Buying&Selling 1.qxp_Finance 20/07/2021 15:00 Page 1
BUYING & SELLING AIRCRAFT
How to Minimize BizJet Residual Value Anxiety René Armas Maes asks what are some of the ways that an owner or operator can minimize their residual value concerns? reviously, Rene Armas Maes discussed how business aircraft buyers can save money and optimize their operations, whilst considering the hidden cost of an aircraft’s residual value (AvBuyer July edition, p42). But what are some of the ways that an owner or operator can minimize their residual value anxiety? Aircraft residual values depend on many factors, including general economic conditions; an aircraft’s make and model; and the condition of the preowned aircraft market at the time of the sale, among other things. Market downturns inevitably weaken aircraft residual values, negatively impacting the cost of ownership. Certain aircraft types, models and cabin segments are more impacted than others. For example, when it comes to residual values, historically speaking the Very Light and Light Jet sectors have been hit harder than others. Following, we will consider ways for potential aircraft owners to limit anxiety regarding business aircraft residual value, whether they’re planning the purchase of a fractional share, or they’re taking ownership of a factory-new aircraft.
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38 Vol 25 Issue 8 2021 AVBUYER MAGAZINE
A Wide-Spread Concern
Residual value anxieties are a real concern not only for buyers of factory-new aircraft and fractional share owners, but also for pre-owned aircraft buyers and the business aircraft Original Equipment Manufacturers (OEMs) themselves. On the one hand, aircraft owners or fractional share buyers want to protect their investment and reduce the cost of ownership when factoring in the amount they will receive when the time comes to sell their asset or dispose of their share. On the other hand, OEMs want to limit the residual value impact over time, especially as this enables them to firm-up prices for their brand-new aircraft portfolios. One way for the OEMs to protect themselves is to seek insurance or collateral, covering unforeseen asset value losses when negotiating financing and sales guarantees with customers.
Residual Value Guarantees (RVGs)
RVGs are nothing new in the commercial airline world including for regional aircraft and turboprop aircraft used by scheduled airlines, and are typically structured for a time period of 10 to 15 years. www.AVBUYER.com
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