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VIEWPOINT: On a wing and a prayer 5 March 2013

In the world of aviation assets, specialist advice is vital for the restructuring professional to ensure recovery and maximise realisation

When working on a restructuring assignment involving assets in the corporate and private aviation sector, pause, and before you engage with a valuation agent, find out whether or not they know the answers to the following:

  • How do you differentiate between half-life and full-life valuations?
  • What is the difference between rotable, repairable and expendable aircraft spares?
  • When do the release to service and airworthiness certificates expire?
  • Where do you find important information about the aircraft?
  • Why is airworthiness of the aircraft impacted by the EASA or FAA?

If your valuation agent doesn’t know the answers to these questions, you could be in trouble long before you say ‘chocks away!’

With a general decline in the number of insolvencies, the aviation sector has bucked the trend in 2012 with a 12% increase in the number of airlines, flying schools, airfields, charter companies and aviation support companies that have endured financial problems resulting in an insolvency process or failure.

Although the aircraft valuation, recovery and disposal process may appear similar to a professional asset valuation perspective, it is not. Aircraft valuation is a very complex process that requires a deep understanding of the dynamics of the aircraft’s status from engine and airframe maintenance records, aircraft technical logs, component status, CAA licences, regulations and market. Getting it wrong could prove very costly, and you may end up in possession of an asset of little or no value.

Aircraft valuation

How is the aircraft valued? It may seem a straightforward question, but this topic is regularly discussed, and there are many different views. Do you flick through the glossy magazines or scroll through numerous aviation websites to find an aircraft of the same make and model and take a view, do you refer to the aircraft blue book? Do you go through the aircraft component by component to obtain the actual monetary value? As well as all the above, you need to take into account the following factors which will have a significant impact on the value:

  • How is the aircraft stored, in a hangar or left outside? Any potential liens.
  • Who has maintained the aircraft and are the service logs in order?
  • What is the purpose of the aircraft – flying school, charter, private or cargo?
  • When was it last flown?
  • Where is the documentation held, such as flight log book and airworthiness certificate?

As with most assets, the aircraft will be worth what someone is prepared to pay for it within a reasonable time scale.

However, in order to optimise realisations, the combination of markets knowledge and speed, and full awareness of sector compliance is critical.

Aircraft recovery and realisation

How do you trace and recover the aircraft? If the aircraft is flying from main airports or airfields the tracing process can be relatively straightforward, but what about helicopters that fly from private sites? This may take longer, but they can usually be traced with access to control tower flight path information.

Once located, you need to recover the asset, which in itself is difficult and requires expertise. Retention of title claims and liens are usually a significant feature due to full identification and traceability of component parts. The next question is, can they be flown? Or do they first need to be serviced, or dismantled and transported by a specialist team? The recovery route will depend upon the technical logs and document folder being up to date if they can be located.

Once recovered, the sale process can take a number of routes depending on the type of aircraft, the time in which to sell, the number of aircraft and location. Every case is different and the valuation report should include the recommended exit strategy – that is; private treaty, online auction or live auction – and provide a detailed exit cost breakdown within the specified exit period.

There is a requirement for specialist aviation asset advice, and it is imperative that you have the right expertise, as costs will escalate quickly. Values could be rendered worthless, and the whole enterprise might end up coming in on a wing and a prayer.

For further information:
Simon Morgan fnava
SIA Group Aviation, M.D.
+44 (0) 1273 621317 Direct Dial
+44 (0) 7976 685473 Mobile
simon.morgan@sia-group.co.uk

 

 

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