Like automobiles, business aircraft usually depreciate. But like high-end homes, they often gain value when owners make improvements.
Some upgrades pay off better than others, however, and some don’t pay off at all. So, BJT decided to find out which cabin improvements not only provide a better experience for the current owner but also help make a business aircraft more attractive for charter and increase its resale value. What we learned might surprise you.
Doing “a complete refurbishment of a business jet to prepare it for resale is not worth it these days, because the prices of preowned jets are decreasing,” says Josh Mesinger, vice president of Colorado-based Mesinger Jet Sales. Instead, “Owners should consider doing extensive refurbs while they still want to use the older aircraft, so they can enjoy the new interior.”
However, partial, or cosmetic, refurbs can make sense when you’re preparing to put an aircraft on the market. “If the carpeting is really bad or the wood finish is milky white, refurbishing these will help [you sell the airplane],” says Mesinger, “but don’t expect to get back the money that you put into this work.”
James Hagerty, an aircraft broker in Georgia, agrees. “We call it ‘putting lipstick on the pig’—light cosmetics, new carpet, chairs, headliners, front-to-back stuff,” he says.
Randy Groom, president of Florida-based Groom Aviation, concurs, too. “If I were an owner, I’d get my airplane ready for sale,” he says. “It’s like a house. If it needs new carpeting and paint [before a sale], you do it.”
What about more expensive upgrades, such as a cabin-management system (CMS) and in-flight entertainment (IFE)? “We’re not seeing buyers in the residual market giving a lot of credit for these, so it’s better to let the end users figure out what they want to do,” comments Hagerty.
“For example,” he says, “upgrading a CMS on a 2000 Gulfstream GIV-SP, which is worth $7 million to $8 million, will cost about 10 percent of the jet’s value. A new system will help it sell faster but won’t separate it totally from the rest of the pack. In my view, you should install a new IFE or CMS only if you plan to keep the airplane five to
Prior to a sale, cosmetic changes make more sense than extensive refurbishment, agrees Lissa Zimmerman of Arkansas-based Galley Support Innovations. “Interior styles seem to be changing more rapidly than in the past,” she notes, and it’s next to impossible to know what future aircraft buyers will desire. Zimmerman says that before undertaking a refurbishment, owners need to consider how long they plan to keep the airplane, because what’s in fashion today probably won’t be in just a few years.
Moreover, owners often want their airplanes to reflect their tastes and personalities, so even if you sold tomorrow, the buyer might well want to rip out everything. On the other hand, if the interior is in bad shape, prospective purchasers might not consider the airplane at all. “If the owner wants or needs to sell quickly,” says Mesinger, “then a decent interior, even if somewhat dated, has a better chance of getting buyers’ attention than one that’s in bad shape.”
Before undertaking any upgrade, ask yourself whether it really makes the airplane more valuable to buyers. “For example, if you reconfigure from a forward- to an aft-galley cabin, the airplane is still competing with ones of the same model year that had an aft galley to begin with,” says aircraft broker Robert Rabbitt, Jr., a managing partner at Avpro in Maryland. “You really have not added much value.
“We’ve seen Gulfstream GIVs and Vs reconfigured with G450 and 550 interiors, and they’re beautiful,” Rabbitt adds. “But when you go to resell them, they’re still GIVs and GVs.”
On the other hand, Rabbitt says, “If you put a million dollars into installing NextGen avionics and Internet connectivity, refurbishing the interior, and doing new exterior paint on a $20 million airplane, that million is likely to be recouped. Why? Because if you are trying to sell a similar airplane with none of these upgrades, buyers are likely to discount it by an appropriate amount, because they would have to do these upgrades themselves. Another consideration is the downtime needed to do this work, which could lead buyers to airplanes that already have these upgrades.”
Consideration of downtime also applies to the current owner, especially those that regularly depend on travel by business aviation. How much will it cost to lease or charter another airplane during the downtime required for the reconfiguration? “We’ve seen some cabin reconfigurations in the $5 million to $6 million range put the airplane down for six months,” Rabbitt says.
Finally, there’s the intangible side of costly refurbs and reconfigurations. “If the principal really wants to do it, then do it,” Rabbitt suggests. “It’s like when you want a new kitchen, you spend more than you’ll ever get back when you sell the house. Why? Because, well, you get to do this only once. It’s not that people shouldn’t put so much money into their older airplanes, but they should understand that certain things are not likely to get a payback when they sell it.”
Lower-cost cabin items can help an airplane sell, albeit not necessarily for more money. “Having 110-volt power outlets to recharge devices is a huge plus now, not just for owners and charter customers, but also flight crews,” says Matthew Sorace, charter coordinator at Cutter Aviation in Phoenix. “More aircraft are coming out of the factory with outlets, so it’s now pretty much a must-have.”
New seat covers and carpet are an easy way to update an interior, and this may require just a few days of downtime, Sorace says. “We replace our carpeting about every four to five years, figuring about 200 hours [of flight time] a year,” he comments. “When you walk in the cabin, you see the carpeting in the entryway and a seat nearby, so if they are in bad condition, it will draw your eye to it and you’ll start noticing it throughout the airplane.”
Woodwork, doors, and galleys usually need to be pulled out to be refurbished, so that keeps the aircraft grounded longer. “In smaller business jets and turboprops, which don’t use a flight attendant, customers need to get drinks, snacks, and other things themselves,” Sorace says, “so you’ll see some areas that get scratched or damaged. So refinishing or replacing the woodwork can be a good idea.”
