis must be done in the context of the sales market as it existed in the past on the effective date of the appraisal. Lastly, the marketplace is almost always less accepting of damage on certain classes of aircraft. For example, the stigma of damage is far greater to a corporate jet than it is to a single-engine Cessna trainer aircraft.

Additional Thoughts & ConsiderationsDamage diminution and helicopters: Helicopters typically don’t suffer damage diminution in value. Perhaps it is the more utilitarian nature of helicopters and their mission. These machines are tools rather than magic carpets. Perhaps it is because helicopter owners and operators are a more pragmatic group when it comes to damage. Since in reality, post-damage repair helicopter values usually increase as damaged components with usage limits on their service lives are replaced with new or overhauled components.

Damage diminution and transport category aircraft: Transport category jet aircraft (Boeing & Airbus) that are operated by the airlines are viewed strictly as income producing tools. These high-utilization aircraft usually fly many legs per day with short ground-time turnarounds, often while being serviced by inexperienced ramp personnel. Over decades of operation, it is normal for these aircraft to suffer many dents, dings, patches, doublers, stiffeners, re-skinned and rebuilt areas. Damage events that would give a corporate jet operator major trauma happens regularly to these aircraft without the associated diminution in value.

Photo 4. A “Major Repair” and the filing of a 337 Form does not always result in a Major Damage diminution in value. Appraisers must use their experience, knowledge, and discretion in these cases.



Damage diminution deals with market perception, not actual airworthiness: The FAA considers an aircraft with damage that has been properly repaired in an acceptable manner to be equally airworthy to an aircraft fresh off the assembly line. Airworthiness in the eyes of the FAA is a black and white issue, an aircraft is either airworthy or it is not. There are no various degrees of airworthiness.

Factor out undamaged high-value components: High value components such as engines can unrealistically skew damage diminution in value. An aircraft that has suffered airframe damage should have the same diminution in value whether it has two brand-new engines or two engines requiring overhaul. The basic concept is to adjust the value of the engines down to their core value when formulating the damage diminution. There are additional factors to consider, but the end result is a value figure that more accurately reflects the true damage to the airframe itself. As a bit of background, it is not uncommon for an aircraft to have many different serial number engines over its operating life. In fact, on larger aircraft, liens are issued separately for the engines that are separate from the airframe lien and the interest in these assets are protected globally through the International Registry (IR).

Expand your team to acquire necessary competency: Before an appraiser gets involved in an assignment that involves a damaged aircraft, it is important to meet the requirements of the USPAP Competency Rule. Damage diminution assignments require specialized technical knowledge. Clients expect their appraiser to be competent in both aircraft valuation and aircraft damage diminution. This is not the time for on-the-job training. If necessary, consider partnering with a more experienced aircraft appraiser or engage the consulting services of a licensed aircraft mechanic or a FAA Designated Engineering Representative (DER).

ConclusionI have given a broad overview of important factors that an aircraft appraiser must consider when involved in a damage-related diminution in value situation. As a working appraiser I have always found these types of assignments to be both interesting and challenging. Perhaps you will also. Helping my fellow appraisers gain greater understanding of the more subtle aspects of the aviation appraisal discipline is an important part of my professional activities. I hope the reader has benefitted from the concepts and ideas presented.

About the AuthorKeith Bransky, ASA, ARM-MTS has been performing aircraft appraisals for the past 24 years. He is president of Jet Appraisal Corporation based in Atlanta, Georgia (www.aircraftappraisal.com), specializing in the appraisal of corporate jet and turboprop aircraft. Keith is a FAA licensed aircraft mechanic and inspector (A&P IA) and an Airline Transport Pilot (ATP) with over 23,000 flight hours. He currently holds ASA office as a Member-At-Large on the MTS Committee. He can be reached by phone at (404) 921-3767 or email at [email protected].



ASA MTS Announcement

ASA Machinery & Technical Specialties Discipline Issues Call for Comments on New Personal Property Appraiser Qualification Criteria

In spring 2015 the Appraisal Qualifications Board (AQB) of The Appraisal Foundation (TAF) approved updates to The Personal Property Appraiser Qualification Criteria. These changes will affect designated members and candidates in three disciplines of ASA: Personal Property (PP), Gems & Jewelry (GJ) and Machinery & Technical Specialties (MTS).

The requirements become effective on January 1, 2018.

ASA first reported on these changes last summer.

To access a full copy of the new Personal Property Appraiser Qualification Criteria, which is available through TAF’s website, visit: http://www.appraisalfoundation.org/imis/TAF/Standards/Qualification_Criteria/Qualification_Criteria__PP_/TAF/AQB_PPAQC.aspx?hkey=36f481cc-8629-47fa-9584-e2dd7f702e88

ASA Machinery & Technical Specialties Appraisers are invited to forward comments about the new Personal Property Appraiser Qualification Criteria by October 31, 2016 to discipline chair, John J. Connolly III, ASA at [email protected].

Comments will be reviewed and edited into a feature article to appear in an upcoming issue of the MTS Journal.



Finding the Right Appraiser is as Easy as ASA R i c h a r d A . B e r k e m e i e r , A S A

After the savings and loan crisis in the 1980s, and again in 2008, the banking industry responded with new rules and additional safeguards for better risk management.

One of the most significant changes involves aircraft appraisals.

Prior to 2008, a simple market evaluation by a resale broker, often with just a quick look at the current edition of the Aircraft Blue Book, was sufficient to secure as much as a 90% loan-to-value ratio for a preowned aircraft. That is no longer so.

Today, most banks, leasing companies, and insurance underwriters require that all loan collateral, including business jets, be valued by a qualified, certified appraiser before financing is approved. Those appraisers must comply with the Uniform Standards of Professional Appraisal Practice (USPAP), which was created in 1989 by the Appraisal Foundation, and is the generally accepted standard in Canada and Mexico as well as the United States.

Two organizations provide such appraiser certification: the International Society of Transport Aircraft Trading (ISTAT), which focuses primarily on commercial airliners; and the American Society of Appraisers (ASA), which teaches, tests, and confers credentials to its members, who conduct professional appraisals for business and personal property valuation. The ASA's Machinery and Technical Specialties division offers the only program to train and certify business aircraft appraisers.

Appraisers earn that aircraft specialty accreditation by completing a rigorous curriculum and peer evaluation. ASA (American Society of Appraisers) accredited appraisers must adhere to the professional standards set forth by ASA's Code of Ethics and Principles of Appraisal Practice, and well as USPAP in North America, or the International Valuation Standard elsewhere in the world.

The two levels of ASA – American Society of Appraisers certifications that are available is:

1. AM - Accredited Member

2. ASA - Accredited Senior Appraiser - which is based on the number of years of appraisal experience, with continuing education courses required to hold either accreditation.

The recent rebound in business jet transaction activity has increased the demand for certified appraisals. To meet that need, two established aviation organizations, Jet Support Services, Inc. (JSSI) (www.jetsupport.com) and Embry-Riddle Aeronautical University (ERAU) (www.erau.edu) co-sponsored and co-hosted two American Society of Appraisers (ASA) accreditation courses earlier this year, one at ERAU's campus in Daytona Beach, Florida, and the other at JSSI's European headquarters in Farnborough, U.K., with more courses planned for this fall.

What does this mean for you, the aircraft owner?

If you are interested in monitoring the value of your aircraft, whether for financing, refinancing, or sale; or to verify hull value for insurance coverage, you will need to have your aircraft appraised by an ASA certified appraiser. This will ensure that you have the most accurate and lender acceptable data available.

On average, expect the appraisal to take about one week, with the physical inspection process usually one full day onsite, and the rest reviewing records and report writing. The appraiser will conduct a systematic inspection of the interior and the exterior of the aircraft, including: engines, airframe, avionics, instrumentation, and other systems; as well as provide a methodical review of your aircraft's flight and maintenance log books, FAA registration, title, and owner's documentation.



Most business jet appraisers avoid "desktop only" appraisals because the inspection and review of the records is extremely important.

In 2015, the average cost for a full appraisal and inspection – required by most lenders – is about $5,000, perhaps up to $7,500, plus expenses. Be aware, however, that a standard appraisal is not the same as a pre-buy inspection for purchase, which can run between $10,000 to $50,000 depending on the size and scope of the work.

Rules for lending have changed dramatically in the past six years. If you have not been in the market recently, know that a proper appraisal will ensure that you secure the right equipment at the right price, while meeting your lender's requirements.

For more information about and to find an accredited Appraiser search the American Society of Appraisers website at www.appraisers.org or call 1-800-272-8258.

About the Author

Richard A. Berkemeier, ASA, is chief appraiser for CB Appraisal Review and Management Group. An active member of ASA’s Board of Governors with 30 years’ banking and leasing experience, he was VP of Citigroups’s Investment Bank. Richard can be reached at [email protected].



The Past and Future of Compliance and Fraud in Aviation: Don’t Fly Blind P e t e r J . T u r e c e k

In just the last year, numerous fraud cases have affected the aviation industry—from widespread Foreign Corrupt Practices Act (FCPA) investigations involving major manufacturers and suppliers, to Department of Defense contract fraud and falsified repair or conveyance records. According to a recent global survey by the Centre for Aviation (CAPA), the cost of fraud for the airline industry alone is $1.4 billion a year, much of it coming from online credit card fraud.1 As a result, it is critical that all companies take appropriate steps to mitigate their fraud risks, including appropriate due diligence steps for vetting transactions, partners, agents and vendors.

The first half of 2015 revealed at least eight new FCPA enforcement actions brought by the US Department of Justice and Securities Exchange Commission, including one against FLIR Systems and one against Goodyear Tire.2 Additionally, Embraer’s five-year long FCPA investigation expanded into more countries as Brazilian authorities filed criminal actions against Embraer employees who allegedly bribed a Dominican Republic official.3

The monetary costs of these fraud and FCPA issues are huge and the fines in recent years listed below do not even touch upon the significantly higher dollar cost of internal investigations and the distraction of executive management from their actual day jobs:

• In 2015, BNY Mellon agreed to pay $14.8 million to settle charges that the company had provided internships to the family members of foreign government officials.4

• Alcoa agreed to pay $384m to settle charges related to bribes paid to Bahraini government officials.5

• BHP Billiton paid a $25 million penalty to settle a case regarding sponsoring the attendance of foreign government officials to the Summer Olympics.6

• In 2014, Avon agreed to a $135 million fine to the DOJ and SEC for FCPA violations, on top of the $340 million they had spent in legal and other costs over an 8+ year internal investigation.7

Regulators outside the US are also looking at the aviation industry. The UK’s Serious Fraud Office launched an investigation into alleged illegal business conduct by GPT Special Project Management Ltd., an Airbus unit.8 More recently, German prosecutors have launched an investigation into Airbus for alleged corruption about projects in Saudi Arabia and Romania. These investigations come on the heels of other SFO investigations into Airbus’ activities in Saudi Arabia and Austria.9

Further, it is not just an international issue. This year alone there were numerous smaller frauds involving the US aviation industry that made headline news:

• President of Transistor & Electronics Components, Inc. convicted of fraud for providing counterfeit electronic components on US Air Force contracts and sentenced to three months in prison and nine months of home detention, plus $163k in restitution10

• Owner of NJ-based Tara Technology Corp. indicted on multiple fraud charges for laundering scrapped parts for resale with falsified trace paperwork11

• Former Carson Helicopter VP sentenced to 12 years in prison for falsifying performance charts and other documents for firefighting helicopters that led to nine fatalities in a crash12

• Former WECO repair station quality assurance manager sentenced to 24 month of probation for conspiracy to falsely certify repairs on parts used by tour company and law enforcement helicopters13



• Founder of Diamond Parts pled guilty to fraud on DoD contracts with poor quality foreign made replacement parts for C-130 Hercules aircraft14

New regulatory changes are also coming including understanding the beneficial ownership of transactions. The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has proposed rules regarding clarifying and strengthening customer due diligence requirements for banks, broker/dealers, and others to include a regulatory requirement to identify beneficial owners of legal entity customers.15

Kroll’s survey in its annual Global Fraud Report 2015-2016 (http://www.kroll.com/en-us/global-fraud-report ) showed the percentage of companies affected by listed types of frauds. However, most fraud goes unreported for a variety of reasons. In many cases, the frauds are never discovered, or if they are identified, the company decides not to pursue civil or criminal recourse. In other instances, many cases that are prosecuted are too small to attract publicity. According to the Association of Certified Fraud Examiners (ACFE), ultimately only about 10% of fraud cases are in fact prosecuted. The size of some frauds is sometimes too small for prosecutors to be interested in pursuing, and often there is a lack of coordination or experience by law enforcement or regulatory agencies in handling corporate fraud matters, particularly those across multiple international jurisdictions.

According to statistics from the ACFE, 88% of fraudsters are first time offenders, never having been previously charged nor convicted. Approximately 8% had prior convictions and 4% had been charged but not convicted.

The results of not knowing with whom you are doing business can be disastrous. In December 2012, a corporate jet crashed in Mexico killing singer Jenni Rivera and others. Subsequent lawsuits filed by insurance companies demonstrated that Starwood Management, the jet’s owner, had lied in their applications about the history of their aircraft and the beneficial ownership. The lawsuits against Starwood focus on Christian Edward Esquino Nunez, a businessman with a long criminal record including falsifying airworthiness and maintenance documents, concealment of assets, falsified loan applications and "conspiracy to possess with intent to distribute cocaine.”16

This crash and the activities that led to it are emblematic of many of the various aviation-related frauds. Aviation companies, and those working with and related to the aviation industry, have a number of key issues worth monitoring in order to remain safe:

• Fraudulent transfer of assets

• Forged documents (conveyances, maintenance, airworthiness, licensing)

• Import/sales tax avoidance schemes including the “temporary” movement of aircraft

• Hidden beneficial ownership

• Undisclosed relationships among parties (e.g. valuation or maintenance by a party with a vested interest)

• Kickbacks/bribes/facilitation payments to government officials

So how does one avoid flying blindly and becoming a victim of fraud, in either a customer or vendor relationship, or a business partnership? It’s all about the DUE DILIGENCE.

Besides the expanding regulatory requirements such as FCPA, UK Bribery Act and other national anti-money laundering/anti-bribery/corruption regulation, it just makes good business sense to ensure that business partners, customers and vendors are who and what they claim to be and are not hiding problems, a history of disputes and unpaid bills in their past, or worse.

Other common red flags to watch for in due diligence include:

• Untrustworthy financials

• Unsatisfactory explanations

• Significant litigation



• Gaps/lies in the resume

• The absence of information

• No social or network presence

Ultimately, there are two ways of doing due diligence:

Pre-transaction or investment: This is the less expensive, less intrusive and less time-consuming form, and therefore the highly preferred method.

Post-investment investigation, audit, litigation consulting, asset searching and public relations assistance: Because such investigations often take place only after an incident or suspicion of fraud, this is VERY expensive route. Post-investment investigations are a very drawn-out process that is also highly distracting to management and an impediment to operations.

However, not all due diligence investigations are created equal. There are numerous levels of depth, scope and cost available depending on the risk, purpose and budget. Broadly speaking there are two very different due diligence approaches: screening or an investigative methodology. Due diligence screening is essentially searching a subject’s name against a select set of online available databases and/or public records. There is generally extremely limited independent verification of fact sets and minimal analysis of findings. However, it is likely the most cost effective solution for high volume projects such as vendor management or customer remediation projects.

An investigative methodology is a much more robust due diligence approach and typically includes a comprehensive review of available public records and databases, following an iterative research process and in-depth analysis of findings by highly trained investigative analysts. This is more of the connect-the-dots type of investigation, where analysts look for not just name matches, but also the omission or absence of information, seeking to explain the gaps in understanding a subject’s background and timeline.

Here is a real world recent example of the difference in screening vs. investigative methodologies, anonymized to protect the client and subjects: A company’s law firm hired our company to conduct a standard investigative background (without source inquiries) at roughly $8,000 as a potential litigation support matter. They had hired an employee in a C-Suite position and asked a screening company to perform an executive background check. The screening company found only one very minor discrepancy—that this employee’s master’s degree was issued on a different date than was stated. Once hired, the new senior executive had, in-turn, hired a consultant, an alleged executive with highly relevant experience, to help with a backlog of work. For whatever reason, after a month, the client grew suspicious and read the employee’s emails to find that the senior executive and this consultant were having an affair and fired the both of them.

Within thirty minutes of starting our investigative work, we immediately noticed discrepancies that the screening did not pick up. First, in our basic Internet searches, we found four different versions of the former employee’s resume, three of which claimed a PhD. Our research showed that degree was never awarded, nor had the employee ever been enrolled in the program. In fact, we found this employee was criminally charged in the late 1980s with a misdemeanor for falsely claiming a PhD in Psychology while employed as a high school Latin teacher (a position that did not appear on any of the four resumes).

Next, we investigated the employee’s assertion that she had been the co-founder and a senior executive from 2000 to the time of the investigation for a $100 million global entity. The screening company had called the phone number provided by the candidate to verify employment and spoke with a Vice President of Operations. In fact, our investigative work found that the company had never even existed—the street address was an independent mail drop vendor in a strip mall; the company’s website domain was registered AFTER the employee had been terminated by our client; the phone number the screening company called was actually the mother’s landline at her condo and the “VP of Operations” was actually a licensed aesthetician.

Our research also found that the employee’s additional prior employment was again fictitious; the employee claimed to have worked as a senior vice president for a multi-billion dollar company for more than a dozen years. A number of other falsehoods



were revealed, including previous connections with the “consultant” – who was actually her real estate agent and home decorator and had no work experience related to the position for which she was retained.

Unfortunately, the screening company found none of these facts, any one of which might have been disturbing enough for the hiring firm to withhold an offer of employment. The screening company did not find the additional resume variations; they did not question the actual existence/viability of the previous entities; they did not validate the phone number of the prior employer; they did not find the misdemeanor charge for falsely claiming a degree award, nor her prior employment as a high school Latin teacher; and they did not uncover the discrepancy in dates where the employee claimed to be working for a company that had yet to be formed.

Companies in any industry, but especially in the aviation field given the large dollar amounts at play, should “trust their gut” when considering doing business with a counterparty, whether a customer, vendor, supplier, etc. There is a reason we all have hair on the back of our necks—to warn us of impending trouble. Just like an instrument rating helps you navigate weather to get on the ground safely, thorough due diligence that is appropriate to the level of deal risk can truly save the day in terms of creating or maintaining smooth business operations. Rather than thinking of due diligence as expensive and a sunk cost, consider it a small but crucial investment in the success of your business.

About the AuthorPeter Turecek is a Senior Managing Director with twenty years at Kroll, an investigations and risk management firm. Pete divides his time between Boston and Kroll’s New York headquarters, where he is primarily based. He is an authority in due diligence, multinational investigations, and hedge fund related business intelligence services, and also conducts a variety of other investigations related to asset searches, corporate contests, employee integrity, securities fraud, business intelligence, and crisis management.

A graduate of Drew University and Fordham University he has a wealth of industry experience, serving clients in banking, hedge funds, private equity, finance and accounting, commercial real estate, legal, insurance, high-technology, media, and mining and metals. Due to this broad range, Pete is frequently engaged for enhanced due diligence and business intelligence investigations regarding specific industries or companies as part of a client's investment research. Pete has often been cited in the media regarding fraud and due diligence as well as asset-tracing and pre-employment investigations of senior executives and directors. In addition, he has appeared on CNBC, Fox News and NPR and has served as a guest speaker on a number of topics for various investment and professional groups. He is also an instrument rated private pilot. Pete can be reached at [email protected] or 212-833-3373 1http://centreforaviation.com/analysis/fraud-costs-airlines-usd14-billion-a-year-regional-airlines-the-fraudsters-carriers-of-choice-48150 2http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml 3http://www.wsj.com/articles/brazil-files-bribery-charges-in-embraer-aircraft-sale-to-dominican-republic-1411502236 4http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml 5Ibid6Ibid 7http://www.sec.gov/news/pressrelease/2014-285.html 8http://www.bloomberg.com/news/articles/2014-07-09/airbus-staff-arrested-in-u-k-serious-fraud-office-s-saudi-probe 9http://www.wsj.com/articles/germany-investigates-airbus-defense-deals-in-saudi-arabia-romania-1417607252 10http://www.osi.af.mil/news/story.asp?id=123455778 11http://www.justice.gov/usao-nj/pr/owner-new-jersey-aircraft-parts-brokerage-company-indicted-laundering-scrapped-jet-engine 12http://www.oregonlive.com/portland/index.ssf/2015/06/former_carson_helicopters_vp_g.html 13https://www.oig.dot.gov/library-item/32732 14http://www.justice.gov/usao-nj/pr/former-owner-defense-contracting-company-admits-defrauding-us-department-defense-foreign 15https://www.fincen.gov/statutes_regs/files/CDD-NPRM-Final.pdf 16http://www.cnn.com/2012/12/11/us/mexico-plane-ownership/



Some Pitfalls of Aircraft Field Inspections G o r d o n R . P a g e , A S A

I have had the good fortune to have travelled the world for my day job as an aircraft broker, consultant and accredited aircraft appraiser. Through my travels, I have viewed many unique aviation collections, and have even had the opportunity to fly over foreign lands in some unique military and general aviation aircraft. Several of those flights were “surprises” from my clients. These have been from clients who know my passion for aviation, and that I founded a museum in the Denver, Colorado area called the Spirit of Flight Center. For whatever reason, clients always think that because I am a pilot, I would certainly like a ride in a plane while I am at a location to inspect an aircraft. Maybe they think a flight will influence a value, even when they know I am there as an unbiased third party.

I have made a promise to myself that I will not be sucked into an offer to fly when I am on an inspection trip, even when it might be in a rare WWII fighter, like a P-51 Mustang. It’s not because the flight could influence my opinion of value. It’s because I have almost lost my life on a few “surprise” flights.

