Appraising the appraisers: Balancing art with science
Aircraft appraisals are “a dark art”, according to one industry insider. We shine a bright light onto aircraft valuations. Words: Yves Le Marquand
Appraising the appraisers: Balancing art with science
Aircraft appraisals are “a dark art”, according to one industry insider. We shine a bright light onto aircraft valuations. Words: Yves Le Marquand
A HANDSHAKE WAS once enough. Some 40 years ago aircraft sales were concluded after exchanging a short-form bill of sale and a brisk handshake. But it all became more complicated as aircraft values soared. Then, Covid-19 and the social distancing requirements that followed in its wake added a new level of complexity.
Today, transactions require a team of specialists including acquisition experts, technical and operational consultants, brokers, lenders, lessors, attorneys and, somewhere on the bottom rung, appraisers, according to Bob Zuskin, owner of appraisals business Jet Perspectives.
Most appraisers would agree they fall into the role. As David Crick, DavAir Group founder, told Corporate Jet Investor, there is no career fair stall offering roles in appraisal, let alone, aircraft appraisal. However, appraisers are a vital part of the business aviation industry and in times of uncertainty, where value is ever more important to determine, 2020 was one of their busiest years ever.
Zuskin, has been in the business since 1979 and, after 15 years in brokerage, says he was a better analyst than he was a salesman – that’s when he began appraising aircraft. Zuskin believes the very best appraisers are the brokers and dealers who are “in the trenches every day”, analysing the minutia of specific markets, doing that work either on behalf of their clients or for themselves. “This is a business that is replete with multi-million-dollar mistakes and for those who buy and sell aircraft on a regular basis, it is critical that their numbers are good.”
On the sales and brokerage side of the business, numbers must also be spot on, otherwise the potential downside risk is tremendous and the key to that is good, solid market research – the same prerequisite that is required of any good appraiser, Zuskin tells CJI. Jet Perspectives has just had its busiest year yet. “As a human being, I hope for quiet tranquility…. but as an appraiser, I live for turbulent times,” Zuskin remarks.
Immediately after the market collapse in 2008, his phone rang off the hook and last year was no different. Zuskin said that generally, when the market is “slow and steady” with well-defined values, most players in the business become very comfortable with values. But in times of turmoil, those same people are looking to re-assure themselves with third-party opinions.
Zuskin adds: “Shortly after the pandemic became apparent, I was faced with a number of assignments. It was important to distinguish between ‘pre’ and ‘post’ pandemic values. My revolutionary appraisal technique was to figure out what something was worth before the crisis, then I would wet my finger, stick it in the air and apply a discount based upon which side of my finger got chilled.”
Any appraiser will tell you that carrying out an onsite inspection of an aircraft is better than the virtual “desktop” report alternative. However, travel restrictions, borders restrictions and quarantines have meant that onsite inspections are often not possible. There have even been reports of aircraft being delivered to the appraisers.
Louis Seno, chairman and special adviser, JSSI says in the wake of the March lockdown the company tried to avoid flying to appraisals. But if appraisers could drive to the airfield and wear a mask when viewing the aircraft safely, that would be acceptable. “I have heard of many institutions which have switched completely to desktop report, as opposed to onsite reports, in this environment,” says Seno. “With the continuing lockdowns in the UK for example, it’s hard to say when things will change.”
The problem with desktop, or ‘restrictive’ reports is that without a physical inspection taking place, the appraisers must produce a report that relies solely upon the numbers. When an appraiser physically inspects an aircraft and goes through the books and records “they do it with the same rigour and discipline as if you were coming onto our hourly cost maintenance programme”, says Seno. “Whereas in a restrictive report, which has all the typical disclaimers, we are still relying on information that is effectively emailed to us.”
Bob Zuskin, Owner, Jet Perspectives
A self-styled ‘maverick’, Zuskin tells would-be appraisers to start in aircraft sales in order to understand the basics. That will make appraisals more tangible.
Louis Seno, Chairman , JSSI
There is little Seno has not done when it comes to aviation. He has previously worked with Boeing, GAMA and Duncan. An active pilot, Seno has logged over 6,000 hours.
Johnnie White, CEO, American Society of Appraisers
While not a qualified appraiser, White plays a key role in ensuring the standards of the ASA are upheld. He has served over 27 years in leading management roles.
