Aircraft depreciation curve

[TexasAviation]

Just curious ... at what point do most aircraft reach the bottom their depreciation curve? I know they lose value like a rock in the first few years, just like cars, but will often start to level off in price — or even appreciate — in the really long term.

Is most of the depreciation finished after 5 years? 10 years? 15?

I'm getting tempted by some early Cirrus SR22s that are over 10 years old now. This could be one way to rationalize the purchase

 

[flyingron]

Don't know, but my Navion (even neglecting some capital improvements made) has appreciated significantly even while I've owned it (and certainly way more than the $6K it sold for back in sixties).

 

[RudyP]

Cirri are particularly steep depreciators because Cirrus keeps making continuous changes/improvements. Theres a lot more difference between a 2001 SR22 and a 2016 SR22 than there is between a 1960s C172 and a 2016 C172. The pace of innovation is that much more dramatic. That explains why so many of us are on our second, third, fourth Cirrus (second for me so far). That said, it's great for those looking for value. Despite all those improvements in the intervening years, early Cirri are very capable airplanes that are still quite modern in their own right.

 

[bflynn]

There isn't really a bottom to a depreciation curve, it just keeps dropping every hour it is flown.

Using a couple of data points from vref for a PA-28 Warrior as an example. There is an assumption that a plane flies 180 hours a year. The 1995 model year would have averaged 3780 hours and depreciates $2.22 every hour flown. But the 1977 model would have flown an average of 7020 hours and now depreciates at just 57 cents / hour. But it never reaches 0.

 

[Stewartb]

I sold my 1947 PA-12 for $100K and the buyer got a smoking deal. Do the math on that one!

 

[Timbeck2]

Interesting question. I wonder what my 1970 Cherokee 140 sold for new.

 

[farmerbrake]

There isn't really a bottom to a depreciation curve, it just keeps dropping every hour it is flown.

Using a couple of data points from vref for a PA-28 Warrior as an example. There is an assumption that a plane flies 180 hours a year. The 1995 model year would have averaged 3780 hours and depreciates $2.22 every hour flown. But the 1977 model would have flown an average of 7020 hours and now depreciates at just 57 cents / hour. But it never reaches 0.

According to our taxes this year our arrow is fully depreciated.

Edit to add: I'm still doing research to verify this. Anyone have suggestions?

 

[GRG55]

According to our taxes this year our arrow is fully depreciated.

Edit to add: I'm still doing research to verify this. Anyone have suggestions?

Perhaps fully depreciated from a tax book standpoint, but not necessarily from a financial book perspective

 

[coloradobluesky]

What is different with airplanes is they don't get scrapped after 15 years like cars do. Instead, they get rebuilt.

A Cessna 172 in 1999 cost $150K in 1999 with a zero time engine and in perfect shape, brand new. That same Cessna 172 in 2016 with a zero time engine and in perfect shape, although it may have 2000 total time on it, in 2016 costs $150k! But keep in mind in those 17 years some $80,000 has been spent in maintenance and engine rebuild. However a new 172 in 2016 costs $350k!

It all depends on the the year it was built and what new airplane costs have done in the meantime. A new 1978 Cessna 172 cost $25K. In 1985 it would sell for $50k with a new engine. And there was a period 198? to 1996 when they werent built at all.

If 100,000 Cessna 172s were built each year, they would probably cost $20k each. But because they only build 500 or so a year they need $350k to cover their overhead. Then when their engine was worn out, they would be scrapped, like cars. Its not the liability costs like they try and tell us, its the volume. A 172 is lighter and has fewer parts than a modern car, no reason it should cost any more if they were built the same way and in the same numbers as cars.

 

[Checkout_my_Six]

ya but....airplanes are hand built....with little automation.

What is different with airplanes is they don't get scrapped after 15 years like cars do. Instead, they get rebuilt.

A Cessna 172 in 1999 cost $150K in 1999 with a zero time engine and in perfect shape, brand new. That same Cessna 172 in 2016 with a zero time engine and in perfect shape, although it may have 2000 total time on it, in 2016 costs $150k! But keep in mind in those 17 years some $80,000 has been spent in maintenance and engine rebuild. However a new 172 in 2016 costs $350k!

It all depends on the the year it was built and what new airplane costs have done in the meantime. A new 1978 Cessna 172 cost $25K. In 1985 it would sell for $50k with a new engine. And there was a period 198? to 1996 when they werent built at all.

