January 16, 2021
Owning & Operating a Private Jet: Understanding Net Present Value
Review Vetted and Verified Listings of Private Jets for Sale on AircraftExchange.com
In traditional investment planning and capital budgeting, net present value (NPV) is the difference between the present value of cash inflows and cash outflows over a period of time. The calculation is valuable in determining the profitability of a projected investment.
NPV is a valuable tool for determining whether something is a good investment - like a private jet. However, NPV for investing in a private jet is slightly different from traditional investments. Your financial adviser or chief financial officer can help you calculate NPV and advise you whether a business jet is a wise investment.
Considerations for NPV Analysis for Private Jets for Sale
To calculate NPV for a private jet purchase, you’ll need to consider costs like:
- Purchase price of the used jet for sale
- Fuel costs
- Maintenance program fees
- Hangar fees
- Crew salary
- Crew training
- And more
You then compare these costs to determine how much revenue owning a jet would generate - or the amount of money owning one would save your company, as compared to other forms of business travel. At the same time, you can calculate NPV of an alternative investment, such as upgrading your current jet, or using a different mode of transportation, such as flying commercially.
A Deeper Dive into NPV for Private Jet Ownership
The NPV analysis considers the time value of money, income, expense cash flow, depreciation, taxes, and residual value of various options being considered. The calculation applies the time value of money to when the income and expenses occur. This time value is called a return on investment (ROI).
When buying a used private jet, paying cash may not have the best NPV if the value of money is high. Most often, NPV favors financing the purchase price of a jet, when the internal ROI is greater than the financing terms.
A zero NPV indicates the target ROI has been met, while a negative NPV means the target return has not been met. A positive NPV (any number greater than zero) means the target return has been exceeded. However, for a business aircraft purchase, the only way your company will generate revenue from it is if you are chartering out the jet, or selling the aircraft. Therefore, any privately-owned business jet will likely have a negative NPV. You must then compare non-revenue NPV, where the NPV closest to zero is the best financial option for your company.
For an aircraft acquisition, clearly define all assumptions. The costs you consider should cover a specific period of use and ownership and consider the aircraft’s expected value at the end of that term. Should you choose to compare NPV of other transportation options, such as fractional ownership, jet leasing, or aircraft charters, use the same period of time and utilization. You will need to calculate NPV for each business jet your company is considering, as purchase price and annual budget requirements will vary between makes and models.
Limitations of NPV
Net present value of a business jet acquisition might not be the only method used to determine whether it’s a smart investment, but it should be a key component for strong financial decision-making. Bear in mind, however, that NPV cannot differentiate mission capability.
When It’s Time to Buy a Used Private Jet, Search Online Listings at AircraftExchange
AircraftExchange is the exclusive online used aircraft marketplace of the International Aircraft Dealers Association (IADA). Our online search portal was created to provide business jet buyers with an efficient and ethical way to identify and purchase used aircraft all over the world. Only IADA Accredited Aircraft Dealers may list used jets for sale on our site.
Every jet for sale on AircraftExchange undergoes a thorough vetting process, including verification of serial numbers and tail numbers. Each listing is enriched with important data to aid you and your company in selecting an ideal business jet for your needs. Some of this data includes
- Total hours and cycles
- Maintenance tracking and program coverage
- Engines and engine serial numbers
- Hours since new and cycles since new
- APU data
- Navigation systems and compliance
- Interior features
- Exterior features
- Documented inspection history
- And more
Why Work with an IADA Accredited Aircraft Dealer?
All IADA Accredited Aircraft Dealers participate in rigorous ongoing education to remain current on best practices in the private aviation industry and in buying and selling business aircraft. All IADA Accredited Dealers agree to abide by a 12-point code of ethics to ensure transparent and ethical sales practices.
They also bring an abundance of experience to the aircraft sales industry. Dealers seeking accreditation must have professional aircraft sales expertise and have been operating their business for at least five years. Additionally, they must receive sponsorship references from other IADA Accredited Dealers and complete a lengthy application detailing why they are uniquely qualified to become accredited.
Lastly, IADA Accredited Aircraft Dealers cannot be influenced. These aircraft dealers represent only one side of the business transaction and accept commission only from one party in the transaction. The buyer will never pay the seller’s fees, and vice versa. Removing financial temptation from the picture means there is no reason to attempt to strike a deal to receive additional monetary compensation from the sale or purchase of a used private jet.
Shop our inventory of private jets - all exclusively from IADA Accredited Aircraft Dealers - online, or find a specific IADA Accredited Aircraft Dealer to get started on acquiring a business jet.