Jetrader - Spring 2017 - 36

ISTAT appraisers' education project

Defining Terms:

Value, Definitions,
Unit Costs & More
By Neil Whitehouse, Senior Appraiser. Editor and Contributor: Jack Feir, Appraiser Fellow and Member Emeritus

This is the second article in the ISTAT appraisers' education project focused on the concept of value, prices, economic inputs, unit
costs, aircraft performance and the impact of technological changes on value. These are some of the many aspects and factors
appraisers may consider when developing opinions of value.

Defining Terms
A core function of the ISTAT Appraisers'
Program is the definition of terms, of which
the ISTAT definitions of value are most
important. Understanding and defining
value concepts is key.

an aircraft as a consumer of parts and as
a potential source of parts through aircraft
disassembly at the end of its operating life.
The value of an aircraft is the appraiser's
opinion of its estimated worth.

Value Concepts

Values are Dynamic
and Multi-Faceted

The concept of value has many aspects,
and the noun itself has many meanings. An
aircraft value is an opinion, as compared
with the amount paid for something, which
is its price. The price paid for an aircraft
may be indicative of the value of similar
aircraft, but is not necessarily a dispositive value indicator. Each aircraft, at each
moment in time, is unique.
The value of an aircraft may depend on a
person or organization's unique perspective.
For example, an aircraft operator may see
the value of an aircraft primarily in the revenues and profits it could potentially generate. A banker may see value in the potential
revenues and profits that could be generated
by extending asset-backed debt. An operating lessor may see value in the rental stream
and residual value that potentially could be
generated through ownership and active management. Maintenance organizations may see
an aircraft's value in the ongoing need to
refurbish airframes, engines, avionics and
assemblies to keep it in service. An aircraft
parts company may see potential value in

An aircraft's value is not static but
exists at a moment in time. The value of
the same aircraft at one moment in time
will, in virtually every case, be different
at another moment in time. The age of an
aircraft changes, as do the market supply
and demand forces, the maturity and status
of the aircraft's fleet and the maintenance
status of the aircraft. Commercial, regulatory, legal and financial circumstances
change over time.
An aircraft appraiser seeks to take into
account the general, contextual and the
specific, detailed aspects of an aircraft on
a given date and for that defined moment
in time to develop the appraiser's opinion
of value. Aircraft financings need to have
the opinion of value of an aircraft at the
beginning of the financing term, and how
the value progresses through the years to
the end of the term to the opinion of the
aircraft's residual value - these are critical
elements of aircraft financings.
The many macro and micro considerations that bear on an appraiser's opinion

36 The official publication of the International Society of Transport Aircraft Trading

of an aircraft's value today and into the
future, often many years out, cannot all be
precisely computed. The best an appraiser
can do is quantify to the extent possible
and estimate or form an opinion where
quantification is not possible. This is why
appraising aircraft is as much art as science and one reason why appraisers' opinions of value vary. This can be frustrating
to consumers of aircraft appraisals, who
generally would prefer a high degree of
consistency among appraisers' opinions
and why a value number alone, without an
appraiser's valuation rationale to provide
context and understanding, can be misunderstood and misused.

Aircraft Prices, Transaction
Data and Values
Unlike residential real estate, for
example, where there is virtually perfect
transparency of transaction pricing and
complete transaction striking price data
readily available with a few computer
clicks, there is little aircraft transaction
data readily available.
Even if purchase orders for a new aircraft were available, they would not tell
the whole story of either pricing or value.
A new aircraft sale contract has side letters
that may provide discounts, allowances,
services and support that effectively reduce
the purchase order price.

Jetrader - Spring 2017

Table of Contents for the Digital Edition of Jetrader - Spring 2017