Ok, so we know this is not a jet. And we know that if it was, you certainly wouldn’t be taking it out of this back country strip after that fishing trip you’ve been chirping about incessantly.
Let’s be clear, we benefit from helping people buy jets, so this is an atypical post. Jets are fun, they look cool, and go fast. Oh, and they are also time machines.
When you buy a jet, you are buying flexibility in your schedule and save untold hours and days of doing stressful main terminal stuff.
But the sales and marketing forces that drive you to buy a jet frequently obfuscate better options. This can lead to well intentioned (and financed) jet owners buying the wrong thing. Something that suited the sales people, a manufacturer, or a pilot with an agenda. The reality is that when we are buyers, we carry a bit of a target on our back. The target says “Hey…. this person is going to buy a jet.”
Solution: Arm yourself with information and think of the number 3.
Three reasons not to buy a jet:
Reason #1? You probably need a turboprop.
The jet is sleek, it is fast. And wow… on the ramp? It looks GOOD!
And that’s great. But if most of your traveling has you going less than 1000 miles, or struggling to get closer to your final destination, then odds are you need a turboprop. It can land anywhere. It sips fuel.
And the board will smile on your spartan and practical approach to aviation.
Oh yeah, one more thing – money. Gobs of it.
If you operate a turboprop optimized for your routes, you can save up to 70% over comparable jet costs. This savings comes mainly through the consumables – the direct operating costs. Turboprops are more modest in their fuel consumption.
But before we dive into that, let’s look at what it costs to buy one by looking at some 2012 comparable model aircraft:
So there is a price differential – *if* we bought a 5 year old model.
But what about cost per hour to operate?
The Citation CJ4 is no slouch. It has redeeming qualities. It costs slighty more than a King Air to operate per hour – but that will cost you $3 million dollars difference … so the question might be, … is that worth it?
Load Carrying vs. Money
Let’s look at loads.. what is it worth to carry 6 vs. 10 passengers?
Would you pay $2.4MM to carry four more passengers? Sure, a charter company might, but will the earnings you get from them justify *your* capital carrying cost? Not likely.
To drive the point home, let’s look some 2012 comparables: A Cessna Citation CJ4, the PC-12NG and TBM 850, and their respective payloads.
Cessna CJ4 – 2200 lbs.
Pilatus PC 12 – 1425 lbs.
Socata TBM 850 – 1252 lbs.
The take away? You can take three less passengers on the same mission in the case of the PC-12 or 4 less in the case of the TBM 850. But what is the cost to you? (Remember, you already have a pilot and 5 people on board.)
Answer? In the case of the TBM 850, those 4 additional seats cost $3.7MM.
For the PC-12, the cost is $2.3MM to tie up. A key moment when you want to buy a jet is considering the mission: How often do you really need all those seats?
In most of the jets I fly, I can assure you: Most of the seats are empty most of the time.
Our thinking is simple – if you have more than 4 or 5 close friends that you’d share your golden chariot with…. then maybe you should pay this differential.
The reality is that most of us peeps can fit our inner circle into 1425 lbs of payload.
If we have to, we take less fuel and stop sooner.
But speed you say… we love the jet for speed.
How Fast vs. Money
And that is interesting for sure, but you’d be surprised. In the graph below we charted a sample flight from Maine to Maryland. And the question could be: Is $3.3MM worth 50 minutes of savings per leg from your home in Maine to get back to NY or DC?
Buy A Jet? Or Get Lasting Value?
So we’ve established cost vs. seats and speed. But how about raw money longevity, or as your accountant will frame it – depreciation.
This is a good thing on your tax return. But it doesn’t feel so good when the actual market value of the aircraft melts. Here turboprops have a curious power over jets – because they are more utilitarian, their value holds longer because they have more utility.
While I’ve met investors who eschew the thought of buying something utilitarian (“This is a jet man.. a private jet… I don’t want this thing actually working when I’m not in it!” – anonymous jet owner #47) the simple reality is that we all love to get our money back when it is time to sell it.
A novel way to impart depreciation for those who might buy a jet is to convert it to something many of us face – pressure to send junior to that overpriced place where apparently they’ll let him in since his squash game is ok.1
Using our 2012 model years and taking a look five years in, here’s a simple table:
So that’s depreciation in percentage, money and Amherst units.
Now let’s look at mobility. Junior is going to attend Amherst, but that CJ4 you bought will only get you to Bradley, Westfield or some airport that is an hour away.
If you bought a PC-12 or TBM, you’d be landing in Northhampton, MA or Turner’s Falls, MA – practically walking distance to campus by comparison.
