By Anthony (“Tony”) Kioussis, President & CEO, Asset Insight
Often viewed as an aircraft’s greatest “wild card”, anyone acquiring an in-service aircraft will, sooner or later, evaluate a candidate asset’s maintenance condition. A widely held misconception is that an aircraft’s maintenance condition, and the value it contributes to the asset, is directly related to its age. But, an aircraft’s age is not the sole, or necessarily even the primary, determinant of its “Maintenance Equity.”
An aircraft’s Maintenance Equity is equal to the asset’s maximum scheduled maintenance monetary value, LESS the maintenance value consumed through utilization (due to flight hour and/or cycle-related maintenance events) and/or the passage of time (due to calendar-related maintenance events), PLUS the value of any completed maintenance.
Every aircraft achieves its maximum Maintenance Equity value only once during its operating life: the day its maintenance calendar began to run on any of its components – usually the day the aircraft earned its Certificate of Airworthiness.
From that point forward, an aircraft’s Maintenance Equity decreases with the passage of time and/or utilization, and increases as maintenance is completed (see Maintenance Equity chart).
If one wishes to compare any aircraft to any other aircraft, an accurate computation of each asset’s Maintenance Equity is crucial. In considering such analytics, many view an aircraft’s age as the primary determinant. While age is certainly an important factor, maintenance analytics are complex and anything but “age linear,” since an aircraft’s maintenance requirements are dependent on flight hours, cycles, the calendar or, at times, whichever of these three limiters is reached first.
To prove this point, the graph below compares the Maintenance Equity retained by a new aircraft, during the first six years of its operating life, with the Maintenance Equity achieved by a fifteen-year-old model of the same type (given identical annual utilization). Notice that the younger aircraft’s Maintenance Equity is equal to, or less than, that of the older model once the younger aircraft has been in service for three and three-quarter years.
This is not to suggest the older aircraft should be priced higher than the younger aircraft. However, it does point out that a used aircraft purchaser should opt for a 19-year-old aircraft, as opposed to a 17-year-old model, as the older aircraft is likely to have more embedded Maintenance Equity, or maintenance value, all other operating parameters being equal.
The amount of Maintenance Equity retained by any aircraft is directly dependent on the make/model’s maintenance program and the aircraft’s utilization. As an aircraft ages, as operational demands change, and as early maintenance is conducted for operational and/or economic efficiency, an aircraft’s Maintenance Equity figures shift. Therefore, assuming that any aircraft’s Maintenance Equity is directly tied to its age opens the door to a potentially large gap in the valuation process.
Mr. Anthony (“Tony”) Kioussis is President and CEO of Asset Insight, LLC. The company provides valuations, audits, analytics, and consulting services to the aviation industry, and has developed a proprietary Asset Grading System Process resulting in a uniform methodology for evaluating and grading an aircraft’s maintenance condition. Prior to Asset Insight, he served as VP, Strategic Marketing with GE Capital’s Corporate Aircraft Finance group, joining GE after serving as VP – Aircraft Sales for Jet Aviation Business Jets, Inc. Following a ten-year tenure with British Aerospace, Inc., where he became VP – Sales, for JSX Capital, the company’s aircraft remarketing subsidiary, Tony founded The K Group, Ltd., providing Marketing, Sales, and Financial Services consulting to companies headquartered in the Americas and Europe. He later joined Jet Support Services, Inc., as Sales Director – Airframe Programs, and developed “Tip-to-Tail,” JSSI’s Airframe Hourly Cost Maintenance Program. Tony is a published author and active industry association member, serving as the current Board Secretary for the National Aircraft Finance Association (NAFA), past Chairman of the Products and Services Member Council for the International Aircraft Dealers Association (IADA), and as a current Member of the Transportation Research Board’s (TRB) Business Aviation Subcommittee. He holds a Bachelor of Science Degree from Florida Institute of Technology’s College of Aeronautics, has completed graduate studies at New York’s Pace University toward an MBA in Finance, and is a licensed pilot.