Helicopter Valuations in Turbulent Times

The dangers and uncertainties of an unstable market are plentiful.  Businesses struggle to find their footing and make all possible adjustments to survive the storm.  We are seeing some recovery, but it’s no secret that the helicopter industry is still trying to cope with a depressed market.  We’ve seen almost every possible situation play out during the downturn; from acquiring operational funds through the leveraging of assets, the sell-off of assets, returned leases, bankruptcy and restructuring, and some closing the doors completely.  In almost all cases, an appraisal is required and depending on the situation, the parties involved are either looking for the highest possible values or the lowest possible values.  

The pressures these businesses are experiencing are often passed along to the appraisal firm.  Frequently, this is manifested in the appraisal request itself: requests for certain “types” of appraisals that would be misleading in a given set of circumstances, requests for a guarantee of a clients’ pre-determined opinion of value, changes in the definition of a type of value, approaching an appraisal assignment for a purpose for which it will not actually be used, etc..  An appraisal performed for the clients’ desired outcome rather than actual market conditions and for the proper purpose is not only misleading to any end user and takes away any real value in the appraisal, but it is also unethical and comes with sometimes serious consequences.   

Most notably, it is the inflated values that will cause the greatest damage down the road.  Not only can inflated values skew an entire market segment, they can leave investors and lenders holding debt backed by assets that are worth much less than they think.  We’ve repeatedly seen, over the history of the helicopter industry, the devastation this practice causes for everyone involved. While values which have been overly discounted may have somewhat less harmful effects, they still have a negative impact on true resale value for a particular model or a whole segment of the market, especially for models that are not frequently traded.  They may also bring the wrath of the regulatory authorities with arguments of “bargain purchases” and the resulting tax implications.

Market perspectives will vary from one business to the next.  An operator may have a different opinion than a private owner, who may have a different opinion than a lender or lessor.  The appraiser exists to bring clarity to those varying perspectives by interpreting the value of the helicopter in relation to the market as it actually exists.  Appraisers should come from a completely unbiased position, free from outside influences, using only facts, knowledge, and experience to develop an opinion of value.  As a result, an appraiser will never be able to please every client’s value result expectations.  Professional and ethical behavior is the only way the appraisal profession can maintain the public’s trust. 

Appraisers and firms with inadequate qualifications or experience, or appraisers willing to purposely misrepresent values to satisfy the client’s specific needs tend to be more commonplace in a depressed market.  It is important to make sure that you are not only employing a qualified and experienced appraiser, but one that maintains the highest standards.  A reputable appraisal firm will not change their methodology and values to suit the needs of the client.

End users of an appraisal should take time to read the complete report. Note hypothetical conditions and assumptions, explanations of the methodology, definitions, and purpose used in the valuation process.  Are all of these parameters appropriate for the situation and purpose?  If the previous value results are available, compare them to the current value results.  Significant value changes from one appraisal to the next may help identify potential issues.  Watching for problem areas becomes even more important for lessors, lenders, and operators that require annual or bi-annual appraisals.  

 

Differing appraisal methodologies, governing bodies, regulatory authorities, certifications and accreditations, U.S. Standards (http://www.uspap.org/) vs International Standards (https://www.ivsonline.org/), are all factors that influence how values are determined.  Knowing your appraisal firm and its specialties is key to the accuracy of the values you will receive.  While true market realities can be painful, knowing those realities, accepting them, preparing and dealing with them will not only ensure that the industry continues to have a healthy recovery, but it will help it recover faster, and avoid future negative effects of improperly and unethically performed appraisals.   

About HeliValue$, Inc.
As pioneers of the helicopter appraisal process and methodology, HV$ has provided helicopter and parts appraisals for four decades. Our ASA accredited staff annually appraise over 2,500 helicopters. HV$ is the trusted advisor and industry-wide interpreter for an international clientele of manufacturers, vendors, helicopter operators, banks, leasing and insurance companies, and aviation law firms.  

HV$ has also continually published The Official Helicopter Blue Book® since 1979.  Information regarding specifications, current and historical resale values, current and historical manufacturer pricing, component overhaul and retirement intervals, and hourly maintenance costs are available for most of the 200 models covered in the Blue Book.