by Bob Worthington
www.BobWorthingtonWriter.com
© Copyright 2023. All rights reserved!
Published in Midwest Flyer Magazine February/March 2023 Digital Issue
Over the past year or two, the market for used aircraft has exploded. Values have soared. A few weeks ago, I began an email acquaintance with one of my readers. He was involved in an airplane accident, which destroyed his plane. To his dismay, he found his insurance coverage had not kept pace with the market value of his plane. Therefore, his insurance company found it was cheaper to declare the plane a total loss than repair it. The check he received from his insurance company was insufficient to replace his plane.
The used airplane market
The used aircraft market is based on the economic theory of supply and demand. If the supply of anything needed exceeds the demand, their values drop. But if the demand is greater than the supply, the values go up. This is what happened in general aviation.
During COVID (2020-2021) few people traveled. Commercial airlines terminated flights and private planes quit flying. But business and commerce continued and both business travelers and businesses found that travel by private aircraft became safer, more convenient, and of greater value to conduct business. When COVID tapered off, travel by air expanded by leaps and bounds. Airlines encountered extreme difficulties because there were not enough qualified pilots to fill their cockpits.
Here is another aircraft fact of life. New airplanes are expensive, even the smallest ones. During COVID, many manufacturers of anything ran into problems acquiring parts, so new cars, household appliances, construction projects, and even airplanes stumbled on assembly lines. So fewer new planes were being built.
Another fact: new airplanes depreciate quickly as soon as they are sold. Not so with used airplanes… used airplanes appreciate in value! Therefore, a new $600,000 plane may decrease in value by $50,000 to $100,000 in a year or so, while the used $200,000 plane gains another $50,000 in the same period. Which one is the better investment?
As new aircraft sales decline, their prices increase so the manufacturers still make a profit. In the last decade or so, some new airplane sales prices have doubled! As new prices inflate, so do the values of used aircraft.
Actually, the economic side of aircraft values is much more complicated than that. In 2020, used aircraft saw a 10% decrease in value because sales dropped by over 50% (due to COVID). The used aircraft market was dying. But by 2021, medical science was getting the best of COVID and private air travel picked up. More people cherished travel by private aircraft, so more airplanes were needed. Used planes, being cheaper than new, saw a leap in sales by the last half of 2021. The demand was greater than the supply. Businesses and affluent people discovered that a cash offer for an airplane beat financing. Many airplanes were sold before they reached the market.
Add to this, the need for more pilots meant more aviation students in colleges and flight schools. More students meant more training aircraft were and are needed. So now all kinds of flight schools need training aircraft and are paying top dollar for the better used airplanes. Some used aircraft sales experts are predicting a slow-down in used sales in 2023, resulting in lower used aircraft values, but who knows what will eventually happen.
The airplane insurance business
2019 was the worse year for aviation insurance in almost two decades. Claims were greater than premiums, and non-commercial single-pilot flights comprised the greatest risks. The number of aircraft insurance companies has decreased (thus less competition), and insurers began to walk away from many small general aviation aircraft owners. To remain indemnified, some GA pilots insured for less coverage and paid much higher premiums.
In 2021 though, aviation insurance companies did much better. Reduced flying resulted in less accidents and fewer lawsuits. But now airplanes are spending more time in the air, inflation is increasing costs of maintaining aircraft, jury lawsuit awards are rising, and more flying means greater risks. So, in 2023, the risks of accidents or incidents are rising and costs for insurance are escalating. To retain lower costs of owning and operating an airplane, GA pilots tend to gravitate toward reducing insurance costs by limiting their liability. Therefore, over the past couple of years, all aviation costs have increased, but GA pilots have resisted increasing the insured value of their planes. I bet that your airplane is worth much more than it is insured for.
So now what do you do?
No aircraft owner expects to have an accident or experience storm damage. But it does happen. Twice insurance companies have bought me new (used) planes because of accidents I had. Both accidents were mechanical failures, not pilot error. But they did happen. Both planes were fully insured, so I received their full value when they were totaled. But I should point out that these accidents happened when insurance policy costs were lower and not that hard to acquire.
In the December 2022/January 2023 issue of Midwest Flyer, fellow contributing editor, Richard Morey, wrote in his Proficient Pilot column: How to become a better pilot. He clearly pointed out that most GA pilots do not fly enough to remain proficient. He then described several ways to fly more and become better pilots. He focuses on what the insurance companies already know. GA pilots (at the lower end of flying) do not fly enough to be safe. What he does not mention, however, is the added advantage of flying and training more… a pilot becomes less of an insurance risk, and aircraft insurance is easier to acquire and is less expensive.
A few days ago, I saw an ad for a used 1970s Cessna 182 for sale. It seemed to be an average airplane with its hours, equipment, and condition. The price amazed me as it was around $189,000. I could not believe that. Four years ago, a similar C182 I owned sold for $65,000. Using an annual inflation rate of 3.12 percent, its value would only increase to $73, 511 – not an increase to over $120,000.
Many of us make improvements to our airplanes over the years by redoing the interior, adding avionics, overhauling our engines, or doing other things to make them better, safer, or more comfortable. Often though, we do not appraise the value of our airplanes to keep the insured value in line with what it would cost to replace them with comparable airplanes, that is if you can find one! Check out the current advertised sales prices of used airplanes like yours.
What is your airplane worth? Is it insured for that amount? If not, can you afford to take a loss?
EDITOR’S NOTE: Pilot, Viet Nam veteran and former university professor, Bob Worthington of Las Cruces, New Mexico, is the author of “Under Fire with ARVN Infantry” (https://mcfarlandbooks.com/product/Under-Fire-with-ARVN-Infantry/), and producer of the 2019 film “Combat Advisor in Vietnam” (www.borderlandsmedia.com). Facebook: Bob Worthington Writer. Website: www.BobWorthingtonWriter.com. Bob Worthington has placed excerpts about combat flying in Vietnam (from his books) on his website. Here is a direct link to those excerpts: www.BobWorthingtonWriter.com/combat-flying-in-vietnam/. Every couple of months, he adds another excerpt.
DISCLAIMER: The information contained in this column is the expressed opinion of the author. Readers are urged to seek the advice of others, including their insurance professional. Neither the author, Midwest Flyer Magazine, Flyer Publications, Inc., or their staffs, employees or advertisers assume any liability for the accuracy or content of this column or any other column or article in this publication.
