Engines can be half the collateral. How engine programs, reserves and covenants turn maintenance risk into something a lender can price.

Every aircraft loan rests on a number. The question is whether that number describes the aircraft actually sitting in the hangar, or an average aircraft of the same make, model and year. Published value guides and asking prices are useful starting points. They are not collateral analysis. Two business jets with the same model year and similar total time can be hundreds of thousands of dollars apart once engine status, inspection timing, avionics, damage history and records quality are accounted for. A lender who advances against the average is lending against an aircraft it does not own a lien on. Three values, three questions A lender-grade appraisal should state more than one value, because a lender faces more than one scenario. Fair Market Value (FMV) is the most probable price between a willing buyer and a willing seller, neither under compulsion, with adequate marketing time. It answers: what is this asset worth in a normal sale? Orderly Liquidation Value (OLV) assumes a seller under some pressure but with a reasonable exposure period, typically 90 to 180 days with a competent broker. It answers: what do we recover if we have to sell? Forced Liquidation Value (FLV) assumes an auction-style sale under severe time constraint, often within 30 to 45 days. It is the floor. The gap between FMV and OLV is material and varies by model. Large-cabin jets with deep global buyer pools tend to show narrower gaps. Light jets, niche configurations and aging or orphaned types show wider ones. That gap, not the headline FMV, is where credit risk lives. The practical guidance is simple: price advance rates against OLV, then manage the distance to FMV with reserves, covenants and periodic value tests. Every value in the report should carry its assumptions in writing: marketing period, inspection contingencies, and whether the aircraft is valued as-is or airworthy. Serial-number specifics Within one make, model and year, the serial number drives the variance. A credible report itemizes the adjustments rather than burying them in a single conclusion: Prior use: Part 91 private versus Part 135 charter, high-cycle shuttle work, or specialized roles such as EMS or offshore. Environment and storage: corrosion exposure, climate, hangar habits. Maintenance provider quality and the time remaining to major events. Engine program enrollment, coverage level and transferability. Avionics relevance: ADS-B Out, WAAS/LPV, FANS/CPDLC, connectivity, and whether the suite is still OEM-supported. Damage history and the quality and documentation of repairs. Records completeness, including back-to-birth traceability for life-limited parts. If an appraisal cannot show how each of these moved the number, the lender cannot defend the number to credit committee, to an auditor, or later in a workout. Seven questions before approval Before a file goes to committee, the underwriter should be able to answer: Has the aircraft been appraised by a credentialed, independent appraiser using current transactions, not only book values? Are the airframe, engine and APU logbooks complete, original and continuous? Is the aircraft current on required inspections, ADs and applicable service bulletins, and are any discrepancies deferred? What is the borrower's operating profile: Part 91 or 135, expected annual hours, hangared and professionally managed or not? Are the engines on a manufacturer or third-party program, at what coverage level, and is it current and transferable? Is there damage history, and was it repaired at an authorized facility with complete engineering data? How liquid is the market for this specific model: how many comparable aircraft are for sale, and are values firming or softening? A "no" or "unknown" on any of these is not automatically a decline. It is a reason to adjust loan-to-value, tenor or structure. What the appraisal scope should include When engaging an appraiser for a financing, ask for a scope that covers: A market study: inventory, absorption, days on market and price dispersion for the model. Comparable analysis with explicit serial-number adjustments. Maintenance-adjusted FMV, OLV and FLV, each with stated assumptions. A depreciation forecast with sensitivity to rates and utilization. A liquidity assessment with expected time-to-sale bands. A records review summary and exception list. The bottom line Aircraft remain durable collateral, but value dispersion between individual serial numbers has widened as inventories have normalized and the cost of capital has stayed elevated. In that environment, the lenders who protect their portfolios are the ones who underwrite the specific aircraft, not the category. The next article in this series looks at the single largest driver of that difference: maintenance economics. David Fisher is the owner of Western Aviation in Houston and a Senior Accredited Appraiser with the American Society of Appraisers (ASA). He has more than 40 years of experience valuing business jets, turboprops and helicopters, and his reports are USPAP compliant.