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The difference between diminution of value and cost to cure

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Anthony Kioussis
President, Asset Insight

A Gulfstream G550 plowed into a Beechcraft King Air at Nashville International Airport. These 2 aircraft will fly again but the accident entry into the logbook will reduce their resale values.
When an aircraft sustains any form of damage, its effect on the asset’s value must be considered. True “value dimi­nution” occurs when an incident happens that requires maintenance or repair, such as a tug running into an air­craft or a hangar door denting the asset.

Once repaired, a stigma associated with the event may lead to value dimi­nution that follows the aircraft going forward.

Cost to cure

An area less understood by many, and often confused with value diminution, is “cost to cure.”

Cost to cure re­sults from an expense incurred after an incident that leads to maintenance or repair. The difference is that once the maintenance or repair takes place, the aircraft is as good as it once was – perhaps even better. It is important to remember that cost to cure does not necessarily equate to value and may not lead to a dollar-for-dollar value ad­justment.

Removing and replacing a wingtip mitigates the damage sustained and is a direct cost, but there is no increase to value, unless one can upgrade to a higher efficiency style wingtip. Should that be the case, the more efficient wingtip’s ability to improve fuel burn and speed may even mitigate “functional obsolescence” (the loss of value due to characteristics inherent within or to the air­craft) and increase value.

“The challenge is determining if true value diminution has occurred and accounting for it correctly when valuing the aircraft,” explains Barb Spoor, a senior ASA (American Society of Appraisers) accredited appraiser with Asset In­sight, and former chair of the ASA’s Appraisal Review & Management Discipline Committee.

Important factors to be considered in determining “Value Diminution”


• Was the damage static or dynamic?
• Has structural damaged occurred?
• Was the pressure vessel damaged?
• Who performed the repair?
• Did the OEM issue engineering drawings for a maintenance facility to conduct the repairs, or were the repairs conducted by the OEM?
• Was the damaged part removed and replaced, or was the part repaired and reinstalled?
• How long ago did the damage occur and when was the repair completed?
• Was the aircraft returned to its original production standards?
• Do the repairs require out-of-phase maintenance inspections to the affected area (or part)?
• Did the repairs actually enhance the aircraft thereby mitigating the incident’s value diminution?
• How desirable is the aircraft when the valuation is conducted?
• How much of the active fleet is listed for sale at the time of valuation?
• What is the model’s Days on Market figure at the time it is valued?
• How is the aircraft utilized? Is it an income producing asset, or is it strictly used for corporate/personal transportation?


“The issue of value diminution does not lend itself to a one size fits all answer,” according to Barb Spoor, Senior ASA Accredited Appraiser and Past Chair of the ASA’s Appraisal Review & Management Discipline Committee

According to Spoor, numerous items must be consid­ered. “We try to determine whether the damage was stat­ic or dynamic. In other words, was the aircraft standing still or was it in motion.

Damage to the wing may be far less invasive from a tug creasing a wingtip than from the aircraft creasing that same wingtip while taxiing under its own power,” she adds.

Has structural damage occurred?

Another item to consider is whether structural damage has occurred. “The crease to the wingtip may be the tip of the iceberg,” according to Spoor, pointing out that there may be damage to the wing spar that required repair, an event that will likely impact the aircraft’s value, and per­haps its marketability, for the remainder of its life.

Was the pressure vessel damaged? A bird strike on the nose cone that results in the critter terminating in the cockpit (an actual incident) is likely to have a far greater, and lasting impact – no pun intended – on the aircraft’s value than a bird ingested by an engine.

“The cost to cure for the engine repair may be high, although that is often covered by insurance,” says Spoor. “But there is unlikely to be any value diminution, or even a marketing stigma, to the aircraft associated with an engine event, especially if the engine is overhauled.”

Who performed the repair? Was it the aircraft’s manu­facturer, an expert at an OEM-approved facility, or a local shop that is no longer in business? Did the OEM issue en­gineering drawings for a maintenance facility to conduct the repairs leading to an FAA Form 337 filing, or were the repairs conducted by the OEM, thereby negating a Form 337 filing? According to Spoor, “The more favorable per­ception of an OEM repair may assist in mitigating at least some of the value diminution.”

