FMV of an airplane share?

Irish_Armada

Irish_Armada

Pre-takeoff checklist
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Irish Armada
How would one determine the fair market value of an airplane share, for purposes of buying or selling a share? Would it be the FMV of the plane divided by the number of partners? That seems a bit simplistic to me, given all the other factors that go into a partnership. For example, I was thinking if the plane has a large maintenance reserve already, or if the hourly and monthly rates were relatively low compared to what you're getting for it, that those would be factors that would go also into pricing a share. Finally, would you haggle with the seller of a share to lower his asking price (if merited), like you would a straight forward purchase of an airplane? Or is a share price typically going to be take it or leave it? Curious to know of anyone's experiences. Thanks!
 
Basically, for the plane, yes...what could they sell it for divided by the partners... That is what it might be WORTH, then, figure what you want to pay for it. Everyone I've seen allows the partner to sell the share, BUT, has to give the other owners the option to buy out the share at the expected purchase price as well (which makes perfect sense).
Ignore any reserve at this point...

Then, the mx reserve you are buying into with cash. 1:1, or maybe some small discount if they're really in need to get you on board.

There are obviously soft costs and things that will make you pay more or less... just the value of having a flying plane that is already in an LLC or Corp (or whatever) and an accountant that is familiar is worth a few grand in my book.
 
As far as negotiating the price, it depends whether you're buying a member who wants out, or are buying from the existing membership. In the former, you can get away with being a bit more ruthless negotiator; in the latter case you're negotiating with people you are entering a long term relationship with--tread carefully, and back up your offers with market facts.

All things equal, a low rental rate should not command a premium; that's just reflected in higher assessments later on.

Generally, I'd plan on adjusting my offer from market rate, based on what it's worth to me, i.e. how close is it to me, is it at an expensive airport, risk of the partnership dissolving, etc. I might also look at utilization, as either extreme is not good.
 
Do other shares in the area sell at a premium ?

There is some intrinsic value in buying into an existing entity (goodwill). It is basically what it would cost you to set it up from scratch. So you may see with shares that the price is a bit more than (FMV of plane / n) + (maintenance reserve / n)

When faced with an asking price that is a bit above FMV of the underlying aircraft and assets, you have to ask yourself: What is it worth to me ? Your expenses to hold the keys to an aircraft will be a fraction of outright ownership, is paying $2000 more than some theoretical number worth fighting about ? Remember, when purchasing a partnership share, you dont have the expenses associated with buying a plane outright. For a flying plane, you dont usually get a pre-buy, if it is a stock purchase, there is no sales-tax etc. The only cost you have is that of your accountant looking over the books to make sure you dont buy a giant liability.

I purchased my share from someone who was smitten with a particular warbird and needed the capital out of his partnership share to make it happen. He was motivated enough that we met on a price we were both happy with.
 
"Asking price" isnt called "getting price" for a reason

Dont think I've ever paid asking price for any vehicle in my life, even if it's worth it. To not haggle.... it's just wrong man!


Oh yea, DO A PRE-BUY, just because the other three stooges let things slide, or have a crap IA, doesnt mean you should inherit their issues.
 
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Determining "what's a piece of this thing worth to me?" requires a bit more noodling than does outright ownership. Conventional wisdom imposes a discount on any asset in which the owners absolute rights are impinged by others.

This principle obviously applies to co-owned airplanes, since the other owners have a voice equal to or greater than that of a prospective buyer. Using this logic, a buyer might seek to impose a haircut of some amount, since he will be required to share flying time, scheduling, admin and decision-making with others. If you assume that airplane interests will trade within a certain range that approximates a percentage of the FMV of the entire plane, you might then expect to see a co-owned piece trade at the low end of the range.

With that in mind, I encourage clients who are considering co-ownership to perpare an own/op budget for some reasonable ownership period in order to quantify the cost differences between full ownerhip and their proposed co-ownership. Using Weilke's example of a $2,000 cost swing, it's obvious to a tenant in my hangar complex that he would save ~$5,000 in rent and insurance alone during the first year of ownership, without consideration of maintenance and other costs. Assuming the new guy has reasonable access to the plane when he needs or wants to fly it, the bargain element in co-ownership represents an incredible deal, and negates some of the haircut logic that might otherwise be imposed.

FWIW, I don't get particularly excited about any price that is within a reasonable range of the indicated market value, simply because the down-stream benefits are so good and the other owners are already in place.

Buying a piece of a plane is more difficult due to:

1. The due diligence required to understand the structure under which the airplane has been owned.

2. The need to fully understand (and perhaps modify) the current JOA or to implement a soundly-constructed version that includes the hard parts that are not immediate but can quickly become problematic (wind-down, dissolution, divorce, death or disability, financial non-performance, co-owner buy-sell, sale of the asset) and which many owners defer or simply ignore.
 
Irish_Armada said:
For example, I was thinking if the plane has a large maintenance reserve already
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I don't think anyone addressed this one.

If the engine is at TBO but the engine reserve is adequately funded to cover an overhaul. Then I see no reason why you shouldn't value the plane as if it had a freshly overhauled engine in it because that O.H. should cost you nothing.

