CERTIFIED APPRAISALS OF AIRCRAFT SPARE PART INVENTORIES
Collateral Verifications is the aviation industry's leading provider of spare parts and material appraisals. Each year we perform over 20 repeat annual valuations and over 60 total appraisals of spares inventories. This amounts to an average of 3 million line items per year and over 4 billion individual parts since we began. The individual parts within these inventories support over 200 different aircraft, rotorcraft & engine platforms. Most appraisers who do not specialize in aircraft part inventories, as CV does, will simply not have the current market data to deliver a prompt, affordable and accurate opinion of value.
BUYER BEWARE Non Aviation Inventory Appraisers: The typical non-aviation inventory appraiser will boast about and promote their membership in a nationally accredited Society or association of appraisers. These groups are primarily comprised of specialist in industries such as real estate or machine tools. Membership in these groups is usually little more than a marketing attempt to compensate for their lack of any substantive values data. These "Societies" do not provide the appraiser with current aircraft parts sales data or market comparables. They do not provide the appraiser with current and forecast market data of the parent platform. They know little of part supersedure, airworthiness directives or obsolescence. With the exception of stating some very basic ethics standards, the focus certainly appears to be on promoting their member Appraiser's business and not protecting the investor from financial loss in the often turbulent aviation spares industry.
Over the years we have had many instances where our client was required to receive two opinions of value on the subject inventory. We have also been asked to perform Appraisal Review of previous valuations. From these situations as well as from other projects where we have been able to view the values and reports of other appraisers engaged in previous years, we most commonly see two methods in use by others.
The first are various variations of the Cost approach to value. Without picking any fights with traditional appraisers, I will just say that from what we have seen, this method primarily looks at the owner provided and developed acquisition cost. Most of the time this owner supplied data is simply his acquisition cost for the parent part out aircraft, loosely distributed over the total quantity of parts that were removed. It has zero relevance in current trading values of the individual parts. As an example, it is quite common to see a high value component such as a $200,000 electronic engine control box valued at the same price as a common cabin life vest.
The appraiser will then make various assumptions and use weighted values to allow him/her to place a value on the entire population. This will usually result in half the parts valued at ZERO or $1.
Where they are able to find values, they will commonly declare the New "List" price of a part as the Fair Market Value without regard to the physical condition or market served. Ask yourself what is the current Fair Market Value of a 3 year old Range Rover that had a new list price of USD $65,000? Would you lend $65,000 with this 3 tear old vehicle of unknown condition and mileage serving as the sole collateralized asset?
The Orderly Liquidation and Forced Liquidation values we have seen in use by others are usually a flat percentage applied across the entire population. It is not based in any sound methodology or realistic expectation of what the lots would bring in a liquidation scenario. All CV valuations accurately assign OLV devaluations to the Sub Group level. In reality, this is how the inventory would sell in a Liquidation scenario. Likely offers on Lots within the total sale will come from those mostly knowledgeable in specific classes of parts.
I will describe the second valuation method we commonly see as the Valiant Attempt approach to value. The appraiser did their best to find market comps on as many line items as possible but simply came up short. Sometimes the Cost approach and the Valiant Attempt approach will review sales histories obtained from the inventory owner in an attempt to fill in the blanks. This will usually account for less than 10% of the listed assets and tens of thousands of parts are inevitably end up valued at $0.
The preferred and most accurate methodology for assigning value to any asset of value is to compile current and factual market comparables of recent sales, then simply identify any unique differences between the assets and make adjustments accordingly. Aircraft and aircraft parts, are generally considered to be Personal Property and there are no regulatory or government requirements for buyers and sellers to factually report the actual sales price as is commonly required with sales of Real Property. An obvious example of this fact is the FAA Form 8050-2 "Aircraft Bill of Sale". Usually the listed sales price will be $0 USD or simply left blank. Now, if this is the industry accepted practice for large commercial aircraft transaction reporting, can you imagine the difficulty with finding market comps for the tens of thousands of unique part numbers in the average inventory appraisal?
CV STEP 1 - ALL PART NUMBERS VALUED
As is common with most large assets, the sum of the parts comprising a total aircraft are often worth more than the whole. The customer base and practical uses of a complete manufactured aircraft are usually limited to its original intended markets. The individual parts contained within, will often serve multiple aircraft platforms and will be less affected by negative aircraft type specific factors.
