In the December 2018 issue of Sport Aviation / Experimenter magazine, we look at what we call the RAS formula. A concept for improving aircraft and engine reliability, while simultaneously lowering the operating cost.
December 2018
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Comments 4
Fascinating concept! Thank you for explaining it. I’m having a hard time understanding the 3rd formula in figure 2, however. It says,
(new engine cost) – (value consumed) * (age multiplier) = sales price
Without an extra set of parentheses, this is a bit ambiguous. Does (age multiplier) adjust just (value consumed), or [ (new engine cost) – (value consumed) ] ? Put another way, does this equation mean:
(new engine cost) – [ (value consumed) * (age multiplier) ] = sales price
or
[ (new engine cost) – [ (value consumed) ] * (age multiplier) = sales price
?
If (age multiplier) adjusts (value consumed) only, then it serves to slow the drop in sales price with age, meaning the deal gets poorer and poorer as the engine ages. If it adjusts the difference [ (new engine cost) – (value consumed) ], then the deal gets better as the engine moves through the “target range” for engine age to sell the engine. That makes a lot more sense.
Could you clarify please? (And sorry if the the blog software removes all line breaks, this will be harder to read if they disappear.)
Author
Jim,
This wis what was intended. [ (new engine cost) – [ (value consumed) ] * (age multiplier) = sales price
Keep in mind, it’s hard to use this formula as a hard and fast rule for every possible scenario. There are a multitude of other variables that can impact the value to both the buyer and the seller. But if you use the basic concept of getting rid of the engine at its target point and valuing it by the formula you get a ballpark to start with. For some sellers, it’s well worth fudging in favor of the buyer simply to achieve all of the value associated with the new engine. Most of the deals that I put together, both parties are so excited about the possibility that the basic formula works well whether it’s perfect or not. If the concept seems marginal to either party I normally recommend against doing the deal. The age multiplier is simply a variation on the basic formula that we added years later to try and suss out the value of engines as they age. Our most prolific deals occur with engines with very low calendar hours 2 to 3 years typically on the outside. And you can see by the chart, this has very little effect on the total value of the engine. The reason that the curve goes up so steeply as the engine ages is because the value of the concept is based on the principle that the buyer is getting an extremely reliable power plant with very little risk. As an engine ages we lose that added value and you start taking on additional risk to the buyer. Once again, the value of the concept diminishes as we get away from that sweet spot. I hope this was helpful in the clarification. We have found it to be a concept with a lot of value to both buyers and sellers.
Thank you for the clarification. You wrote:
[ (new engine cost) – [ (value consumed) ] * (age multiplier) = sales price
which has two left square brackets but only one right square bracket. Did you mean:
[ (new engine cost) – (value consumed) ] * (age multiplier) = sales price
If so, then that makes intuitive sense, and jibes with your explanation. However, it’s a pity that EAA Sport Aviation didn’t include the square brackets, or something like them, in the printed article. Without them the equation they published doesn’t really say what I think you are trying to say.
Oops, I put a typo in my second equation. I put in two open square brackets and only one close square bracket. That second equation should read:
[ (new engine cost) – (value consumed) ] * (age multiplier) = sales price