Go to 1202 more places in the PC 12. Those 1202 places are statistically going to be closer to your final destination.
Reason #2 – You need more information
So our graphs and tables establish that information is key.
But your pilot and the sales guy won’t stop yammering about this jet, that jet or who bought one last week that had dinner with the Obamas.
Most pilots are great. Gifted mitigators of risk, cerebrums brimming with technical data and acronyms. Talent and stoic judgment. And some are that…. possibly with a side order of an agenda to get a type rating and salary befitting of something you don’t need.
This has happened more than you’d think possible. In my 25 year career healing such relationships, I’ve encountered a few special tales. Three were noteable and the 4th – well… exceptional.
- A Learjet sold to an entrepreneur who needed a King Air or PC 12.
- A Hawker 900XP that was almost sold to a corporation whose primary airport was too short to accommodate it.
- An inter-continental Gulfstream sold to a family who traveled the east coast between Greenwich, CT and Palm Beach, FL with 3 passengers.
- A publicly traded company that bought an airplane with 6000 mile range, yet all of their operations lay within 600 miles. Wall Street didn’t like this.2
So, we might say Reason #2 is “You need a travel study” because you need more information.
Reason #3 – You Don’t Have Representation
This may sound trite and self serving, and it is.
But it is also true and the simple reality is that no one has any business attempting to do this without true representation. Here are some thoughts:
FIND ONE: You have an aviation expert, who knows a lot about the make, model, and after market story of what you are after. What they don’t know, they can locate in minutes and they know what questions to ask. They tell you when they don’t know.
NO CONFLICT POSSIBLE: This expert is paid a flat fee. They don’t care if you spend $5MM or $1.5MM or $15MM. Their job is to ensure that your interests are represented at every turn. The LOI, the contract, the pre-buy, the acceptance test flight and beyond.
THOROUGH: Before the airplane enters your stable, you know more about it than its prior owner.
If the three criteria above are clear in your mind and you’ve satisfied the requirements of reasons #1 and #2 prior, then we’d say…. ok … maybe you could buy a jet.
In aviation lore we might say, “Cleared to land, caution… wake turbulence. You are about to conduct a transaction in the wild west, with no advocacy or transparency on any part of the deal.”
Be mindful that once you charge down the path of putting an aircraft under contract, the only defense you have are the people working on your behalf.
Buy A Jet or Buy a New Jet?
If you can’t bear not to buy a new jet, and if range, speed, load etc. all point towards a jet – then yes, it can make sense. But rarely does it makes sense to go new:
If you need the bonus depreciation or you are starting an airline, it can makes sense to go new…. but that is just for the airline. Almost never for the shrewd private buyer. New business jets roll of the production line to enter service. Then they proceed to fly very little and enjoy the warmth of the hangar.
The beauty and convenience of business aviation is that our aircraft sit a lot. When you purchase a pre-owned business jet there is typically very little time on the airplane. While this doesn’t equate to miles on a car – the concept is similar.
It is more of a Bentley or Maserati for weekend use, … and not so much a city bus, pick up or taxi. That’s the airlines … and, yes they buy new – sometimes. But even though a used business jet has only flown a couple of times per week – at most – its entire life, one great thing has happened:
The new price is gone.
To the layperson, the brand new one is typically indistinguishable from the 5 or 10 year old of the same model. Yet you save millions.
The challenge when you buy a jet or turboprop is that there is some work to do. You need to know or should be very comfortable with the following:
- The true market value
- A complete review of the maintenance history
- Current manufacturer service bulletins
- What big stuff (expenditures) is lurking? (coming due)
- Potential unknowns (to factor into price as part of pre-purchase inspection)
- Operational / accident / geographical history
- Engine warranty programs
- FOQA / MOQA data if available 3
The good news? Doing the above is well worth the $2MM or $4MM (or more) you save out of the door on your acquisition.
Does aircraft evolution, technology and value, get you out of bed in the morning? Me too! Don’t hesitate to contact me via email at email@example.com or text me at (617) 901-3245. We develop leading edge financial, acquisition and management tools and we like to share. We like people. And we do almost anything when asked nicely.
1 For the record, I didn’t go to McGill and subjected my parents to the burden of Amherst College and my squash game wasn’t even that good then either.
2 The company went bust within 12 months of the acquisition of the Falcon 900.
3 Flight and maintenance operations quality assurance is a new “big brother” style data recording system that allows anyone to see into the history of the flying and behavior of the aircraft, its computers and engines. A great way to see trends, exceedances and even bad pilot behavior.