Stated another way, the plane is worth what the plane is worth the way it sits, PLUS your portion of the cash the mx fund(s). i.e. if the plane's worth $50k and there's $25k sitting in mx funds, then I'd place FMV for a 1/3 share at $25k.
 
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timwinters said:
I don't think anyone addressed this one.

If the engine is at TBO but the engine reserve is adequately funded to cover an overhaul. Then I see no reason why you shouldn't value the plane as if it had a freshly overhauled engine in it because that O.H. should cost you nothing.

Stated another way, the plane is worth what the plane is worth the way it sits, PLUS your portion of the cash the mx fund(s). i.e. if the plane's worth $50k and there's $25k sitting in mx funds, then I'd place FMV for a 1/3 share at $25k.
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If its at the point of overhaul and its worth 50k and they have 25k for overhaul. It wouldnt be worth 25k 1/3 because what would it be worth right after you spend the 25k which you are doing say the day before you buy in. It may only still be worth 50 maybe 60k you could have sold it for 50k without doing the overhaul what it worth after doing it.. I could unerstand 25k 1/3 if it doesnt need an overhaul and its worth 50k and have 25k in reserves.
 
timwinters said:
I don't think anyone addressed this one.

If the engine is at TBO but the engine reserve is adequately funded to cover an overhaul. Then I see no reason why you shouldn't value the plane as if it had a freshly overhauled engine in it because that O.H. should cost you nothing.
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You have to decide. Either you value the plane as a runout and assign a value to the overhaul reserve, or you assign the value of the plane as freshly overhauled and disregard the overhaul reserve (or as a third option you value the plane as freshly overhauled, take the overhaul reserve into account but count the cost of the upcoming overhaul as a liability of the company).

In the end it makes no difference. The only thing is that under the 'while we are here' doctrine, overhauls tend to take longer and cost more than budgeted as the downtime is often used to do other projects or upgrades.
 
weilke said:
You have to decide. Either you value the plane as a runout and assign a value to the overhaul reserve, or you assign the value of the plane as freshly overhauled and disregard the overhaul reserve (or as a third option you value the plane as freshly overhauled, take the overhaul reserve into account but count the cost of the upcoming overhaul as a liability of the company).

In the end it makes no difference. The only thing is that under the 'while we are here' doctrine, overhauls tend to take longer and cost more than budgeted as the downtime is often used to do other projects or upgrades.
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WTF?

If the engine is runout, the engine is run out, if there is a mx reserve (seen many of these partnerships that dont operate that way BTW) then there is a reserve. Two different aspects

Only value the the plane with a fresh overhaul IF IT HAS A FRESH OVERHAUL.

And no, it's not the same. If someone has a mx reserve and just keeps running a engine into TBO oblivion, to me, the whole package is worth less and I would be looking for anything else they let go.
 
Mike Bush's 310 has more than 2,700 hours on the engines. What's the downside to getting all the service you can before swapping them out?
NineThreeKilo said:
WTF?

If the engine is runout, the engine is run out, if there is a mx reserve (seen many of these partnerships that dont operate that way BTW) then there is a reserve. Two different aspects

Only value the the plane with a fresh overhaul IF IT HAS A FRESH OVERHAUL.

And no, it's not the same. If someone has a mx reserve and just keeps running a engine into TBO oblivion, to me, the whole package is worth less and I would be looking for anything else they let go.
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Thanks for all the helpful replies. I think I agree with this statement from Wayne the most: "FWIW, I don't get particularly excited about any price that is within a reasonable range of the indicated market value, simply because the down-stream benefits are so good and the other owners are already in place."
 
wabower said:
Mike Bush's 310 has more than 2,700 hours on the engines. What's the downside to getting all the service you can before swapping them out?
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Never said there is anything wrong with past TBO engines from a flying standpoint. It DOES effect the value though :yes:
 
Why? What's the value difference between almost run-out, run-out, 300 over run-out?

NineThreeKilo said:
Never said there is anything wrong with past TBO engines from a flying standpoint. It DOES effect the value though :yes:
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wabower said:
Why? What's the value difference between almost run-out, run-out, 300 over run-out?
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F'ing kidding me right wayne?

300SMOH vs 2700SMOH, yea thats a few bucks.

Same reason your clapped out pickup with 300k sells for less then the same truck with 15k.
 
NineThreeKilo said:
F'ing kidding me right wayne?

300SMOH vs 2700SMOH, yea thats a few bucks.
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You dont seem to read posts before you spout off.




The question was whether the valuation of a plane is different between 1950, 2000 or 2300 (for a 2000 TBO engine).
For the regular valuation services like KBB, Vref and that NAAA system, there is very little difference between the three. Once you are past TBO, any hours you run the thing are 'free' from a value degradation perspective.
 
Keep swinging. Eventually you may get something right, although there's no evidence so far.

NineThreeKilo said:
F'ing kidding me right wayne?

300SMOH vs 2700SMOH, yea thats a few bucks.

Same reason your clapped out pickup with 300k sells for less then the same truck with 15k.
Click to expand...
 
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