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VesselsValue – an expert in the maritime values space – has launched its Automated Valuation Model and transparent supporting data in the aviation sector. Airline Economics Editor Victoria Tozer-Pennington speaks to Chief Strategy Officer, Adrian Economakis about the new VesselsValue product.
Aviation appraisers often get a bad rap by lessors or aircraft traders who take issue with their current market values since most aircraft are sold with leases attached and most traded aircraft prices are never disclosed. It is that persistent opaqueness of the aircraft trading sector and aircraft pricing that make appraisal services so critical for aircraft owners and financiers. In other transportation sectors, asset values are much more transparent, specifically in the maritime space. The pandemic crisis also served to demonstrate in sharp relief the delay between published current market values and actual trading prices. However, VesselsValue, a well-established name in the maritime space, but a newcomer to the aircraft appraisal sector, promises to disrupt that status quo with the promise of real-time asset values.
“We were initially interested in expanding our platform to aircraft values due to the many similarities between planes and ships,” says Chief Strategy Officer, Adrian Economakis. “They are both high value, depreciating, globally moveable and often volatile assets - although ships continue to be significantly more so. The majority of both have values between $10 and $200 million, life spans of circa 25 years, and work within cyclical markets.”
It was existing clients of VesselsValue that pushed the company to begin developing an automated model to track aircraft valuations. “We received many requests from our clients who have exposure to both aviation and maritime assets – lenders, investors and regulators – to provide the same transparency, daily frequency of value updates, objective algorithm driven valuations, accuracy, clear supporting data and ease of use that our maritime service provides. Once we started looking into it, we saw a clear opportunity due to significant opaqueness of transactions, absence of existing proper Automated Valuation Models (AVMs) and low frequency of valuation updates currently available in the market.”
Although the company was already developing its model before the pandemic crisis devastated the aviation sector, Economakis says that the increased asset volatility and risk spurred further interest in the product: “We knew that interest in, and demand for our data and algorithm approach would certainly only continue to grow. We know from our growth in the maritime space, that access to our data can be of significant assistance in measuring and managing risk, supporting commercial decisions, aiding negotiations, streamlining reporting, and understanding market direction.”
Economakis explains in detail how the values work in an accompanying article (published here) but in brief, VesselsValue has created a full proprietary database of aircraft and specifications, transactions and market sentiment timeseries, which are updated each day and, at 8pm each and every night, the algorithms are recalibrated in line with the new data, and so daily updated values are produced.
“Depreciation, premiums and discounts on airframes and effects of changes in market sentiment are empirically determined by the algorithms, based on a window of historical sales with significant weighting for recency,” he explains. “Effects of additional minor features are also included in the valuations. Continual back testing and optimisation are conducted to ensure optimal accuracy.
“What this all boils down to is that you can search our website for aircraft or fleets, and get today’s current Market Value (MV), historical time series, supporting information such as transactions, prices, specifications and more.”
Anyone in the industry who uses appraised values knows that they need to be as accurate as possible to be of any benefit. As part of the company quest for transparency, VesselsValue measures and reports its valuation accuracy.
“First accuracy needs defining,” says Economakis. “We measure it as the difference between our aircraft values the day before each transaction versus the derived unencumbered price paid in that transaction. It’s important that the value is from the day before the transaction being measured against, so as to exclude that data point. This naturally brings in some error into the results as sometimes the transaction is a new benchmark high or low, so the value the day before is correctly higher or lower. However, our market sentiment part of the algorithm should bridge this information gap, effectively helping estimate what price aircraft would be bought and sold for today.”
“Across wide and narrowbody commercial passenger MVs, our accuracy is currently running at a mean error of US$0.21m (0.65%) and mean absolute error of US$1.27m (3.97%),” he adds. “We provide many more statistics such as cumulative errors, error distributions, standard deviation errors and more on request. We find these statistics give our clients great confidence and comfort in our values, models and methodologies.”
VesselsValue states that its algorithms and input data are “continually being optimised for both current and historical values with the aim of continually improving upon these metrics”.
There is a tough competitor landscape for aviation appraisal firms that VesselsValue needs to negotiate following the launch of its new product but Economakis believes the company’s daily updated algorithm driven values can be complementary to the traditional appraisals. “When making decisions or running analysis, it’s always good, and simply financially prudent to have multiple points of view, which our model can provide,” he says, adding nonetheless that the accuracy and objectivity of values is a unique offering to the market.
“We hope that our accuracy statistics, time series and consistent reporting of values prove to our clients that our values are highly accurate and reliable,” he says. “However, the real proof comes in our clients using and acting upon our values. This has happened in maritime where there was initially some scepticism, followed by initial uses for analysis and reference, and then soon after they were being used for official valuation certificates by owners, banks, investors, governments, regulators, accountants, lawyers, brokers, traders and more. We anticipate a similar pattern in aviation.”
Although the model algorithm is a unique approach in the aviation sector, gaining access to the data in the first place from aircraft traders, owners and financiers/investors is conducted in much the same way as existing participants.
“We know that getting transactions is a real challenge, but this is something we have begun to conquer in aviation, and we did the same in shipping – especially the offshore sector which was highly opaque with all transactions having unreported prices. We have found that transparency breeds transparency, so our aim is to keep uncovering and showing as much as possible, as this will allow us to find and show even more as our service continues to develop.”
VesselsValue is continuing to grow in terms of employees – it now has 190 staff members – and is also constantly developing its product using its aviation team that comprises of over 30 specialist PhD modellers, data scientists, researchers, analysts, market experts, ex lessors, and data visualisation designers. “We are continuing to invest, grow, improve and increase our coverage in the sector,” says Economakis. “We have been, and will continue to invest heavily in our aviation services to ensure that our clients have the best possible data and technology to support their decisions.”
VesselsValue is now live and offers daily updated aircraft specific, fleet and portfolio values for the wide and narrowbody commercial passenger fleet, including all live and backlog aircraft (around 37,000 different assets). Supporting data includes transactions with prices, time series, ownership, fleet and specifications, and the product also includes a custom searchable fleet and deals database. Future iterations of the product may also comprise more aircraft coverage, including regional, freighter, business jets and utility craft. But more imminently, Economakis promises “something very interesting with ADS-B” without elaborating further.
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Exclusive interview: Airline Economics Editor Victoria Tozer-Pennington speaks to Chief Strategy Officer, Adrian Economakis about the new VesselsValue product.
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Article: Aircraft values, algorithms and transparency
In this article, Adrian Economakis, Chief Strategy Officer, briefly summarises how the algorithm driven model works, discusses what benefits the company expects it will bring, and concludes with what their daily updated values show as having happened to the market for aircraft since the start of Covid.
[/et_pb_text][et_pb_text _builder_version="4.11.1" _module_preset="default" hover_enabled="0" global_colors_info="{}" sticky_enabled="0"]Click here to read the PDF article[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]