Crazy Variations of Perceived Value
By Stephen J. Coonan, ATP, Accredited Senior Appraiser, American Society of Appraisers
I wanted to share with you the story of two airliner-type appraisals that I was assigned to complete over this summer. Both were converted Boeings of highly divergent background and owned by two separate operators.
The first was purchased as a used Boeing 767-300ER with 75,000 hours. It had flown dutifully for over 25 years for several airlines and had just been given an extended life approval of another 50,000 hours. The aircraft inspection logs indicated that it had completed every heavy inspection event, including refreshed engines, new paint, and a new 92 seat first class interior. The owner’s purchase ledger showed an investment in both the aircraft and its renovation costs to be just under $30 million.
The second was a Boeing 787-8 Dreamliner BBJ with zero hours, except for the ferry time from the factory to the paint shop and interior installers. This aircraft was purchased new around five years ago for, what the owner claimed, was an all-in cost of some $300 million. Sadly, for whatever reason, it had quietly sat in a hangar waiting for its turn in the completion process. As of June, it had yet to fly an operational mission.
Referring to controller.com’s Aircraft Cost Calculator, and depending on numerous other sources, the average price for a pre-owned BOEING 787-8 Dreamliner is $175,000,000.00. An argument could be made that this Dreamliner, having no operational time on it, could be worth much more. In fact, attorneys for the owner expected the CPV (Crazy Perceived Value) to be some $350,000,000 once it was rolled out operationally.
Unfortunately, the worldwide Dreamliner BBJ market just didn’t quite see it that way, and given our new world paradigm, it probably never will. Extensive research into the SAV (Sobering Actual Value) of the aircraft is now quite different: industry sources say that the owner would be lucky to get even $75 million for it now.
What is crazy about this situation is that both aircraft are able to carry the same passenger load the same distance, in almost the same time for almost the same variable cost for at least the next 20 years. This was assumed to be the Opportunity at hand for both aircraft. But the Opportunity Cost was exponentially diverse.
The concept of Opportunity Cost is that every choice has a value to the buyer. It is what you gave up to get something. That something was Ultra First Class lift for a distance of 6500 nm at a speed in excess of 450 KTAS. But the opportunity cost of under $30,000,000 for the 767, gets the buyer the same thing that the opportunity cost of $300,000,000 gets for the 787 buyer.
I’m not forgetting that the 787 may be newer and sexier. But so is having the extra $270,000,000 jingling in your jeans. In addition, the refurbished and repainted 767 is tried and true, with plenty of pennage left in her.
So now I know how to do the 787 BBJ $270,000,000 ramp strut. I’ll take two please. And send Boeing the bill.
Yours,
SC
About the author:
Stephen Coonan has been appraising aircraft of all types for over twenty years and has been through five major stock market reversals. His $20 billion valuation portfolio spans clients such as NetJets, Goldman Sachs, Morgan Stanley, Citibank, and Deutsche Bank. Please feel free to contact him with your comments at 877-266-7791 or sr@planesworth.com.
