Research Your Aircraft

RESEARCH YOUR AIRCRAFT DURING THE REDEMPTION PROCESS

When you have asked your fractional manager (manager) to repurchase your aircraft, be careful and have your aircraft researched.

The Fair Market Value (FMV) of an aircraft can be interpreted in different ways and there is a natural conflict between the manager and the owner in this transaction.   Since the manager in most fractional programs is contractually required to buy back the owner’s share the objective is to “buy low and sell high”.   The remarketing fee was designed to assist but some managers strive for a much greater profitability from these transactions.

The owner needs to be aware of the market value of his aircraft as a whole and as a fractional share (which usually carries a premium price).   Most managers do their best to provide a good value for their exiting owners but always do your research during the redemption process.   A good example is the 1998 Citation Excel; if your manager offered you 79% residual value you may be satisfied but if you did your research you would see that a typically flown Excel has retained 104% of its residual value over the last five years indicating your share should be worth more than they have offered.

There has been a case where one manager raised the total time on the airframe artificially which adversely affects the value of your aircraft.   Appraisers agree that the higher the airframe hours the lower the value on the aircraft.  In this case, we discovered the manager had raised the total time on the airframe by over 2,000 hours.   The book value on this aircraft was reduced by $200,000 by this mistake.   This discovery saved the share owner tens of thousands of dollars.

The most important message is that the owner needs to complete his due diligence or hire someone to do it for them to insure accuracy in the redemption process.