One of those “surprise” flights was during an aircraft inspection trip to Israel to inspect a WWII fighter plane. My client wanted me to see the Holy Land from a different perspective, so a flight was arranged in a Robinson R-44 helicopter. I tried to decline the offer, mostly because I had almost gotten killed in Korea during a flight in a light sport plane a few years before. My Korean pilot narrowly missed hitting power lines and barbed wire fences from that flight, and frankly, it scared the hell out of me.

Despite my efforts to politely decline the helicopter flight offer, I ended up in the air again, breaking my rule to not take flights while on an inspection trip. The flight did provide an amazing view of Israel, but only after we dodged giant high-tension power during takeoff. As a pilot, I have had many dreams of flying and having to dodge power lines, but that takeoff became a real life moment when the helicopter nearly clipped a tower. It was like being in Korea all over again. That wasn’t the biggest problem. During the flight, our helicopter was “painted” by a ground based laser that I was later told was probably a missile launcher preparing to fire. The worst part of the laser tag was the fact that it was on me, and lit up my neck the color of Celtic Green. Thanks to some yelling back and forth from the pilot to ATC, we somehow were not fired upon.

The Holy Land flight has helped me keep my promise to not take any more “surprise” flights. You might call those kind of flights a pitfall when doing an aircraft inspection for appraisal.

There are a few other pitfalls I have faced while doing aircraft appraisal inspections and I admit that I have three Kryptonite’s. Snakes, needles and Brussels sprouts. I have gone my entire life hearing that snakes aren’t that bad. They scare me to death.

I have also heard, “Well if you had Brussels sprouts the way I fixed them, you would like them.” No, no I won’t. As President George H.W. Bush said, “Not gonna do it.”

It seems like I am always asked to do aircraft inspections in remote areas, especially in snake season. One of my inspection trips took me to the desert, North of Tucson, Arizona to look at some WWII aircraft had been in storage for years. It was a thrill for me to look at several Grumman seaplanes, but I was warned before I jumped into the first aircraft that it was Rattlesnake season and they were awake, hungry and aggressive. I spent a full day in the hot sun cautiously looking at each of seaplanes, taking photos and making notes, and hoping to God that I would not accidently step on a snake.

It was indeed a long day, but it was a reminder that you not only need to have situational awareness to not run into a pitot tube, propeller or wingtip, but you also need to be on guard for snakes, wasps and other nasty things that can send you to the hospital, or worse- the grave.



Aircraft inspections can be physically tasking an appraiser. Climbing on top of a WWII B-24 bomber to look for wing corrosion is an example, especially if it has recently rained. Surface water mixed with oil that missed being poured into a 32 gallon, yes gallon, oil reservoir almost sent me to the hospital.

I wanted to look good for a client during an inspection of the mighty B-24 bomber, so I had worn a new button down shirt, new khakis and new dress style shoes that day. Big mistake…

The shoes became roller skates when I stood on top of the wing for my inspection. As I slid towards the rear of the slick surface, I made a decision to fall face down on the wing. It worked, thanks to my new shirt and pants soaking up enough water from the surface to provide enough friction to stop me from falling 12’ to the ground. My new shoes where dangling over the rear edge of the wing when I had eventually stopped sliding. I kicked them off swearing at them as they fell, then gently crawled to the middle of the wing where I cautiously stood up. I gathered myself as my socks soaked up water, then began slowly taking notes as I inspected the wings. To this day, I wear shoes that grip, and clothing that I am not afraid to ruin whenever I do aircraft inspections.

These are just a few pitfalls that I, as an appraiser, have run into when doing a field inspections of aircraft. Trust me, there are many, many more. I keep the following as a reminder to help me in my career, and to keep me out of the hospital.

Always remember-

Know as many of the details of an aircraft you are about to inspect, and dress appropriately. Maintain situational awareness, especially if there are snakes in the area. And maybe most important, never trust a surprise…

About the Author Gordon R. Page, ASA, President - Air Assets International is a past president of the Colorado Aviation Historical Society, founder of the Spirit of Flight Center air museum in Erie, Colorado, and was inducted into the Colorado Aviation Hall of Fame. He has authored the books, Warbird Recovery and Chasing Planes, Adventures of an Airplane Fanatic. Page lives with his family in Louisville, Colorado, where he owns and operates an aircraft sales and appraisal business.

For more information or to schedule a book presentation, please contact Gordon Page at 303-517-5078 or [email protected].



The TEMCO TF-51D Mustang - A Truly Rare Breed G o r d o n R . P a g e

The North American P-51 Mustang was designed to fulfill a British requirement in April, 1940 and went on to become one of the most effective, famous and beautiful fighter aircraft of World War II. After the war, the P-51 Mustang remained in US service with the Strategic Air Command until 1949, and also flew with the Air National Guard and Reserves into the 1950s. It became one of the first fighters to see combat in the Korean War.

By the end of the Korean War, the career of the P-51D, and later designated the F-51D Mustang, had run its course with the United States Air Force. Many Mustangs had been lost operationally during the war, mostly because of the use of an aircraft that was technically ill-suited for operation in the role of ground attack.

In late 1953, the F-51Ds which had been taken from National Guard units during the war were returned to their former operators. There weren’t as many available, so the standard Air Guard unit decreased in size from 25 Mustangs to 16. An IRAN (Inspect and Repair as Needed) line was

established at Norton AFB in San Bernardino, California, to recondition the active-duty F-51D aircraft for reassignment to the Air National Guard.

These Mustangs were given an overall coat of aluminum lacquer, with a flat black anti-glare panel that completely covered the upper panels of the engine cowling. One last modification came as a corrective action measure following a landing accident. The tail wheel indication system had been deleted on all Mustangs following the P-51B-5, which made it possible for a pilot to unknowingly land with the tail wheel up. To remedy this, the tail wheels of all F-51Ds were fixed in the down position, with the tail wheel well doors removed and a canvas boot attached to keep slush and dirt out of the fuselage. Finally, the fuselage fuel tanks were removed.

Since many pilots returning from active service to take up flying with the Guard had no experience of piston-engine tail wheel aircraft, the USAF contracted with the Texas Engineering and Manufacturing Company (TEMCO) of Dallas, to construct 15 two-seat trainers. These aircraft were rebuilt F-51D-25 block aircraft, in which a complete second cockpit with full instrumentation and controls was installed aft of the original cockpit, in the area previously occupied by the fuselage fuel tank. A longer and higher canopy was constructed to fully enclose the rear cockpit

with enough room for the pilot to have full range of motion as he would have in the front seat. The first of these conversions had been flown on July 7, 1951, when it was thought there would be a need to transition a large number of jet pilots into the Mustang for service in the Korean War. The TF-51Ds were assigned on a rotating basis to the various Air National Guard fighter squadrons operating the F-51D until the last F-51Ds left service with the Guard in June 1956.



The Mustang would fly on for the next 30 years with air forces in Central and South America, and the TF-51Ds, modernized in the early 1960s by Cavalier Aircraft as part of the Mustang remanufacturing program to supply F-51Ds to these air forces, would fly on in their role of operational trainer. Seven of the original fifteen TF-51s were still operational when the last Mustangs were turned out of service in the late 1980s and returned to the United States.

With the rise of the warbird movement in the United States, access to a P-51 Mustang trainer became important for safely transitioning civilian pilots, many with military flying backgrounds, but no experience of operating a high-powered piston engine tailwheel airplane. With insurance requirements favoring those pilots who were graduates of a recognized training program for the Mustang, there was a market for Mustang trainers and Square One Aviation in Chino, California, acquired the necessary license to begin remanufacturing TF-51Ds in the late 1980s. During the course of the past 15 years some 12 of these aircraft have been built to the same standard as the Cavalier updates of the original TEMCO TF-51Ds, with a strengthened wing spar and a P-51H-style vertical fin and rudder for increased directional control. Most of these airplanes can now be seen in spurious World War II markings, and one of them has been a participant in the Reno Air Races.

One of these airplanes was owned and operated by retired Air Force Colonel and Apollo-8 astronaut Frank Borman from his base in New Mexico.

TF-51D, “Toulouse Nuts”North American TF-51D, N55CF is one of just three original TEMCO built TF-51Ds remaining in the world. The fighter has been painted in its original markings as a West Virginia Air Guard, 167th Fighter Squadron P-51 called “Toulouse Nuts.”

American Aero Services of New Smyrna Beach, Florida has restored “Toulouse Nuts” to one of the world’s finest TF-51D restorations to date. Four full-time employees put in over eight thousand man hours over a four year period rebuilding this fighter to “brand new” condition. Every surface, rivet, wire and instrument was completed as new from the factory.

The Packard Merlin V-1650-7 V-12 engine was overhauled to factory new by Roush Aviation of Livonia, Michigan. The rollers, cams, pistons, valves and head bolts are all upgraded.

Maxwell Aircraft Service of Minneapolis, Minnesota overhauled the four-blade, cuffed propeller and hub to factory new standards.

This TF-51 is truly a work of art.

Values of flying examples of all models of the North American P-51 have been stable over the last five

years. However, restored examples of original TEMCO TF-51 aircraft are held by major collectors and rarely come up for sale. They are highly desirable for training and living history ride experience purposes, bringing as much as $4500.00 per hour. They are clearly in a league of their own. TF-51 Mustangs that have been converted from a standard P-51 consistently sell for two times or more than the selling price of single seat P-51s.

Air Assets International recently inspected “Toulouse Nuts” at the 2016 EAA Airventure in Oshkosh, Wisconsin. It met all expectations as the finest example of a TF-51D in the world. The judges at EAA Airventure agreed with the assessment, and awarded the TF-51D Mustang the prestigious Grand Champion award at the event.

Look for “Toulouse Nuts” to be on tour with the Collings Foundation beginning late summer, 2016. You too, can get a ride in a truly rare and world-class TF-51 Mustang.



Detailed Pictures for: The TEMCO TF-51 Mustang



About the AuthorGordon R. Page, ASA, President - Air Assets International, is a past president of the Colorado Aviation Historical Society, founder of the Spirit of Flight Center air museum in Erie, Colorado, and was inducted into the Colorado Aviation Hall of Fame. He has authored the books, Warbird Recovery and Chasing Planes, Adventures of an Airplane Fanatic. Page lives with his family in Louisville, Colorado, where he owns and operates an aircraft sales and appraisal business.

For more information or to schedule a book presentation, please contact Gordon Page at 303-517-5078 or [email protected].



Bizjets not Business As Usual D a n i e l H a l l , A S A

Originally printed in VIEWPoint - Issue 50 1st Quarter 2016



Issue 501st Quarter 2016

Ascend Flightglobal Consultancyascendworldwide.com16

It is fair to say the manufacturers at the top end of the market have been feeling the pain. Backlogs are shrinking

and Bombardier and Gulfstream have both announced production rate cuts. Dassault has been public about the

harsh realities of the market and saw a near 20% drop in new deliveries and 50% decline in orders. With 25% of

Dassault’s deliveries going to Asia/Latin America in 2013, the manufacturer is more exposed to emerging markets

than other OEMs. Dassault Falcon 7X deliveries, for example, more than halved from 2014 to 2015.

Values

It would not be a discussion about the business jet market without some reference to Market Values. While it

appeared 12 months ago that some stabilisation was taking place, through 2015 it became apparent that certain

strands of the market (namely the large cabin segment) were showing some serious signs of weakness in light of

the emerging markets slowdown and reduced demand from oil-producing (or benefiting) corporations or countries.

Headlines include 16% year-on-year declines in Gulfstream G550 Market Values (or by up to 20% for older

vintages). The G450 reads just as poorly – also down by 16% to as much as 23%. The Bombardier Globals fell by

a smaller margin, while the G650 took a 10% hit and the Falcon 7X is down 9% year on year. In the midsize space,

the Challenger 604 performed better (down 6%) but its newer sibling, the 605, saw an 18% hit. Falcon 2000s saw

an under 7% decline but the Challenger 300 and Gulfstream G200 both saw Market Values down by 14%.

What exactly is going on here? Why the stark difference? It is all about inventory levels and aircraft age. Models

such as the G450 and G550 may meet the so-called “10% for sale metric” but they are plagued by high absolute

numbers of aircraft for sale. With over 30 of one model for sale, there is a lot of (usually older) vintage concentration.

NEW BUSINESS JET DELIVERIES BY SIZE SEGMENT

0

50

100

150

200

250

300

350

Large / ULR / BizlinerMidsizeLight

2013 2014 2015

SOURCE: Flightglobal Fleets Analyzer

New Deliveries





17Ascend Flightglobal Consultancy ascendworldwide.com

Using current and historical Ascend Values data, we can demonstrate this in the two charts that follow.

The chart below reflects constant age Current Market Values for 10-year-old large cabin business jet types since

2012. In a completely stable market, these lines would be flat, while in a softening market (as appears to be the

case today), they would trend down, and vice versa in a strengthening market. Clearly here, the only way is down.

In three years, the CMV of a 10-year-old Global Express classic moved from $27.50 million to $18 million. A Global

5000 has fallen by 24% for the same age of aircraft, in little over two years. Similar percentage falls can be seen

for an early-build, 10-year-old G550, worth $30 million back in 2013 and trading today for around $22 million. The

G450 has trended in similar fashion.

If we look over the same data but for popular midsize models, we see a similar picture. It is interesting to review

the Challenger 300 and 604 relationship. While both have fallen by around one-quarter for the same age, at many

points a Challenger 300 was actually worth more than a more capable Challenger 604. Why? Firstly, because of

the market perception on technology and in-production versus out-of-production models. Secondly, this is due to

inventory levels – which is why the Falcon 2000EX EASy has fared pretty well. Embraer’s Legacy 600 has had a

torrid four years, with the Market Value of a 10-year-old model falling by 40%. Will it continue to decline?

CMV, US$m

CONSTANT AGE MARKET VALUES OF 10-YEAR-OLD LARGE/LONG RANGE BIZJETS

SOURCE: Ascend Values from Flightglobal

0

5

10

15

20

25

30

35

20162015201420132012

Global 5000 Global Express Global XRS G450 G550 F900EX EASy





The information contained in our databases and used in this publication has been assembled from many sources, and while reasonable care has been taken to ensure accuracy, the information is supplied on the understanding that no legal liability whatsoever shall attach to Ascend – part of Flightglobal, Reed Business Information Limited, its offices, or employess in respect of any error or omission that may have occurred. ©2016 Reed Business Information Ltd

Contact usVisit our websites:

ascendworldwide.com

flightglobal.com

For more information, call us now:

The AmericasNew York Office +1 646 746 6845

Washington Office +1 703 706 9470

[email protected]

Europe, Middle East and AfricaHeathrow Office +44 (0)20 8564 6700

London Office +44 (0)20 7911 1700

[email protected]

AsiaHong Kong Office +852 2813 6366

[email protected]

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[email protected]

Singapore Office +65 6780 4315

[email protected]

Aviation 2020 community LinkedIn group ‘Ascend Aviation’

LinkedIn group ‘Flightglobal’

twitter.com/AscendAviation

twitter.com/Flightglobal

High inventory levels are to blame for the most recent value declines, and unfortunately for many of the types

above, they are trending in the wrong direction. The year 2016 is set to be another interesting one and Ascend will

be watching and reporting on it very closely.

CMV, US$m

CONSTANT AGE MARKET VALUES OF 10-YEAR-OLD MIDSIZE BIZJETS

SOURCE: Ascend Values from Flightglobal

0

2

4

6

8

10

12

14

16

18

20162015201420132012

CL604 CL300 Legacy 600 F2000 F2000EX




Spotlight on New Aircraft Appraisal Education Program

Editor’s Note: Embry-Riddle Aeronautical University (ERAU) has signed an agreement with the American Society of Appraisers (ASA) to be the sole provider for three years of required coursework for professional aircraft appraisers to apply for worldwide accreditation. As part of the agreement, Embry-Riddle will develop and update four courses in coordination with ASA materials, composed of 30 hours. Starting off the course series is the Introduction to Machinery and Equipment Valuation (Aviation Specific) to be held on Thursday, October 27-Sunday, October 30, 2016 at Embry-Riddle Aeronautical University Campus in Daytona Beach, FL. ASA sat down with Dr. Michael Williams, Dr. Sunder Raghavan, ASA, Dr. Vitaly Guzhva, ASA, David Crick, ASA, and Richard Berkemeier, ASA to get the inside scoop.

What are your thoughts on the ASA/Embry-Riddle education program being held on the campus of Embry-Riddle?

Dr. Michael Williams: Aerospace is a very complex industry that requires both the practical and theoretical aspects. Fortunately for us our faculty, through the training of ASA, are able to bring these two criteria together to help our academic efforts. Partnering with ASA, who hold outstanding instructors assisting us, is the perfect thing to do.

What does Embry-Riddle bring to the table in terms of appraisal education?

Dr. Sunder Raghavan, ASA: Embry-Riddle is ranked number one in aviation aerospace. The idea of having this course in an educational institution, which has access to flight lines, helps students gain practical experience. Students will be able to explore the aircraft, examine them, and gain a sense on how to appraise it. Embry-Riddle has a great flight department that organizes tours for students when they first enter into the program. This gives their education value by not only giving them a physical idea on how to approach an appraisal but also a practical sense on what the aircraft are.

What can students expect when taking this Embry-Riddle course (Introduction to Machinery and Equipment Valuation-Aviation Specific) and what can students expect for future Embry-Riddle courses?

Dr. Vitaly Guzhva, ASA: This is an introductory course that shows you the basics of aircraft appraisals. Our expectations are to give students a combined academic and practical approach in each of our courses. Student will be able to look forward to a variety of guest speakers related to aircraft appraisals as well as field trips on and off campus.

Are the ASA/Embry-Riddle classes respected globally?

David Crick, ASA: A number of students have been involved with Embry-Riddle prior to this program. The cross section of international students is mandatory for this industry because there is a significant portion of aviation assets that are located around the world. It is important to have international appraisers that are outside of the United States that understand the methodology and the process of appraising aircraft. By having both ASA’s and Embry-Riddle’s methodologies, it allows appraisers to expand on different areas rather than being limited to what they know.

Entrance of Embry-Riddle

Embry-Riddle Aircraft



As ASA’s Machinery and Technical Specialties education chair, instructor, and course developer how is the program going?

Richard Berkemeier, ASA: ASA has taught these courses with Embry-Riddle from around the globe including Europe, Australia and the United States. The program is recognized as the gold standard for aircraft appraisal education that hold the best and the brightest. Students include banks, leasing companies, insurance companies, appraisal firms, and Embry-Riddle students. Not only is this a world class appraisal education with a global student body, it sets the gold standard for Appraisal Education. Great instructors, speakers, facility, tours are all on the Daytona Beach Embry Riddle Campus.

More exciting and informative sessions are offered at Embry-Riddle throughout the year. Jeffrey Dunn will give you an up close and intimate view of the industry from a banking perspective with the Ups and Downs of Business Aviation. Paul Cardarelli will speak on the state of the aviation market as observed by JETNET iQ.

The American Society of Appraisers would like to thank all those who have contributed to these growing programs and to the advanced of aviation education.

Dr. Michael Williams, Dean of College of Business

Dr. Michael Williams is Dean of the College of Business and Professor of Information Systems at Embry-Riddle. He has a PhD in Computer Technology and is a certificated Airframe and Powerplant (A&P) technician. His academic areas of expertise include information systems, radio frequency identification (RFID), electronic commerce, intermodal transportation and aviation maintenance management.

Dr. Sunder Raghavan, Master’s Program Coordinator Aviation Finance

Dr. Sunder Raghavan, ASA started his career by receiving his PhD at Washington State University in Finance and Economics. He later joined Embry-Riddle 15 years ago focusing his research on airline mergers & acquisitions and aircraft leasing. He is currently a Seno Professor of Finance and Master of Science in Aviation Finance (MSAF program coordinator. In collaboration with the International Society of Transport Aircraft Trading (ISTAT), whose members are involved in operating, manufacturing, maintaining, selling, purchasing, financing, leasing, appraising, insuring or other activities related to the commercial aviation sector, he has been expanding the aviation finance and leasing programs.

Dr. Vitaly Guzhva,Professor of Finance

Dr. Vitaly Guzhva, ASA is a Professor of Finance at Embry-Riddle Aeronautical University. As a corporate pilot, researcher, and educator Dr. Guzhva has over 20 years of experience in aviation, including providing opinions of value for aircraft and components of aviation infrastructure.

Inside of Embry-Riddle Aircraft



David Crick, ASA, Machinery & Technical Specialties Appraiser

David Crick, ASA has over 20 years of specialized valuation experience in many different sectors with considerable knowledge of corporate valuation requirements for mortgage security assessments, litigation support & liquidation disposals, which he regularly uses for fixed-wing and rotary-wing aircraft valuations in many different international jurisdictions.

Richard Berkemeier, ASA, Machinery & Technical Specialties

Richard Berkemeier, ASA is a senior asset management professional offering more than 20 years of appraisal experience within the capital markets, including risk management, inventory assessment, appraisal review, liquidation expertise, debtor-in-possession financing, and collateral management.

Jeffrey Dunn, Vice President, Asset Management – Corporate Aircraft at Citizen Asset Finance

Jeffrey Dunn has over 16 years of experience in the aviation industry and currently serves as Vice President of Asset Management/Aircraft for Citizens Asset Finance. Jeff began his aviation career in the United States Air Force (1999-2008) where he worked as a jet engine depot-level mechanic on Pratt and Whitney TF33-P-5/P-7 engines (RC-135 aircraft) and General Electric F110-GE-100 engines (F-16 aircraft). After being honorably discharged in 2008, Jeff gained his Airframe and Powerplant rating from the Federal Aviation Administration and worked as an aircraft mechanic at J.A. Air Center for 2 years (2008-2010).

