Depreciation
If you have owned a house or car you know that depreciation can spell bad news for your bank account. Aircraft are certainly not immune to depreciation, but many people are confused about what depreciation looks like for an aircraft. To understand how aircraft value's change over time we must first examine why all items lose value: obsolescence.
As your car ages, new, more advanced cars will come onto the market. As time goes on, your car will continue to become less and less desirable against its newer cousins. As such, your car's value will reduce to the lowest value of its utility and components. This is a simplistic view, but one that illustrates why aircraft hold value so well.
Airplane Parts Have High Utility
Over time, you will typically find that your aircraft's value reduces at a much slower pace than other transport assets. This is largely due to the high utility of aircraft components as they age. Even as the physical airframe ages the engines, avionics, and most other components continue to retain their value.
But, why?
The "why" is really interesting (at least to an appraiser, like me). While aviation seems like it would foster amazing innovation - it really doesn't. Safety concerns, bureaucratic red tape, and lack of market desirability make it difficult for manufacturers to offer any innovative designs to market. This means, that there is much less market pressure driving your aircraft's obsolescence. That wing design, those expensive engines, and all those gauges up front are unlikely to change anytime soon. Even if they did, market implementation is typically sluggish at best which keeps your aircraft's value stable.
So, is an Airplane a Good Investment?
An airplane certainly can be a great investment. While much of the investment payout will be in increased productivity and tremendous amounts of time saved, there is much to be said about that final residual value. As of today, many aircraft markets are performing well. In fact, many values have increased steadily over the past few years - predominantly in the turboprop and light jet market. The overall utility of these markets, in particular, has time-and-again proven to protect residuals.
It's safe to say that the overall value of an aircraft depends entirely on how the owner plans to use it. There is an enormous value-add for the owner and users of general aviation that can far outweigh any actual depreciation.
