During the aircraft purchase process, there can be some “underwater obstacles,” as Tom Wachowski put it, comparing these lesser-known obstacles in the purchase process to underwater trees in a lake that can seriously damage a boat. René recently made an appearance on Tom’s “Private Jet Podcast,” covering a number of topics regarding the purchase of a private aircraft. The following is a transcription of a few of Tom’s questions about “underwater obstacles” and René’s advice on how to deal with them.
Tom: Are there any hidden “underwater obstacles” to avoid during an aircraft buying process, as you’re motoring along? Are there any tree stumps under the water that we should look out for that might not be obvious?
René: This is not the case with new planes, but I think one of the things that people underestimate is the cost of engine overhauls. That’s one of the things that you want to look at. Some of them can be a million dollars apiece. You can buy an older aircraft, and say, “Wow, I only paid $1.2 million for this aircraft… I got a smoking deal.” Then you find that your avionics are going to be out of date in a couple of years, and you’re going to have to upgrade those. You have the engine overhauls, and it’s not on an engine program, and those are going to cost $1 million a piece. Here, all of a sudden, you need to put $4 million into a plane that you paid $1.2 million for.
Tom: That’s a big tree stump.
René: More than a tree stump, that’s a mammoth concrete block submerged in the water that’s completely unforgiving. One thing that you want to do is a maintenance projection on the aircraft. Just going back to the cost of ownership, there’s a great tool that we use called Aircraft Cost Calculator. You can plug in your pilot salaries, you can plug in how much you pay for their recurrent training every year. You can plug in your fuel price, and your insurance price, and how many hours of charter you’re supplementing with a year and come up with the true cost of ownership. I think one good thing to have is a solid budget in advance.
Tom: It’s a real shocker to think that your operating costs are going to be 3 quarters of a million a year, and then the bill comes in at the end of 12 months and they were 1.3. You’re not going to be happy, and a little bit of time up front could have helped you avoid that underwater obstacle. This is good. Rene, this, for me, and I think I can speak for a lot of listeners, greatly clarifies the buying a business jet process. A lot of similarities to other things, lots of differences. I think this conversation really underscores how critical it is… how key it is to really have somebody help you through this process.
Tom: We do this pre-purchase inspection. Would it be fair to say, say 1 or 2 things come up, is there typically some renegotiation saying, “Hey, I didn’t know that you needed a new turbine blade, Mr. Seller, so can you pay that, and is there some back and forth or typically what we went into the inspection agreeing on is how we come out?
René: Typically, the negotiations are over what the seller will pay to repair, and what the seller doesn’t want to repair. We’re not usually re-negotiating a purchase price, but which squawks will be repaired and which will not be. However we did have a transaction for a Citation Excel last year with an unusual story. We’d done some corrosion inspections on this aircraft, and found about $300,000 worth of corrosion on the aircraft. When the seller repaired the corrosion, he felt like his aircraft was worth more because he had put more money into it. We were advising the buyer, and we said, “Absolutely the aircraft’s not worth more, in fact it may be worth even less because there was the history of corrosion of this aircraft.”
Tom: Naturally. Dive into that corrosion just for a minute, because I know some folks listening, they think corrosion, and the first thing that comes to my mind is an old pickup truck with a bunch f rust on the side of it. When it comes to airplanes, corrosion might not be as obvious as the rust on the side of a pickup. Would that be a fair statement, 1, and 2, what does this corrosion mean to a buyer if they don’t find it or don’t get an inspection?
René: What it can mean is some significant repairs down the road, just like this Excel that was in Europe, the seller had just had an inspection done on the aircraft and he thought that everything had been discovered. What happens is that in the life cycle of an aircraft, the manufacturer requires corrosion inspections at periodic intervals, just to make sure that everything’s okay with the aircraft. A lot of times we’ll see corrosion underneath a lavatory, where maybe there’s been a little bit of spillage or leakage there with the blue water. We’ll also find it a lot of times in the gear. If an aircraft is flying a lot in icy conditions where it’s being de-iced and there’s all the de-icing material going down on the runway, just like if you drive in the north and there’s salt on the roads, it can corrode. You want to make sure that you’re cleaning it and treating it. Corrosion typically can be treated without compromising the life of the aircraft.… It’s just important to have your eyes wide open.
Tom: To an owner, or an operator who might not know where to look, it’s not always obvious corrosion. I think that goes back to underscoring the point of, having a professional walk you through this process, especially the pre-buy. How many airplanes have you seen on the ramp, René, they’re beautiful, the thing goes to pre-buy, and you’ve described with the Excel, there’s a bunch of corrosion that you didn’t see. You can be fooled as a prospective owner/operator, going, “Oh, that airplane is beautiful, I’ll take it,” not really knowing, skipping the pre-buy because you think it’s a great deal, and rushing through their process only to find out 6 months after you buy it that, it goes in for a 6-month type of inspection and they find all this corrosion that wasn’t obvious. That can hurt.
René: One trap that people fall into is they think that if they’re buying a fairly new aircraft, that there won’t be any problems. Planes have a lot of moving parts, and we had an aircraft for sale that was a very expensive aircraft. I think we were selling it for $42 million. It was only 2 years old. When we did the inspections to import it into the US, discovered that there was corrosion because the windows had not been sealed properly. It wasn’t a crack that would cause it to depressurize at altitude, but it was something that had caused water to pool underneath the windows. I don’t know all the technical terms for that, but there was condensation, there was corrosion in the aircraft.
To hear the full podcast with René, and other aviation podcasts with Tom Wachowski, visit www.privatejetpodcast.com.
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