Sharon Desfor, Owner, HeliValue$
Starting in the industry over 37 years ago, Desfor has a vast knowledge of the helicopter industry. Desfor is HeliValue$’s owner and chief appraiser.
Add to that a brisk resale market in 2020, meaning good levels of activity in the appraisal market, the ratio of desktop to onsite reports changed dramatically. For firms like JSSI, the impact has been less substantial given its 70-plus technicians worldwide.
Following discussions with members, American Society of Appraisers (ASA) CEO Johnnie White says the biggest change he has seen as a result of Covid-19 is the difficulty in reaching aircraft. “The physical inspection with all the different guidelines that are in place, country-by-country, what you can and can't do; that's the biggest challenge right now.”
As well as his role at JSSI, Seno has been an appraiser for over 14 years and is a veteran member of the ASA. During that time the emergence of digital aids like VREF, BlueBook, AMSTAT, JetNet and Aircraft Post have made the appraiser’s job easier. These sources provide true and current market information that doesn’t exist in other asset categories. “I’m not sure today if you’re appraising a printing press, for instance, there's probably a price guide but there will likely be a lag on that.”
Resale experts like the International Aircraft Dealer’s Association (IADA) also make life easier. “The appraiser is supposed to use any and all resources available, so we use electronic and written resources, but we also have relationships with the resellers,” says Seno. It is not uncommon while writing a report for numbers to be bounced off various resellers familiar with the asset, he adds.
As with most appraisers, Sharon Desfor, owner, HeliValue$ tripped and fell into the role. “Consider this: if every parent were to ask their children what they want to be when they grow up, how many children would answer, ‘I want to appraise helicopters?’ None, that’s how many. Not one,” she says. Desfor began back in 1983 at The Official Helicopter Blue Book. It was there that Desfor met her husband, Barry. “He got me interested in ‘Why’.
Why is this helicopter worth more than that one? Why does the industry prefer this model over its competitors?”
With a love of maths and logic, Desfor started trying to quantify the price delta against differences in the specifications, component times, installed mission equipment, the maintenance programmes or even the reseller, in some cases. “I started looking for the reasons behind the volatility in helicopter values. At some point, I realised to my surprise that this was much more interesting than figuring out how to reinstall the operating system into the idiotic computer one more time.”
After Barry retired in 2005, Desfor was left as the president and owner of HeliValue$, as well as its chief appraiser. Like Seno, she is also a member of the ASA and its secretary and treasurer. For Desfor, the ASA is vital education resource to the industry that has standardised methodology.
“ASA is a source of impeccable principles and ethics.”
Sharon Desfor, Owner, HeliValue$
“It teaches appraisers how to standardise their methodology until that methodology is as solid and proven as a rock, able to stand up to audit or legal challenge. ASA is a source of impeccable principles and ethics. It is the world’s biggest cheerleader of professional standards, contributing money, people, thought, and time.”
ASA also benefits the public. “For example, when a helicopter leasing company knows their appraiser is trained by the best and is required to uphold the highest standards just to maintain their accreditation, it leaves them able to trust the appraisal they receive,” says Desfor.
The process of creating designated appraisers who operate under the same umbrella organisation’s standards and rules is the largest benefit of the ASA, says its CEO White. “More trained appraisers will raise the standards across the whole industry.”
While on the appraisers’ side, “They are able to provide top-notch services that they have learned from our programmes [The Principles of Valuation or POVs],” he adds. “We [the ASA] are providing them the opportunity to bring an unbiased perspective to valuing that aircraft asset,” says White.
“ASA is a source of impeccable principles and ethics.”
Sharon Desfor, Owner, HeliValue$
Crick adds: “One of the things I think the ASA brings through its education, that Johnnie has been talking about, is professionalism and standards. Within the industry there are people that provide appraisal services, primarily from the broking side of things and they are not necessarily trained appraisers.”
The ASA brings a professionalism of standards to the industry then. It also brings a unified body of approach where ASA appraisers operate by a consistent methodology, Crick tells CJI. “So, whatever country you’re in, wherever you’re finding an appraiser that’s ASA-trained, they’re going to have a consistency of approach because of the education that the ASA provides.”