To properly determine the value of the total inventory population a value must be assigned to each individual part. Each individual part is a valuable asset in its own right and care must be taken to ensure all factors affecting its value are taken into consideration.
Actual aircraft part sales prices are closely guarded by Brokers & Distributers and rarely made publicly available. The accuracy of the appraisal is therefore dependent on the ability of the appraiser to independently compile factual market comparables and use methodologies that allow the accurate assignment of value within the parameters of the value definition used in the report.
Key market factors and considerations in valuing aircraft part inventories are:
1. Current production status of the original supported airframe
2. Number of alternate airframes utilizing part
3. Underlying market forecast of supported airframes
4. Obsolescence caused by regulatory factors & Airworthiness Directives
5. Actual physical condition of part
6. Verifiable trace documentation and evidence of serviceability
7. If the part was acquired as a result of an aircraft tear down, was the parent aircraft involved in an incident or accident?
8. Is the part OEM or PMA?
9. Storage practices and protection from environmental factors
10. Shelf life
11. Market comparables, trading values, replacement cost and demand
CV provides 6 levels of aircraft part inventory certified appraisals. Commonly used for bank lending against inventory. Levels 1 and 2 are Unbiased Certified Appraisals based on the client's submitted parts list of the actual inventory.
These are commonly referred to as Desktop Appraisals.
Levels 3 through 6 are also Unbiased Certified Appraisals, but based on different levels of physical inspection by CV personnel.
These levels are commonly referred to as Full Appraisals.
PA LEVEL 1 Desktop Appraisal with value assigned to inventory, sub groups or lots as a whole and not to the individual part numbers
PA LEVEL 2 Desktop Appraisal with value assigned to all individual line items of inventory
PA LEVEL 3 Statistical sampling of the inventory based on a limited physical inspection. The goal is to verify the accuracy of the source database by auditing part conditions, supporting documentation & quantities. Value is assigned to the total inventory, sub groups or lots as a whole
PA LEVEL 4 Statistical sampling of the inventory based on a limited physical inspection. The goal is to verify the accuracy of the source database by auditing part conditions, supporting documentation & quantities. Values assigned to all individual line items of inventory
PA LEVEL 5 100% inventory count and condition verification is performed. Value is assigned to the total inventory, sub groups or lots as a whole
PA LEVEL 6 100% inventory count and condition verification is performed. Values assigned to all individual line items of inventory
INVENTORY & SPARES MANAGEMENT
IM1: Inventory Reduction - Increase operating capital by reducing unnecessary inventory from stock. We identify & market those inventory items that do not support current operator's aircraft fleet. Reduction provides a secondary benefit of allowing cost savings of warehouse space and other carrying cost.
IM3: Warehouse reorganization - Advisory, Logistics & Staffing related to comprehensive warehouse reorganizations.
INVENTORY DATA SERVICES
ID1: Inventory Management Software - Advisory & IT assistance with selection, set-up & transitions
ID2: Ecommerce Listings - Advisory & IT support for listing with Ilsmart, Partsbase & similar parts trading platforms
ID3: Inventory Database Corrections - The average aircraft parts inventory database contains between 10% to 30% incorrect part numbers. Accumulated typo's and improper parts receiving practices over many years results in parts that will never sell as RFQ's on Ilsmart & Partsbase will never cross to the listed inventory. We provide inventory analysis services that will identify Invalid part numbers allowing physical verification and corrections.
Commercial Aviation Parts
Business Aviation Parts
Military Aviation Parts
Turbine Engines - Military & Commercial
Equipment & Machinery
Test Cell Equipment & Systems
Aviation Tooling, Calibration & Test Equipment
Ground Support Equipment
Definitions of Value:
Fair Market Value
Forced Liquidation Value
Future Fair Market Value
Orderly Liquidation Value
Replacement Cost Value
Examples of parts data submitted on previous projects:
Individual Line Item Current Market Value
Users and operators of each specific part with full address and contact information
Interchangeable part number
NSN number cross
Alternate part numbers
List of repair stations with current certification on specific component. Address, phone and local point of contact information
Average overhaul cost per listed component
Average core and exchange cost per component
Aircraft type applicability per component
Listing of operators utilizing applicable aircraft type. Address, phone and local point of contact information
If this service does not meet your requirements, please review our other appraisal & inspection services using the links above.
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