New or Used?

Once you decide to sell your current aircraft or acquire another one, the next decision becomes whether to buy new or used. New aircraft models have always cost more to acquire than their used equivalent. However, there are a number of reasons to buy new which close that gap. 

New aircraft have lower operating costs, come with the latest equipment, and have warranties. But, in the last global recession, we saw used aircraft prices plummet. That made the gap in price between new and used far greater than ever before. To make the right decision, you should calculate the total cost of ownership and look at your mission.

As part of our aircraft cost database updates, we use residual value data from The Aircraft Bluebook Price Digest, Vref Aircraft Value Reference, and HeliValue$. Residual values have changed significantly since 2008, especially among business jets. Aircraft still hold their value better than most other capital assets. However, the previous norm of appreciating values in a good economy followed by a correction in a down economy does not appear to be the case anymore. Here is what we are finding is the new normal:

• 2008 to 2010 saw an unprecedented drop in used aircraft values;

• From 2010 to today, we have seen values continue to decline, but at a much lower rate;

• We are in an economic recovery, but aircraft values remain low; and

• Today more than ever, buyers need to know the individual model’s residual value history. 

So, given that used turbine aircraft prices are still a relative bargain, why would anybody opt for new?

A new aircraft has a multi-year warranty. It can cover unscheduled maintenance costs in the early years of ownership. The warranty can be especially valuable in the case of a new model, or an aircraft with redesigned systems such as a new avionics suite. Remember, warranties never apply to scheduled maintenance, labour or parts. 

The first few years of owning a new aircraft usually involve little unscheduled or major maintenance. This means that maintenance costs are low and downtime is very limited. If your operation requires high aircraft availability and high utilization, then a new aircraft may be the best option.

In a recent benchmark we did of about 30 major corporations, those with the highest annual utilization operated the newer aircraft. One operator stated that they demand high availability and don’t have the time for an aircraft that is out of warranty and in need of big inspections. Maintenance costs money, and time.

When acquiring a new aircraft, you can specify the options. The bigger the aircraft, the greater the degree of customization that is available. This is vital if making a multiple-aircraft acquisition and you need commonality among the fleet. 

New aircraft come with the latest upgrades in engines and avionics. New engines are more fuel efficient than their predecessors. These engines may also have extended TBOs (time between overhaul) or even be on-condition. New aircraft also come with the newest avionics equipment that meet future air navigation requirements. New avionics systems can also offer a higher degree of situational awareness for the pilot, which is an important safety consideration. New aircraft can also be more efficient.  For example, winglets can improve fuel efficiency, enabling an aircraft to climb faster to altitude with an extended range.  

In today’s economy, used aircraft prices represent a tremendous bargain, as evidenced by the following chart: 

Model                 New         2008           %New       % Orig. Price

Challenger 300    $25.9M    $13.5M      52%          64% of 2008 list

Citation CJ2+      $7.25M    $4.3M        59%          67% of 2008 list

King Air 350       $7.42M    $3.9M        53%          63% of 2008 list

On the turboprop and light jet, you’d have over US$3 million for new paint and interior, as well as avionics upgrades, with plenty left over for engine overhauls if necessary. A spread of US$12 million exists between the 2008 Challenger 300 and its new brother, the Challenger 350. If the aircraft has an impeccable maintenance history and its equipment is satisfactory, then this financial benefit can outweigh the disadvantages of not having new. 

A used aircraft can be found, purchased and put into service quickly. For a cash acquisition located within the country, the deal can be done in a matter of days. A reasonable time to do a search and perform due diligence with pre-buy inspections is about six months.

New aircraft commonly have waiting lists of 12 months or longer. To specify and complete the configuration of a green aircraft typically requires about six months. At the extreme are new-design models. Pilatus recently announced that its new PC-24, slated for first deliveries in 2017, is sold out through 2019. 

There are three disadvantages to acquiring a used aircraft. The configuration not being to your liking has been covered. The bigger case for new is made around maintenance costs and conformity.

Maintenance costs for older aircraft are higher than those for new aircraft . Our Conklin & de Decker cost data suggests that the routine maintenance costs over 10 years for a 10-year-old aircraft can be 50 per cent more than if starting with a new aircraft. Older aircraft will also require replacement of life-limited parts and may need expensive corrosion inspections; and, at some point, an engine overhaul.  Guaranteed maintenance program fees are also much higher for aircraft out of warranty.

All this extra maintenance for aging aircraft requires increased downtime. Increasing unscheduled maintenance can add days, or weeks, to routine checks.  

Availability of new parts is very limited,  especially for those out of production aircraft that were built in limited numbers. There are fewer of these aircraft flying fewer hours. Some manufacturers are no longer in business; others may only build spares as needed.  Overhauling of serviceable components is also becoming more difficult. You can overhaul a generator multiple times, but what about the holes for the mounting bolts? Over time, you can only use “oversize” bolts so often before the component case is no longer serviceable. These issues tend to affect aircraft older than 20 years of age. Keeping these much older business aircraft flying is becoming more of an exercise of scrounging and cannibalizing versus one of buying and overhauling.

If an organization needs more than one airplane of the same type, standardization of the equipment, colours, seating configuration, etc., can create a substantial expense with used aircraft from different serial number blocks. This can negate some of the cost advantage inherent in acquiring a used aircraft. If the acquisition is to be a multi-aircraft buy, then the ease and time savings of ordering, completing, and delivering two or more aircraft  can easily favour the new model. 

This is a numbers exercise. Can you afford maintenance costs and increasing downtime? Can you afford the acquisition price? What is the mission of the aircraft? There is no quick and easy answer when it comes to acquiring new or used.