Paul Cardarelli, Vice President of Sales at JETNET

Paul Cardarelli is part of the very foundation that built and supports JETNET. He has been with the company from its inception in 1988 when he began his career working in the Research Department. There he gained his knowledge of the business aircraft sales trade and the market in which occurs. In 1994 he was promoted to Sales Director, and today manages a staff of thirteen with responsibility for all JETNET subscription sales worldwide.

For more information about the ASA/Embry-Riddle aircraft appraisal education program, visit ASA online, call (800) 272-8258 or e-mail [email protected].



Do Business Jets Have a Pedigree? B i l l D o d r i l l , A S A

The appraisal of a business jet is typically accomplished by use of the market approach. While the income and cost approaches must always be considered, circumstances in the vast majority of cases direct the appraiser to the market approach. The simplest form of a market approach valuation considers the overall market for the subject aircraft and how the subject compares to recently sold aircraft of the same type. Aircraft appraisers should introduce more variables into the comparison equation which will equate to a more accurate opinion of value. Some of these include aircraft paint, interior, avionics, and optional equipment. This article will attempt to present how pedigree comparison may be used in the appraisal of business jets.

Merriam-Webster defines Pedigree as:

-The origin and history of something especially when it is good or impressive

“Something” in our case is an aircraft. The “origin” is the aircraft’s manufacturer. The “history” is the aircraft’s use, owner/operator(s) and maintenance provider(s) over the life of the aircraft. When

using the market (comparable sales) approach to value and the aircraft appraiser mentions pedigree, it is this “history” that he or she is referring to. The “history” could be, in varying degrees, good and impressive or bad and unimpressive. The aircraft total hours/cycles, engine hours/cycles, engine and airframe warranty programs, etc. are objective and easily defined history. Some appraisers consider damage history as part of pedigree while others will treat damage history separately. Some variables that are sometimes neglected are the more subjective aspects of an aircraft’s history some of which include maintenance log condition, the aircraft’s operator(s), maintenance provider(s) and country where the aircraft has been based.

It is widely accepted that good aircraft appraisals tell the story of the aircraft. History plays a part in all stories; therefore, shouldn’t aircraft appraisals consider pedigree? Discussion and often times disagreement occurs when an appraiser offers his or her opinion of pedigree’s effect on value.

The following, purely fictional, aircraft comparison case studies present pedigree differences that a business jet appraiser may encounter. The question we should be focusing on in these studies is whether or not one aircraft deserves a premium in value opinion over the other based on aircraft pedigree.

Case Study 1Appraiser research confirms the two comparison aircraft presented are of the same type, similarly equipped, in similar condition and have similar flight times. Nether aircraft has damage history.

N1234 is a 2011 Cessna Citation X+ that was owned since new by Huge Oil and Gas Corp. (HOGC). This aircraft has operated under the Cessna Aircraft ProParts parts warranty program, ProTech labor warranty programs and the ProPower engine/APU warranty programs. HOGC has had a multi jet flight department for 40 years and employs 2 fulltime line service technicians, 6 mechanics and 12 pilots. All of HOGC’s employees receive annual technical and safety training. The company flight department operates to a standard above and beyond Federal Aviation Administration (FAA) regulations and the National Business Aircraft Association’s (NBAA) best practices. All aircraft maintenance and inspections were done by HOGC company mechanics and on occasion by a Cessna Citation Service Center.

N2345 is a 2011 Cessna Citation X+ that Jack “high net” Worth had owned since new. This aircraft has operated under the Cessna Aircraft ProParts parts warranty program, ProTech labor warranty programs and the ProPower engine/APU warranty programs. This was the first aircraft Jack Worth had owned or operated. He employs a staff of 3 full time pilots.

His pilots go to annual technical and safety training and operate the aircraft above and beyond NBAA best practices and FAA regulations. The jet was based at an airport that also has a Cessna Citation Service Center on the field. All maintenance and inspections were performed by Cessna Citation Service Centers.



Case Study 2Appraiser research confirms the two comparison aircraft presented are of the same type, similarly equipped, in similar condition and have similar flight times. Both have new paint and interior. Nether aircraft has damage history.

N9876 is a 1985 Gulfstream IV that was owned by Giant Computer Chip and Software Corp. (GCCSC) since new. The aircraft was flown all over the world in support of GCCSC’s sales and manufacturing efforts. GCCSC has a professionally run flight department and operates within all FAA regulations and NBAA’s best practices. All maintenance and inspections were conducted by Gulfstream Aerospace or Gulfstream Aerospace authorized service providers. The engines have been on the Rolls Royce Corporate Care engine warranty program since new.

N4321 is a 1985 Gulfstream IV most recently owned by ACME Air Charter. ACME Air Charter has owned the aircraft for the past 5 years. Appraiser research notes that the aircraft had at least 5 previous owners and that the aircraft logbooks were kept in a “sloppy fashion”. Several airframe maintenance inspections accomplished over the last five years were done at repair stations not known in the industry for working on Gulfstream Aerospace aircraft. Many repairs logged in maintenance records were accomplished by individual Airframe & Power plant mechanics not affiliated with a repair station. ACME Air Charter has had several FAA enforcement actions concerning the maintenance of its aircraft. The engines have been on the Rolls Royce Corporate Care engine warranty program since new.

In Case Study 1, the argument could be made that the comparison aircraft pedigrees are so similar that there would be no effect on value. Some might conclude that N2345 deserves some premium due to having Cessna Service Centers conduct all the maintenance. Still another could suggest that HOEC’s flight department has been operating a “first class” flight department that is known for an attention to detail that exceeds anything that Jack Worth could have contracted for in the operation of his aircraft and therefore HOEC’s aircraft deserves a premium.

If these aircraft were priced and equipped the same which one is the average buyer likely to purchase? How much of a price discount would it take for an average buyer to purchase the other one?

In Case Study 2, the argument could be made that since the aircraft have similar flight times, are similarly equipped, have new paint, new interior, have complete logbooks and are up to date on all inspections, the values are the same. This argument does not consider all aspects of pedigree in the value opinion. Another may argue that given the operator’s reputation, sloppy record keeping, the use of “shade tree” mechanics and the FAA enforcement actions that a significant degrading of value should be applied to the ACME Air Charter jet.

If these aircraft were priced the same which one is the average buyer likely to purchase? At what discount is the ACME aircraft likely to sell?

Typically, the aircraft buyer will choose the aircraft with the better pedigree until the price difference compels the buyer to choose the aircraft with the less stellar pedigree.

The appraiser, however, must look at aircraft pedigree and assign a value adjustment to it that is defendable. Portions of aircraft pedigree such as aircraft total time, engine times, warranty programs and etc. are easily adjusted for in a broadly accepted manner. The more subjective factors included in aircraft pedigree such as operator reputation, repair station reputation, maintenance log condition and geographic base do not have an accepted method of value adjustment and therefore are not easily defended. These subjective factors should be mentioned in the appraisal report, but assumptions may be utilized to negate the use of a value adjustment when necessary.

It should be recognized that these case studies are simplistic by design. They attempt to represent extremes of possible subjective pedigree situations. Other factors will be encountered when placing a value opinion on pedigree. Some of these include aircraft type, number of type and vintage of aircraft currently for sale, current market conditions for same and similar aircraft, and etc. In a perfect world the appraiser could obtain the complete pedigree information of the subject and comparable aircraft and include an all-encompassing pedigree adjustment. In reality, with the time and cost constraints associated with most aircraft appraisals, this is not possible.



While not every aircraft appraisal will contain an adjustment for pedigree, appraisers should consider pedigree in every aircraft appraisal. An appraisal report that includes pedigree information on the subject aircraft, and if possible the comparables, will present a more accurate opinion of value than one that is absent of pedigree information and relies on extraordinary assumptions to exclude all differences in pedigree.

Due to the complexity of business aircraft appraisals and the varying conditions that can be present in the marketplace, it is important that banks, insurance companies and other users of business jet appraisals choose an appraiser with not only appraisal experience but also with knowledge of the inner workings of maintaining and operating these aircraft types. Additionally, the appraiser with an extensive network of industry contacts in all facets of owning and operating business aircraft will likely produce a more accurate opinion of value.

About the AuthorBill Dodrill, ASA is the founder and appraiser for Flight Line Appraisals. He is an American Society of Appraisers Senior Aircraft appraiser. He has over 34 years of aviation experience, is a graduate of Embry-Riddle Aeronautical University and holds an Airline Transport Pilot license with 15 aircraft type ratings.

Contact Bill at [email protected]



Aircraft Maintenance Condition and Asset Value B a r b a r a A . S p o o r , A S A

Is there a relationship between an aircraft’s maintenance condition and its value? Well, the short answer is: generally, yes.

Let us first look at what comprises an aircraft. An aircraft is a machine that is itself comprised of several other machines (machines within a machine). These individual machines (components) all have their own NUL (Normal Useful Life) and scheduled maintenance requirements. Furthermore, each individual component has a value that is part of the overall machine. (This does not necessarily mean the sum of the parts equal the aircraft’s value – which is rarely the case.)

Delving a little deeper, there is value differential based on utilization of the asset. The more remaining useful life available on the aircraft’s components, the greater the value of the machine in its entirety. Sometimes valuation challenges arise when an aircraft (asset) has high time and recently overhauled (restored) components, or the asset is a newer model with higher than average utilization.

If you had two assets and they were basically identical (meaning, same year of manufacture, make, model, etc.) and one had more flight time (utilization) than the other, which one is worth more? You may lean toward the less utilized asset, and that may be correct. However, what if the engines and landing gear had recently been overhauled and a major phase inspection had just been completed on the aircraft with higher utilization?

What if you had two assets (again, both basically identical) and one asset had higher time and/or was a year or so older. You may again favor the newer aircraft. But, what if the newer aircraft was coming up on a major and costly inspection, while the older asset had engines that were covered by an hourly maintenance cost insurance program and was sporting new paint and a lovely, refurbished interior?

Not quite as clear now, right?

One last example, what if an aircraft was involved in an incident resulting in damage? Sitting on the ramp after appropriate maintenance and repairs were completed the aircraft might look better than new. How does its involvement in an incident affect its value? What repairs were accomplished? Who performed the repairs? Did the airframe manufacturer authorize and sign-off on the repairs? The asset’s value hinges heavily on the answers to these questions and the specific maintenance performed.

Yes, maintenance does affect value.

Sometimes the older asset may be the smarter purchase and sometimes not. Experts will tell you that aircraft maintenance condition analytics are neither simple nor linear. There are, in fact, several important aspects to consider, aside from the aircraft’s flight hours, landings, or the passage of time (calendar-based maintenance events) which are the basis for any aircraft’s Scheduled Maintenance program, and all play a role in determining the “better value” asset. These may include the answers to questions such as: Where is the asset in its maintenance cycle? What is the cost of the maintenance coming due? What is the value of the maintenance already completed? Last but not least, how does the asset place with respect to desirability, marketability, and ranking among its peers (just like a credit score)?

An older aircraft may actually be a “better buy” based on maintenance status, overall condition, and utilization. Suppose, for example, that the owner planned to operate the aircraft well below the industry’s average annual utilization. Purchasing an older, less expensive, asset may be advantageous. On the other hand, the older aircraft may actually be coming up on maintenance or required technical upgrades that cost more than the actual value of the asset (even after the improvements). For these reasons, a thorough mission and maintenance status analysis needs to be conducted in order to determine the asset’s Normal Useful Life and actual “value” to the prospective buyer.

Lastly, it is important to realize that some maintenance events do provide quantifiable additional value. Which events? How much value? Those are both critical questions requiring a great deal of detailed analytics, specific asset knowledge, and current



market trend information. The staff here at Asset Insight would be pleased to help you steer a safe course toward a financially optimized solution. Every aircraft has a final owner. The key is not becoming one – unintentionally.

About the AuthorBarbara A. Spoor, ASA, (MTS – Aircraft, MTS – M&E and ARM), Executive Vice President of Asset Insight, LLC.

Barbara is a founding member and officer of Asset Insight, LLC (formerly SAI Valuations, LLC), a premier aviation valuation corporation. Barb specializes in aviation related valuations ranging from aircraft, to machinery, equipment, inventories, spare parts and all aviation related valuations. Barbara has been appraising aircraft and related aviation equipment since 1991, has over 25 years’ experience in the aviation industry and over 1700 hours flight time. She has worked and continues to work in aviation valuations, aircraft finance, aviation insurance and manages a full service aircraft maintenance facility. Her formal education includes a Bachelor in Business Administration with a minor in Accounting. She also received the training necessary to facilitate most aviation related valuations which included classes, testing and training required by the American Society of Appraisers to become accredited in Machinery and Technical Specialties with Aircraft and Machinery & Equipment designations and Appraisal Review and Management. Barbara has an in-depth knowledge of most aircraft ranging from antiques to corporate jets to airliners and beyond.

Barbara possesses and maintains, the following certificates, licenses, accreditations and memberships: Commercial Pilot, Certified Flight Instructor, Insurance Producer (in all lines), Accredited Senior Appraiser and Member of the American Society of Appraisers (ASA), member of National Business Aviation Association (NBAA), member of National Aircraft Finance Association (NAFA), member of the Experimental Aircraft Association (EAA), and a member of Aircraft Owners and Pilots Association (AOPA).



The Key to Your Aircraft’s (Future) Value D a v i d W y n d h a m

The original version of this article was published on AvBuyer.com

[http://www.avbuyer.com/articles/business-aircraft-ownership/ the-key-to-your-aircrafts-value-part-1-of-3/]

When an appraiser gets access to an aircraft for a valuation, they look at the aircraft’s current condition and, taking into account the current market, arrives at a set of values for the aircraft depending on the circumstance. Too often in today’s market, the appraiser is the bearer of bad news. It’s important for the aircraft owner to realize that while they can’t control the market, they still retain much control over the value of their aircraft’s worth as it ages. It’s called Asset Management.

The business aircraft is an asset. It is an item of value that is controlled by the owner and the aviation department. Maximizing its value is a function of how the aircraft is managed in three areas:

• Its utilization,• Its financing, and

• Its maintenance.

Understanding and balancing these three areas can keep the aircraft in a “ready to sell” condition while still offering productivity.

UtilizationThe first area to manage is utilization, or useful life. The major drivers in this arena are hours flown, number of cycles (take-offs/landings) logged, aircraft age, and regulatory limits on its components, such as engines and systems.

We had one client with a global business jet that in addition to conducting long-range missions, started flying a number of short trips with light passenger loads.

In addition to the scheduling issues, we looked at the potential loss of residual value based on the time and increased cycles.

We knew that a used mid-size business jet would meet the short trips with ease, and we calculated that the majority of the added costs for the second aircraft would be offset by the reduced costs of operating the global jet fewer hours and the reduced market depreciation on that long-range aircraft due to lower utilization.

Aircraft availability can be managed as well. Keeping an older aircraft ready for dispatch usually requires more maintenance, both in downtime and money. Older aircraft can also see more intensive inspections and may have to enter a corrosion control program as the airframe ages.

If the aircraft owner’s usage strategy calls for high utilization and high rates of availability, they may be better served with operating newer aircraft. One operator we worked with flies 600 to 700 hours annually. They buy new aircraft and replace them at about age six, which corresponds with the end of the warranty as well as the end of the tax depreciation, and before any major maintenance is due.

FinanceThe next area to manage is the financial life of the aircraft. If the aircraft is financed, this includes the term of the lease or loan. Business aircraft in the US can be tax-depreciated by the owner aggressively under the MACRS Five-Year schedule. But is that depreciation useful to the company or are they better served by taking greater tax write-offs further down the road? Write-offs



are great when there are profits to protect, but the CFO is looking ahead to more than just next year. He or she manages the tax burden of the entire corporation over the long haul.

Operating leases have end-of-lease terms that require the aircraft to be in very good condition when returned. Much like the automobile lease charges for higher mileage cars at lease end, a similar adjustment can be made on the aircraft lease. The aircraft utilization strategy may render a lease less attractive.

MaintenanceLastly is the physical condition of the aircraft. This is within the responsibility and control of the aviation department. It involves the appearance, configuration and mechanical condition of the aircraft. The aircraft mission defines its utilization while the corporate financial plans primarily define its financial life. In order to maintain value with those two restrictions, the aviation department needs to have a plan to proactively keep the aircraft in the best condition – ready to sell.

The first task is keeping the aircraft clean and the interior wear and tear to a minimum. As a rule of thumb, if the business aircraft interior has gone about seven to eight years without a refurbishment, it is too old. The market value of a business aircraft will be decreased if the interior is old or out of date, not just visibly worn. The same rational applies for paint. Not only are touch-ups necessary, but so is the repainting of the aircraft on a regular basis. Aircraft that spend a lot of time outdoors, especially in dusty environments, may need repainting more often than one always hangared.

It is rare, but I have heard of an owner spending $40 million on a business jet and then parking it outside because the hangar rents were too high!

The configuration of the aircraft needs to be kept updated in order to maximize its value. Do you still have that old Betamax player in the cabin? Maybe it’s time to get a DVD player…

The status and type of aircraft avionics are a big concern here. If the standard aircraft for sale in the aircraft’s category has triple inertial navigation units (INUs), the aircraft that has two INUs will have a lower relative value and be less desirable in the market.

If the aircraft owner is looking at getting a new avionics suite for their older aircraft, they need to consider what the current production variant of the aircraft has for the systems and evaluate matching that setup. One of a kind is great for art and not so good for maximizing aircraft value.

Too often, the aircraft owner realizes a greater loss in value not due to the vagaries of the market, but to a lack of planning for maintaining the value of the aircraft. Proper Asset Management techniques will minimize the “hit” an aircraft takes in a down market and enable the seller to present a good value to a buyer. As an appraiser, you may not have much effect on the seller (this time), but perhaps a word to the wise for the next buyer will help avoid the “bad news” scenario next time they sell.

About the AuthorDavid Wyndham is a co-owner with the aviation-consulting firm of Conklin & de Decker, which he joined in January 1993. David’s primary focus is on quantifying the aviation operation from mission requirements and operating costs, through key performance metrics. His responsibilities include developing and managing new products for the aviation industry, conducting mission critical consulting studies, and managing the technological development of the products. David regularly speaks at seminars. He also writes monthly about business aviation management for both online and print publications. David’s experiences in business and in aviation make him able to communicate about all levels of business aviation from the boardroom to operations.

For eight years prior to 1993, Wyndham was an Instructor Pilot with the US Air Force. His responsibilities included aircrew training and safety, operations scheduling, and coordination of flight test support sorties with civil and military test engineers. Responsibilities also included coordination with multinational forces for airdrop of personnel and supplies, transportation of VIP’s, flight operations in an international environment. He held a Top Secret/SCI security clearance.



Wyndham earned a Master of Aeronautical Science from Embry-Riddle Aeronautical University in 1993 and has an undergraduate degree in Mathematics from the University of New Hampshire. He also has an Air Transport Pilot certificate.

David Wyndham works out of the firm’s Orleans, Massachusetts’s office.

Conklin & de Decker, celebrating more than 30 years in business, is a leader in aviation research, consulting and education with offices in Massachusetts, Texas and Arizona. The company, founded in 1984, focuses on fixed- and rotary- wing aircraft operating cost, performance and specification databases, maintenance management software, financial management, fleet planning, market research, aviation tax issues, and financial, tax and management seminars. Conklin & de Decker consults with numerous individuals, corporations and government agencies worldwide. More information on their products and services, copies of articles published, and a unique “Members Only” section can be found on their website, www.conklindd.com.

P.O. Box 1142 * Orleans * Massachusetts * 02653 TEL: (508) 255-5975 * FAX: (508) 255-9380 * [email protected]



Valuing the Gulfstream G550 C a r l s J a n s s e n s

How technology, support and market demand define value

While on a recent assignment in Colorado, I had the opportunity to have lunch with one of Aircraft Bluebook’s intelligence partners, Dennis Rousseau of Aircraft Post.com. We were at the Perfect Landing Restaurant inside Denver jetCenter at Centennial Airport with a great view of the tarmac and ramp. Typical for midday, midweek activity, we were entertained by numerous arrivals and departures. One particular arrival was a Gulfstream G550. Armed with our laptops, a quick inquiry revealed registration to an energy company. Departing the aircraft were passengers dressed in field attire. These passengers could have been executives, but more than likely they were engineers who were needed at the heart of an exploration or development expedition. The scene could have been used for a poster for the NBAA’s and General Aviation Manufacturers Association’s “No Plane No Gain” campaign for the recognition of the value of business aviation.

To coin another branding slogan, it was a “Kodak moment.” And, just as the Eastman Kodak Co. has repurposed its product development from print to digital technology, so too has business aviation evolved from the transportation of presidents and board members to the strategic deployment of the human factor and materials that are the centerpiece of a growing global economy. The mission of business aviation has expanded. And this expansion has brought new technologies that are more conforming to green environmental endeavors as well as regulatory compliance issues in the everevolving complexity of integrated avionics in the cockpit. So, what are the driving factors behind that ageold economic factor of supply and demand? And, to take it one step further, how do these factors impact the value of a business aircraft, such as the Gulfstream G550? Using a Gulfstream G550 with an inservice and Certificate of Airworthiness date of 2007, a microeconomic perspective will review what impacts value for this aircraft. It all starts with a sales agreement for the preowned G550.