If 100,000 Cessna 172s were built each year, they would probably cost $20k each. But because they only build 500 or so a year they need $350k to cover their overhead. Then when their engine was worn out, they would be scrapped, like cars. Its not the liability costs like they try and tell us, its the volume. A 172 is lighter and has fewer parts than a modern car, no reason it should cost any more if they were built the same way and in the same numbers as cars.

 

[FastEddieB]

There isn't really a bottom to a depreciation curve, it just keeps dropping every hour it is flown.

That seems demonstrably untrue, without qualifiers.

 

[jstro]

When searching for a used 180 hp Super Decathlon recently, I searched the ads and kept track of the year each one was built and the asking prices (note -- NOT the final agreed-upon selling price) as well as the TTAF and SMOH, and any other pertinent details. Since they all had different TTAF and SMOH, I calculated an adjusted price for each one by adjusting the TTAF and SMOH both back to 0 using $/hr figures obtained from Vref. After doing this they all fell pretty nicely on a smooth curve for adjusted selling price vs. year (attached). Note, the data labels are the actual SMOH times.

Just thought it was interesting. This may not be the best example though since the rights were sold from Bellanca to American Champion and there was a whole gap in the 1980's where none were built.

 

[NoHeat]

they all fell pretty nicely on a smooth curve for adjusted selling price vs. year (attached).

Your method seems reasonable to me, and your graph is interesting: Rapid depreciation for the first ten years. Slower afterwards. Very slow depreciation after 30 years.

 

[OkieAviator]

Cirri are particularly steep depreciators because Cirrus keeps making continuous changes/improvements.

I had assumed this was more due to the aircraft being composite or having life limited parts.

 

[Stewartb]

Depreciation is a financial tool. Declining value is determined by the market.

 

[JustinD]

When they starting remaking naturally aspirated 182's again late last year that certainly didn't help my resale value!

 

[flyingron]

Do not confuse what the IRS thinks depreciation is compared to what the actual decline in value. Aircraft indeed have a number of factors like engine time in the mix but in many cases, aircraft have not really been depreciating.

A good example is owning a duplex and living in one side. The side you live in, the IRS thinks is going to stand forwever and you can't depreciate it. The side you're renting out is going to fall down in 27.5 years and you are required to depreciate it even if it really is appreciating in value.

 

[azpilot]

I sold my 1947 PA-12 for $100K and the buyer got a smoking deal. Do the math on that one!

Here is an inflation calculator. It uses the CPI to calculate inflation.

The PA-12 sold for $2,995 new in 1946. Adjusting that for today's dollars, that is $36,417.82.

http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=2995&year1=1946&year2=2016

A Cessna 172 was $8,700 brand new in 1956, which is $75,840.65 in today's dollars.

Keep in mind that the CPI is not perfect, but it does give you some interesting perspective.

 

[azpilot]

If 100,000 Cessna 172s were built each year, they would probably cost $20k each. But because they only build 500 or so a year they need $350k to cover their overhead. Then when their engine was worn out, they would be scrapped, like cars. Its not the liability costs like they try and tell us, its the volume. A 172 is lighter and has fewer parts than a modern car, no reason it should cost any more if they were built the same way and in the same numbers as cars.

This is completely true. The economy of scale is what drives airplane costs sky high. I work in the aerospace industry (emphasis on the 'space' part) and I see this all the time. We buy aerospace grade parts in quantities of 1's and 10's, and then demand the most rigorous engineering standards you can possibly imagine, and we pay dearly for it. We pay nearly two order of magnitude more for parts because we buy in such low quantities.

 

[coloradobluesky]

In 2000, a brand new Cessna 172 cost about $160,000.
Here is a pristine 2000 172 with 1080 hours on it asking price in TAP is $157,500.
http://www.trade-a-plane.com/search...SKYHAWK+SP&listing_id=2179342&s-type=aircraft

 

[RudyP]

I had assumed this was more due to the aircraft being composite or having life limited parts.

I don't think that has much impact. Some people don't like composite aircraft and some people don't like things like CAPS 10 year replacement life. But that holds constant whether new or old, and doesnt get worse with age. The airframe is not remotely close to getting life limited.

If you poke around a 2001 SR22 next to a new 2016 G5 SR22T you would be really shocked how different they are. There have been a LOT of changes. I've had a 2006 G2 and a 2012 G3 - only 6 years and one generation apart - and they are very different airplanes.