All ASA appraisers are subject to continuing education. They are required to complete 20 hours education per year amounting to 100 hours every five years. This works on a cyclical basis, so appraisers are continually assessed for the duration of their professional life. Crick adds: “There is this body of knowledge that we are able to draw on that makes us better appraisers and makes continually educated appraisers.”
The body of knowledge the ASA has amassed is highly valued outside of the appraisal industry too, according to Pegasus senior appraiser, Richard Berkemeier. IADA has asked the ASA to develop a one-day class on appraisal education, to educate their members and provide continuing education to their broker community.
Despite being a senior ASA-trained appraiser, Zuskin believes the association has done a great job in taking the “art” of appraisal and made the industry think it is a science. “In my opinion, a good appraisal is both.”
Yes, there is a methodology to appraising aircraft, but many of the elements of appraising do not lend themselves to quantifiable numbers. ASA is good at teaching and training people about the industry, says Zuskin, but what they cannot offer is experience.
“I should tell you that although I am a member of ASA and have taken the classes and passed the master test, I have not applied for my ASA designation. Frankly, after more than 40 years in the aircraft business, I would prefer to let my experience do the talking. For someone starting out, the ASA designation is a great goal, but it does not replace experience and, for my own egotistical reasons, I’ll let the certified appraisers do their thing while this maverick does his.”
David Crick, Founder , DavAir Group
Backed by 20 years of specialised valuation and consulting experience, Crick conducts appraisals of both fixed wing and rotary aviation assets. Crick is based in Australia.
Richard Berkemeier, Snr Appraiser, Pegasus
An ASA member since 1994, Berkemeier is the course developer for machinery and aircraft classes. He also serves on the American Society of Appraisers Board.
Gerard Deterne, Senior Appraiser, American Society of Appraisers
A senior appraiser with ASA, Deterne is also senior manager Business Development with Airbus Helicopters. He joined the aircraft manufacturer in 2006.
For budding appraisers Zuskin recommends starting out in aircraft sales and developing an understanding of the many elements involved. “After surviving the rigours of being in that end of the business, appraising aircraft will become much more tangible, instead of the ivory-tower approach of many appraisers.”
Zuskin adds: “Aviation is such a big universe of airplanes – general aviation, historical aviation, corporate aircraft, specialty aircraft – I defy anybody to be competent in any one of those arenas. It’s a mix between art and science.”
Crick is another who had the “fall of his life” into the business and he too believes there is both art and science to appraising an asset. Speaking of his own affinity for the profession, he says: “There is an appeal to the science, following a methodology and gathering evidence. And I like the art side of it too, where you are trying to understand the nuances of the market and the different aspects of appraising.” For Crick, appraising an aircraft is like solving a jigsaw puzzle.
Gerard Deterne, ASA senior appraiser and senior manager, Business Development, Airbus Helicopters, believes appraising is very much a science. “In the sense that it is supposed to quantify reality – the goal is to be as objective as possible, to be as documented as possible, when figuring out the value of a particular aircraft.”
Deterne also believes the market factors like the economy or Covid-19 are more important than the physical features of the aircraft when it comes to determining value. Giving the example of a 2010-built helicopter serving the oil and gas sector, he tells CJI: “The value of that aircraft, whatever model, is more impacted today by the oil and gas downturn than whether it’s got so many flight hours.”
There’s no doubt appraisers have been in high demand during the pandemic. In uncertain times people want to know the true value of their asset. While human beings often seek peace and tranquility, an appraiser relishes the storm clouds overhead.
Zuskin’s phone has not stopped ringing this past year. “Appraisers thrive in a world of uncertainty without defined market values. The success of my company over the past 22 years has paralleled the market as a whole. When the market does well, I do well. Talking to the broker and dealer community that I speak to regularly; they were going insane in the last quarter 2020. The amount of business was unbelievable – there were closings left and right.”
“Appraisers thrive in a world of uncertainty with- out defined market values.”
Bob Zuskin, owner, Jet Perspectives
Meanwhile, the appraisal industry has never been more important to business aviation, it seems. Certainly, appraisers say their business has never been busier. Four decades on from when a handshake concluded business, even though the complexity of an appraisal report has grown exponentially as values have soared, the yearning to close a deal with a handshake has never been greater. Let's hope they return this summer.