Getting Started with Some StatisticsBefore moving into a specific serial number (a hypothetical 2007 inservice and original FAA C of A), we’ll provide some statistical facts unique to the Gulfstream G550. For market summary, AircraftPost.com reported in December 2014 that there are approximately 470 Gulfstream 550s known to be operational worldwide. Of that total, 34 were reported as offered for remarket through sale or lease. This equated to about 7.2% of the global G550 inventory. And, of these 34 aircraft, 28 were identified as original owners. Days on market to transaction averages 171 days. New deliveries continue to expand the global inventory. It was interesting to note that the majority of the available G550 inventory was being offered by their first time owners.

The Prebuy Component of Value What It RevealsKeith Flinn of J & K Business Aircraft Support in Savannah, Georgia, specializes in a broad range of technical services including managing the prebuy inspection phase of a business jet sale. Flinn has represented both buyers and sellers of ultralongrange business jets such as the G550. In the value equation, it is Flinn’s responsibility to address the physical condition of an aircraft as it relates to maintenance and condition. It’s like getting the horse’s point of view on its health. In the case of this hypothetical G550, Flinn would manage the progression of the prebuy inspections, working with OEM service center technicians. A good starting point would be logbook and CMP auditing. This offers a quick, at a glance picture of the aircraft’s overall condition according to its records.

Getting further into the inspection, the engines would be borescoped. Any discrepancies discovered would be addressed and corrected prior to an optional greencard test flight by assigned Gulfstream pilots. The test flight will make sure the G550 meets its type design, measuring all of the parameters for performance. All of the systems and cabin components also would be



checked during flight for functionality. FADEC controls on the G550 will more than likely not reveal any issues that would require further inspection or repair. However, any engine message during flight would need to be resolved. Again, document research at the Gulfstream Service Center (or qualified MRO of choice) would be conducted via an audit of the G550’s records for compliance documentation of maintenance and Service Bulletin events.

For discoveries, Flinn said any variance to an inspection outside of Air Tranport Association (ATA) Chapter 5 which defines time limits on maintenance checks recommended by the OEM, would more than likely reveal evidence

of an extraordinary event in the aircraft’s history, such as in the case of damage history. Determining to what extent, if any, such discoveries would impact value is subjective to the history of the event from identification of the cause through best recommendation of cure to actual work completed and return to service.

The prebuy assessment would continue with a visual inspection of exterior and interior components. In the rule of law, admissible evidence is conclusive of what occurred in a chain of events. It documents the rule of physics pertaining to cause and effect. The same rule applies to the G550 in a prebuy inspection. After reviewing the CMP report and logbooks, Flinn reported visual scrutiny leaves clues on what specific components may need more review in the inspection process. This also can indicate what environment the aircraft was operated in, including evidence of its protection in the hangar environment or if it was merely ramped in an exposed environment to the elements when not in use. The results of this inspection of the G550’s condition will cause a further investigation or be a conclusive finding that the aircraft has been maintained according to Gulfstream recommendations.

Flinn also noted that this eightyearold G550 would be due or nearly due for its first major inspections, the 96-month checks. Usually the buyer and seller have already addressed whose responsibility it will be for compliance. Flinn noted that although warranties have expired on this G550, the structural warranty could still cover discovered discrepancies, but such discoveries would be reviewed for a final determination of responsibility.

The conclusion of the prebuy inspection will detail not only current status and condition, but mandatory and optional repair estimates that will be defined in the cost to comply, maintain, replace or cure. A component of value as it relates to the G550’s condition has thus been identified.



OEM Programs Support ValueThere are a number of programs associated with the G550 that assist in supporting its value. Of the various G550 components, engines are considered one of the mostcovered assets. Steve Friedrich, vice president of sales and marketing at Rolls-Royce, reported that over 71% of the G550 fleet is currently enrolled in Rolls-Royce Corporate Care. He added that RollsRoyce has been successful in enrolling approximately 80% of new deliveries in Corporate Care. Friedrich pointed out that there is a strong market demand for Rolls-Royce Corporate Care as it places any risks in the engine’s operations back to the care and responsibility of Rolls-Royce. This not only supports the overall value of the G550, but it also assists in the liquidity of the aircraft when it becomes available for resale in the preowned market, Friedrich says.

Weighing in on the ComparablesWhen determining value, recent sales of similar G550s are identified and analyzed to arrive at an indication of the most probable selling price of this 2007 G550. Each sold comparable G550 is given the physical characteristics and condition of our 2007 Gulfstream G550 by adding and or subtracting value to each of the comparable G550s’ attributes as it is related to time, condition, age and maintenance status. The summation of these comparables against the facts identified in our 2007 G550 will reveal the most probable asiswhereis worth of this aircraft based on its physical condition and recorded history.

How the G550 is Viewed Among New TechnologyOne of the driving factors in value for the G550 in the preowned market is in the cockpit environment and the ability to maintain revisions and upgrades in the integrated avionics systems. So, how is the 2007 model year G550 compared to new technologies being implemented by Gulfstream? For starters, one has to admire the current technology of the Honeywell PlaneView cockpit in the G550. The G550 cockpit with standard PlaneView avionics is capable of processing all regulatory communications upgrades including FANS 1/A, ADSC and CPDLC. Gulfstream’s all-new G500 and G600 will have a new FAA Type Certificate and will feature a unique combination of cabin size, range, speed, efficiency and technology.

Gulfstream says the G500 and G600 are not direct replacements for the G450 and the G550. Gulfstream intends to continue production of the G450 and G550 to meet current and future customer demand, and it is safe to conclude the G550 will continue as an inproduction aircraft.



Historical and Future Values for This G550Looking at the last five years of values, starting in the fourth quarter of 2009, reported by the Aircraft Bluebook, the current value is 88% of its $40 million as reported in the last quarter of that calendar year for this 2007 G550. Projecting forward an additional five years, it is estimated that this same G550 will have a future residual value of about 83% of the fourth quarter 2014 Bluebook value of $35 million. (See graph)

In conclusion, one can see that merely stating value of this 2007 G550 involves a complex scenario of facts that need to be identified through a structured review of equipment and records. The ability to have a cockpit environment capable of upgrades that meet future regulatory compliance as well as component (engine) programs that reduce the financial exposure of operation, plus mission utilization are the driving points that impact value.

The American Society of Appraisers has a number of qualified appraisers who can assist in valuing a business jet such as the Gulfstream G550. You can contact the appraiser of choice through the organization’s website at www.appraisers.org. Refer to the Discipline of Machinery & Equipment Specialties/Aircraft. B&CA

About the Author Carl Janssens is the editor of Aircraft Bluebook and the chief appraiser for Penton’s Business Aviation Network. He is an accredited senior appraiser with the American Society of Appraisers in Machinery and Equipment Specialties/Aircraft. Carl can be reached at [email protected].

Source URL: http://aviationweek.com/bca/valuinggulfstreamg550



Aircraft- Identifying a Properly Preserved Aircraft G e o r g e K l e r o s

As an aircraft appraiser, frequently you will be faced with a difficult task of providing the proper assessment of an aircraft that has been inactive for an extended period of time. A fair amount of in-service aircraft tend to fall into this category, however new aircraft off the production line are not exempt from inactivity either.

This article is to familiarize you with the various issues that arise from an inactive aircraft such as: 1. The requirements issued by the manufacturers of airframes, engines and avionics systems in order to protect their products; 2. Identifying aircraft and engines that are properly signed off as preserved or are operated within the allotted inactive time tolerances.

ConcernAircraft are designed to fly consistently throughout the year. When an aircraft sits inactive, damage can occur to many of the systems. Structures, fluid systems and electronics are susceptible to the effects of the environment. Some effects can be hindered or accelerated depending on the

environment where the aircraft is stored or operated. For example, in the United States, the southeast traditionally has high humidity throughout the year and moderate temperature shifts while the southwest has low humidity and sometimes larger temperature shifts. This is important to know because 1condensation can form on the aircraft and components. Condensation

is forecasted and measured by 2dew point temperature. Condensation on the aircraft and its components is expected to occur but not remain in that state for extended periods of time. Evaporation of the condensation does not occur as fast in a humid environment. Water droplets and moisture sitting on exposed aluminum, steel and copper will result in corrosion 3(electrolysis), attacking surfaces and structures. This leads to metal fatigue causing potential failure points in

the structure. Years of incidents and accidents have been researched by the 4NTSB, 5FAA and the aircraft 6OEM’s that have identified concerns for the integrity of the airframe, engine and components when there is prolonged exposure to the moisture, especially when an aircraft does not fly. In response to the NTSB and FAA findings, proactive measures were executed by the OEM’s to avoid failures from corrosion causing an incident or accident. The manufactures of engines, airframes and avionics all have published criteria that defines an inactive period, and they provide instructions for inspection and preservation for an aircraft when these items are going to exceed established limits of inactivity.

Avionics require special handling and storage to protect from damage. Units require a startup procedure to slowly dry out after short term inactivity. Long term storage requires removal of the units from the aircraft and placed in special sealed static bags stored in an environmental controlled room.



Where to Find OEM Preservation RequirementsEach OEM can be slightly different pertaining to the location of preservation information. An engine OEM will usually list preservation information in the service or line maintenance manual under ATA Chapter 72-00-00. Airframe OEM’s are similar but this information could be listed in the servicing Chapter 12-00-00 and chapter 05-00-00 under special inspections. However, this information or additional information could be located in service letters, service bulletins or advisories. It always best to contact each of the OEM’s directly and speak with technical support to get the location and most current information.

Please note that vintage and older aircraft and engines built by an OEM that is no longer in business or models that have been out of production for decades might not have preservation information available as it was not required at the time of production.

This is an example of lower wing structure damage. This occurred as a result of extended periods of inactivity without following OEM recommendations. Damage caused by moisture trapped at seams and structure for prolonged periods. When an aircraft flies, internal areas vent out moisture, the internal fuel bay sections have water droplets trapped as well. The fuel is sloshed around and water droplets eventually end up at the lowest point in the wing where the water sumps are located and moisture can be drained out of the tank. This activity needs to be accomplished regularly as condensation can form overnight.

UtilizationUnder normal conditions, expect to see flight activity documented in the flight log which is usually located in the aircraft. Remember these two words, “operated consistently” when reviewing these documents for activity. Bi-weekly or at least each month at the minimum, there should be at least 1 or 2 hours of flight time logged. For example, if an aircraft only flew 100 hours for the entire year and was operated 1-8 hours every month, that is considered to be operated consistently and would not require any preservation.

Should this same aircraft operate 20 hours in the first month, sit inactive for 3 months and then fly the 10 hours per month over the remaining 8 months, that would not be considered operated consistently. For example, after the 30 days of inactivity for some aircraft, engines and avionics would be defined as short term inactivity and would require some action, inspection or preservation. Should it exceed 90 days, it most likely would be identified as long term inactivity and require additional inspections or preservation actions.

Avionics require special handling and storage to protect from damage. Units require a startup procedure to slowly dry out after short term inactivity.

Long term storage requires removal of the units from the aircraft and placed in special sealed static bags stored in an environmental controlled room.



Non-compliance with inspection and preservation recommendations or requirements by the OEM automatically designate the aircraft status as being outside of the maintenance schedule and normal operation. 7This doesn’t necessarily make the aircraft un-airworthy but a possible condition may exist which could result in an unsafe flight.

Engine frame damage from moisture sitting in the inlet for extended periods of time . The aircraft, experienced this damage within 36 months of inconsistent activity in a humid climate and not properly stored. The entire corrosion repair for the engine was an additional $1M to the first 10 year Mid life inspection on each engine.

ComplianceThe extent and scope of the OEM preservation requirements can be found in the inspection and maintenance manuals for each OEM produced equipment. This information can also be released through OEM service bulletins and service information letters.

Compliance with basic preservation recommendations usually consists of removal of certain fluids from the aircraft or adding stabilizers to the fluid. Windows will be covered and exterior ports will be sealed. Avionics and electrical control boxes will be removed and placed in vacuum sealed bags and stored in a climate controlled room. For engines, the fuel will be removed and preservation fluid added to the fuel control system, desiccant bags will be placed in the inlet and exhaust and will then be sealed with engine covers. An exposure indicator may be required as well for notification of moisture. There are different actions required depending on the amount of

This is an example of lower wing structure damage. This occurred as a result of extended periods of inactivity

without following OEM recommendations. Damage caused by moisture trapped at seams and structure for

prolonged periods. When an aircraft flies, internal areas vent out moisture, the internal fuel bay sections have

water droplets trapped as well. The fuel is sloshed around and water droplets eventually end up at the lowest

point in the wing where the water sumps are located and moisture can be drained out of the tank. This activity

needs to be accomplished regularly as condensation can form overnight.

Engine frame damage from moisture sitting in the inlet for extended periods of time . The aircraft, experienced

this damage within 36 months of inconsistent activity in a humid climate and not properly stored. The entire

corrosion repair for the engine was an additional $1M to the first 10 year Mid life inspection on each engine.



time the aircraft will be stored, e.g. 0-30 days 30-90 day, 90 – 180, or up to one year. Note the preservation may have been completed properly for the original time frame but once exceeded may not be sufficient for the additional time.

There are alternative steps that can be carried out to avoid the preservation process without flying the aircraft. Ground runs and operation of systems might be performed as an alternative if aligned with the OEM recommendations.

Alternative Means of ComplianceAn alternative practice to avoid performing preservation tasks is to operate the aircraft within the allowed inactive time limit. Running the engines, aircraft systems and avionics weekly or monthly depending on each of the OEM recommendations. Operation of all the systems, taxiing around the ramp cycling flaps, brakes, thrust reversers, running all the cabin systems all help reduce the chance for moisture damage.

A practice adopted by many of the lending organizations, and ideally one of the preferred options, is flying the aircraft (exercising) monthly whenever possible. This is obviously more expensive considering fuel, pilot costs, and the aircraft need to be airworthy whenever it flies. This should be recorded in the flight log each time.

DocumentationIf you encounter any of the three scenarios above, they must be documented in the aircraft flight or maintenance records each time something is completed in order to be in compliance.

How do you determine if any or all of the requirements have been in completed? You should not accept a verbal statement. Only a written statement within the aircraft records, or a repair station work order is recognized or acceptable. Below is an example of a compliance statement for an engine preservation requirement. The proper statement for preservation is listed below.

Example of a Preservation Sign off

“Date/aircraft or engine total time”

I certify this [engine / aircraft/ unit] has complied with [short term / long term ]preserved IAW the [ Insert OEM} Special instruction chapter 72-00-00 paragraph (a) steps 1 – 6 . Next preservation due in 6 months on 02/20/2017

Signature of individual or repair station - Charles Taylor Repair Station number or individual’s certificate number (RS or AP 123000123]

Non-compliance There will be substantial costs to perform inspections to address non-compliance with OEM preservation recommendations. For engines, shop visit to disassemble the engine. Avionics, exchanging damage components. Depending on the aircraft age and model, these combined costs to perform and correct could exceed 40% of the aircraft value.

Personal NoteMy experience for the last 32 years with most inactive aircraft or aircraft that are in a distressed sale are usually not preserved correctly or operational runs have not been completed within the envelope of allotted time. Don’t assume it’s been completed, just because a portion of the preservation has been completed, such as the engine, this does not mean the rest of the aircraft systems or avionics were. Verbal confirmation or reassurances from an individual is not acceptable proof of compliance for ground runs or preservation. Know what the maximum time limits are for the aircraft systems and components, know what action is required for that specific time frame. If the preservation record states “preserved for 90 days” and there is only written proof recorded once in 180 days, there is a problem.



If the aircraft documentation isn’t showing everything that should be completed as completed, additional research into service orders and invoices may contain this information. If you can’t locate or confirm actions have been performed, I highly recommend this be noted in the appraisal report and considered when determining value. A basic statement e.g. “Insufficient documentation available to determine preservation” will support your evaluation and provide additional transparency.

About the AuthorGeorge Kleros is responsible for large fleet support, and strategic planning within Technical Services at Jet Support Services, Inc. (JSSI). He has over 30 years of experience in Aviation Maintenance, Management, and Field Support Services for business jet aircraft.

With over 30 years in aviation, Mr. Kleros has held a position as the Eastern Region Customer Service Manager for Rolls Royce North America. Prior to that position, he was the Technical Support Manager with JSSI for almost a decade. Mr. Kleros also held positions with Textron Flight Services in a field support position and was the Director of Maintenance for an Air Carrier fleet. He also held the position of President for an aircraft maintenance company with multiple satellite facilities supporting charter operations, flight schools, and retail maintenance.

Mr. Kleros currently serves on the maintenance airworthiness committee for General Aviation Manufacturers Association (GAMA), is a board member of the Westchester Aircraft Maintenance Association, and serves on The Embry Riddle AMS IAC committee.

George Kleros, Senior Vice President, Strategic Event Management, & Fleet Support at Jet Support Services, Inc., 180 North Stetson, 29th Floor, Chicago, IL 60601 USA | Main: (01) 312-494-8607 Mobile: (01) 203-247-5534 - Email [email protected]

1Dew Point - the temperature to which air must be cooled, at a given pressure and water-vapor content, for it to reach saturation; the temperature at which dew begins to form. www.dictionary.com/browse/dew-point2Condensation - the conversion of a substance (as water) from the vapor state to a denser liquid or solid state usually initiated by a reduction in temperature of the vapor In a humid climate. www.merriam-webster.com/dictionary/condensation3Electrolytic Corrosion (Electrolysis) - occurs when dissimilar metals are in contact in the presence of an electrolyte, such as water (moisture) containing very small amounts of acid www.berridge.com/wp-content/uploads4NTSB- National Transportation Safety Board is an independent U.S. government investigative agency responsible for civil transportation accident investigation. In this role, the NTSB investigates and reports on aviation accidents and incidents.5FAA Federal Aviation Administration (FAA) - is the national aviation authority of the United States, with powers to regulate all aspects of American civil aviation.6OEM Original Equipment Manufacturer - An OEM manufactures products or components that are purchased by a company and retailed under the purchasing company's brand name. OEM refers to the company that originally manufactured the product.7Note: As referenced in the ASA ME202AS course, OEM ATA chapter 4 airworthiness limitations, and life limited components are mandatory compliance by the FAA. When not complied with, changes the aircraft status to un-airworthy. Noncompliance with OEM ATA chapter 5 items doesn’t necessarily make the aircraft un-airworthy but a possible condition may exist which could result in an unsafe flight.



A Double Registration Change in the USA: Is It Worth the Hassle? B a r r i e R o e s l e r , A S A

My last vehicle purchase was from a private seller in Tulsa, Oklahoma about a year ago. At that time I did not live in either Tulsa or Oklahoma, but the reasons why the best vehicle deals usually involve a bit of travel would probably take up space for another article. After all the terms were agreed and we performed the ceremonial handshake, the owner told me he wanted to keep his personalized license plate. The exact meaning of his plate escapes me, but luckily he had already done his research on the process. We met at a nearby Oklahoma tag agency, removed the plate, had a few documents signed / notarized, and we were both on our way in less than an hour and with minimal fees.

The process to change an automotive license plate varies with different laws for each state. The discussion here will focus on aircraft registration numbers which are the aviation version of license plates. The registration of all aircraft in the U.S. falls under the central authority of the FAA headquartered in Oklahoma City. The use of the letter “N” as the national designator for the U.S. dates back to the International Air Navigation Convention held in 1919. A quick assumption would be that

one governing agency for all US aircraft registrations would make the process of taking the tail number from one aircraft and putting on another rather simple. If you’ve ever gone through this task, I’m sure you’ll agree it is anything but simple. A double registration change will require a considerable amount of coordination, patience, and money. This process can be greatly simplified with the use of an experienced advisory team and an Aircraft Title Company.

A particular registration number can carry significant personal or corporate importance such as N500UP for Wheels Up, N1AP belonging to Arnold Palmer, or N1KE, which belongs to Nike, Inc. When changing from one airplane to another, there are an infinite number of reasons why an aircraft owner may want to retain his current registration number to put on their next aircraft. “Just because”, is a legitimate reason and I’ve heard it more than once. For a lack of a better term, I’ll call the process of taking the registration number from an existing aircraft and putting it onto a freshly purchased aircraft a Double Registration Change due to there being two aircraft involved and two registration numbers needed for each. After explaining the time and costs involved, the response is averaging 50/50 on “It’s not worth it, I can find another number” to “Let’s make it happen”.

There are a number of scenarios and initiating points for the double registration change process. For this article, I will discuss the steps involved when an existing aircraft is being traded to a broker or manufacturer for a newer aircraft with 2-3 months before closing and both parties agreeing to split the costs on the aircraft purchase agreement. Again, each aircraft transaction and registration number change will have its own unique characteristics.

Sample Double Registration Number Change Process:1. An aircraft owner wishes to retain his current registration since it’s their initials, anniversary date, alma mater, the day their

company went public, etc.

2. The existing aircraft buyer submits a reservation request of a different registration number for the existing aircraft to the FAA. a. Anticipate a 4 week processing time

3. At the time of closing, the existing aircraft buyer will submit a request for assignment of the new number for the existing aircraft with the rest of the sale and closing documents

4. Approximately 4 weeks following closing, the FAA will issue AC Form 8050-64. This is the authorization to display the replacement number for the existing aircraft.

5. A maintenance facility will be required to remove the current registration from the existing aircraft and apply the new registration number



a. Additional items to update with the new registration information include the Transponder, ELT, CVR, Airworthiness Certificate, and RVSM letter of Authorization. b. The new tail number can be installed with either paint or vinyl lettering. The costs involved will vary based on the shop, type of aircraft, and methods used. For light jets, recent quotes I’ve received are around $12,500. c. Return the original ink signature AC Form 8050-64 along with a relinquishment letter for the initial registration number requesting that the FAA transfer the initial registration to the name of the new aircraft owner.

