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Yes, Air Travel Is Worse for Passengers Than It Used to Be (but It’s Getting Better)

Jul 25, 2017 10 MIN. READ

Airlines are outsourcing fewer flights these days — and that could be a good thing for unhappy passengers.

The “friendly skies” haven’t seemed so amicable these days. A recent spate of PR disasters has reignited passenger concerns about the comfort and safety of air travel, but a new trend among major U.S. carriers could help change that.

Airline Outsourcing: When Delta isn’t Exactly… Delta

If you bought a Delta ticket for a flight from Washington, D.C. to New York in 2010, chances are you traveled on a flight that wasn’t actually operated by Delta. In 2010, the three major U.S. carriers — Delta, American, and United — adopted a practice known as airline outsourcing. This resulted in nearly 70 percent of all domestic short-haul flights (those traveling fewer than 1000 miles) being managed and flown by another carrier.

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Even when there is an abundance of sales or acquisitions for a specific type of asset, actual figures aren’t required to be disclosed to the public. The opaque nature of these transactions makes it even more difficult to obtain prices of comparable aircraft or engines that were recently sold or acquired.

Instead, appraisers must rely on an extensive and willing network of industry stakeholders—including original equipment managers (OEM), lessors, and airlines—to share transaction data on aircraft and engines that support precise valuations.

While the labor-intensive process for appraisal research hasn’t changed all that much in the last 30 years—and probably won’t anytime soon—market demands have changed. Clients, looking to be more agile and to avoid transaction delays, want answers faster and at a more affordable cost. In an effort to meet this need, there has been a shift to online aviation appraisal tools. Some of these tools now extend even to mobile platforms, allowing users to derive the value for a specific aircraft in minutes.

Some appraisal tools now extend even to mobile platforms, allowing users to derive the value for a specific aircraft in minutes.

These online values still do not replace the need for formal, signed appraisals, but such tools are now used in conjunction with formal appraisals to support transactions earlier in the deal and provide more information to stakeholders throughout the transaction process.

What’s more, lessors and investors are looking beyond basic appraisal functionality for full-fledged analytical solutions that allow them to model various scenarios (e.g. What happens if fuel prices rise by 50 percent?). They want actionable data—such as values for aircraft and portfolios updated more frequently than typical hard copy publishing schedules and maintenance adjustment calculators—that helps them gain a greater understanding of values and return-on-investment.

Not all online valuation tools are created equal

While lightning-fast functionality and mobile access are certainly nice things to have, they don’t negate the need for deep industry expertise and a well-developed appraisal methodology. For a true look at an aircraft’s overall worth, appraisers should be examining and valuing the engines and other individual major components in detail rather than the aircraft as a whole. After all, in the latter stage of an aircraft’s lifespan, the vast majority of value is tied to the engine value.

Our appraisers, for example, do not simply rely on standard depreciation curves in their appraisal process. Instead, we consider residual value behaviors of each of an aircraft’s major components. We also incorporate utilization and maintenance schedules of the aircraft and its major components in their early years to forecast the transition from a new aircraft (full-life value) to a hypothetical half-life value achieved after several years of operation.

As the aircraft ages, the “bottom up” approach of looking at the value of the major components including the engines and landing gear results in a truer, clearer picture of the aircraft’s worth. Overall, ICF methodology results in a more precise number over the entire life of the aircraft, from the day it’s delivered to the day it gets disassembled.

Credibility and demonstrable hands-on experience make all the difference when it comes to an accurate aircraft valuation. If that kind of accuracy can be found via a convenient online platform, along with additional insights to enhance decision-making, all the better. Tell us about your experience with online appraisals on LinkedIn and Twitter.

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