Jetrader - Winter 2017 - 40

ISTAT appraisers' education project

ISTAT

VALUE DEFINITIONS
By Neil Whitehouse, Senior Appraiser
Editor and Contributor: Jack Feir, Appraiser Fellow and Member Emeritus

This is the fifth article in the ISTAT appraisers' education series and focuses on definitions. ISTAT appraisal definitions have
become the industry standard for billions of dollars of financings and in litigation, as well. This article sets them out and provides
descriptive explanations for each.

The ISTAT Appraisers' Handbook1 sets out all
the official value definitions and associated technical commentaries. The "ISTAT
Definition" sections in this article are
taken word-for-word from the handbook.
The "Comment" sections, however, are not
taken word-for-word from the handbook -
they are instead provided to allow context
and analysis.
Each of the seven value concepts is
unique and addresses a particular aspect
of value. It is important that the integrity
of each value concept is strictly upheld
so appraised values are clearly understandable and are not use inappropriately where values are misrepresented to
equity and debt providers. The misuse of
value definitions defeats the objective of
having well- conceived and well-defined
value definitions.
For most of the economic life of a commercial aircraft, its fleet will be fully
employed in revenue service. This "steady
state" exists until the fleet enters active
retirement. The value concepts that apply
to active, operational aircraft in revenue
service are base value and market value.

Mid-Time, Mid-Life Protocol
Base value assumes a hypothetical midpoint in the aircraft's technical status. This
is referred to as "mid-time" and "mid-life"
(or "half-life"). When adjusting value
for maintenance status, the "mid-time,
mid-life" protocol is the computation
starting point.
Mid-time refers to the time between
overhauls of the airframe, engines, landing gears and auxiliary power unit (APU)2.
For example, if an airframe heavy D check
occurs every 10 years, then mid-time
assumes the aircraft is at the five-year
midpoint of that interval.
Mid-life (or half-life) refers to lifelimited parts, such as the disks in an
engine, which have a defined life and must
be removed and scrapped when the life is
used up. For example, if a disk has a life
limit of 20,000 cycles, mid-life (or half-life)
assumes the aircraft is at the 10,000 cycle
midpoint of that part life.
By using this mid-time, mid-life protocol,
the appraiser can adjust an aircraft's value
from that midpoint to reflect the actual
maintenance status of an aircraft. If the

40 The official publication of the International Society of Transport Aircraft Trading

element is above the midpoint, there will
be a positive value adjustment, and if the
element is below the midpoint there will
be a negative adjustment.
When forecasting future value, as the
appraiser likely will not have any insight
into the actual maintenance status of a
given aircraft in, say, 10 years, the midtime, mid-life protocol provides a reasonable assumed condition.
The value definitions apply to single aircraft or engines. Used market transactions
are often for single-unit sales, and new
aircraft transactions are typically for multiple aircraft. Fleet sales generally result
in lower average unit transaction prices.
Multiple aircraft transactions may have an
impact on an appraiser's opinion of values.

Base Value
Commercial aircraft are long-lived assets
with typical economic lives of between
20 and 30 years. During the life of an
aircraft there will be times when market
demand and transaction prices are higher
and other times when market demand and
transaction prices are lower.

Jetrader - Winter 2017

Table of Contents for the Digital Edition of Jetrader - Winter 2017