On a Wing and a Prayer

Aviation assets and why 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 does 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 they don’t know the answer, you could be in trouble long before you say ‘chocks away’!

“Aviation assets are strictly governed, highly technical and extremely complicated to value”

With a general decline in the number of insolvencies, the aviation sector has bucked the trend in 2012 with a 12% (1) 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 from 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 aircrafts status from engine and airframe maintenance records, aircraft technical logs, component status, CAA licences, regulations and market.  If you get it wrong it could prove very costly and you may be in possession of an asset that is worthless or has minimal 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 of 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 it will be worth what someone is prepared to pay for it within a reasonable time-scale.  However, in order to stand the best chance of maximising realisations, the combination of markets knowledge, speed and full awareness of sector compliance is critical.

Aircraft Recovery & Realisation

How do you trace and recover the aircraft?  If the aircraft is flying from main airports/airfields the tracing process can be relatively straight-forward, 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 the necessary 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 need to be serviced first or disassembled 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 i.e. 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 and values could be rendered worthless and it will be very much a wing and a prayer in terms of realisation.