 

[Bill]

This is completely true. The economy of scale is what drives airplane costs sky high. I work in the aerospace industry (emphasis on the 'space' part) and I see this all the time. We buy aerospace grade parts in quantities of 1's and 10's, and then demand the most rigorous engineering standards you can possibly imagine, and we pay dearly for it. We pay nearly two order of magnitude more for parts because we buy in such low quantities.

As a supplier to the military/space area, we see this from the other end. Customer wants 5 pieces, and sometimes all the testing, documentation, 1st article, etc., cost more than the parts themselves.

 

[coloradobluesky]

Yes, there are fixed costs. Take Christmas tree lights. The first one costs $10,000, the next 100 cost $100, get above a 100,000 and they cost 10 cents a piece. A million and they go down to a penny or two. ETC. Its called "economy of scale" and it should NOT surprise anyone.

 

[bflynn]

That seems demonstrably untrue, without qualifiers.

People are talking about prices, which is dollars expressed as a function of supply, demand, inflation and depreciation. The question was about the depreciation part of the equation. Supply, demand and inflation can certainly hide the effects of depreciation but they don't change the fact that as you fly an airplane it loses a little value with each hour flown.

BTW, a 1997 0 time, 0 hour C172S is around 125k today, not 150. If you remove inflation and put 125k into 1997 dollars, it becomes $85k, quite a fall from the $150k it was in 1997.

Now if you want to say that eventually inflation influences more than depreciation then I'd agree but that will be different with every airplane.

 

[James331]

Depreciation is a financial tool. Declining value is determined by the market.

That.

I think they are done after like 7 years for taxes.

As far as market value, go look at Cessna 180/5s, PA18s, heck go look at DHC2s

 

[Ron Lewark]

Along with the planes James331 posted, add 120/140/170 Cessna and a few others. I priced a new 1976 180 with no radios but all the other options I wanted, it was $25.500, price the same plane today. I purchased my 1971 A185E in 1976 for $25,000. I insure it at $145,000 today. Of course I've done two engines, painted it two times, panel work, and a number of STC's over the 40 years of being the custodian of the 185. A lot of variables come into play when talking depreciation of aircraft.

 

[FastEddieB]

People are talking about prices, which is dollars expressed as a function of supply, demand, inflation and depreciation.

Maybe, but other than the last thing listed, the other three are the "qualifiers" I thought necessary to support a statement like "there isn't a bottom to the depreciation curve".

 

[Jeremy3g4]

What a great conversation this was! I am a 40-year-old student pilot, looking to buy my first plane, a C172 that's also about 40 years old. This thread answered all of my questions about valuation. Best of all, it will help me sell this plane purchase to my wife.

 

[Ken Ibold]

As a supplier to the military/space area, we see this from the other end. Customer wants 5 pieces, and sometimes all the testing, documentation, 1st article, etc., cost more than the parts themselves.

When I was in the publishing business, we used to say the first copy of the magazine cost $180K to make and every one after that was 4 cents.

 

[Kenny Phillips]

What is different with airplanes is they don't get scrapped after 15 years like cars do. Instead, they get rebuilt.

A Cessna 172 in 1999 cost $150K in 1999 with a zero time engine and in perfect shape, brand new. That same Cessna 172 in 2016 with a zero time engine and in perfect shape, although it may have 2000 total time on it, in 2016 costs $150k! But keep in mind in those 17 years some $80,000 has been spent in maintenance and engine rebuild. However a new 172 in 2016 costs $350k!

It all depends on the the year it was built and what new airplane costs have done in the meantime. A new 1978 Cessna 172 cost $25K. In 1985 it would sell for $50k with a new engine. And there was a period 198? to 1996 when they werent built at all.

If 100,000 Cessna 172s were built each year, they would probably cost $20k each. But because they only build 500 or so a year they need $350k to cover their overhead. Then when their engine was worn out, they would be scrapped, like cars. Its not the liability costs like they try and tell us, its the volume. A 172 is lighter and has fewer parts than a modern car, no reason it should cost any more if they were built the same way and in the same numbers as cars.

Note that the 2016 dollar is worth much less than the 1999 dollar.

 

[Kenny Phillips]

Maybe, but other than the last thing listed, the other three are the "qualifiers" I thought necessary to support a statement like "there isn't a bottom to the depreciation curve".

But there are dips in the market; I happened to need to sell my Skyhawk to get a larger down payment for our house, and I picked a crappy time to do so (five years ago)!