Reproduced with permission from the ISTAT Appraiser’s Handbook.
BASE VALUE
MARKET VALUE
SOFT VALUE
SINGLE-UNIT SALE
TYPICAL
FAIR MARKET VALUE
DISTRESS VALUE
LEASE-ENCUMBERED VALUE
BASE VALUE
Base Value is the Appraiser’s opinion of the value of an aircraft (or other aviation-related asset) in a stable market with a reasonable balance of supply and demand. The Base Value of a tangible asset typically assumes its physical condition is average for an asset of its type and age, and its maintenance status is as described.
Base Value assumes that the value is for an unencumbered single-unit transaction valued for the asset’s highest and best use (as defined by the Appraiser), that the parties to the potential sale would be willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm’s-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers.
Comment: As Base Value pertains to a somewhat idealized market it will often not be the same as Market Value.
As a starting point, the Base Value of a tangible asset typically assumes its maintenance status is at Half-life/Half-time (see Glossary of Terms for Half-life/Half-time definition), or benefiting from an above Half-life/Half-time maintenance status if the asset is new or young.
With respect to the values of new tangible assets, AVITAS’s values represent the transaction between OEM and the initial purchaser, assume a new and full-life maintenance status condition in a “flyaway” condition and fully certificated for commercial operations. We have further assumed that the subject aircraft will be operated under the air transport regulations of a major airworthiness authority.
MARKET VALUE
Market Value or Fair Market Value (or Current Market Value or Current Fair Market Value, if the value pertains to the time of the analysis) is the Appraiser’s opinion of the most likely trading price that may be generated for an aircraft (or other aviation-related asset) under the market circumstances perceived to exist at the time in question.
Market Value assumes that the value is for an unencumbered single-unit transaction valued for the asset’s highest and best use (as defined by the Appraiser), that the parties to the potential sale would be willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm’s-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers.
Comment: The Market Value of an aircraft (or other aviation-related asset) will tend to be consistent with its Base Value in a stable market, but where a reasonable equilibrium between supply and demand does not exist, trading prices, and therefore Market Values, are likely to be at variance with the asset’s Base Value. Market Value for tangible assets may be based upon either the actual (or specified) physical condition and maintenance status of the asset or upon an assumed average physical condition and Half-life/Half-time maintenance time status (see Glossary of Terms for Half-life/Half-time definition). The physical condition and maintenance status used in determining the asset’s value is to be stated in the Appraiser’s report.
With respect to the values of new tangible assets, AVITAS’s values represent the transaction between OEM and the initial purchaser, assume a new and full-life maintenance status condition in a “flyaway” condition and fully certificated for commercial operations. We have further assumed that the subject aircraft will be operated under the air transport regulations of a major airworthiness authority.
FUTURE BASE VALUE AND FUTURE MARKET VALUE
Future Base Value and Future Market Value is the appraiser’s forecast of future aircraft value(s) setting forth Base Value(s) and Market Value(s) as defined above.
Full-Life Adjusted Base Value and Full-Life Adjusted Market Value indicates the Base Value and Market Value of the aircraft adjusted for a hypothetical Full-Life maintenance status condition but still assuming the same market conditions and transaction circumstances as described above.
Note – AVITAS’s values assume a full-life maintenance status for new aircraft which gradually phase into a half-life/half—time maintenance status at about age four where for the Full-Life Adjustment is also phased in accordingly.
SOFT VALUE
Soft Market Value is the Appraiser’s opinion of the most likely trading price that may be generated for an aircraft (or other aviation-related asset) in a market characterized by supply exceeding demand. Soft Market Value assumes that the value is for a single-unit transaction valued for the asset’s highest and best use (as defined by the Appraiser), that the parties to the potential sale transaction would be willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm’s-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers.
SINGLE-UNIT SALE
While not set forth in the value definitions above, our value opinions for the asset assume a single-unit transaction wherein the asset would be sold by itself, not part of a wholesale lot or a large portfolio of assets that would be sold en masse in a transaction where some “volume discount” might typically apply.
TYPICAL
Typical (not an ISTAT defined term) is the appraiser’s opinion of an aircraft value when there is little to no difference between the various vintages. Typical values are encountered towards the end of an asset’s economic life and are characterized by substantial volatility.
FAIR MARKET VALUE
This term is synonymous with MARKET VALUE, and likewise CURRENT FAIR MARKET VALUE is synonymous with CURRENT MARKET VALUE because the criteria typically used in those documents that use the term “fair” reflect the same criteria set forth in the above definition of MARKET VALUE.
COMMENT: By itself, the term “fair” does not bring up any additional qualifications to the appraised value, but it is a term sometimes used in leases, sales contracts, tax regulations, and legal documents, and is sometimes accompanied with a specific definition to which the contracting parties have agreed. In such cases an appraiser may be required to determine his value according to that particular definition, which should be delineated in the appraisal report.
DISTRESS VALUE
Distressed Transaction Value is the Appraiser’s opinion of the price at which an aircraft (or other aviation-related asset) could be sold when the seller is under duress to sell (e.g., an artificially limited marketing time period), a liquidation, commercial restrictions, legal complications, or other such factors that materially reduce the bargaining leverage of the seller and give prospective buyers a
significant advantage that can translate into an actual trading price materially below Market Value. Apart from the preceding, Distressed Transaction Value assumes that the value is for a single-unit transaction valued for the asset’s highest and best use (as defined by the Appraiser), that the parties to the potential sale would be able, prudent and knowledgeable, and negotiating (or bidding, in the case of auction) at arm’s-length, for cash or equivalent consideration, under the market conditions that are perceived to exist at the time.
LEASE-ENCUMBERED VALUE
Lease-Encumbered Value (“LEV”) (formerly Securitized Value) is the Appraiser’s opinion of value of an aircraft (or other aviation-related asset) under lease, its associated expected cash flows and Residual Value.