FMV definition & algorithm
Note
A new FMV algorithm was developed in 2023 and has been active since July 2023. The FMVs and FMV history have been retroactively calculated using the new algorithm. If you require FMVs from the previous algorithm version, please contact us (How to contact IATA?).
The following description explains the steps behind the fair market value (FMV) algorithm. It aims at providing the necessary information about every stage to comprehend the algorithm.
Overview of FMV stages
The Algorithm
Preliminaries
The algorithm provides an FMV for each part number and manufacturer combination (called material ID). The algorithm works hierarchically, i.e., the algorithm sequentially checks every stage for its requirements and if it finds a step with fitting data requirements, it calculates the FMV for that stage and stops. If applicable, the algorithm calculates a single FMV for this material ID in serviceable (SV) condition. The only exceptions are material IDs categorized as consumables and expendables (C&E) since they usually only occur in new (NE) or new surplus (NS) conditions. In this case, an FMV in NS is calculated.
General Assumptions
Several assumptions are made on which the algorithm bases its calculations:
Transformation of conditions (ToC): If a part is in condition as removed (AR) or unserviceable (US), the algorithm is able to calculate a corresponding comparable value in condition SV for that part by taking the MRO costs for testing, repairing and / or overhauling into account. This also includes the potential for this part of being scrapped.
Transformation of FMVs (ToF): Similar to the transformation of conditions, the algorithm is able to calculate FMVs in different conditions by taking MRO costs for those parts into account.
Strict / extended relevant conditions (RC / RC+): To calculate FMVs for specific material domains, we consider different strict (RC) and extended (RC+) conditions. For C&E material IDs, we assume that RC contains NE and NS, RC+ contains NE, NS, OH, SV, AR, US. For other material IDs, we assume that RC contains OH and SV, RC+ contains OH, SV, AR, US.
If the transaction event pool does not contain enough transactions to do statistical analysis, the algorithm skips to the next stage.
FMVs of stages 5 and 6 are rounded up to the three most relevant digits: E.g., 12345 is rounded to 12300, 0.57892 is rounded to 0.58.
Data Sources
All data used within the FMV algorithm is subject to data quality assurance methods. These ensure that the data basis for the calculation is correct. Concerning company related information, the data sources are always anonymized. This is an overview of the data sources that are used to calculate FMVs:
Generic data: Information about each material ID, such as part number, manufacturer, material domain, aircraft or engine type.
Transaction data: Transactional data contains the price, condition, and date of the transaction.
Interoperability data: Information about interoperability possibilities, modifications and their respective costs for each material ID.
MRO data: MRO data contains the price, condition, and type of the event (e.g., repair, overhaul, scrap).
Fleet data: Information about the usage of aircraft types in the market.
FMV Stage 1: Transaction FMV
FMVs in this stage are calculated using all transaction events for each material ID in their respective strict conditions (RC). It calculates a weighted average over all transaction prices, where the weights correspond to the transaction date and the transaction quantity. The more recent the transaction and the higher the quantity, the higher the weight. Finally, the nearest real transaction price to the average is the final FMV.
FMV Stage 2: Transaction FMV with Extended Conditions
FMVs in this stage are calculated using all transaction events for each material ID in their respective extended conditions (RC+). It calculates a weighted average over all transaction prices with ToC, where the weights correspond to the transaction date and the transaction quantity. The more recent the transaction and the higher the quantity, the higher the weight. Finally, the nearest real transaction price (ToC) to the average is the final FMV.
FMV Stage 3: Transaction FMV with Interoperabilities
FMVs in this stage are calculated using all transaction events for each material ID and their interoperabilities in their respective strict conditions (RC). Transaction prices for interoperabilities are normalized based on their current market list price. It calculates a weighted average over all transaction prices, where the weights correspond to the transaction date and the transaction quantity. The more recent the transaction and the higher the quantity, the higher the weight. Finally, the next real transaction price based on all transactions (original material ID and interoperabilities) to the average is the final FMV.
FMV Stage 4: Transaction FMV with Interoperabilities and Extended Conditions
FMVs in this stage are calculated using all transaction events for each material ID and their interoperabilities in their respective extended conditions (RC+). Transaction prices for interoperabilities are normalized based on their current market list price. It calculates a weighted average over all transaction prices with ToC, where the weights correspond to the transaction date and the transaction quantity. The more recent the transaction and the higher the quantity, the higher the weight. Finally, the next real transaction price (ToC) based on all transactions (original material ID and interoperabilities) to the average is the final FMV.
FMV Stage 5: Fleet / Engine Type and Material Domain FMV
In this stage, the algorithm aggregates all relative FMV factors of material IDs for a specific combination of fleet or engine type and material domain. For each combination, it calculates the median of the FMV factors. To get the FMV for a specific material ID, it calculates the weighted average over all FMV factors which correspond to this material ID’s fleet operability. The weights are the number of transactions that fall into a specific combination of fleet or engine type and material domain. Finally, the average FMV factor is multiplied by the market list price for the material ID to obtain the FMV.
FMV Stage 6: Fleet / Engine Type FMV
In this stage, the algorithm aggregates all relative FMV factors of material IDs for a specific combination of fleet or engine type. For each combination, it calculates the median of the FMV factors. To get the FMV for a specific material ID, it calculates the weighted average over all FMV factors which correspond to this material ID’s fleet operability. The weights are the number of transactions that fall into a specific combination of fleet or engine type. Finally, the average FMV factor is multiplied by the market list price for the material ID to obtain the FMV.
FMV Stage 7: Fallback - Market List Price
In case none of the above steps have produced an FMV, the algorithm uses the market list price as a fallback value. If there is more than one market list price, it takes the median of all market list prices.
FMV Stage 8: Fallback - Default Value
In case none of the above steps have produced an FMV, the algorithm uses a default value of 1 USD.
Result Collection
After all FMVs in base conditions (NS for C&E or SV for all other domains) have been calculated, the algorithm uses the MRO data to convert the respective calculated FMV in base conditions into all the other conditions according to ToF.