types of appraisals
The following definitions are those of the International Society of Transport Aircraft Trading (ISTAT):
desktop appraisal
A desktop appraisal is one which does not include any inspection of the aircraft or review of its maintenance records. It is based upon assumed aircraft condition and maintenance status or information provided to the appraiser or from the appraiser's own database. A desktop appraisal would normally provide a value for a mid-time, mid-life aircraft.
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extended desktop appraisal
An extended desktop appraisal is one which is still characterized by the absence of any on-site inspection of the aircraft or its maintenance records, but does include consideration of maintenance status information that is provided to the appraiser from the client, aircraft operator, or in the case of a second opinion, possibly from another appraiser’s report. An extended desktop appraisal would normally provide a value that includes adjustments from the mid-time, mid-life baseline to account for the actual maintenance status of the aircraft.
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full appraisal
A full appraisal is one that includes an inspection of the aircraft and its maintenance records. This inspection is aimed solely at determining the overall condition of the aircraft and records to support the value opinions of the appraiser, and would not, for example, include opening of inspection panels on the aircraft or a detailed review of record archives. A full appraisal would normally provide a value that includes adjustments from the mid-time, mid-life baseline to account for the actual maintenance status of the aircraft, and possibly other adjustments to reflect the findings of the inspection of the aircraft and its records.
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comprehensive appraisal
A comprehensive appraisal is one that includes a detailed inspection of the aircraft and records. Sufficient detail is required, for example, to insure that the records are in sufficiently good order to allow for the re-registration of the aircraft in a different country.
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financial appraisal
A financial appraisal is one that determines the value of an aircraft to an investor based upon the income earning potential from its lease and residual value. A financial appraisal may be done in conjunction with either desktop or full appraisals.
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value definitions
The following definitions are those of the International Society of Transport Aircraft Trading (ISTAT):
base value
The ISTAT definition of Base Value (BV) has, essentially, the same elements of Market Value except that the market circumstances are assumed to be in a reasonable state of equilibrium. Thus, BV pertains to an idealized aircraft and market combination, but will not necessarily reflect the actual CMV of the aircraft in question at any point in time. BV is founded in the historical trend of values and value in use, and is generally used to analyze historical values or to project future values.
ISTAT defines Base Value as the Appraiser’s opinion of the underlying economic value of an aircraft, engine, or inventory of aircraft parts/equipment (hereinafter referred to as “the asset”), in an open, unrestricted, stable market environment with a reasonable balance of supply and demand. Full consideration is assumed of its "highest and best use". An asset'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 asset assumes the physical condition is average for an asset of its type and age. It further assumes the maintenance time/life status is at mid-time, mid-life (or benefiting from an above-average maintenance status if it is new or nearly new, as the case may be). Since Base Value pertains to a somewhat idealized asset and market combination it may not necessarily reflect the actual current value of the asset 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.
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market value
ISTAT defines Current Market Value (CMV) as the appraiser’s opinion of the most likely trading price that may be generated for an asset under market circumstances that are perceived to exist at the time in question. Current Market Value assumes that the asset is valued for its highest, best use, and the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable and under no unusual pressure for a prompt transaction. It also assumes 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.
Market Value of a specific asset will tend to be consistent with its Base Value in a stable market environment. In situations 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 asset. Market Value may be based upon either the actual (or specified) physical condition or maintenance time or condition status of the asset, or alternatively upon an assumed average physical condition and mid-life, mid-time maintenance status.
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fair market value
As defined by ISTAT, Fair Market Value 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.
ISTAT further defines Fair Market Value by itself, the term “Fair” does not bring 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.
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residual value
The ISTAT definition of Residual Value is the value of an aircraft, engine or other item at a future date, often used in connection with the conclusion of a lease term.
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distress value / forced sale value / liquidation value
ISTAT defines Distress Value, Forced Sale Value, Liquidation Value as terms to describe the Appraiser's opinion of the price at which an aircraft (or other assets such as an engine or spare parts) could be sold under abnormal conditions – typically 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 materially reduce the bargaining leverage of the seller and give prospective buyers a significant advantage that can translate into heavily discounted actual trading prices. Depending on the nature of the assignment, the appraiser may be asked to qualify his opinion in terms of disposition within a specified time period, for example 60 days, 90 days or six months as the needs may be. 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, and negotiating at arm's-length, normally under the market conditions that are perceived to exist at the time, not an idealized balanced market.
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ISTAT further states that in determining its value, it is incumbent upon the appraiser to state clearly in the report the value definition employed, as well as the disposition time period used. The appraiser must recognize that such transactions are considerably removed from the ISTAT definitions of base and current market value; are apt to be significantly more variable, and in some cases, the appraiser may be asked for an opinion of a value of multiple assets disposed of in one transaction, and the transaction may be specified as being other than for cash the appraiser must fully describe the definitions and assumptions he has made, in the appraisal report.
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.
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securitized value / lease-encumbered value
The ISTAT definition of Securitized Value or Lease-Encumbered Value is 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.
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.
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salvage value
Salvage Value is defined by ISTAT as the actual or estimated selling price of an aircraft, engine or major assembly based on the value of marketable parts and components that could be salvaged for re-use on other aircraft or engines. The value should be determined and stated in such a way to make clear whether it includes adjustment for removal costs. Salvage Value is not the same as Scrap Value, which is defined below.
Salvage Value (Parting-out Value) becomes applicable when disassembly for parts would most probably result in the highest cash yield for the asset “as-is” as compared to the Market Value of the asset as a whole. For high-value items such as engines and landing gear, the salvage value might be estimated on the basis of the remaining “good time” before the item would require a major inspection or overhaul. While such disassembly for parts may result in the highest cash yield that can be generated in the marketplace, an owner may elect to reinvest in the asset to restore it as a working aircraft, engine or major assembly because the asset has a “value-in-use” to him that exceeds the Salvage Value or Parts Value.
In addition to its meaning as an appraisal term above, Salvage Value is also an accounting term for the value of an asset when it has been fully depreciated over its book depreciation period. In this context, Salvage Value is not synonymous with Market Value.
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scrap value
The ISTAT definition of Scrap Value is the actual or estimated market value of an aircraft, engine or major assembly based solely on its metal or other recyclable material content with no saleable reusable parts or components remaining. The scrap value is usually expressed as net of removal and disposal costs. In some cases scrap value could be zero if the dismantling and disposal costs are high, as for example hazardous materials or composite assemblies that might be impossible to recycle.
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