6. The new aircraft owner requests reservation of the initial registration number in their name. a. Anticipate 4 weeks processing time

7. The new aircraft owner will request assignment of the initial registration number to their new aircraft.

8. Approximately 4 weeks following closing, the FAA will issue an AC Form 8050-64. This is the authorization to display the initial number on the new aircraft

9. A maintenance facility will be required to remove the current registration from the new aircraft and apply the initial desired registration number a. Addition items to update with the initial registration information include the Transponder, ELT, CVR, Airworthiness Certificate, and RVSM letter of Authorization. b. The new tail number can be installed with either paint or vinyl lettering. The costs involved will vary based on the shop, type of aircraft, and methods used. For light jets, recent quotes I’ve received are around $12,500. c. Return the completed AC Form 8050-64 to the FAA

10. Approximately 4 weeks after sending in the completed 8050-64 the new aircraft owner can expect to receive their AC Form 8050-3 better known as the Registration Hard Card.

So in the end, with a timeframe of 16 weeks and costs easily exceeding $12,500 or $25,000, is a double registration change worth the hassle? The best person to answer that is the one signing the check for the plane. After a thorough explanation of the process to clients, I’ve learned that some registration numbers can become expendable and others are irreplaceable regardless of the cost and time involved. No matter which direction is chosen, employing the assistance of a professional aircraft title company such AIC Title Service LLC located in Oklahoma City will make your next aircraft transaction, registration change, or double registration change a much easier process.

About the AuthorBarrie Roesler is the V.P. Asset Management at SunTrust Robinson Humphrey Equipment Finance Group. He is a Senior Appraiser with the American Society of Appraisers (ASA) and can be contacted at 404-836-6120 or [email protected]



Market Turmoil for Heavy Offshore Helicopters C h r i s W i l l s

Chris Wills, Head of Consultancy Operations, looks at the impact of the Airbus Helicopters H225 grounding and CHC’s fleet reductions in the offshore support helicopter market.

Lower oil prices have been of great benefit to the world’s commercial airlines, but have proved a bitter pill for helicopter operators serving the Oil & Gas Producers (OGP). Since the end of 2015, the in-service fleet in the offshore support market has fallen by over 180 aircraft, some 9% of the fleet – an unprecedented downturn.

Much of this reduction has resulted from two significant events in the past four months: the grounding of one of its key types, the H225, and the Chapter 11 filing and resulting fleet cuts by CHC, one of the two largest global players, alongside Bristow.

The 111 - H225s represented 30% of the 19-seat heavy helicopters operating in the offshore sector, with over a third operating in both Asia-Pacific and Europe, and most of the remainder in Africa or

Brazil. The fatal 29 April crash in Norway came after a main rotor separation and a partial grounding by UK and Norwegian operators followed. Then the European Aviation Safety Agency issued an emergency airworthiness directive on 2 June, grounding all H225s and the earlier AS332L2, followed next day by the FAA.

Ongoing investigations have identified several potential issues including the main gearbox epicyclic module, with findings of fatigue and surface degradation. The H225 suffered a previous gearbox issue in 2012 which led to grounding and modifications during 2013-2014. It is currently unclear when the aircraft will return to commercial service, although it continues flying with some military and parapublic users.

Source – Flight Fleets Analyzer



We have undertaken analysis of the impact of the H225 grounding on the helicopter fleet serving the northern North Sea OGP market from the UK and Norway. Given the rig sizes, range offshore and weather conditions, this market has traditionally been dominated by the largest 19-seater size.

The older generation Sikorsky S-61N and AS332 were largely replaced in recent years by the H225 and the competing Sikorsky S-92.

The UK North Sea is one of the world’s oldest oil basins and also one of the most expensive for extraction. It has seen significant cutbacks in employment and investment since oil prices more than halved. Oil companies have been cutting costs in all areas and have reduced utilization of helicopters.

Helicopters are typically flying three rotations per day, some can do four in the UK market and five in Norway for short ranges off Bergen, while others are doing two rotations on longer sectors to west of Shetland or offshore northern Norway. Most helicopters are contracted sole-use for oil companies, with some sharing in a “pool” arrangement.

Prior to the grounding, there were some 34 offshore H225s being operated by Babcock (four), Bristow Helicopters (13) and CHC (10) from the UK, with CHC (seven) operating from Norway.

To replace their H225s, Bristow has added five S-92s to give a fleet of 19 operating from the UK. One came from Bristow Nigeria, one from associate Lider Brazil with three returned from a one-year Falklands contract. At least 15 of the fleet are required to meet the daily schedule, based in Aberdeen and also Scatsta and Sumburgh (both in the Shetlands). 16 more operate from Norway.

CHC is now using 13 S-92s – 11 based in Aberdeen and two at Sumburgh, having added one from CHC Netherlands and two from its Canadian operation in June. 16 others operate in Norway. The third UK operator is Babcock (the new name for Bond Offshore) which added two extra S-92s leased from Milestone in June to take its fleet to 11, with most based in Aberdeen.



An interesting development for the northern North Sea market was the introduction at Aberdeen in January of the new super-medium Airbus H175. Belgian operator NHV won a Chevron contract to use two aircraft, replacing previous use of 19-seaters. These 16-seaters, including the Leonardo AW189 with Bell 525 to come, are seen as a potentially more economical alternative to the larger types. Bristow already use AW189s in the southern North Sea supporting gasfields and have H175s on order.

The 34 H225s which were in the UK and Norwegian fleet prior to the grounding have thus been quickly replaced, with 12 S-92s transferred from other regions and a likely increase in utilisation of the existing fleet where required.

Undoubtedly, there was already overcapacity in the market prior to the grounding, as a result of cutbacks resulting from the lower oil price environment. The work of around 100 of the combined H225/S-92 fleet at the start of the year is now being met by just 79 aircraft, of which at least 59 operate multiple daily rotations.

So, with an estimated quarter of the S-92 fleet being used in back-up and ad hoc roles (20 aircraft), this means there is room for more utilisation and makes it much less certain that a return of the H225 into the North Sea will occur, or is necessary.

CHC has already rejected leases on over 70 of a planned initial 90-aircraft reduction from its fleet of 230. The rejected leases include 29 of its 39-strong H225 fleet, with aircraft removed from European, Brazilian and Australian operations. Others being rejected include medium AW139s, S-76s and an H155.

At this stage, the short-term outlook remains extremely uncertain. The final shape of the slimmed-down CHC fleet is still unclear, as is the future of the H225 and the oil industry’s reaction to its potential return. The coming six months will be interesting to watch and we will continue to provide insight and opinion as the market develops.



Given recent events, Flight Ascend Consultancy are currently not providing H225 or AS332L2 values online. By request we can provide Market Value figures given specific assumed scenarios, however we will not be providing Base Values. All Market Values on these types require discussion to ensure that parties are aware of their assumptions and implications. Please don’t hesitate to contact us for further information.

About the AuthorChris Wills is Head of Consultancy Operations based in London; Chris facilitates the efficient running of the FlightAscend Consultancy globally closely supporting the Global Head of Consultancy. Chris is a Senior ISTAT accredited appraiser and is a head of helicopter & flight simulator valuations, as well as responsibility in maintaining values on commercial aircraft types. Previously, he managed the European Valuations team directly, a position which followed two and half years spent in the FlightAscend Consultancy New York office. His main focus areas are oversight of global teams, delivery, valuations, methodology, operating procedures, training and strategic planning.



Corporate Aircraft: Valuing The Intangibles B o b Z u s k i n

Like many of the other recognized appraisal disciplines, the appraisal of aircraft encompasses a broad range of sub-specialties. The appraisal of military, commercial and general aviation aircraft each have their own vernacular, maintenance practices and a host of other considerations that should be familiar to the appraiser. An appraisal of a commercial aircraft for instance is a very different proposition from that of a military aircraft, flight trainer or corporate aircraft. Having specialized in the latter, I think it is important to recognize those issues that are generally unique to the appraisal of corporate aircraft, many of which are not at all relevant to the other aviation segments.

Regardless of which arena we are in, as aircraft appraisers we are taught to consider the basics: make, model, year of manufacture, airframe and engine times, cosmetics, avionics, modifications, etc. Generally, each of these important elements can be quantified allowing the appraiser to appropriately assess the value of the subject aircraft to that of other comparables. As appraisers we are also taught the various methodologies we can use to value an asset. In the world of commercial aircraft for

instance, the income approach to appraisal is often appropriate. Similarly, in the broad world of general aviation aircraft and corporate aircraft in particular, values are usually driven by the basic rules of supply and demand and consequently a market approach is often employed.

The appraisal of corporate aircraft carries with it a consideration that is unique to this segment, namely pedigree. In addition to the basic elements, the appraiser must consider items as an aircraft’s caliber of owners, aircraft location, maintenance practices, completeness and level of documentation, and whether or not the aircraft has suffered any damage, major or minor. Collectively, these items create an aircraft’s “pedigree” which can have a material impact on its value and marketability.

As an example, consider the life of a commercial aircraft. It will typically fly thousands of hours per year and upon every landing will be assaulted by an array of service vehicles and dozens of personnel whose objective is to turn the plane around and get it back in the air. Given its role, it is not at all unusual for a commercial aircraft to have minor dings, dents and paint scratches, none of which will materially affect its value.

Conversely, corporate aircraft are the golden chariots of the world’s most successful businesses and individuals and are held to a higher standard…a much higher standard. With their utilization only a fraction of commercial aircraft, the most desirable aircraft have gone through life with white glove service. Full-time dedicated maintenance personnel are intimate with every technical aspect and the logbooks often reflect that pride of ownership.

But the same dents and dings that are an accepted part of the commercial aircraft world are an anathema to the corporate owner. As “damage” can range from a minor scratch to a significant runway excursion, in my experience, damage history of an aircraft, excluding total loss, can reduce its value from 0% to 50% below what would otherwise be its Fair Market Value. The amount of value adjustment depends on the extent of damage, the type of incident, the time since the damage was repaired, the expertise of the repair facility, the thoroughness of engineering documents and, perhaps most importantly, the nature of the aircraft market at the time the aircraft is offered for sale. These issues should be weighed by a prospective purchaser, and appraiser, and applied judgmentally on a case-by-case basis.

In attempting to determine the impact of damage upon an aircraft’s value, it is also important to distinguish between damage which is inflicted because of an operational incident (i.e., gear up landing, striking a fixed object, overrunning a runway) and passive incidents in which the aircraft is damaged while parked.

The replacement or repair of damaged components should be done by either the OEM or a factory authorized repair facility. The topic of documentation is best saved for another article, but of significance to the owner, and the appraiser, is whether or



not the repaired aircraft will be required to undergo any extraordinary, repetitive inspections that are beyond what other aircraft will require during their routine maintenance. A repaired pressure bulkhead, for instance, might require special inspections for a limited period of time or may be required for the life of the aircraft. In the case of the former, the market stigma may be only temporary, while in the case of the latter, the aircraft will have a stigma that can never go away.

Most importantly, the effect upon value must also be weighed against the prevailing market that exists at the time. In a very bullish market with strong demand and few available aircraft, minor damage history may not affect the value of a corporate aircraft. But, should the market be soft, with too many available planes chasing too few customers, even the most insignificant damage history will often be used to negotiate, sometime substantial, price concessions. Consequently in such a soft market (which today is all too common) generally only those aircraft that are well equipped with good pedigree, up-to-date maintenance (mid-time or better) and excellent cosmetics will sell for “retail.” Aircraft that lack any of these elements, unless appropriately priced to reflect pedigree issues, will languish in the marketplace.

Another important aspect of pedigree relates to the mere location of an aircraft. Many customers will sometime avoid aircraft that have been either operated in humid climates or have been registered in certain parts of the world. Whether valid or not, the market views with suspicion many aircraft that have been in service in parts of Latin America, Africa, Asia or Eastern Europe.

In the case of these aircraft, many appraisers must hope that the logbook entries are in English and that heavy maintenance was done at a factory authorized service center. Fortunately most logbooks, regardless of ownership or geographic location, have entries written in English. Many years ago, I reviewed the logbooks of a Challenger 600 that had been imported from China into the United States. As the aircraft had spent most of its life in China, logbooks entries had been written in Chinese, requiring the new U.S. owner to have the logbooks undergo a certified translation for the purpose of obtaining its U.S. Certificate of Airworthiness. Unlike offering the depth of detail that is often found in the logbooks of most corporate aircraft, entries for this aircraft were extremely vague, citing for instance that the aircraft had just undergone its “big inspection.” The significance to value of this type of history is also affected by whether or not such an entry was made last week or ten years ago.

Among the high-end corporate aircraft with multi-million dollar interiors, the appraiser must have an appreciation of market expectations and how that relates to value. The Gulfstream 550, for instance, is an aircraft that is certified up to 18 passengers. The reality is that few aircraft are outfitted for the maximum number of passengers with most configured to accommodate 14 to 16 passengers. On the flip side, there are a few aircraft that may have as few as 10 passengers. From an appraisers perspective, it is necessary to understand market expectations relative to cabin configuration. The difficult job of estimating the cost of interior modification must also consider the necessary downtime and include depreciation and opportunity costs.

Having spent the better part of my career in the corporate aircraft business, I am sometimes asked about the issue of celebrity ownership and how that impacts value. Given that this is a marketplace that is completely driven by the kings and queens of business and society, many corporate aircraft have similar such pedigree and, in my experience, the value of an aircraft that was once owned by Frank Sinatra or a foreign head-of-state is unaffected by this often interesting, but non-value enhancing issue.

One of the significant drivers in todays’ market is the presence of aircraft that have served as fractionally owned aircraft. Clearly the availability of aircraft that often have double the hours of more “typical” corporate aircraft has done much to undermine the values of other pre-owned aircraft. Whereas the most desired aircraft are often low time, highly optioned and beautifully appointed that have been operated by a Fortune 500 company since new, the “ex-fracs” have lowered the value bar for many corporate aircraft models.

Many appraisers are quite capable of employing any number of methodologies for adjusting value for hours. Unfortunately, the histories of these aircraft do not lend themselves to such an over-simplified calculation.

With maintenance documentation often based upon flight manifests, the logbooks of these aircraft are usually too voluminous and the paperwork too de-centralized for the average appraiser to easily audit. When the aircraft ultimately is sold the new



owner will usually convert the records into a more typical record-keeping system, but of course the time and effort for that work must be considered. Consequently, in attempting to value an aircraft with such a history, more than flight hours alone must be considered. And the reality of many markets is that the mere availability of the ex-fracs has served to “pull down” the values of those aircraft that have served in corporate operations.

Market expectations can be further delineated based upon market segment. The expectations of those willing to pay $40 million for a wide-body internationally capable aircraft are very different from someone willing to pay $1 million for a light jet to serve as a charter aircraft.

In the case of the former, pedigree becomes an important issue as an adjustment of only a percent or two can amount to significant dollars. Conversely, to the buyer of the charter aircraft, the same percentage adjustment results in value differences that can easily be offset by other value elements and therefore measured in real dollars, does not carry the same weight.

As noted earlier, the values of corporate aircraft are driven by the basic laws of supply and demand. Each aircraft model has its own set of questions that need to be answered and it is only with appropriate experience and competency that the right questions are asked. The appraiser must have a basic understanding of these various issues and appropriately apply the answers based upon market expectations.

A finicky and demanding marketplace will require the appraiser of corporate aircraft to consider many of these issues relating to pedigree. Unfortunately, there are no resources available to the appraiser other than those that relate to the traditional elements of establishing value. Every corporate aircraft has an interesting story to tell and issues like a very high time or very low time airframe, damage history, ownership history or record keeping are very relevant considerations for appraisers of corporate aircraft, who ultimately must rely upon their own world of experience and contacts.

For more information, please contact Bob Zuskin at 703-318-3200 or E-mail [email protected]

About the AuthorBob Zuskin is the owner of Jet Perspectives, a Virginia based appraisal firm specializing in corporate aircraft, serving the industry since 1999. His career began in 1979 as Director of Market Research at U.S. Aircraft Sales and then through the years worked in senior positions at Boston Jet Search, AMR Aircraft Sales, Avitas Aviation and GRA Aviation Specialists. Jet Perspectives focus is exclusively on executive aircraft and is a member of the American Society of Appraisers, National Business Aviation Association and the Greater Washington Business Aviation Association.



Appraising Corporate Aircraft & Helicopters – Survey Inspections – What Is Required? D a v i d C r i c k , B S c , A S A

Often when the phrase "appraising corporate aircraft" is mentioned, an immediate picture springs to mind. People expect you to regale them with stories about a magnificent, large, white corporate jet with shiny leading edges and a plush interior that just invites you to melt into the leather recliner seat whilst the pilot effortlessly takes you somewhere exotic using the latest avionics as you dine on a four course meal watching the latest movie streamed via the onboard Wi - Fi.

Then we open our eyes to see reality. You’re actually sitting at a desk looking at a spreadsheet of engine component times and trying to fathom how much your client would realize if the aircraft was sold in today’s market with either a component status report as your data source or worse still - little or no information with which to make an assessment.

A “Desktop” report is a valid tool for arriving at the general value vicinity for an aircraft. Using a myriad of assumptions, a reasonably logical value can be ascribed to the aircraft. To be more specific (read as accurate), the condition and status of the aircraft needs to be understood as these may have

significant impact on the value conclusions.

In some circumstances, and for some clients, a Desktop assessment is all that may be required. To minimize risk and mitigate assumptions, particularly for mortgage security purposes or potential legal issues, a physical inspection of the aircraft and a review of the Certification and maintenance records is frequently mandatory.

When discussing an inspection of an aircraft for appraisal purposes, we must be clear about the meaning of the term ‘inspection’. The term is also interchangeable with the word ‘survey’. Appraisers are visually assessing the aircraft while making the assumption that the aircraft is airworthy and functional to the manufacturers design and intent, unless visual observations indicate differently. Appraisers are not mechanics or engineers in the first instance (although some are) and are not performing an inspection with tools and probes nor are they removing cowls and panels. In general, the inspections also don’t include powering up the aircraft and confirming that the avionics and cabin controls are all in functioning order.

There are a number of reasons an appraiser may be required to perform an inspection. It may be for an insurer or loss adjuster to determine what condition and status the aircraft is in prior to insurance being taken out or prior to a settlement from an event. It may be to assess the extent of damage and the corresponding diminution in value from that damage. Or, it may simply be a formality so that if queried during a legal proceeding, the appraiser can honestly say, “Yes, I saw the airplane and its records”.

Appraisals with inspections are also undertaken to assess an aircraft for financiers and the banking fraternity. These are often requested at the beginning of a loan or lease term. Inspections and/or appraisals are also undertaken midway through the term of the finance contract to ensure compliance with the loan or lease documentation as well as at the end of the term to determine if return conditions have been met by the operator.

For banking and finance purposes inspections and appraisals are very common, particularly if the transaction is for an aircraft that is not new from the Original Equipment Manufacturer (OEM). They are often necessary in either a pre-lending scenario or when there are difficulties with the contract (this includes when there is a default on payments or if the financial institution is considering compulsion to act and repossess the aircraft). In these instances, inspections are often considered mandatory.

What Does The Inspection Include?Generally an inspection or survey of an aircraft includes a visual inspection of the physical aircraft as well as evidentiary digital photographs to highlight certain aspects of the aircraft. The appraiser undertaking the inspection will record information as required to populate their report for the client.



Depending on the client’s request, the fundamental aspects of the aircraft are included in the data capture phase of the appraisal process. The generic specifics of the aircraft are recorded; including the Make, Model and Serial Number of the airframe, the engines and the APU (Auxiliary Power Unit). Propellers for turboprop and/or Rotor Blades for helicopters are also recorded as appropriate. It is also important to confirm the maintenance status and amount of use on the airframe, engine and rotable aspects of the aircraft. How many hours or cycles since new and how many hours or cycles since reconditioning has a direct impact on value.

Detail of the aircraft’s configuration and then some general information about the status and condition of the interior and exterior of the aircraft are also required.

Essentially the objective of the inspection is to collect enough information about the aircraft to adequately describe it to the intended user of the report and then have enough detail to weigh comparable data with other aircraft in the marketplace (very important when providing values within the appraisal report).

Maintenance DocumentationThe inspection should also include a review of the Log Books and maintenance records of the aircraft. Typically the airframe has a set of Log Books as does each engine (including the APU). For turboprop aircraft, so do the propellers. Helicopters also have history cards for each of the major components.

Of major importance to the value conclusions is whether the maintenance records are complete from when the components were new at the OEM’s or fully reconditioned as well as recording appropriate incidents and maintenance carried out. Traceability is also a term that is used to determine if the airframe or the components being inspected have a full history from new in order to trace their life cycles.

Some components called Life Limited Parts (LLP) which have a defined usage life by the manufacturer, after which they must be removed for disposal and replaced. Other components have an overhaul life or a period of time after which they must be reconditioned or overhauled as the name suggests. For some components this is based on hours of use (say 5,000 hours as an example), others may be for a calendar period (say 12 years) and others based on cycles (say 15,000 cycles or flights).

The value of these individual components can comprise a significant proportion of the aircraft total value. Unless they have a fully recorded history in the maintenance documentation, their value can be quite diminished. This has a direct impact on the value of the aircraft.

The format of maintenance documentation varies considerably. Variations include whether they are typed or hand written, documented in English or another language, whether the Log Books are in the OEM’s designed documentation manuals or a loose leaf style or even be recorded in the format of the certifying jurisdiction. The resulting Log Books and maintenance records often depend on the operational category of the aircraft and/or jurisdictional requirements.

When the appraiser makes an assessment regarding the Log Book records, storage of the records must also be considered. Are they stored in a locked fireproof safe with an indexed contents guide or in dirty old archive boxes stuffed under a desk with papers in no particular order and a lack of continuity? Where are the “dirty fingerprint” work-packs kept? Are they kept? All of the above aspects of the aircraft records have an impact on the value of the physical aircraft.

