Reproduced with permission from the ISTAT Appraiser’s Handbook.
The Appraiser’s opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full considerations of its “highest and best use.” An aircraft’s BASE VALUE is founded in the historical trend of values and in the projection of value trends and presumes an arm’s-length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing.
In most cases, the BASE VALUE of an aircraft assumes its physical condition is average for an aircraft of its type and age, and its maintenance time status is a mid-life, mid-time (or benefiting from an above-average maintenance status if it is new or nearly new, as the case may be).
COMMENT: Since BASE VALUE pertains to a somewhat idealized aircraft and market combination it may not necessarily reflect the actual value of the aircraft in question, but is a nominal starting value to which adjustments may be applied to determine an actual value.
Because it is related to long-term market trends, the BASE VALUE definition is commonly applied to analyses of historical values and projections of residual values.
In certain appraisal assignments, the appraiser may deem it more appropriate to determine an aircraft’s value using alternative methodologies such as those relating to discounted rental streams, projected future profits, or, recognizing the possibilities of unusual aircraft of indeterminate value being swapped or exchanged for other aircraft or assets whose value can be more readily determined and assigned to the unusual aircraft. If he uses the term BASE VALUE in the context of such an analysis, he should use it in such a way as to preclude any misunderstanding of the meaning ascribed to the term.
(Also known at CURRENT MARKET VALUE if the value pertains to the time of the analysis.) The Appraiser’s opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. MARKET VALUE assumes that the aircraft is valued for its highest, best use, that the parties to the hypothetical sale transaction are 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 a specific aircraft will tend to be somewhat consistent with its BASE VALUE in a stable market environment, 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 BASE VALUE of the aircraft. MARKET VALUE may be based upon either the actual (or specified) physical condition and maintenance time status of the aircraft, or alternatively upon an assumed average physical condition and mid-life, mid-time maintenance time status, depending on the nature of the appraisal assignment. The actual basis for the aircraft’s technical status used in determining the value should be set forth in the Appraiser’s report.
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.
Base Lease Rate (not an ISTAT defined term) is the appraiser’s opinion of the most likely monthly operating lease rate that may be generated in an open, unrestricted, stable market environment with a reasonable balance of supply and demand. It assumes a term with duration typical for the aircraft type with the aircraft returned in half-time condition. Actual rental rates can vary dramatically depending on the duration of the lease, the lessee’s credit, tax considerations, return provisions and residual value assumptions.
Future Base Lease Rate (not an ISTAT defined term) is the appraiser’s forecast of future aircraft lease rates setting forth Base Lease Rate(s) as defined above.
Market Lease Rate (not an ISTAT defined term) is the appraiser’s opinion of the most likely monthly operating lease rate that may be generated under market conditions that are perceived to exist at the time in question. It assumes a term with duration typical for the aircraft type with the aircraft returned in half-time condition. Actual rental rates can vary dramatically depending on the duration of the lease, the lessee’s credit, tax considerations, return provisions and residual value assumptions.
Soft Value (which is not an ISTAT defined term) is derived by applying a factor to the Market Values to reflect the impact that some imbalance (not severe) in the supply/demand equation may have on the specific aircraft type involved. A Soft Value is considered to be positioned between Market Value and Distress Value. It assumes that an aircraft’s physical condition is average for an aircraft of its type and age, and its maintenance time status is at mid-life, mid-time (or benefiting from an above-average maintenance status if it is new or nearly new).
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 (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.
The Appraiser’s opinion of the price at which an aircraft could be sold under abnormal conditions, such as an artificially limited marketing time period, the perception of the seller being under duress to sell, an auction, a liquidation, commercial restrictions, legal complications, or other such factors that significantly reduce the bargaining leverage of the seller and give the buyer a significant advantage that can translate indo heavily discounted actual trading prices. Apart from the fact that the seller is uncommonly motivated, the parties to the transaction are otherwise assumed to be willing, able, prudent, and knowledgeable, negotiating at arm’s-length, normally under the market conditions that are perceived to exist at the time, not an idealized balanced market.
COMMENT: While the DISTRESS VALUE normally implies that the seller is under some duress, there are occasions when buyers, not sellers are under duress or time pressure and, therefore, willing to pay a premium value.
(Also know as LEASE-ENCUMBERED VALUE) The Appraiser’s opinion of the value of an aircraft, under lease, given a specified lease payment stream (rents and term), and estimated future residual value at lease termination, and an appropriate discount rate.
COMMENT: The SECURITIZED VALUE or LEASE-ENCUMBERED VALUE may be more or less than the Appraiser’s opinion of CURRENT MARKET VALUE. Moreover, the Appraiser may not be fully aware of the credit risks associated with the parties involved, nor all related factors such as the time-value of money to those parties, provisions of the lease that may pertain to items such as security deposits, purchase options at various dates, term extensions, sub-lease rights, repossession rights, reserve payments and return conditions.