Michelle Seaton
07/01/2004
The mysteries and minutia of the private aircraft market are formidable. Those of us actively pursuing ownership, a jet card membership or even a charter may want to seek out the guidance of experts in the field. These come in three stripes: brokers, dealers and consultants. Each has strengths and weaknesses, but in general, these professionals can often help us find the aviation option that balances our financial and travel needs. “Get professional advice,” urges David Wyndham, a partner in the aviation consulting firm Conklin and de Decker. “This could be several million dollars you’ll be spending. You need to get educated before you buy.”
Aircraft brokers bring together buyers and sellers,
much like real estate or securities brokers. They help both novice and
experienced buyers analyze the costs of ownership and decide what type of
aircraft best suits their needs in terms of size, speed and make. If we need to
sell our current aircraft before making a new purchase, a broker can help us
find a buyer—a process that can take some time. This is the primary advantage a
broker offers prospective aircraft owners: detailed market data on who is
selling what to whom and at what price. Brokers also know how fluctuations in
the selling price of one model will affect prices of other aircraft.Brokers act as agents, while dealers act as principals—in other words, they actually purchase the aircraft themselves. Kevin Jordan of Business Jet Services in Dallas, which buys, sells and manages aircraft for owners, explains, “A broker will give you a listing for your plane. A dealer will buy it from you right now, so you can get out of it when you want to. You don’t have to pay expenses on it for two years while you wait for a buyer to come along.” However, a dealer will probably offer a price that is less than the market will bear. If he agrees to purchase the plane for $3.5 million, it is probably because he can sell it for $3.9 million.
For those of us who are new to private aviation, or unsure
about whether to buy a fractional share, join a membership program or purchase a
plane outright, a broker may not be the best source of advice. Brokers work for
the seller—earning from 2.5 percent to 6 percent on the sale—not for us. Because
of this, few will advise us to charter an aircraft or buy a 1/16th share of a
small jet, even if that is the most favorable option. For more objective advice,
many prospective buyers hire an aviation attorney or an aviation consultant,
someone with extensive knowledge of tax law and FAA regulations, familiarity
with the current aircraft market and a thorough understanding of how fractional
shares work.
For a flat fee or a retainer, a consultant can help identify our
aviation needs and help us decide—without the pressure of a commission—on our
best option. An aviation consultant can estimate total cost of ownership,
including sell-back costs, recaptured depreciation and incidental expenses, and
compare these to other ownership or charter options. If we own a fractional
share, a consultant can negotiate the sell-back of the share to the fractional
company.
If we plan to buy outright, a consultant can recommend tax
attorneys to structure the acquisition in a way that minimizes tax liability. If
our consultant is also a lawyer—and many are—he or she can oversee the
negotiations that follow the prepurchase inspection, as well as the
purchase-and-sale agreement. Ultimately, our advisor should serve as a guide to
the complex world of private aviation.
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