Interestingly, Sorace feels that galley features in smaller aircraft are less important for resale than the lavatory. “Most of our aircraft have a refrigerator and coffeemaker, and our passengers don’t expect much more,” he says, but “a lavatory with a sink and hard door, rather than a curtain, can make a big difference.” The majority of Cutter’s aircraft have an Airshow system, he adds, which most passengers like.
Patti Squire, owner of Pennsylvania-based LR Services, says that “as long as the cabin is clean and looks fairly new,” her charter customers are happy. Squire, who charters a Learjet 28, 31, 35, and 55, replaces their carpets about every two years. She says that the airplanes’ owners aren’t interested in renewing their interiors to give them a more modern look.
Business jet owners and passengers today want their smartphones, tablets, and laptops to have the same connectivity in flight as they have on the ground. And they want this connectivity for both passengers and pilots, all of whom may be using multiple devices. Unfortunately, achieving this level of connectivity worldwide from sea level to 50,000 feet at speeds approaching Mach 1 is a highly technical and expensive nut to crack.
“Five years or so ago, maybe 20 percent of airplanes had some form of high-speed data, says Rabbitt of Avpro. “I think today, whether it is for your own needs or for charter, connectivity is an absolute requirement. If you step on Southwest for $99 and have connectivity, you’ll certainly expect a private or charter aircraft to have some sort of connectivity, too.”
“Internet is becoming a must-have,” agrees Hagerty of Hagerty Jet Group. “And it’s surprising that so many late-vintage airplanes on the market still don’t have it.”
Groom concurs, saying, “If you have an airplane that doesn’t have [connectivity], it’s going to be a disability when you want to sell it.”
Many business airplane owners might find that the connectivity they want is constrained by the size of their aircraft (not enough room for equipment inside and antennas outside), the cost of the equipment, its installation and upkeep, and the subscription fees charged by the providers.
“The most important thing to the user is a consistent Internet signal,” says Innotech-Execaire director of sales and marketing Tony Rawlinson. “We have customers who want it all and want it all the time, but they need to understand the constraints of the various systems. How many systems can we install within the constraints of the aircraft? How many antennas can we put in the radome on the tail? Can we put antennas on the fuselage?”
Innotech-Execaire has installed multiple connectivity systems into aircraft to accommodate worldwide coverage as much as possible, using the air-to-ground-based Gogo Business Aviation system, a Ku-band satellite system, and DirectTV. But even satellites cannot provide desired connectivity all the time. “If you fly into an area where there are ships and yachts also drawing from a Ku-band signal,” Rawlinson explained, “then you are competing for that connectivity. If you have two or three passengers on your airplane and then bring in 12 more and they all open their phones and iPads, then that aggregate gets challenged. This is not something that customers think about at first. So the industry has to educate the client, which can be a difficulty for the charter operator.”
“Gogo Biz is the most popular for domestic [U.S.] operators,” Hagerty says. “It is inexpensive compared with the other Internet systems, which are satellite-based.” However, Gogo Biz isn’t available until the airplane is 10,000 feet above ground level and it works only over the continental U.S., part of Alaska and southern Canada, and a thin strip of the Canadian west coast. To obtain Internet coverage outside these areas one needs to use satellite-based systems.
“Gulfstream’s Ku-band, Broad Band Multilink (BBML), which costs about $800,000 per system, is very fast, has high download speeds, and can work on VPNs for corporate networks,” Haggerty says, “but it’s expensive to operate and doesn’t have global coverage, though it does cover areas outside the U.S. The Honeywell Swift Broadband system works off the Inmarsat satellites.
It’s not nearly as fast as BBML, but you do get global coverage. However, it’s also expensive to operate. Most U.S. Gulfstream operators would have an HD710 or BBML system for international use and Gogo for domestic travel.
“Direct-TV is another option,” Haggerty notes, but adds, “In my opinion, it’s extremely expensive—$500,000 for installation—and now the technology has changed so that people can stream TV or use Apple TV, or put a server on the airplane and download hundreds of movies. This reduces the demand from many users for live television. However, there are still customers for DirectTV, such as sports-team owners, who need to keep up on their competitors.”
While connectivity is a must for large-cabin corporate and private jets, it is becoming more important for smaller jets and turboprops, too. “Wi-Fi is huge now in private aviation and becoming a requirement,” says Sorace. “But Wi-Fi is an expensive installation, especially for an older aircraft. Gogo is the big one for our operations. The Gogo subscription is usually several thousand dollars per month just for the data, and there’s the installation, which [can run] $50,000 to 100,000.”
Before You Upgrade…
• Decide how long you plan to keep your airplane.
• If you hope to sell soon, talk to a few aircraft brokers or resellers about the value of doing upgrades. The work might not be worth the time and expense. If you don’t do an upgrade, at least do a cosmetic makeover of the interior and maybe the exterior.
• If you plan to keep your airplane for five or more years, get advice from other owners and from aircraft brokers. Ask the brokers and resellers about the effects of the work on resale value.
• If you plan to charter the airplane, ask charter/management companies for opinions about upgrades and additions you’re planning.
• Obtain estimates and advice from several completion centers before you decide what work to have done.
• If you have the money and really want to do a once-in-a-lifetime, cost-be-damned upgrade of your beloved jet, go for it.
Original Article: Which Cabin Upgrades Pay Off?
Credit (Article): R. Randall Padfield
About the Author: R. Randall Padfield retired in 2014 as editor-in-chief and chief operating officer of AIN Publications, BJT’s parent company.
Credit (Photo): Gulfstream