Upgrading Older Aircraft


Upgrading an older aircraft can be one way of enhancing performance or functionality while delaying the costs associated with replacing the aircraft. Even so, the costs can be substantial and the may outweigh the benefits.

Upgrades are different from conversions. An upgrade enhances what is already there while a conversion results in major changes to the systems or design of the aircraft hopefully improving the aircraft substantially. Replacing the engines with newer, different engines such as Honeywell has done with the Falcon 20 and Falcon 50 would be a conversion. Adding an aft fuselage baggage locker to a Lear is an upgrade.

Upgrades can include divided into several different areas - airframe, interior cabin & comfort, avionics and other systems. Engine & propellers tend more to the conversion category. An airframe upgrade will include things such as winglets to increase climb or cruise performance or ventral fins to improve handling. Interior cabin & comfort upgrades include better soundproofing, added baggage compartments and enhanced cabin entertainment systems. Avionics upgrades include safety related ones such as terrain awareness and warning systems (TAWS) or GPS for navigation. Other systems would include air conditioning and de-icing systems (mostly for piston models).

Some upgrades are mandated. Effective January 1, 2004, business jets were required to have a functional ELT installed. US Congress mandated this upgrade. RVSM and DVRSM are also mandates - you either get the upgrade or you don't get access to the high altitude airspace. According to Aviation International News, between March 31, 2004 and March 31, 2005, there will be 12 regulatory compliance deadlines, 11 of which require some sort of upgrade for affected aircraft. If one or more of those requirements affects your aircraft, you will either have to comply or face restrictions on the use of your aircraft (if you can continue to use it at all). Some operators of older aircraft may elect not to upgrade and will sell their aircraft or "part it out" for the value of its spare parts.

The basic issue involved when evaluating whether to upgrade an older aircraft involves the cost versus the benefit. For example, a set of winglets for an older business jet may save fuel and improve climb performance. However, it may take nine to ten years' normal flying to earn back the cost of those winglets from fuel savings alone. However, with the improved fuel burns, you will add range and with the enhanced climb performance will be able to better utilize high altitude airports. For an operator who flies short distance trips from long runways at sea-level, the winglets may not be worth the expense in terms of enhanced mission effectiveness. For an operator who flies long trips and needs the flexibility to get fly out of many different airports, the winglets are well worth evaluating.

So when evaluating an aircraft upgrade, the benefits must be weighed against the cost. The benefits may be in improved efficiency, better performance, or even in safety enhancement. Those benefits must be specifically related to the mission of the aircraft.

Upgrades also can add value. They key issue there are (1) whether the aircraft is desirable by the buyer and (2) whether the upgrade is desirable by the buyer. While it is doubtful you will get every dollar back, you could see 30% to 90% of the money "back" in resale value depending on the age of the upgrade and its desirability.

Back to our winglets example. While you will doubtful see every dollar back in terms of added resale value, if the market perceives a benefit to those winglets, at a minimum you should see the aircraft sell quicker than one without the winglets.

How much should you be willing to spend of upgrades? There is no exact answer. Spending $500,000 to upgrade an aircraft valued at $2 million is probably excessive. Doing the same to one worth $8 million may not be. If the aircraft is desirable in the resale market, upgrades will at least enable the aircraft to sell quicker and will likely add value. Upgrading an aircraft that the market sees as "undesirable" will not be worth the expense in terms of resale value. As a rule of thumb, spending up to 5% of the aircraft's value in upgrades is generally acceptable. The worth of an upgrade costing 5% to 10% of the aircraft's value will depend on the increased mission effectiveness. Spending beyond 10% of the aircraft's value in upgrades is worthwhile only if the alternative is substantially more costly.

These are only general guidelines and obviously do not apply to a conversion (such as the engine retrofit). If an upgrade can pay for itself in added performance, comfort, or functionality as it relates to mission effectiveness, then it is probably worth the expense. Adding to the resale value would be an added benefit. You need to also consider the alternative of upgrading to a more capable aircraft. Take the long-term approach and evaluate all the options in terms of both cost and benefits.

Did You Know???
 When analyzing your aircraft's costs, be sure to look at the time it took to accrue the costs. Easy example: an engine overhaul for $250,000. It may have taken 3,500 hours to accrue that expense. Looking at that as just an "annual" cost will distort the picture of what it really costs you to operate the aircraft.
About Us
The mission of Conklin & de Decker is to furnish the general aviation industry with objective and impartial information in the form of professionally developed and supported products and services, enabling its clients to make more informed decisions when dealing with the purchase and operation of aircraft.

With over 2,000 clients in 90 countries around the world, we combine aviation experience with proven business practices.