Contract DocumentationOften an aircraft inspection also requires a review of contractual documentation. This could include maintenance agreements for the engines, APU, Avionic suites and the airframe of the aircraft itself. These contracts are essentially agreements between the OEM or a third party of the components and the aircraft operator. The agreements are to provide maintenance and overhaul services for the components. In generic terms they are referred to as engine programs or Power By the Hour (PBH) programs, as they are most commonly priced on the basis of a financial amount per flight hour.

As a simplified example, if an engine is due for a major ‘off-wing’ inspection or shop visit at 5,000 hours of use and the expected maintenance for that major inspection would be say $2,000,000, then the PBH contract might cost the operator $400 per flight hour. It is possible to think of PBH programs like prepaid insurance for engine maintenance. For the operator



one of the advantages of such programs is that costs will be covered if there is a requirement for maintenance prior to the scheduled shop visit, as well as giving the operator’s engine priority access to workshop slots

Within these agreements there can be parameters that would preclude items from being covered. These can include Foreign Object Damage (FOD) as well as events defined as pilot error (for example when the engine has been performing too hot (over-temping) or over-limits.

Certification DocumentationAll aircraft need to be registered and declared airworthy to fly, no matter where they are located or operated. There are levels of certification that reflect the capabilities of the aircraft. These include whether they can operate under Visual Flight Rules (VFR) or Instrument Flight Rules (IFR), whether they can be used for private purposes, charter purposes, restricted purposes (say firefighting or agricultural work) or regular passenger transport. In terms of value, the certification has an impact.

In different jurisdictions, certification varies. Depending on the rules of the country or jurisdiction under which the aircraft is operating, some aircraft certification requires annual or periodic recertification and some require an annual aircraft audit before renewal is granted. Other jurisdictions have certification that does not require renewal.

Examples of Certification include the Certificate of Airworthiness, the Certificate of Registration, the Certificate of Registered Operator, Radio License Certificate, Noise Certification, Air Operator’s Certificate, and Weight & Balance Certification. An appraiser can assume that these are included and compliant; however, it is common that they are not located where they should be (primarily with the Aircraft Flight Manual and Documentation) or they are out of date. If they are not located or out of date, this needs to be rectified in order to fully realize the aircraft’s potential value.

Often the client or intended user of the appraisal report will also want to have the insurance Certificate Of Currency included in the review of documentation at the inspection. This is also kept with the rest of the aircraft certification in the majority of cases.

It is important to note that the appraiser can only report on the documentation that is presented. The appraiser discusses findings, not ensures regulatory compliance. This is particularly important when operating in multiple jurisdictions.

Business Aircraft – What Affects Value?The answer to this question can often be summed up in the term ‘pedigree’. There are so many aspects of a corporate jet that impacts its value. An appraiser needs to take the following list of questions into account when assessing such an aircraft. The list is by no means exhaustive, it is an example of the questions that need to be asked and in reality – the answers directly increase or decrease values, depending on the findings.

Typical questions encompass:

• The Airframe maintenance status; • What are the limits and is it due for a major inspection? • When and what was the last major inspection? • Where was it physically done? • What entity carried out the work? • Does the interior require any refurbishment? • How long since the interior was fully refurbished? • Is the passenger cabin smoking or non-smoking? • Is the interior ‘special to the operator’ or generally appealing?• Does the exterior require a strip and repaint? • When and what was the last strip and repaint? • Where was it done? • What entity carried out the work?



• Is it hangared? • Is the exterior color scheme ‘special’ or generally appealing? • Are there signs of corrosion? How significant?• Engine maintenance status; • Do the engine utilization times match the airframe utilization times? If not, why not? • Are the engines enrolled on a maintenance program? What does it include or exclude? • Are the engines subject to ‘low utilization’ or special maintenance conditions? • If there have been periods of non-utilization, have the engines met the OEM preservation requirements?• AD/SB/SL/CB status; • Are mandatory and major Airworthiness Directives, Service Bulletins, Service Letters and Customer Bulletins compliant and up to date? • Are there any that are overdue?• Avionics capabilities; • Are the avionics compliant with the regulatory requirements (for example FANS 1A, CPDLC, RVSM, ADS-B, RNP, RNAV etc. etc.)? • Have there been any upgrades to the original suite (for example CRT screens replaced with LCD screens, analogue controls replaced with digital, inclusions of synthetic vision, Head Up Displays, OEM upgrades to later avionics suites with better automation and technology)?• Log Books; • Log Book Condition and storage (discussed above); • Log Book completeness (discussed above); • Log Book type/status (discussed above);

• Documentation status – revision number, expiry dates/currency;• Warranty Status of the airframe & major components;• Major modifications, repairs or alterations that would require a Form 337 (in the U.S.A.). Why were they issued and by whom?

Geographical Issues That Affect ValueDifferent geographical locations also directly affect values of corporate aircraft as the aircraft may then be operated through or located in specific climactic conditions or environments.

An appraiser must take into account whether the aircraft is located in:• High humidity locations (corrosion becomes significant);• High salt locations (much more significant when coupled with high humidity – some coastal areas for example);• High cold weather locations (some deicing chemicals may be potentially corrosive);• High hot/dry desert locations (especially with wind & the effect of sand on engines);• High pollution locations (coupled with not being hangared where acid rains and high smog occurs)

HelicoptersThere are a significant number of similarities to corporate aircraft in the process of inspecting a helicopter. In essence the issues discussed above are still relevant; however, other aspects also need to be included when appraising helicopters.

Helicopters have a very high proportion of rotable components or LLP’s compared to a fixed wing corporate aircraft. Each component has a ‘status’ that describes the time remaining until overhaul is required or the part requires replacing with a new part. The maintenance history and time remaining until a major inspection or overhaul is due are recorded on the component cards.



When a part is removed from one helicopter and installed in another helicopter, the component card accompanies the part and is included with the Log Book records of the helicopter into which it is installed. Often there will be a helicopter frame Log Book, engine Log Books and also a Log Book folder of Component Cards recording the history and status of the major components. If original component history cards are missing the component will potentially be deemed to be expired and will most likely need to be overhauled. This can be very expensive and impact the values accordingly.

One of the primary drivers of a helicopter’s value includes the weighted average value of the time remaining until the major components are due for replacement or overhaul A significant number of maintenance organizations record a summary of the status of the helicopter components (including the engine components) in a spreadsheet type document that tracks the time remaining and component status to ensure that nothing is overdue or runs out of time at a critical operational time.

Helicopters can also be configured for multiple different kinds of missions with little change to the major airframe structures. Avionics may need to be interchanged, fit-out may need to be changed, however; multi-mission airframes are common and include utility work, logging, medical transport and search and rescue work. The applicability of the helicopter airframe to be interchanged also affects their values.

How to Report Your FindingsIt is important to properly articulate your inspection or survey findings. There is an old adage stating that a picture tells a thousand words. Don’t be afraid to include photographic evidence so that the intended user of the report can see the issues of the aircraft and then visually appreciate any discrepancies from their expectations. Pictures of anomalies and enhancements help to explain deviations from the expected or ‘normal’ condition and underscore the issues discussed in the report.

Logically report the impact of your various findings on value. Discuss your judgments and the assumptions that you have taken into account. If an engine needs to be overhauled, research the costs of overhaul to ensure the impact on value is appropriate rather than ‘your best guess’ or anecdotal information (i.e. ‘what the guy told you’). Similarly make enquiries and report on your research in regards to interior refurbishments or avionics updates.

Tell the story with your appraisal report. An appraisal report story should have two aspects examined. It should discuss the life of the plane and that story becomes the basis of its value. Then there is the story of the market within which its value resides. From when you received your instructions to provide a report through to when you submit the report – give an insight into what you discovered.

Talk about the aircraft itself; discuss your research, offer discourse on what you found out about the market; both the macro and micro aspects. Review the evidence you have unearthed and provide comparisons that assist the intended user to understand the basis of your conclusion.

About the AuthorDavid Crick is an Accredited Senior Appraiser of the ASA. He serves as the Machinery & Technical Specialties Discipline Governor on the ASA International Board of Governors and is the recent President of the ASA Australian Chapter. He also serves as the Chair on the Finance & Leasing Committee of the Helicopter Association International.

David provides international appraisal services for aviation assets and specialized machinery and equipment.

David also presents at various international forums addressing current issues in aviation assets and appraisal methodologies, including events in the UK, USA, Russia, Europe, Asia, Australia, and New Zealand. He also lectures at the Embry-Riddle Aeronautical University in the USA on Aircraft Appraisal methodology and processes as well as teaching Aircraft Appraisal courses in London, UK. David can be contacted at [email protected]



Oil Price – What Is It Going To Take To Get The Civilian Helicopter Market Back On Track? K i m S e w a r d

The civilian helicopter space has been somewhat soft since the price of a barrel of Brent dropped in mid-2014 from US$100 to less than US$30. So despite the rest of the aviation industry enjoying the respite from high oil prices, the helicopter market is still struggling from depressed market values. The pressure on the helicopter market has much to do with its previous success and the growth it has seen over the last couple of years, which was directly linked to the profit oil companies saw during that time.

There are many sectors within the helicopter market, and many uses for a helicopter, but it is the larger types with maximum takeoff weights over four tonnes, operating in the offshore oil and gas sector, that are suffering from soft conditions seen today. The reason for this is not that oil and gas helicopters make up the majority of the global fleet, but rather that they make up the largest value, per sector, of the entire helicopter fleet.

The helicopter market has seen significant change over the last five years. The high oil price bolstered oil company revenues, therefore giving them the financial freedom to explore further afield in search for new drilling sites. This resulted in not only an increase in the demand for offshore helicopters but in the demand for a new type of helicopter all together. These large, 12- to 20-plus seat Offshore Oil and Gas (OSOG) helicopters are high value assets; depending on the age and model, units range from seven to upwards of US$25 million. Both the oil and gas industry and local aviation authorities set standards and requirements, when it comes to personnel travelling over water; therefore, operators supplying the helicopters for those passenger transport contracts must meet all of these minimum specifications. These regulations refer to equipment and avionics on board, as well as the type and age of the asset. The high specification and cost of the aircraft, combined with the demand coming from fixed-length contracts, led to the entrance of sole-service helicopter leasing the first of which to do so was Milestone.

The entrance of this helicopter lessor in 2010 and subsequent companies shortly after, saw large orders being placed with manufacturers. Lessors made deals directly with Airbus Helicopters, Leonardo (previously Agusta Westland), Bell and Sikorsky, leading to longer backlogs than previously seen. The number of units delivered from the four OEMs doubled during the time the price of oil was high, and this was largely due to large and medium helicopters serving the oil and gas industry. Despite manufacturers trying to keep supply and demand as stable as possible, the decline in oil prices has resulted in around 20% of the OSOG fleet are parked or stored as they await new contracts. The parked OSOG aircraft range in model and age, from 30-year-old Sikorsky S-76s to new Leonardo-Finmeccanica AW189s. Lessors are managing to place some units, but more often than not the lease rates are under

Source 1



pressure. With increased availability, operators have the choice of lease and can therefore take the deal which most benefits them.

In order for the helicopter market to pick up again, the price of oil needs to rise first. Although US$100 per barrel would certainly result in a bullish helicopter market, the majority of the world’s oil predictors are in agreement that we are unlikely to see it that high again in the next couple of years. However, if history has taught us anything, it is that oil is extremely volatile and unpredictable, so perhaps a point in time is too bold to predict. So rather than a calendar reference, what does the price of oil need to be in order for the helicopter market to stabilize?

The current philosophy is that oil price not only needs to be above the limit where oil companies break even, but high enough to justify resuming exploration. The breakeven points of the various types of offshore drilling depends on the location of the rig geographically as well as the type of oil production (depth). For example, the breakeven point for the Middle East is about 65% of that of oil produced from offshore Russia, with North Sea

oil having one of the highest breakeven points. Depending on how you weigh the average breakeven points, the approximate range is from US$66 to US$68/bbl. This is where a barrel of Brent needs to be in order to see a marked improvement in OSOG helicopter orders and deliveries and a reduction in stored and available aircraft.

There is also lag in the market; it takes time for the impact to be felt. Oil companies need to first see profits, and then refresh helicopter contracts in line with resumed exploration. So not only does oil price need to reach the mid US$60s, but it needs to stabilize. Through comparing historical data for rig counts, oil price, and helicopter fleet data, the ideal time frame in which Brent needs to be consistently at US$66 or above, is around three months.

Looking historically, the helicopter market has been more resilient to oil price drops caused by economic shock and various other factors than it has been recently. However in 2014 the dependence from the market on oil price was more significant. To see the commercial rotary-wing market rebound, the high-value sector of OSOG helicopters needs to stabilize through reducing aircraft availability and balancing out supply. In MBA’s opinion, in order to see market values of medium, super-medium and heavy helicopters recover; the price of a barrel of Brent needs to be over US$66 consistently for a period of three months.

Source 2

Source 3



About the AuthorKim Seward, Senior Analyst – Valuations, ISTAT Appraiser Candidate Ms. Seward is a Senior Analyst with Morten Beyer & Agnew’s Valuations Group. In this role, Ms. Seward acts as Project Manager for the firm’s Helicopter consultancy division. She is responsible for preparing aircraft, helicopter, and engine appraisals, performing market research and analysis, modeling value trends, and calculating future values, as well as projected or remaining economic useful lives of various aviation assets.

Ms. Seward began her career in aviation with the Northumbrian University Air Squadron in Yorkshire, UK, as a Royal Air Force Officer Cadet, flying the Grob 115E aircraft. She continued her career working for a European consulting firm, focusing on rotor-wing aircraft. Her experience includes research and analysis of the helicopter industry, market values, benchmarking, and modeling; primarily focused on medium, super-medium, and heavy helicopter sectors used for oil and gas, SAR, and EMS. She is a graduate of Durham University, UK, with an honors degree in Biomedical Science and an ISTAT Appraiser Candidate.

Source 1 - mba and JETNET

Source 2 - mba and EIA.Gov

Source 3 - Morgan Stanley and International Energy Agency



LTSAs: the Hottest Trend in Aerospace S t e p h e n F r i e d r i c h a n d K y r a N y m a n

The inside scoop on how they started, how they work, and how they have progressed

You are a high-level business executive who takes the old adage “time is money” seriously. That is why you bought a business jet—it allows you to meet more people, accomplish more business, and resolve the imbalance between life at work and home. You are a practical spender so you bought your jet used, for a reasonable price. You also opted for time and materials coverage on your engines and accessories. After only one month operating the aircraft, your engine has an unscheduled event and

you are hit with an unexpected invoice — an invoice that costs more than it did to buy the aircraft!

This scenario is a reality and it is why business jet owners are increasingly enrolling onto long-term service agreements (LTSAs) and why LTSAs, such as Rolls-Royce’s CorporateCare®, have experienced rapid growth in market share recently. Aircraft owners are recognizing more and more the benefits of risk transfer and asset liquidity that LTSAs provide.

How do LTSAs work? Essentially, a LTSA enables the aircraft owner to experience an outstanding level of service for a fixed price at a far lower cost than the traditional time and material model. For example, on CorporateCare, customers pay a fixed rate per flight hour, based on geographic region, engine type, and maintenance regime. Then, when customers need to take their engines in for repair, the shop visit is covered. Gone is the maintenance risk and volatility of cash flow; in their place is cost-effective, comprehensive, and exceptional service.

While LTSAs may seem like a new concept, their roots actually date back over half a century. In fact, Rolls-Royce pioneered the LTSA concept of service at a fixed cost per flying hour basis. The heritage of CorporateCare stretches back to 1962, when Rolls-Royce transformed business aviation with the launch of its trademark service “Power-by-the-Hour” (PbtH), in order to support the Viper engine powering the de Havilland/Hawker Siddeley 125 business jet. PbtH was so unique because it fully aligned the interests of OEMs with those of aircraft operators: engine manufacturers were rewarded only for engines that performed. Furthermore, PbtH enabled the operator to forecast costs with greater accuracy. This predictability let the operator mitigate maintenance cost risk and eliminate the necessity of investing in stockpiles of engines and accessories.

Nowadays, LTSAs like CorporateCare offer tremendous advantages. In addition to offering increased aircraft availability and reduced management burden, they provide operators significant financial benefits, such as predictable maintenance costs, reduced capital investment and, most importantly, increased aircraft residual value.

Brokers confirm repeatedly that CorporateCare-enrolled aircraft sell faster with greater residual value than those not on the program.

What also separates LTSAs today from when they started in 1962 is the comprehensibility of service. This goes beyond the list of repairs that LTSA cover during a shop visit—because customers demand greater efficiency, the industry is increasingly becoming more globalized and tech-savvy.

For instance, Rolls-Royce launched the 24/7 Operational Service Desk. The OSD has driven averted missed trips to over 98 percent, with average AOG resolution time less than 24 hours. CorporateCare has also further developed its network of Parts Distribution Centers by opening new stores in the Middle East, Asia, and South America. Additionally, it extended the On-Wing Care team of engine specialists to London, Dubai, and Singapore and in 2016, expanded its global network of Authorized Service Centers to over 62 and counting.



To increase efficiency from a technological standpoint, there is an on-going focus for the industry to reduce manual downloads to improve overall data acquisition from in-service aircraft. In 2012, Rolls-Royce introduced automatic Engine Health Monitoring data downloads. Having real-time data available further enhances CorporateCare’s ability to monitor performance of its engines, which allows technicians to react proactively and quickly to any issue that may arise. Automatic EHM also removes a burden for customers by providing a more efficient process. Additionally, Rolls-Royce recently implemented a technical publications overhaul to provide clear, comprehensive, and up-to-date guidance for customers. The BR725 engine’s entry into service took it one-step further by introducing 3D technical publications.

Increased globalization ensures that LTSA customers are never far from the right people and the right tooling and parts wherever they fly, while improved technology allows technicians to better repair engines more quickly. These industry trends mean that if something were to happen to their aircraft, customers no longer have to worry about being stranded for long or missing an important meeting—LTSA are now more prepared to get customers back in the air faster.

This progression in LTSA service explains why LTSA are fast becoming the industry norm. With recent gains in market share, LTSA are far from slowing down and still experience impressive growth. CorporateCare covers aircraft around the world and more than 70 percent of new delivery Rolls-Royce-powered aircraft are enrolled in the program. CorporateCare expects its 2,000th contract in 2016.

In theory, LTSAs are the busy business jet owner’s dream—however, in practice, not all LTSAs are equal. It takes an outstanding program to not only meet customers’ needs, but to fulfil desires customers did not know they even had. Due to advances in the industry, it is no longer difficult to find an LTSA that provides you more of the most sought-after commodity: time.

About the AuthorsStephen M, Friedrich, Vice President-Sales & Marketing, Business Aviation, Rolls-Royce In this role Steve is responsible for leading the global sales efforts and marketing activities for Business Aviation, including Corporate Care® and Time & Material sales management, marketing, services forecasting and pricing. He is based at the Rolls-Royce North America headquarters in Reston, VA.

Prior to this role, Steve was Vice President of Sales Finance, where he led the sales finance function for the America’s. He joined Rolls-Royce in 2001 from Summit Bank, where he was Vice President in the aviation finance group. His previous banking and aviation finance experience was with Summit Bank and its’ predecessors, and Bankers Trust. Steve has an MBA from the Stern School at New York University and an AB in Economics & Business from Lafayette College. Steve resides in Ashburn, VA with his wife and son. Steve can be contacted at [email protected]

Kyra Nyman, Marketing Associate who works with Stephen Friedrich.



Brad Hartsburg, ASA, CPPA, CSA [email protected]

Archived Articles Available for Your Library

Missing recent MTS Journal articles? Need ideas or direction? Archived articles are available for your library. Below is an index for the last several years of articles. See an article or issue that interests you? Just let me know what you need and I will get back to you with pricing.

THE MTS Journal# VOLUME ISSUE YEAR AUTHOR TITLE PAGES OVERVIEW

24 20 1 2003 04 Edward D. Biggs Railroads: It’s Not Just Nostalgia P. 4-6 A Resurgent Interest In Passenger Trains To Relieve Highway Congestion Has Revitalized The Segment Of The Industry.

Kenneth Howard, ASA Relationship Between Equipment Financing & Appraising:” Intricacies Of Residual Setting”

P. 7-8 Funding Institution’s Return On Investment Is Highly Dependent Upon The Market Information Provided By An Appraiser.

Leslie H. Miles, Jr., ASA

Depreciated Installation P. 9-11 Discussion Of The Argument Of Depreciating Installation.


A Review Of Functional Obsolescence

P. 12-15 Open Concerns As To How You Convert Functional Depreciation That Can Be Defended And Explained.

Michael J. Remsha, ASA, PE, CMI

Intangibles Assets: What Makes A Business A Going Concern

P. 16-23 When Valuing A Business, Just Adding All The Tangible And Intangible Assets Together Does Not Necessarily Equal The Value Of The Business Enterprise.

John S. Ferguson, ASA, PE

The Use Of Scaling Factors For Measuring Obsolescence In Industrial Property-A Rebuttal

P. 29-33 Discusses Iowa-Type And Weibull Distribution Survivor Curves.

Frank Stern Valuing Generation Assets In Today’s Distressed Markets

P. 34-40 Presents A Warning To Appraisers And The Users Of Appraisals On The Misuse Of Scale Factors And The Six-Tenths Rule

Gerald L. Huether, ASA What’s A Machinery & Technical Specialties Appraiser To Do?

P. 41-52 Attention To USPAP Rules Regarding A Definition Of Value And How To Apply Highest And Best Use.

25 20 2 2003-04 Robert B. Podwalny, ASA

Typical Problems With Appraisal Reports

P. 6-9 Explanation Of Report Writing As Related To Standard 8 Of Uspap.

J. Michael Clarkson, ASA

For What It’s Worth-Dynamic Obsolescence

P. 10-13 Dynamic Obsolescence Is Particular To Certain Industries And Predictable.

Jack J. Landesberg Training The MTS Appraiser P. 14-17 Discusses Short Falls Of Not Enough Appraisal Training.



