In order to qualify as cover for an Aircraft Pfandbrief, a so-called aircraft mortgage lending value for the aircraft serving as collateral must be determined.
The valuation serving as the basis for the establishment of the aircraft mortgage lending value shall be conducted by a valuer who is not involved in the loan decision and who must have the requisite professional experience and knowledge in order to make aircraft mortgage lending value assessments (§ 26d par. 1 Pfandbrief Act).Aircraft values are determined by specialised appraiser firms, some of which have been in the business since the 1960’s. The valuations are based upon complex methods and procedures, employing extensively harmonised terminology. Most of the appraisers are part of an aircraft appraisal association named ‘International Society of Aircraft Trading’ (‘ISTAT’), which promotes the harmonisation of valuation standards and the certification of aircraft appraisers. It should be mentioned in particular that the valuation of aircraft values is drawn upon empirical data. Due to the advanced degree of standardisation and the fact that aircraft can be put in service with airlines worldwide, there is a uniform global market for aircraft. Appraisers regularly have access to the actual prices of sale and purchase transactions and are therefore in a posi- tion to base their appraisals and predictions on real market values with global validity, which enables a high degree of precision.
The aircraft mortgage lending value (Aircraft MLV) must not exceed the value resulting from a prudent valuation of the future saleability of the aircraft and take into consideration the long-term, permanent features of the property, the market situation as well as the present and possible alternative uses. Speculative elements must not be taken into consideration (§ 26d par. 2 Pfandbrief Act).
The Regulation on the Determination of Mortgage Lending Values of Aircraft (Aircraft MLV Regulation) entered into force on 15 May 2009.The Aircraft MLV Regulation includes details about the methodology and the form of the determination of the MLV for aircraft.
The Aircraft MLV is to be defined on the basis of a three-fold ‘upper limit model’: The first upper limit is to be ascertained on the basis of the current market value, which is to be assessed in accordance with the standard industry approach (§ 9 par. 1 Aircraft MLV Regulation).The current market value is the estimated amount for which an aircraft could be sold on the date of valuation under the given market conditions between a willing buyer an a willing seller in an arm´s length transaction after an appropriate marketing period, wherein the parties had each acted knowledgeably, prudently and without compulsion.
The second upper limit is to be determined on the basis of the average of market values from the preceding ten years applicable to such specific or a similar aircraft type (§ 10 par. 1 Aircraft MLV Regulation).
The third upper limit of the Aircraft MLV is the so-called ‘value of balanced market conditions and average state of repair' (§ 11 Aircraft MLV Regulation). This value is to be determined via the standardised industry term ‘Base Value’. The Base Value is an aircraft value ascertained on the basis of an assumed market environment providing for a balanced relationship between supply and demand. The Base Value constitutes an appropriate third upper limit for the determination of the Aircraft Mortgage Lending Value, as the Base Value is demonstrably non-volatile, non-fluctuating and sustainable. In accordance with the concept of the Ship MLV Regulation, the Base Value must be reduced by 10% if the historical aircraft data is available for a period of less than ten years only (see § 4 par. 2 sent. 2 Aircraft MLV Regulation).