Jetrader - Winter 2017 - 41

used strictly in line with its definition to
provide a steady value baseline.
Base value is not intended to be used in
place of current market value. When a financing is being structured, if base value was
appreciably higher than current market value,
it would be misleading and inappropriate
to employ base values without scrupulously
defining the terms, including the current
market values and explaining the difference.
Future values are typically projections of
base value. The appraiser is most often not
in a position to predict aircraft utilization
and future maintenance requirements to
be able to estimate future aircraft maintenance status - nor the dynamic forces
acting on aircraft values in future years.
Consequently, using the mid-time, mid-life
protocol and base value is the most achievable and reasonable valuation strategy.

Market Value (or Current Market
Value or Fair Market Value)
Base value is the smoothed, long-term
trend value of an aircraft over time. As
such it may or may not coincide with the
actual current market value at any particular moment in time.

ISTAT Definition: Base Value
Base value is the appraiser's opinion of the
underlying economic value of an aircraft in
an open, unrestricted, stable market environment with a reasonable balance of supply
and demand and assumes full consideration
of its "highest and best use." An aircraft's
base value is founded in the historical trend
of values and in the projection of value trends
and presumes an arm's-length, cash transaction between willing, able and knowledgeable
parties, acting prudently, with an absence of
duress and with a reasonable period of time
available for marketing. In most cases, the
base value of an aircraft assumes its physical
condition is average for an aircraft of its type
and age, and its maintenance time status is
at mid-life, mid-time (or benefiting from an
above-average maintenance status if it is new
or nearly new, as the case may be).

Comment: Base Value
Being the long-term trend value, at any
moment in time the current market value
may be higher or lower than base value.
Base value is a theoretical protocol and is
a valuable analytical tool as long as it is

Current market value is the appraiser's
opinion of the 'estimated worth' of an aircraft in the current market, which may be
higher or lower than the long-term trend
base value, and reflects all the forces
acting on supply, demand, economic and
operational competitiveness and value.

ISTAT Definition: Market Value
(or Current Market Value or Fair
Market Value)
Market value (or current market value if the
value pertains to the time of the analysis)
is the appraiser's opinion of the most likely
trading price that may be generated for an
aircraft under the market circumstances that
are perceived to exist at the time in question.
Market value assumes that the aircraft is
valued for its highest, best use; the parties to
the hypothetical sale transaction are willing,
able, prudent, knowledgeable, and under no
unusual pressure for a prompt sale; and the
transaction would be negotiated in an open
and unrestricted market on an arm's-length
basis, for cash or equivalent consideration,
and given an adequate amount of time for
effective exposure to prospective buyers.
Fair market value is synonymous with market value, and likewise current fair market
value is synonymous with current market
value because the criteria typically used in
those documents that use the term "fair"
reflect the same criteria set forth in the
above definition of market value.

ISTAT Defines Seven
Forms of Value:
*
*
*
*

Base Value
Market (Current Market/Fair Market) Value
Distress Value
Securitized Value or
Lease-Encumbered Value
* Residual Value
* Salvage (Part-Out) Value
* Scrap Value

Comment: Market Value
(or Current Market Value or
Fair Market Value)
The current market value definition
describes a normal transaction with no
undue stress on the part of the seller or
the buyer. This normal transaction definition applies to most aircraft and engine
transactions, which are routine in nature.
As the current market value opinion is as
of the time of the analysis, the definition
implicitly assumes that adequate time for
marketing has preceded the opinion and
does not go into the future, as the future
status of the aircraft and the market forces
are dynamic and will impact value.

Distress Value
Distress value defines a non-routine situation where the normal parameters of current
market value in some manner do not apply.
Distress Value can result from many possible
causes that may involve aircraft technical
condition, contractual circumstances, legal
entanglements or other problems.

ISTAT Definition: Distress Value
Distress value, forced sale value and liquidation value are terms to describe the
appraiser's opinion of the price at which an
aircraft (or other assets such as an engine
or spare parts) could be sold in a cash transaction under abnormal conditions - typically an artificially limited marketing time
period, the perception of the seller being
under duress to sell, an auction, a liquidation, commercial restrictions, legal complications or other such factors that materially
reduce the bargaining leverage of the seller
and give prospective buyers a significant
advantage that can translate into heavily discounted actual trading prices. Depending on
the nature of the assignment, the appraiser
may be asked to qualify his opinion in terms
of disposition within a specified time period,
Jetrader * Winter 2017 41
Jetrader - Winter 2017

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