When to Trade: A Strategic Guide
“When should I trade in my current aircraft?” It’s a question we field regularly at KCAC Aviation. Our answer … “It depends on your circumstances and situation.” The truth is, there is no one “right” time to sell your aircraft. Every owner’s situation is different.
There are a number of things to ask yourself when making this decision. For example, do you own a new or pre-owned aircraft? Are you working on a step-up plan to your ideal aircraft, or would a new model of your current plane reap the needed benefits? The answers to these questions and more play a role in deciding the best time to trade. The key is understanding the factors that drive your decision and knowing which elements should weigh heaviest when determining your options.
Trading your aircraft at the best time for you is a strategic decision that shouldn’t be taken lightly. The ramifications to your productivity, finances and lifestyle are too great.
When determining the best time to trade in your aircraft, use the following list as a guide to make an informed decision that’s right for you and your business.
Did you purchase factory new?
Consider the reasons you bought a new aircraft instead of opting for a pre-owned model. Chances are, you desired the warranty, tax breaks, latest technology and peace of mind. Do those benefits still ring true now that your aircraft has aged?
When evaluating if now is the right time to trade in your aircraft, review the following:
1. How much time do you have left on your warranties?
Most warranties expire after two to three years. For example, a new Pilatus PC-12 NG holds a two-year/2,000 hour systems warranty, a three-year standard warranty on the avionics and a two-year/2,500 hour warranty for the propeller.
When your aircraft is no longer under warranty, your cost of ownership may change. Your ownership experience will as well. Knowing that any squawks that arise could be covered under factory warranty certainly gives operators peace of mind and could potentially save them a lot of money.
The warranty makes a difference not only to you, but to the aircraft’s next owner. Selling your aircraft before the warranty expires takes some of the risk associated with purchasing a pre-owned aircraft off the table for the new buyer. This risk-reduction may garner a better price on your aircraft.
2. Is your aircraft serving you financially?
For aircraft owners who depreciate their aircraft on a five-year, double-declining depreciation schedule, their aircraft is 75 percent depreciated at year three. Therefore, many financial experts will point to three years as a sweet-spot for trading in your aircraft. You can roll your depreciation into a new asset to keep your aircraft working for you financially.
In addition, tax incentives on the purchase of a new aircraft may provide substantial savings. MACRS depreciation, bonus depreciation and Section 179 expensing are three of the main tax benefits you can take advantage of on a new aircraft purchase.
Consult with your tax advisor to learn how trading your current aircraft and buying new will impact your bottom line.
3. Have technological advancements and cabin upgrades been released that would make a new aircraft safer, more efficient or a better fit for your mission profile?
Aircraft manufacturers continuously work to ensure the best flight experience possible. Cabin upgrades, such as Wi-Fi and high-resolution displays allow you and your team to be more productive in the air. Technology advancements that lead to increased reliability, safety and performance provide newer aircraft a host of benefits that may not be available in your current model. A trusted aviation consultant can help you pinpoint which upgrades are important to your mission and what models fit those needs.
Beyond model upgrades, it’s also important to consider needed enhancements to stay compliant with FAA requirements. Staying on top of these requirements costs downtime as well as money. So it’s important to decide if you want to invest in your current aircraft or put those dollars toward a new aircraft that already meets FAA mandates.
4. Are you on a step-up plan to your ideal aircraft?
If you’re working toward your dream aircraft, trade-in takes on another layer. As a general rule, step up as quickly as possible to the next aircraft on your road-map as you go through your training and complete your certifications and requirements. By doing so, you’ll get to your ideal aircraft more quickly.
“By the time your third year rolls around on your current aircraft, you should have plans in place for your next upgrade,” says Dave DeWalt, aircraft sales for KCAC Aviation. “As you are finishing up your third year of ownership, your depreciation and warranty are running out and it makes fiscal sense to trade in your aircraft.”
Considerations for Pre-Owned Aircraft Owners
For owners who purchased pre-owned aircraft, the reasons to trade are a little less cut and dry than they are for new aircraft buyers. This makes the need to think strategically about selling your aircraft even more important.
When determining the best time to sell, consider the following:
1. Have you had a good year? Is it time to invest in your business?
A financial windfall can signal an ideal time to trade in and upgrade your aircraft.
By investing back into your business with private aviation, you can gain efficiencies not experienced with your older model aircraft. These efficiencies include the ability to fly longer distances, land in more rural locations or carry more people or payload.
2. What is the market’s reaction to the time-life components on your aircraft?
Time-life components such as the engine and propeller, often dictate the need for an upgrade. Understanding where your aircraft components are in their lifecycle and how the market values these components is critical to making a strategic decision on when to trade.
If you buy a low-time aircraft and fly that aircraft to mid-time, it’s probably best to trade now, before hitting high time, which could significantly impact the value of your aircraft.
Think wisely if you are coming close to a maintenance event. Chances are you will either pay for the maintenance on the front end by maintaining the plane yourself, or on the back end by getting a lower price for your aircraft.
3. Has your mission changed?
Has your business grown, leading to an increase in personnel, clients in different regions or vendors you visit regularly? Is your aircraft able to keep up with this growth?
Follow the 90/10 rule when evaluating if an aircraft is right for your mission. Using this formula, begin by listing the ways you use your aircraft 90 percent of the time. Now think about what opportunities are being left on the table. What flights are you regularly flying commercial because your current aircraft can’t handle the mission? What customers are you unable to visit regularly because you can’t get to their location in your current plane? If, in a new aircraft, these trips would fit into flights you take 90 percent of the time, you may have just made a case for trading in your current model for an aircraft that better meets your new mission. If, however, these trips fall into how you use your aircraft significantly less than 90 percent of the time, you’ll need to decide if trading now makes sense for you.
No matter if you are trading new or pre-owned, have the right aviation team on your side. A trusted aviation consultant, tax advisor and aircraft management professional will help you make the best strategic decision on when to trade in your aircraft. They can walk you through each of these considerations to determine the right time for you to make a trade.
Questions for one of our aircraft experts? Call 866.359.5222