# VOLUME ISSUE YEAR AUTHOR TITLE PAGES OVERVIEW

Dr. Charles Gililand The Business Enterprise Valuation Controversy: Intangible Value In Going Concern

P. 18-22 Determining A Firm’s Value By Capitalizing The Entire Income Generated.

H. Denis Neumann, ASA

The Used Car Business (And Values)

P. 23-29 In Pursuit Of A Dealer’s License Discovered The Car Business Is Highly Regulated.

Steven C. Tatro, ASA Tangible Personal Property Tax Appeals: A Special Master’s Perspective

P. 30-33 The Value Adjustment Board Is Enjoined To Protect The Public Trust By Providing Fair And Impartial Hearings.

Raymond Springer Depreciation Of Installation Costs P. 34-36 Argues The Methodology Of Depreciating Installation Costs In The Sales Comparison Approach.

26 20 3 2003-04 Harry Richardson, ASA And J. Barry Savage, ASA

A Short History Of Cat Type Tooling P. 5-8 Development Of HSK Tooling May Mark The Beginning Of The End For CAT Type Tooling.

R. Lee Robinette, ASA Inventory Valuation P. 13-17 Discussion The Impact Of “Level Of Trade” In The Inventory Valuation Process.

J. Michael Clarkson, ASA

For What It’s Worth-Spacecraft Appraisal

P. 18-20 The Appraisal Of The Soviet Spacecraft Proved A Challenging But Interesting Assignment.

William S. Ingles An Analysis Of Flaws In The Direct Capitalization Model Applied To Merchant Coal-Fired Electric Generating Plants

P. 21-29 Discussion Of Issues Surrounding The Application Of The Direct Capitalization Model Or Variations Of The Gordon Growth Model.


Value Of Ad Valorem Tax P. 30-37 Ad Valorem Tax Value Depends Upon The Definition Within The Tax Code Or Prevailing Case Law.

27 20 4 2003-04 Robert F. Reilly, ASA Illustrative Personal Property Appraisal Report Outline

P. 5-22 Complete Overview Of What Should Be Included In An Appraisal Report That Will Be In Compliance With USPAP.

Michael J. Remsha, ASA, PE, CMI

Valuation Of A Nuclear Power Generating Facility

P. 24-37 Overview Of Nuclear Power Plant And Government Policy Dictating Better Understanding By The Appraiser Using The Market Approach.

28 21 1 2004-05 Steven C. Tatro, ASA Florida Department Of Revenue Holds Hearing On Proposed Modifications To Depreciation Table

P. 5 December 2004, Florida Department Of Revenue Conducted A Public Rule Development Workshop Regarding Potential Modifications To Their Depreciation Tables.

Douglas R. Krieser, ASA, Marcus A. EWALD, CFA

Identifying And Measuring Economic Obsolescence With Underperforming Global Assets

P. 6-15 Overseas Expansion By Corporations Are Encountering Issues Associated With Both Financial Reporting And Related Tax Matters.

International MTS Committee

Asa Mts Candidate-Report Review Checklist

P. 16-21 Checklist For Submitting MTS Appraisal Reports For Accreditation.




Edward D. Biggs III, ASA

Appraising Railcar Movers P. 25-26 Sources For Appraising Railcar Movers.

Leslie H. Miles, Jr., FASA

Highest And Best Use For Personal Property

P. 27-30 Consideration Of USPAP Standard 7 And 8 Related To Highest And Best Use.

Merritt Agabian, FASA True Value P. 31-32 Discussion Of Continued Use Of Items In Place And In Use.

29 21 2 2005 Franklin D. Reid, ASA Appraisal Considerations In Third World Countries

P. 5-8 Issues To Understand When Applying USPAP In Developing Nations.

Robert Neumuller Measuring Economic Obsolescence In Oil Refineries

P. 9-22 Article Describes How Economic Obsolescence Fits Into Value Estimates Using The Cost Approach.

Alan C. Iannacito, ASA Valuations Of Patterns P. 23-28 Patterns Have Value Based On The “Level Of Trade”.

30 21 3 2005 Tom Sexton, ASA Rail Equipment P. 4-16 Rail Industry Is Dealing With Changes In A Recovering Economy.

Douglas R. Krieser, ASA

The Changing World Of Insurance Valuation

P. 17-24 Performing An Insurance Appraisal Is Becoming More Difficult. The Appraiser Needs To Consider A Variety Of Tools To Arrive At Their Conclusion.

V. Neil Thompson, ASA Hurricane Runs The Table P. 25-26 Overview Of Hurricane Katrina To The Gulf Coast Casino Industry.

Leslie H. Miles, Jr. FASA

True Value Rebuttal P. 27-32 Rebuttal To Fair Value Issues In Ad Valorem Cases.

Mike Clark, L&M Publications

Market Conditions P. 33 Overview Of Market Conditions As Of July 2005.

Edward D. Biggs, III, ASA

Trusted Counselor P. 34 Mentoring Is A Win-Win Endeavor For The Society.

31 21/22 4&1 2005-06 Lee Robinette, ASA Letter To Chief Counsel: Missouri Tax Commission

P. 35-37 Official Position Of The MTS Committee Regarding The Proposed Appraisal Requirements.

J. Barry Savage, ASA and Harry J. Richardson, ASA

Hydroformng P. 10-11 Explanation Of How Sheet Metal Hydroforming Works And The Advantages.

Daniel L. Lagace, ASA How Exponents Work P. 12-20 Article With Intent To Diminish The Perceived Mystery Associated With The Use Of Exponents In The Cost To Capacity Formula.

Art Narverud, ASA A MTS Appraiser’s War Story P. 21 Surprise Encounter To A Small Fish Cannery In Alaska.

Alan C. Iannacito, ASA Basic Machinery Identification Seminar

P. 22 Update Of Id Seminar Held In Los Angeles In October 2005.

Robert D. Podwalny, FASA

Managing A Portfolio Of Leased Aircraft

P. 24-32 Why The Corporate And Commercial Aircraft Industries Rely On Leasing.

Steven C. Tatro, ASA Divorce-Appraisal Style P. 33-35 Issues To Be Considered Before Accepting An Divorce Settlement Case.




Charles Dixon, ASA 2005 Membership Report P. 36-40 The Latest Membership Numbers By Disciplines As Of 2005.

Leslie H. Miles, ASA USPAP Will Be Changing P. 41-44 Uspap Changes Are A Recognition Of Economic Realities.


FASB Releases Fair Value Measurement Working Draft

P. 45-51 Fair Value Is In The Process Refined And Clarified By The Fasb.

32 22 2&3 2005-06 Jack Washbourn, ASA MTS Governor’s Report P. 5 Written Awareness Of What Asa Board Of Governor’s Activities In 2006.

China Appraisal Society

Valuation Of Machinery And Equipment In China

P. 7-13 Focus On Imported Second-Hand Equipment.

Robert S. Svoboda, PE, ASA

Value In Use VS. Value In Exchange P. 14-30 Definition Overview Of Fair Market Value In Use Vs. In Exchange From Several Appraisal Societies.

John A. Matthies, ASA A Forgotten Research Tool P. 31 The Yellow Pages Can Be An Excellent Information Source.

Nicole Stango ASA: Strength In Numbers P. 32-34 Article On How Efforts Can Be Made To Increase MTS Membership.

Charles Dixon, ASA AMTDA Trade Show P. 35-36 Overview Of American Machine Tool Distributor’s Association Trade Show.

Daniel L. Lagace, ASA Machinery Identification And Cost Approach Seminar

P. 37 Overview Of ID Workshop Conducted In Chicago In March 2006.

Leslie H. Miles, Jr. FASA

Aircraft Maintenance Care And Overhaul

P. 45 Discussion Of The Rapid World Growth Rate Of Maintenance, Repair, And Overhaul (Mro).

33 22/23 4&1 2006-07 Dong W. Cho Average Prices Of New Business Aircraft

P. 5-14 Dr. Cho Explains The Importance Of Index Reflecting Real Price Vs. Nominal Price.

Ken Dufour/Wade Young

The Truth About Fractional Aircraft Shares

P. 15-18 Overview Of Getting Maximum Value For Investment In Aircraft.


FASB Releases Final Version Of Fair Value Measurement

P. 19-28 Mr. Krieser Recommends An Understanding Of Sfas 157 When Performing Sfas 141 And Sfas 142

Alan C. Iannacito, ASA Appraising Clutter P. 30-35 Dealing With An Industrial Category That Can Be Overlooked But Needs To Be Addressed By The Appraiser.

John S. Ferguson, ASA Depreciation Based On Observed Condition

P. 36-41 Discussion Of The Observed Condition Being More Interest As An Historical Reference.

Jack Beckwith, ASA A Case To Determine Lost Value For New Series Equipment

P. 42-49 Importance Of Market Influences May Cause An Adjustment To Both The Functional And Economical Obsolescence In The Cost Approach.

David Fawcett FRICS ASA Annual Conference July 2006 P. 50-53 Outsiders Perspective Of The International Conference.




MTS Board Of Examiners

What Does Your Report Say About You, Your Company, And The Asa?

P. 54 - 62

The MTS Board Of Examiners Give A Checklist And Overview Of What Should Matter In The Appraisal Reports That Are Evaluated.

34 23 2 2007 Dale H. Bracken, ASA How Movies Are Really Made P. 6-9 Article Describes All The Steps, Equipment, And Techniques That Allows The Film To Go From The Camera To What Is Seen On The Screen.

Sharon Desfor The Sun Sets On Fas 13 - Will We Be Left In The Dark?

P. 10-11 Discussion As To How Recent Fasb Definitionn For Value May Be A Concern For Leasing.

Joel B. Levinson, ASA, CSA

Valuing Manufacturers' Secret Weapons Against Costs

P. 12-15 Article Discusses Phraseology That Should Be Used In Describing The Scope Of Work For The Client To Sign.

Catherine J. Rein An Overview Of Photovoltaic Equipment & Issues Affecting Its Value

P. 16-21 Overview Of World Market Demand For Photovoltaic Equipment And Reasons For The Growth.

H. Denis Neumann, ASA

Mobile Homes And Their Value P. 22-25 Mobile Homes May Be Considered Personal Property Or Real Property. Article Is Another Method To Determine Value.

Terry L. Duda, P.E., ASA, CEA

Boiler Valuation P. 26-30 Basic Knowledge Of What To Know About Valuing Boilers.

Jeffrey W. Brend Attorney Tricks-Witness Traps The Abc's Of Testifying

P. 31-43 Insight To The Four Stage Process In Preparing As An Expert Witness.

35 23/24 4 & 1 2007-08 Alan C. Iannacito, ASA Letter From MTS Governor P. 4-5 Details On Various Subjects Including: Proposed Unification Between Asa, Appraisal Institute, And American Society Of Farm Managers And Rural Appraisers.

Norman F. Laskay, ASA Identification and Appraisal Of Marine Dredging Equipment

P. 6-18 Identification Of And Valuation Of “Technical Real Property” For Taxation Purposes.

J.P ("Buck") Ward III, ASA

Some Thoughts On The Valuation Of Office Furniture

P. 19-21 Various Considerations And Market Discussions On Furniture.

Dennis C. Neilson, CMI, P.E. ASA and Michael J. Remsha, CMI, P.E., ASA

Technical Real Property Issues And Property Taxation: Heavy Manufacturing, Utilities, And Process Industries

P. 22-31 Identification Of And Valuation Of “Technical Real Property” For Taxation Purposes.

Sharon Desfor, ASA The Convention On International Interests In Mobile Equipment And The International Registry

P. 32-35 Discussion Of The Capetown Convention And Its Application To Mobile Equipment (Including Rail, Aircraft, And Other “Mobile” Assets).

Alan C. Iannacito, ASA Growing A Machinery And Technical Valuation Appraiser

P. 36-38 The Importance Of Mentoring And Knowledge Transfer When Developing New Valuation Talent.




Osato Osawaye Emerging Markets In Nigeria And The Opportunities For Specialist Valuation Practices

P. 39-41 Economic And Business Development In Nigeria And The Potential Opportunities For Valaution Professionals Within That Area Of The World.

Bob Clark, ASA Industrial Pumps - The Basics P. 42-44 General Overview Of Various Pumps And Their Uses.

Joe Santora Mobile Cranes - Is The Sky The Limit?

P. 45-46 Observations Of The Current Used Market For Large Mobile Cranes.


Buyer’s Premium P. 47-48 Discussion On Buyer’s Premium In Auctions.

Dave Evans, ASA Appraisal Matters P. 49 Discussion Of Various Industries And The Current State Of The Auction Markets For These Industries.

Les Miles, ASA; Ed Raether, ASA And Douglas Krieser ASA MRICS

International Plant And Machinery Conference

P. 51-53 Overview Of The October 2007 International Plant And Machinery Conference Held In London.

36 24 2 & 3 2008 Jack Washbourn, ASA Board Of Governor's Report P. 6 Discussion On ASA Headquarters It Proposal For Service And Various Other Pertinent Subjects.

Jack Beckwith, ASA Mentoring P. 7-11 General Discussion About Mentoring And Why Mentoring Is Important To The ASA.

Ed Biggs, ASA What Will Be Under Your Hood? P. 12-13 Discussion About Converting And Rebulding Locomotives.

Richard Ellsworth, PE, ASA, CCE

Scale Factor Estimates For Infrastructure Assets

P. 14-20 Scaling Factors For Use In Valuing Infrastructure Assets Including Use Of Cost To Capacity.

Micheal J. Remsha, PE, ASA, CMI

The Complete Cost Approach And The Order Of Deductions

P. 21-29 Discussion Regarding The Current Order Of Depreciation Taught By The ASA And An Introduction To An Alternate Approach Based On The Experience Of The Author.

Philip L. Burk, ASA, CMA, PE

Valuation Of Public Utility And Other Property With Limited Earning Ability

P. 30-39 Discussion On How Limited Earnings Effect The Value Of Various Regulated And Unregulated Industries.

Richard Scuster, ASA The Fractional Aircraft Ownership Value Conundrum

P. 40-42 Valuing Fractional Ownership Of Aircraft Under Various Scenarios.

Editor Recent MTS M&E Identification Seminar And Report Writing Seminar

P. 43-44 Outline Of The Recent MTS Machinery And Equipment Identification Seminar And Report Writing Class Given In Detroit.

Editor Los Angeles Chapter Provides Seminar On Tangible Asset Valuations For Financial Reporting Purposes

P. 45-46 Outline Of The Recent Seminar Given In Los Angeles.





Selecting And Publishing Sales Comps From Auction

P. 47-50 Outline Of Some Of The Data And Items Considered By L&M Publications When Listing Sales Comps.

Dave Evans, ASA Appraisal Matters P. 51-53 Discussion Of Various Industries And The Current State Of The Auction Markets For These Industries.

Editor Planning Begins For 2009 International Plant And Machinery Conference

P. 53 Announcement And Update On The Planning For The Joint ASA/RICS/AAI Plant And Machinery Conference In 2009.

37 24/25 4 & 1 2008 Douglas R. Krieser, ASA MRICS

Editor’s Corner P. 4-5 General Overview Of The Current Issue And Recent MTS Committee Meetings.

V. Neil Thompson, ASA Chairman’s Prospective P. 6 Neil Thompson Outlines Various Accomplishments Of The MTS Committee And Other Issues Such As The Recent Merger Discussions With AS, ASFMRA And RICS.

Jack Washbourn , ASA Letter From MTS Governor P. 7 Jack Washbourn Discusses The Importance Of Being An Active And Not “Simply A Dues Paying Member” And Some Ideas On The Asa’s Goal Of Becoming “Discipline Centric”.

Alan C. Iannacito, ASA Letter From MTS Governor Alan C. Iannacito, ASA

P. 8 -9 Alan C. Iannacito Discusses The Evolvement Of The Asa MTS Committee And Recent Issues Important To Members Of The ASA.

Stephen L. Barreca, ASA, CDP, PE

Proper Consideration Of Future Net Salvage In An Appraisal Of Value

P. 10-18 Discusses The Considerations That An Appraiser Should And Should Not Give To The Future Net Salvage Value Of A Tangible Asset When Applying The Various Approaches To Value.

Mark S. Buettner, ASA One Appraiser’s Perspective of IMTS 2008

P. 19-20 Comments On The Bi-Annually International Machinery Technology Show In Chicago In 2008.

Richard K. Ellsworth, PE, ASA, CFA

Survivor Curves And Equipment Life Expectancy

P. 21-27 Insight And Commentary On The Development Of Iowa Curves.

Phillip Kolczynski Ethical Challengers For Expert Witnesses

P. 28-39 2008 International Conference Presenter Provides Commentary On Some Of The Challenges Faced By The Expert Witness. Mr. Kolczynski Is An Attorney Based Out Of Southern California.

Roman Karpov External Obsolescence. Value Change Factor Of Industrial Personal Property Entering Secondary Market

P. 40-44 Roman Karpov Presents A Methodology For Quantifying And Qualifying External (Economic) Obsolescence.




Roman Karpov Russian Version Of The Article Listed Above

P. 45-50 Russian Version Of The Article Listed Above.

Sharon Desfor, ASA, MRICS

The Banking Liquidity Crisis P. 51-53 Sharon Desfor Discusses How The Liquidity Crisis Can Effect Borrowers, Lenders And Appraisers.

John S. Fergusen, PE, ASA, CDP

Valuation Of Public Utility And Other Property With Limited Earning And Ability - A Commentary

P. 54-56 Mr. Fergusson’s Response To “Valuation Of Public Utility And Other Property With Limited Earning Ability” Published In The Last Issue Of The Journal.

Michael J. Remsha, P.E., ASA, CMI

Electrical Generating Plant Valuation P. 57-67 Mike Remsha PE, ASA, CMI Offers Some Interesting Insight Into Valuing A Variety Of Different Power Plants Using All Three Approaches To Value.

Mike Clark Valuation In Time Of Turmoil P. 68-69 Mike Clark Discusses The Effects Of The Current Economy On The Auction Market.

Dave Evans, ASA - Chief Appraisal Officer

Appraisal Matters... With Wells Fargo Business Credit & Wholesale Bank D

P. 70-71 Discussion Of Various Industries And The Current State Of The Auction Markets For These Industries.

38 25 2 & 3 2009 Douglas R. Krieser, ASA MRICS

Editor’s Corner P. 4 General Overview Of The Current Issue.

V. Neil Thompson, ASA Chairman’s Perspective P. 5 Neil Thompson Outlines The Importance Of Education And Some New MTS Courses The ASA Has Developed.

Alan C. Iannacitto, ASA P. 6 Alan C. Iannacito Discusses The Recent ASA/AMEA Seminar, The New ASA Website, And Other Issues.

John S. Ferguson, PE, ASA, CDP

The Value of Writing P. 8 John Ferguson Discusses The Strategic Reasons For Writing Articles For The MTS Journal And Other Publications.

Catherine J. Rein MBA, AM

Don’t Forget the Website in Asset Appraisal

P 10-13 Catherine Rein Discusses The Importance Of Valuing The Web Site Name When Valuing A Company And Some Considerations The Appraiser Should Consider When Valuing These Assets.

Alan C. Iannacitto, ASA Principles of Mining Processing Listing and Valuing Continuous Mills

P. 14-18 Alan C. Iannacito Discusses Various Factors In The Valuation Of Ball And Rod Mills Including Differentiating Between The Two, The Data Required To Value Each, And Various Reference Materials Regarding Mills.

John S. Ferguson, PE, ASA, CDP

On Survivor Curves and Equipment Life Expectancy

P. 19-20 John Ferguson Commentary Of An Article Written By Richard K. Ellsworth Regarding Survivor Curves.




Michael J. Remsha, PE, ASA, CMI

Fair Market Value in Continues Use P. 21 - 26

Mike Remsha Discussed The Intricacies Of Fair Market Value In Continued Use And What The Appraiser Needs To Consider When Using This Value Premise.

Joseph M. Santora, ASA

Mobile Cranes - Is the Sky Falling? Market Observations

P. 27-28 Joseph M. Santora Discusses The Current Market For Mobile Cranes And How It Has Changed Since His Article In Late 2007.

Richard K. Ellsworth, PE, ASA, CFA

Retirement Dispersion and Appraisal Depreciation

P. 29-33 Richard K. Ellsworth Continues His Discussion Of The Use Of Iowa Curves And How They Are Utilized To Estimate Depreciation.

Dennis C. Neilson, Cmi, P.E. Asa And Michael J. Remsha, Cmi, P.E., Asa

Personal Property Tax Appeal/Valuation

P. 34-41 Dennis C. Neilson And Michael J. Remsha Outline Various Issues The Personal Property Appraiser Has To Consider When Performing A Tax Appeal Appraisal Including: The Three Approaches To Value; Classifying Real Vs. Personal Property; Highest And Best Use (Inuse Vs. In Exchange); Mass Appraisal; Assessor Approaches To Value; Excess Depreciation; And Other Relevant Topics.

Mike Clark Random Thoughts on the Market P. 42-43 Mike Clark (L&M Publications) Discusses Various Markets In General Including Metal Working, Plastic Equipment, Food Processing Equipment, Printing Equipment, Etc. Also, He Discusses How The Number Of Auctions Have Varied In The Past Year.

