MEBAA Convention News

Choose: pre-owned or fresh from the factory

 - November 10, 2008, 6:42 AM

After carefully analyzing your travel patterns, budget and a host of other factors, you’ve concluded that you need an aircraft. Now comes a decision that can be at least as tough: Should you buy a new or used model?

The respective benefits of purchasing a factory-fresh or pre-owned aircraft are relatively straightforward. The wild card is the market at the time of purchase. But before considering the effect of market conditions, let’s review the basic benefits of buying new and used aircraft.

Reasons To Buy New

You can customize to your heart’s content. As the buyer of a new aircraft, you get to choose the paint scheme, interior configuration, fabrics, leathers and optional cabin and cockpit equipment. This can be a major advantage if you have unusual design preferences that you’re unlikely to satisfy in the pre-owned market. But consider resale value when configuring the aircraft–like a house, a jet may be harder to sell if it’s unusual than if it’s a more conventionally configured model.

Repairs won’t break the bank. A new aircraft comes with a warranty covering the airframe, engines and avionics, typically for five years, as well as the interior and many components, usually for two to five years. Repair and maintenance costs will be negligible during the warranty period.

Also, if you want to put engines on the engine manufacturer’s after-sale maintenance program, such as General Electric’s OnPoint Solutions, Honeywell’s Maintenance Service Plan, Rolls-Royce’s Power by the Hour program or Pratt & Whitney Canada’s Eagle Service Plan, keep in mind that it’s less expensive to do so when the powerplant is new. Such service contracts provide fixed, guaranteed engine maintenance costs and usually result in higher resale value. Independent companies, such as JSSI, also provide hourly cost maintenance programs.

You won’t face unpleasant surprises. New aircraft generally prove more dependable than pre-owned models. They are less prone to unforeseen maintenance problems that may be costly and disruptive to operations.

You’ll get state-of-the-art equipment. New jets have the most advanced avionics, engines and systems available for the aircraft at the time of manufacture. This can translate into a more mission-capable, cost-effective and comfortable jet. An enhanced-vision system, for example, can enable landing in challenging weather that could otherwise force diversion to an alternate airport. A more capable cabin pressurization system reduces the fatigue of flying. And the latest engines provide better fuel efficiency.

“The GIV-SP can do an excellent job, but the new G450 has so many more goodies on it,” said Matt Hartnett, vice president for pre-owned aircraft sales at Gulfstream Aerospace. Hartnett cited the G450’s improved range, altitude capability, fuel efficiency and amenities.

You’ll smile when you sell. New aircraft typically cost more than pre-owned models (though not always in today’s market), but the resale value is commensurately higher for aircraft you purchase new. This is especially true if you sell while the airplane is still under warranty. Before sticker shock deters you from buying a new aircraft, consider its entire lifecycle cost.

Reasons To Buy Pre-owned

You won’t spend years waiting for your new jet to be delivered. The range of pre-owned aircraft on the market gives you access to a wide variety of jets that can likely fulfill your missions. Moreover, it’s typically quicker to get into the sky in a
pre-owned aircraft. While it can be time-consuming to go through the pre-buy inspection that should be part of the purchase of any used aircraft, it doesn’t take as long as waiting at the back of the line–sometimes for as much as four or five years–after reserving a delivery position for a new airplane.

You’ll likely pay less and get more. Pre-owned jets typically have a lower purchase price, enabling you to buy an airplane even if you couldn’t afford a new one. And used aircraft often deliver comparatively better value. A 10-year-old airplane will arrive at its destination at just about the same time as a new model making the same flight, yet the cost of the aircraft will be significantly lower.

You can say good-bye to manufacturer service centers. As a buyer of pre-owned aircraft, you have a greater choice of service options. To keep from voiding warranties, owners of new aircraft are obliged to use only factory-owned or -approved service facilities. But other service providers qualified to work on a given aircraft may be more conveniently located, less expensive, deliver better service or offer other advantages. Some such facilities actually have higher standards for tolerances of repaired parts and offer more comprehensive warranties on their work than do the aircraft manufacturer shops.

Turning oldies into goodies can save money. Though buyers of new aircraft can configure them at the factory, the great variety of aftermarket refurbishment products and programs enables buyers of pre-owned jets to upgrade or update the airplane to like-new condition. When you factor in the lower purchase price, this can represent a large savings over getting the same equipment in a new airplane.

“We think there’s really no difference in reliability and maintainability of the [preowned] aircraft,” said Doug Oliver, director of corporate communications for Cessna Aircraft, which sells both new and pre-owned Citation jets. “A lot of service centers are chock full of airplanes getting avionics upgrades. So customers might think they’re getting something a little more state-of-the art with a new aircraft. Sometimes that’s true, sometimes it’s not.”

Dealing with Today’s Market

As noted earlier, the wild card in the new-versus-used decision is the state of the marketplace. This affects availability, price, financing options and other factors. Until the recent turmoil in world financial markets, demand for jets–both new and used has been exceptionally strong. But there are signs that this now is softening, at least in some market segments.

The unprecedented demand for business jets has had a major impact on buyers of both new and pre-owned aircraft. Delivery positions for new models are stretching into the next decade. Buyers who might prefer a factory-fresh aircraft may not be able to wait, forcing them into the pre-owned market. Meanwhile, demand in that market has dried up supply, particularly of late-model aircraft, and led to sharply higher prices.

As a result, some used aircraft may cost more than factory-fresh editions of the same model. A new Gulfstream G550 costs about $45 million and wouldn’t be delivered until around 2010, noted Bryan Comstock, managing director of aircraft sales and acquisition company Jeteffect. Meanwhile, a low-time pre-owned G550 available today is priced in the “low 50s.”

Seek Delivery Options

For those who absolutely, positively must have a new aircraft and aren’t willing to wait, delivery positions are sometimes available. Buyers who’ve put down a deposit on a new airplane may have a change of plans requiring them to sell their slot.
Likewise, investors sometimes make a deposit for an aircraft with the intent of selling the position for a profit. Some firms specialize in bringing together buyers and sellers of delivery positions, and manufacturers themselves often help customers sell or swap such positions. Usually positions change hands before aircraft options are selected, so the buyer who takes over the delivery slot can configure the jet. But be prepared to pay a healthy premium for cutting ahead in line.

The higher price of pre-owned aircraft may drive some buyers to consider models that should be avoided because, while they may get the job done today, they could be more difficult to sell tomorrow, particularly if the market reverses course.

The tight market might also cause shoppers to be more willing to look at airplanes that require refurbishment. However, many completion and refurbishment centers are themselves booked up because of the hot market, and getting an aircraft refurbished may consequently take an unacceptably long time. Be aware that even getting a pre-buy inspection will likely be time-intensive owing to these market conditions. And if you come across a pre-owned aircraft that fits your needs and budget, remember it’s a sellers’ market, though recently it has been cooling some.

Finally, no matter what kind of aircraft you’re in the market for, avail yourself of expert help. Otherwise you could make a multimillion-dollar mistake.

“It’s a complex process, whether buying new or pre-owned,” said Michael Chase of aviation consultancy Chase & Associates. “You better have your act together and know what’s going on. And you better have someone who can help you through the purchase.”