Professional Pilot, February 2019

1 13 5 17 9 21 25 29 33 37 41 45 2500000 2000000 1500000 Table E Utilizing the Residual Value Trend as the basis for their sales timing and pricing the seller could potentially forego a net gain ranging between 300K and 950K during the assets optimum marketing time period ket as a whole are moved forward each future month based on each individual aircrafts maintenance program and each assets anticipated utilization rate At that point another complete valuation is run for that month on all competitive aircraft and the Subject is then placed valued into context This same process is repeated for each subsequent month covering the RV term thus creating a Maintenance Adjusted Residual Value MARV line such as the black jagged line displayed in Table A Once an aircrafts MARV has been established and assuming the owner is not forced to sell the asset on a specific date the aircrafts projected maintenance Exposure to Price Ratio ETP Ratio needs to be computed to help determine the best time period to list the aircraft so as to optimize the net proceeds from its sale The ETP Ratio is a useful indicator of an aircrafts marketability and it is computed by dividing the assets Maintenance Exposure the financial liability accrued with respect to future scheduled maintenance events by the aircrafts Ask Price Days on Market DOM analysis has revealed that when the ETP Ratio exceeds 40 a listed aircrafts Days on Market increase by more than 30 Table B displays the DOM for aircraft posting an ETP Ratio below 40 and those posting a higher figure during the past 2 years The higher ETP Ratio equates to an average differential of 48 a remarketing period increase equivalent to 34 months Table C plots the anticipated ETP Ratio against the assets MARV Since we do not wish to prolong the assets remarketing period DOM we need to list the aircraft when its ETP Ratio is sufficiently below 40 for a reasonable period of time In this example those windows are between months 1 and 7 as well as between months 10 and 19 inclusive By virtue of some advance planning that timeframe matches up well with the aircrafts peak MARV which occurs on month 17 Having determined the optimum remarketing period the ETP Ratio also helps us derive at what point we are likely to optimize the proceeds earned from the aircrafts sale In computing this figure we will make the following assumptions 14 PROFESSIONAL PILOT February 2019 The seller will use a broker to remarket the aircraft and the broker will receive a 5 commission on the sale When the ETP Ratio is below 40 the seller will absorb the cost to ensure that no scheduled maintenance is due for 90 days following delivery to the buyer When the ETP Ratio is 40 or greater the seller will absorb the cost for completing scheduled maintenance due for 180 days following delivery in an effort to increase the aircrafts marketability Based on those assumptions and utilizing the MARV as the actual Transaction Value the Net Proceeds from the sale of this aircraft over the next 48 months are displayed on Table D In this example the seller would optimize the net proceeds from a transaction that occurs on month 17 Alternatively had the seller relied on the RV Trend line as the basis for their sales timing and pricing and utilizing the same assumptions relative to brokerage fees and maintenance required to complete the deal they would have sought to close a transaction immediately potentially foregoing a net gain ranging between 300K and 950K during the assets optimum marketing time period see Table E There is of course no way to guaranty that a sale will occur during the optimum trading month or even during any desired time period However knowing what is possible to achieve by investing in some simple and inexpensive analytics allows an owner to rationally identify the optimum time to remarket their asset and restart the exciting and sometimes less than rational aircraft acquisition process Anthony Kioussis is President of Asset Insight which offers aircraft valuation and aviation consulting services His 40 years of experience in aviation includes GE Capital Corporate Aircraft Finance Jet Aviation and JSSI Net Proceeds Comparison RV Trend line Net Proceeds MARV Net Proceeds 3000000 1000000 500000 Optimum marketing period