Dave Evans, ASA - Chief Appraisal Officer

Appraisal Matters...With Wells Fargo Business Credit & Wholesale Bank

P. 45-46 Discussion Of Various Industries And The Current State Of The Auction Markets For These Industries.

39 25/26 4 & 1 2010 Sharon Desfor, ASA, MRICS

Editor’s Corner P. 4

Peter Campbell, ASA Chairman’s Prospective P. 5

Alan C Iannacito, FASA Letter From MTS Governor P. 6

Robert S Risbridger and Kenneth M Heyse, ASA

The Perfect Storm P. 8-11

Leslie H Miles, Jr, FASA

Physical Life Explained P. 12-17

Alexander Skorniakov, ASA

Second-Hand Value And Financial Reporting

P. 18-20




Douglas R Krieser, ASA, FRICS

International Conference On The Valuation Of Plant Machinery And Equipment

P. 24-25

William M Engel, ASA Making Valuation Research More Dynamic

P. 26-34

Richard K Ellsworth, PE, ASA, CFA, CCE

Depreciation Methods In Theory And Practice

P. 35-42

Alan C Iannacito, FASA ME214 - The Identification and Appraisal of Mining and Mineral Processing Equipment

P. 43-48

Mike Clark Random Thoughts on the Market P. 49-50

Dave Evans, ASA Appraisal Matters… With Wells Fargo Business Credit & Wholesale Bank

P. 53-54

In Memoriam - Leroy L Ackermann-Ackermann & Tinker Appraisal Specialties, Paul Rice, ASA - The Rice Group

P. 55

40 26 2 & 3 2010 Sharon Desfor, ASA, MRICS

Editor's Corner P. 4-5

Peter Campbell, ASA Chairman’s Prospective P. 6

Alan C Iannacito, FASA Letter from MTS Governor P. 7

Tom Sexton, ASA Machine Tool Market P. 9-12

Joseph M Santora, ASA and David Helle, ASA

2009 Crane Market Conditions…Is The Sky Falling?

P. 13-14

Mike Clark The Market Is Rebounding P. 15

Jack Young, ASA, CPA An Overview Of The California Air Resources Board Diesel Regulations

P. 16-18

Edward D Biggs, III, LLC, ASA

Appraised Fair Market Value And AAR Interchange Rule 107

P. 19

Jack Beckwith, ASA 2010 Changes & Challenges In Healthcare

P. 20-23

Alan C Iannacito, FASA M&E Local P. 24-26

Norman Laskay, ASA The Life Of A Ship P. 27-33

Paul Wride, ASA What An Equipment Lessor Looks For In An Appraiser

P. 34-36

Robert A Davis, MBA, AVA

Applications Of The Inutility Model P. 37-41

Michael J Remsha, PE, ASA, Cmi And Kevin S Reilly, ASA

Economic Obsolescence: Real Life Stories

P. 42-47

41 26/27 4 & 1 2011 Sharon Desfor, ASA, MRICS

Editor's Corner P. 4




Charles C Dixon, ASA Excerpt From Governor Charlie Dixon's January Report To The MTSC

P. 5-6

MTS Committee Definitions Of Value Relating To MTS Assets

P. 7-8

Robert S Risbridger and Kenneth M Hyse, ASA

The Aftermath Of The Perfect Storm P. 9-12

Leslie H Miles Jr, FASA What Is Orderly Liquidation Value? P. 13-15

Douglas R Krieser, ASA, FRICS

Financial Reporting Process P. 16-21

Alexander F Rudin, ASA, CG/GA and Shelby St John

Valuation Modeling P. 22-28

Alan C Iannacito, Fasa ME214 Class Report P. 29-24

Peter Daley, ASA Calculating The Economic Useful Life And Forecasting Residual Value For It Equipment

P. 35-39

Barry Gunderson, CPA, CMA, CIA, CCM, CPIM, CSCP

Reducing Banker Lending Risk: Inventory Valuations - More Science Than Art

P. 40-44

Michael J Remsha, PE, ASA, CMI and Kevin S Reilly, ASA

Functional Obsolescence: Real Life Stories

P. 45-55

42 27 2 2011 Richard A Berkemeier, ASA

Chairman's Perspective P. 4

William M Engel, ASA Editor's Corner P. 5

Danial Lagace, ASA and Sharon Desfor, ASA

Machinery And Technical Specialties Discipline Governors' Commentary

P. 6-8

Jack Beckwith, ASA Medical Imaging Report P. 9-12 Discussion Of The Technologies And Market For Medical Imaging Equipment.

Alan C Iannacito, FASA When Values Hibernate P. 13-15 Explains How The Intrinsic Value Of Equipment Impacts Value Fluctuation.

Mike Clark Premises Of Value: What Is Forced Liquidation?

P. 16-17 Discusses How Some Sales Labled As Auctions Don’t Always Fit The Definition Of “Forced Liqudation Value”.

MTS Journal Interview with Michael Makin, CEO and President of the Printing Industries of America

P. 18-22 An Overview Of The Printing Industry Including It’s Health And Them Market For Used Equipment.

Alan C Iannacito, FASA ME214 Identification And Appraisal Of Mining And Mineral Processing Equipment

P. 23-26 A Review Of ME214 Identification And Appraisal Of Mining And Mineral Processing Equipment Class.




William M Engel, ASA How Do You Use Technology In Your Appraisal Practice?

P. 27

43 28 1 2012 William M Engel, ASA, Editor's Corner P. 4

Dan Lagace, ASA and Sharon Desfor, ASA

Governor’s Report P. 5

Thomas A. Sexton, ASA Food Processing Equipment P. 6-10 Discusses Values, Considerations And Trends In The Food Processing Equipment Market.

Richard Buckner, President, Fair Market Graphics, Inc.

Sheetfed Printing Presses In The Current Marketplace

P. 11-12 An Overview Of The Current Market For Sheetfed Offset Presses.

Les Miles & Robert Clark

China Plant and Machinery Conference a Resounding Success

P. 14-16 Review Of The ICVPME Held In China.

Norm Laskay, ASA Understanding the Marine Marketplace

P. 17-30 An Overview Of The Different Types Of Vessels And Their Characteristics Along With Considerations When Determining Value.

Gregory W. Kort, P.E., ASA, CMI

Environmental Issues – Impacts on Industrial Property Value

P. 31-36 A Discussion On How Environmental Issues Impact Industrial Property Along With Ideas On Quantification And Accounting For Them.

Michael Rikon Condemnation of Machinery and Equipment: A Case Study

P. 37-46 History Of Condemnation Along With How It Is Treated In Different Countries And States And A Case Study That Demonstrates How A Court Views It.

Kenneth R. Loso, Lessons Learned, Warning Signs, and “Banana Skins”

P. 47-50 Reviews Warning Signs Of Economic Crisis.

44 28 2 2012 Richard Berkemeier, ASA

Chairman’s Perspective P. 4

Danial Lagace, ASA and Sharon Desfor, ASA

Machinery And Technical Specialties

Discipline Governors’ Commentary

P. 5-6

William M Engel, ASA Editor’s Corner P. 7

Rob Schlegel, ASA, MCBA

The Nexus Of Business Valuation And Valuation Of Equipment

P. 8 -10 The Differences Between MTS And Bv And How Bv And MTS May Work Together.

Douglas R Krieser, ASA,FRICS

Gn6 Depreciated Replacement Cost Method Of Valuation For Financial Reporting - A Summary

P. 11-13 A Summary Of RICS Standards Guidance Note 6 Which States, In Part, Market Approach Should Be Used Over Cost Approach For Financial Reporting.

Bruce Leister, ASA Forward To The Past With Semiconductor Market

P. 14 -16

Explains The Market And Sales For Older 200MM Equipment Versus Newer 300MM.




Richard Zhang, MBA, ASA, MRICS, CPV

How Should We Perform Equipment Appraisals

P. 17-22 Explores Why Equipment Appraisals Are Necessary And Considerations The Appraiser Should Keep In Mind.

Kevin S Reilly, ASA A Market Perspective: Identifying, Quantifying, And Applying Economic Obsolescence

P. 23-31 An Overview Of Economic Obsolescence Providing A Case Study Explaining The Application And Theory.

Alan C Iannacito, FASA Eminent Domain And Personal Property

P. 32-34 Discusses How To Work On An Eminent Domain Assignment.


Chairman’s Perspective P. 4

Daniel Lagace, Asa And Sharon Desfor, ASA

Machinery And Technical Specialties Discipline Governors’ Commentary

P. 5-6

William M Engel, ASA Editor’s Corner P. 7

Simon Landy The Value Of Valuations: New International Standards To Benefit Investors

P. 8-9 Current Status And Explanation Of The International Valuation Standards

Tammy Blackburn, ASA Do I Need An Appraisal To Reduce My Ad Valorem Tpp Tax? - A Magistrate’s Perspective

P. 10-11 The First In A Series Of Articles Explaining The Burdens Of Appraising For Tangible Personal Property Tax Appeal Purposes Along With Explanations Of The Appeal Process And Selecting An Appraiser.

William M. Engel, ASA The Art Of The Interview P. 14-16 An Overview Of Questions That An Appraiser May Ask A Subject Company To Assist An Appraisers Knowledge Of The Industry, Equipment, And General Edification.

46 28 4 2012 Daniel Lagace, ASA and Sharon Desfor, ASA


P. 4

William M Engel, ASA Editor's Corner P. 7

Lee P. Hackett, FASA, FRICS, CRE

International Opportunities For Appraisal And Valuation

P. 8 A Glimpse Into The Word Of International Appraising And Advice On How To Get Started

Steven J. Sherman Raising The Bar For The Valuation Profession

P. 10 The Author Shares The Progress Of The IVSC

Robert A. Davis, MBA, ACA, ASA

Inutility Model Scaling Factor - What If The Factor Is Not Six-Tenths?

P. 12 Determining Economic Obsolesence And An Alternative Method Rather Than Using Six- Or Seven-Tenths Scaling Factors

Tammy Blackburn, ASA Preparing For The Vab Hearing - A Magistrate’s Perspective

P. 16 Insights Into What Steps An Appraiser Can Take To Strengthen Their Ad Valorem Appeal Appraisals

J. P. “Buck” Ward, ASA What Color Is Your Blanket P. 19 Gives The M&E Appraiser Points To Consider When Working With Asset-

Based Lenders As Clients.




Alan C Iannacito, FASA The Richest Desposit of Mining Knowledge

P. 22 A Review of MINExpo 2012


Chairman's Perspective P 4

Daniel Lagace, ASA And Sharon Desfor, ASA


P 5

William M Engel, ASA Editor's Corner P 7

James Matthews, ASA Biodiesel Industry Expansion Phase In The United States, An Overview And Its Process Machinery And Equipment

P 8 An Outline Of The Biodiesel Industry And The Equipment Involved

Jack Beckwith, ASA How Will The Ppaca Affect Diagnostic Imaging Equipment Moving Forward?

P 23 How Equipment Use And Value Are Impacted By The Patient Protection And Affordable Care Act

Tammy Blackburn, ASA Considering The Evidence - A Magistrate's Perspective

P 25 Insights Into The Evidence A Magistrate Sees When Considering Ad Valorem Appeal Appraisals

Martin L. King, CR, ASA

Actual Cash Value In Property Losses

P 27 Appraisals From An Insurance Perspective

Jack Young, ASA, CPA Appraising Equipment For Retail Propane Companies

P 29 What To Look For When Appraising The Equipment Of Retail Propane Firms

Kevin S. Reilly, ASA; Clayton T. Baumann, PE

Valuation Of Cogenration Plants; Things To Consider

P 33 What To Consider When Appraising

Cogeneration Facilities

Letters To The Editor P 41

48 29 2 2013 Daniel Lagace, ASA and Sharon Desfor, ASA

Discipline Governors’ Commentary

William M Engel, ASA Editor's Corner P 6

Christina Chojnacki, ASA and Leslie Vitale, ASA

Implications Of Economic Obsolescence In Fixed Assets For Financial Reporting Purposes

P 7 Implications, Indentification, And Quantification Of Economic Obsolescence

John Martin, Chairman Of The IVSC- Advisory Forum

The Role Of The Ivsc Advisory Forum In Developing A Valuation Profession Globally

P 11 Discusses The Progress Made By The Forum And The Challenges That It Faces

Austrailian ASA Chapter

Review Of Equipment ID Seminar P 14 Reviews The Equipment ID Seminar Held In Australia, March 2013

Garrett Schwartz, Asa, Cea

MTS Equipment ID Seminar: Premiere Speakers, Networking And Education

P 17 Reviews The Equipment ID Seminar Held In Cleveland, OH In June 2012

Leslie H Miles Jr, Fasa Nigeria And The ASA P19 Reviews Mr. Miles Trip To Nigeria And Explains The Growing Market For ASA

Volume 32, Issue 3, 3rd Qtr 2016 1 0 0



49 29 3 2013 Roger Durkin, J.D., M.S., FASA

The Top Twelve Mistakes Appraisers Make in Court Preparation

P10

Richard Buckner, President of Fair Market Graphics, Inc.

Sheetfed Printing Presses and Today’s Marketplace

P13

Garrett Schwartz, ASA MTS Appraisers Return to Cleveland for Networking & Equipment Education

P15

Les Miles, FASA ASA’s International Demand – Three Weeks in Japan

P18

Nancy Stacy, GG, ASA In Memoriam P36

50 29 4 2013 Liu Ping Achieve Collaborative Development of the Valuation Profession

P12

Aleksey Shaskolsky Ethic Dilemmas in Russian Appraisal Practice

P21

Алексей Шаскольский

Дилеммы этики в российской оценочной практике

P22

A. Shaskolsky, V. Romanovsky, S. Edomsky, V. Biryukov, A. Timkov

Federal Appraisal Standard FAS-0 “Paid-for Valuation”

P24

А. Шаскольским, В. Романовского, С. Эдомского, В. Бирюкова , А. Тимкова

Федеральный стандарт оценки ФСО-0 “Заказная оценка”

P27

Thomas Boyle, MAI Banks Run on Standards P31

Alan C. Iannacito, FASA The Class of 2013, ME214 P33

51 30 1 2014 Park Johnson, ASA, MRICS

Editor’s Letter P4

Robert W. Clark, ASA Chairman’s Corner P5

Michael J. Remsha, ASA, P.E., CMI

The Cost Approach and its Relationship to the Sales Comparison and Income Approaches

P6

Jack West, ASA Assessors and Independent Fee Appraisers

P32

P. Barton DeLacy, ASA, MAI, CRE, FRICS

Wind Power and the Tax Base: Reliable as the Resource?

P35

Robert B. Podwalny, FASA

USPAP Reports and Reports in Submitted for Advancement

P46

Clayton T. Baumann, P.E. Cost to Capacity Method: Applications and Considerations

P49



Robert W. Clark, ASA Chairman’s Report P5




Daniel Lagace, ASA and Sharon Desfor, ASA

Governor’s Bulletin P6

Robert F. Reilly, CPA The Unit Valuation of Taxpayer Assets for Protpery Taxx Purposes

P15

Alan C, Iannacito, FASA What Do Value-Added Businesses Pffer and What are Their Affecs on the Market?

P33



Robert W. Clark, ASA Chairman’s Report P5

Robert W. Clark, ASA ICVPME Report P6

Daniel Lagace, ASA and Sharon Desfor, ASA


Norman Laskay, ASA Marine Asset Appraisal and the Three Approaches to Value

P10

Thomas Sexton, ASA Current Trends in Energy Use and Their Effect on Railcars

P13

Barbara A. Spoor, ASA, (MTS – Aircraft, MTS – M&E, ARM)

Appraisal Review and Management P15

David Helle, ASA MTS Appraisers Attend Equipment Identification Seminar

P17

Park Johnson, ASA, MRICS

The Tools We Use: Marshall Valuation Service (MVS)

P20

54 30/31 4/1 2014/15 Park Johnson, ASA, MRICS

Editor’s Corner P4

Robert W. Clark, ASA Chariman’s Report P5

Richard Berkemeier, ASA, MTS Governor


In Memroiam Samuel F. Lucerno, FASA

P7

Mike Clark, ASA Asking Price is Not Selling Price P8

J.P. (Buck) Ward, ASA What Color is Your Blanket? Collateral Documentation and Asset Recovery for Asset Based Loans

P10

Jim Becker, ASA Demystifying New Paint & Interior... Assessing Aircraft Value

P14

Stephen L. Barreca, ASA, PE, CDP Founder & President, BCRI Valuation Services BCRI Inc.

Modeling the Life-Cycle of Multiple Forces of Depreciation

P18

Charlie Burkhardt, ASA, CAE, Senior Consultant, CostQuest Associates and Luis A. Rodriguez, Program Manager, CostQuest Associates

Development of a Replacement Cost New for Wireline Communication Property

P42





Editor’s Corner P4

Robert W. Clark, ASA Chariman’s Report P5

Sharon Desfor, ASA, MRICS, Richard Berkemeier, ASA, MTS Governor


Anthony Kioussis, President, Asset Insight

Used Citation Xs from NetJets are Rebranded by Guardian Jet as Elites

P9

Nathan J. Arnold Appraising Chemical-Processing Machinery and Equipment

P16

Les Miles, FASA and Park Johnson, ASA ME202 Taught in Japan P17

Joseph Feldman, President, Joseph Feldman Associates

Acquisition Surprises: Best Practices for Preparation and Risk Management

P18

Joe Santora, ASA Compliance P20

56 31 3 2015 Brad Hartsburg, ASA, CPPA, CSA

MTS Editorial P4

John J. Connolly, III, ASA Chairman’s Report P5

Richard Berkemeier, ASA and David Crick, ASA, MTS Governors


William Engel, ASA Memorial Tribute to Park Johnson, ASA

P7

J. Fernando Sosa, ASA, MRICS

The Scary Truth about Ghosts Assets P9

Bob Zuskin of Jet Perspectives

Corporate Aircraft: Valuing The Intangibles

P14

Joseph Santora, ASA of Irontrax, LLC

Choose Your Equipment Appraiser Wisely

P17

Jean Jackson and David Helle of PNC Financial Services Group

4th Annual Equipment Valuation Conference in Cleveland

P19

Brad Hartsburg, ASA, CPPA, CSA of Fortress Machinery Appraisals and Consulting Inc.

Identifying Heavy Equipment and Serial Number Locations

P23

Keith M. Bransky, ASA, ARM-MTS

Damaged Aircraft and Diminution in Value Back-to-Basics

P30

Barrie Roesler, ASA Are your Comparables Really Real? P36





MTS Editorial P5




Richard Berkemeier, ASA Finding the Right Appraiser is as Easy as ASA

P9

Sharon Desfor, ASA State of the Helicopter Market

P11

Tony Grant, FRICS Ethics in the Global Real Estate Market - A New International Coalition

P19

John Mathe, ASA Supportable Evidence in Appraisals P25

Alan C. Iannacito, FASA and Allan K. Bowles, PE

MTS214 Identification and Appraisal of Mining and Mineral Processing Equipment Course

P29

American Society of Appraisers

Virtual Chapter News

P37

Joseph Santora, ASA IRONTRAX LLC Mining Industry Insight (Winter 2015) Mining Industry Statistics

P39

Leslie H. Miles, Jr. FASA, FAPI

9th International Conference of Plant and Machinery and Equipment

P44

Peter J. Turecek The Past and Future of Compliance

and Fraud in Aviation: Don’t Fly Blind P46

Harry J. Richardson, ASA / Edited by: J. Barry Savage ASA, Emeritus

Technological Obsolescence Finally Arrives in the Metal Stamping Press Industry

P50

Walter W. O’Connell M.E., ASA, SCSP

The Ideal Pricing Index

P53

Tom Sexton, ASA Freight Railcar Basics P56

Jack Beckwith, ASA, CEA

ASA Trains ODR Analysts on Machinery and Equipment Valuation Methodology

P64


MTS Editorial P5







J. Richardson, ASA / Edited By: J. Barry Savage, ASA Emeritus

New Automotive Hot Stamping Presses Makes For More Efficient & Safer Cars and Technological Obsolescence

P12

Walter W. O’Connell, M.E., ASA, SCSP

To Trend in Microsoft Excel™, or Forecast in Microsoft Excel™, That is the Question

P14

Norman F. Laskay, ASA Emeritus

What Does a Buyer Want? P20

Dexter D. MacBride, CAE, FASA, Submitted by Norman F. Laskay, ASA Emeritus

Who Gets the Credit? P23

Douglas R. Krieser, ASA FRICS

Do Audit Reviews Fall Under USPAP Standard 3?

P24

Interviewer: Raymond Moran, ASA, MRICS

Interview with Liying Han – China Appraisal Society

P32

The Appraisal Foundation

Revisions to the USPAP and USPAP Advisory Opinions

P34

Alan C. Iannacito, FASA Coal Is King No More: When Do You Determine Economic Obsolescence?

P36

Art Pincomb, ASA, CPG Mineral Appraisals: What is the Value of a Quarry or Mine?

P41

Leslie H. Miles, FASA & Karen Milan, ASA

Inutility Exponent Development P49

Keith M. Bransky, ASA, NSCA

Bransky - Ruden Meeting and 40+ Years of ASA Journals

P53

Roman Karpov and Anna Levleva

Obsolesce and Depreciation – International Style

P64

Douglas R. Krieser, ASA FRICS; Jack Beckwith, ASA, CEA; William Engel, ASA and Richard Tondre

How Asset Tracking Can Potentially Save Money

P61


The MTS Journal is a publication of the International Machinery & Technical Specialties Committee of the American Society of Appraisers, the only multi-discipline testing/accrediting appraisal society in America. The MTS Journal is written both for the appraisers who value equipment on a regular basis, and for those others who may have a professional interest in the subject. These include attorneys, bankers, business brokers, estate planners, used equipment dealers, real property and business valuation appraisers. The MTS Committee is a nonprofit organization with a goal to standardize and educate all in our profession. Letters from readers are encouraged. Letters will be printed without editing, in the sequence received, subject only to space limitations.

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