Aircraft Valuation Fundamentals

Aircraft valuation is fundamental to the financing process. Lenders use valuation to determine maximum loan amounts, set loan-to-value ratios, and assess risk. For buyers, understanding valuation helps in negotiations and ensures you're paying fair market value.

Lenders typically finance 80-85% of an aircraft's appraised value, though this varies by aircraft type, age, and borrower qualification. The appraisal provides an independent assessment that protects both lender and borrower.

Aircraft appraisers use several methodologies to determine value. Market comparison approach analyzes recent sales of similar aircraft. Cost approach considers reproduction cost minus depreciation. Income approach may be used for aircraft generating revenue.

Most business aircraft are valued using market comparison, with adjustments for specific factors that differentiate the subject aircraft from comparables.

Airframe total time and cycles affect value, with lower-time aircraft generally commanding premiums. However, an aircraft that has been flown regularly and properly maintained may be worth more than a low-time aircraft that has sat unused.

Engine status significantly impacts value. Time since overhaul, enrollment in engine programs like TAP or MSP, and maintenance history all factor in. Engines on hourly programs provide predictable maintenance costs that buyers value.

Avionics age and capability increasingly drive value differences. Aircraft with modern cockpit upgrades like Garmin G5000 or Collins Pro Line Fusion command significant premiums over similar aircraft with older avionics.

Interior condition and remaining useful life affect value. Recent refurbishment with modern materials and design can add 5-15% to value compared to an original, dated interior.

Exterior paint condition affects both value and perception. Fresh paint can add $200,000-500,000 in value depending on aircraft size, but the benefit diminishes with paint age.

Overall presentation matters in the market. Well-maintained aircraft with comprehensive records, clean appearance, and professional management command premiums over comparable aircraft with deferred maintenance or documentation gaps.

Aircraft depreciate over time, with the rate varying by type and market conditions. Lenders consider projected residual value when structuring loans to ensure the loan balance remains below aircraft value throughout the term.

Business jets typically depreciate 5-10% annually in early years, slowing to 3-5% for mid-life aircraft. Some models hold value better than others based on market demand, support infrastructure, and operating economics.

Major market events can accelerate or slow depreciation. Economic downturns, new model introductions, or regulatory changes can all affect residual values.

For financing purposes, lenders require appraisals from qualified, independent appraisers. Major appraisal organizations include the American Society of Appraisers and the International Society of Transport Aircraft Trading.

Appraisal costs range from $1,500 to $5,000 depending on aircraft type and scope. The appraisal report provides detailed analysis supporting the value conclusion.