Clear on Top

I recently looked at ads for two aircraft for sale.  One was a 2007 Cirrus SR-22.  It was well equipped, had a low to mid-time engine, updated nav databases and no damage history.  Its paint and interior were in good shape.  The seller was asking $235,000 – a fair price.

The other airplane was a 1979 Lear 24F.  It was well equipped with updated avionics, a moving map GPS, and an autopilot.  Its paint and interior were in good shape.  The seller was asking…  $235,000 – Wow!  Wait a minute…Can you really get a 450 knot, seven passenger, twin engine business jet for the same price as a fixed gear single?  Well, yes you can.  But remember that the cost comparison certainly doesn’t end at the purchase price.  It only begins there.  The cost of owning these two aircraft begin to diverge fairly quickly within minutes of the purchase.

Obviously the business jet market has become an interesting and dynamic place. Literally thousands of small corporate jets were produced between the mid 1960’s and the mid 1980’s.  Many of them are still on the FAA registry.  As illustrated above, the prices on many of these airplanes are near or below the original selling prices from the 60’s and 70’s.  These older used aircraft can be useful transportation tools for business orindividuals.  From the standpoint of moving people from point “A” to point “B”, their performance and capabilities can be comparable to any “modern era” jet; while current selling prices allow owners to keep quite a bit of capital in the bank.

Are these older aircraft insurable?  Yes, they certainly are – with some caveats to be considered.

Insuring Older Aircraft – Underwriting Considerations

There are several issues at play when underwriting a risk with an older aircraft.  An aviation underwriter must weigh all these factors, decide first whether to offer a quote on the risk at all, and if he decides to quote, set a premium.

1)      Is the aircraft safe to operate?  Fortunately, FAA requirements and pilots’ self-preservation instincts mean that the answer to this question is usually “yes.”  But, unseen deterioration and unknown maintenance issues become more likely as an airplane ages.

2)      In the event of damage, can the aircraft be repaired within a reasonable timeframe and at a reasonable cost?  Many of these old aircraft are out of production.  Replacement parts may be hard to find or may have to be fabricated.  This increases the cost to the insurance company for repair of damaged parts.

3)      Is pilot training available?  The large schools have many Citationjet simulators, but Sabreliner 40, or Jet Commander training is more difficult to come by.  With this in mind, can pilots be properly evaluated and trained?

4)      Does the low purchase price invite owners to get in over their heads?  All too often, inexperienced aircraft owners become overwhelmed by the expense of operating a jet.  This, in itself, creates a host of underwriting concerns.

Because of these and other factors, it is obvious that the older jets are considered to be a higher risk than the newer aircraft in the market. 

Can You (Or Your Business) Afford It?

The expense of owning and operating a jet airplane – especially and old one – can be enormous.  The fuel burn of the older jet engines drive even the very wealthy into airline seats when fuel prices rise.  Regular scheduled maintenance compliance events on older jets can exceed the purchase price of the airplane in short order.  We are beginning to see flyable airplanes in otherwise good condition sold for scrap when a heavy maintenance visit or engine overhaul comes due.   

The smarter buyers go into an aircraft purchase with the economic realities in mind.  Don’t buy jet airplanes based solely on purchase price and direct cost per hour.  Build in the very real depreciation in value and/or maintenance expense that owning an older jet will bring in the coming years. 

Premium?

Typical hull premiums on older Lears, Falcons, Hawkers, Diamonds, and Westwinds run between one and three percent of the hull value, depending on the use, the pilots, and the aircraft type.  Older Citations can be insured for less than one percent of the hull value, a testament to the factory parts support that these airplanes still have.  Rarer or less prevalent airplanes like the Jet Commander may bring hull rates of more than three percent.  In motion deductibles are usually $5,000 – $10,000 including losses due to forign object (FOD) ingestion to the engines. (FOD is a significant claims scenario on the older jet engines.)

Liability Coverage?

The insurance companies that most competitively quote older jet aircraft typically offer liability limits up to $5,000,000.  While this may not be adequate protection for a Fortune 500 company, it may be enough for a small business or anindividual.  Additonal liability coverage may also be available through excess markets which will probably provide enough insurance for anyone who is considering a small jet airplane.

Tips to Ensure Insurability

Even though an older jet may be priced similarly to a new piston single, insuring it is certainly different.  To insure any jet – a $20,000,000 G-V or a $600,000 Citation 500 – it is important to have your agent help you formulate an insurance strategy. 

Provide your agent with all the necessary details that he or she will need to present to the underwriter:  pilot information, aircraft information, ownership information, use, territory, etc.  Many underwriters want to know about airframe and engine times and who will do your maintenance.

Don’t skimp on pilots.  Don’t adopt the attitude that an older, lower valued jet allows you to use less experienced pilots.  Often, quite the opposite is true.  Older aircraft are sometimes more demanding to fly than newer ones.  With less sophisticated equipment, less training available, and underwriters less willing to compete for your business, recruit and hire quality professional pilots to operate the airplane.  Send them to the best training program you can find and plan on sending them back each year for recurrent training. 

Operate like a big corporate flight department.  Use a regular flight crew that your underwriter approves.  Appoint a chief pilot.  Develop and implement an operations manual.  Hangar the airplane.  Keep the airplane clean and well maintained.  Keep good records.  Document all of these things to the underwriter.  Show that your operation is safe, well organized and professional. 

Older jets CAN BE a value in today’s market.  By paying close attention to insurance issues and being an educated buyer, you can continue to safely and economically take advantage of the value that these aircraft will offer for years to come.