Exactly how were the repairs completed? Was the dam­aged part removed and replaced, or was the part repaired and reinstalled? An aircraft sporting an aileron that was punctured and replaced is likely to be valued different­ly than one whose aileron was repaired and reinstalled, as the latter asset will continue carrying a part that was damaged.

How long ago did the damage occur and when was the repair completed? “A 15-year-old aircraft that had a damaged wingtip replaced by the manufacturer during its 5th year of service is going to carry a nominal value diminution compared to an asset that received the same amount of damage during its 15th year of service while it was listed for sale,” states Spoor.

Was the aircraft returned to its original production standards?

No matter when a repair was completed, one question that must be answered is if the aircraft was returned to its original production standards. If the repair prevents the asset from performing according to its original perfor­mance, environmental, or other specification standard, or decreases its useful life, “the aircraft’s value will definitely suffer from some level of diminution going forward,” ac­cording to Spoor.

In addition to value diminution, the repairs that were conducted may require out-of-phase maintenance in­spections to the affected area (or part), as Instructions for Continued Airworthiness (“ICA”) may be applicable. In such cases, not only is the aircraft’s value negatively im­pacted by the stigma associated with the event, but also the aircraft’s maintenance cost will increase – further im­pacting its value and marketability.

Lastly, a proper valuation must consider if the damage lowered the aircraft’s normal useful life. “In situations like this, the owner may face some difficult choices,” Spoor points out. “There may be a way to resolve the problem, but the cost to cure may be as much, if not more, than the aircraft’s value diminution.

Fixing the problem may in­crease the aircraft’s marketability; it could, quite possibly, even reinstate the aircraft’s normal useful life. But, either way, the owner is going to realize a decrease in their in­vestment value.”

Repairs may actually enhance aircraft value

“One thing to keep in mind,” says Spoor, “is that repairs may actually enhance the aircraft, thereby mitigating the incident’s value diminution. Say, for example, corrosive material falls on an aircraft’s fuselage requiring it be re­painted.

The asset is likely to experience no value dimi­nution as the cost to cure the 15-year-old asset’s damage resulted in a fresh coat of paint. Or suppose the aircraft’s interior is damaged while maintenance is being conducted, requiring the installation of a new interior. Again, the asset could benefit from the new interior, possibly to the extent of a value increase.” There are other factors that can have a direct effect on value diminution.

For example, how desirable is the aircraft? How much of the active fleet is listed for sale at the time of valuation? What is the model’s Days on Market figure? “These points directly drive diminution,” explains Spoor. “An owner selling a much-desired mod­el when little to no inventory exists may experience little to no value diminution. That’s not to say that the buyer will be as fortunate when they elect to sell the aircraft.”

Aircraft utilization can have an effect

How the aircraft is utilized can have an effect as well. Is it an income producing asset, or is the aircraft strictly used for corporate/personal transportation? If the aircraft is in a revenue producing role and the repair reduced the number of passengers it can carry or the range it can achieve, its value could be negatively impacted.

On the other hand, if the aircraft is an income producing unit (for example, passenger revenue carry or agricul­ture operations), diminution is less of a factor than lost opportunity. “The issue of value diminution does not lend itself to a one size fits all answer,” concludes Spoor.

“The impact of damage to any aircraft’s value is always based on nu­merous factors, including the facts and circumstances surrounding the event, what repairs were conducted and by whom, the model’s desirability, market conditions at the time of valuation, and, last but certainly not least, the appraiser’s market knowledge and experience.”

When an aircraft is damaged, consulting an appraiser with expertise in value diminution can help you learn the potential ramifications of your repair options. Should you later have need of a valuation, utilizing an appraiser with diminution expertise can help place your aircraft in mar­ket context and, should you at a later date need to defend that value, the appraiser can assist your efforts.


Anthony Kioussis is President of Asset Insight, which offers aircraft valuation and aviation consulting services. His 40+ years of experience in aviation includes GE Capital Corporate Aircraft Finance, Jet Aviation, and JSSI.