The Airplane Acquisition Checklist Series: Part One: The Pre-Purchase see more
NAFA member Adam Meredith, President of AOPA Aviation Finance Company, shares his pre-purchase airplane acquisition checklist.
Did you resolve to upgrade your current aircraft or to buy your first airplane in 2019? Congratulations!. With low inventory and high demand, how you approach the buying process may be the difference between getting your first-choice or settling for an also-ran.
Buying an airplane is like flying an airplane. It’s all about planning, crew resource management and checklists. Your “crew” includes your lender, your insurer, your maintenance contractor and AOPA’s Aviation Finance Group. AOPA Finance can match you with the right lender, and our extensive experience can also provide you the additional leverage you may need in a tight market, at no cost to you.
Like flying, how well you plan, manage your crew and follow your checklists help determine how well the purchase process goes. We’re not talking about pre-flight, flight and post-flight checklists, though. We mean these checklists:
3. Aircraft Delivery
Let’s start with the Pre-purchase Checklist:
• Ownership—personally or through a company or LLC?
• Use—personal or commercial?
• Loan Pre-approval
• Private hangar or shared?
• Aircraft maintenance contractor
Ownership. Are you going to own the airplane yourself or through your company? Will you create an LLC, a partnership or some other type of corporate body? Iron out those details first. They guide which lender can pre-approve you and may also influence the length of the pre-approval process. There are advantages and disadvantages to all ownership scenarios. What’s important to know is that if you decide to change structure at the last minute, it’s a bit like telling your building contractor you want to move a door. At a minimum you know there’s going to be delays in the process and it may completely change the structure.
We’ve seen too many situations where potential buyers got a loan pre-approval based on one ownership scenario (like a partnership), only for them to change the scenario (like dissolving the partnership). That kind of change will negate the pre-approval process and will force the buyer to start over. It may also necessitate finding a different lender.
Use—Personal or Commercial? Part 91 transport for you alone, for your company’s employees or leaseback to the local flight school? Decide how you intend to fly your aircraft and commit to it. There is no advantage in telling your prospective lender and insurer it’s for personal use, only to conduct commercial operations once purchased. Should the discrepancy come to light because of an accident, incident or investigation, it could trigger a steep default interest rate, or worse. Transparent communication is the best way to keep this complex transaction simple.
Now it’s time for:
Loan Pre-Approval. Getting pre-approved confirms what you can afford and enables you to move quickly on an aircraft, both essential in this seller’s market.
Some think it’s a waste of time to get pre-approved because the pre-approval is time-limited. True, pre-approval is good for anywhere from 60 to 90 days, depending on the lender. That’s generally enough time to find the right aircraft. But, if the search period does exceed the pre-approval timeframe, it may be possible to extend the pre-approval period.
Even if the lender won’t extend, re-approval is quicker than an initial pre-approval. So you’re still ahead of the competition.
While waiting on pre-approval, finish the rest of the checklist:
Escrow. Have cash ready to put in an escrow account. Escrow gives you an exclusive option on an aircraft within a specific timeframe. When entering escrow, ask for generous restrictions. The more time you can negotiate, the better. It gives your lender, insurer or AOPA Finance space to conduct background checks, damage history and title searches. Also consider keeping extra money in reserve to add to escrow should the seller require an additional incentive.
Next time: The Purchase and Aircraft Delivery checklist.
This article was originally published by AOPA Aviation Finance Company on February 21, 2019.
When Can Charter Offset Jet Operating Costs? see more
NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses ways to help reduce your costs of business jet ownership.
Are you looking to reduce your total costs of business jet ownership? A management company can charter your aircraft during the idle periods between personal trips. David Wyndham discusses…
Choosing the right firm to manage your jet will be crucial. Firstly, it must have authorization under FAA Part 135 (or its international equivalent outside the US). Secondly, be prepared that the relationship between owner and management company can be complicated given the myriad of regulatory restrictions governing operational control of any aircraft used for commercial service.
Following are the general terms that exist between the aircraft owner and commercial operator:
- The aircraft owner pays all the operating costs (e.g., fuel, maintenance, other aircraft operating expenses, etc.)
- The crew may be billed either as salaries or as an hourly fee
- The aircraft owner gets a variable percentage of the charter revenue
Fact: Your idle asset can generate income that will offset the cost of owning and operating the aircraft.
Myth: Chartering your aircraft means you will “fly for free.”
Some Rules of Thumb
The aircraft owner typically receives 85% of the base charter rate, while the certificate holder keeps the remaining 15%. As outlined above, the aircraft owner typically will pay all the aircraft-specific expenses such as fuel and maintenance. The excess of charter revenue over those expenses is what helps offset the fixed costs, resulting in a net decrease in total cost to the owner.
Other negotiated terms may involve the accrual for maintenance, guaranteed hourly maintenance plans, and fuel cost offsets. Recently, I saw an agreement where the aircraft owner received a set revenue per hour regardless of what the charter operator charged. Another agreement had the charter operator paying the fuel costs with a reduced percentage of the revenues to the owner.
So, what’s in it for the charter operator? Why would they even want to deal with individual owners instead of operating their own fleet?
The Scale Problem of Charter
Charter companies have a scale problem. Market charter rates are not sufficient to cover all the costs of operating an aircraft unless they fly a lot of hours. When you factor in the fixed costs and cost of capital or leasing, charter rates simply don’t pay enough.
The utilization necessary to make a profit by owning the aircraft and chartering it are well beyond what the on-demand charter aircraft typically flies. Scheduled airlines may fly 2,500 hours per year per aircraft and, in many years, still lose money.
I ran the break-even revenues for a global business jet for one owner and, accounting for the cost of capital and taxes, calculated that they would need about 3,000 charter hours per year. For most charter operators, owning a turbine aircraft is not affordable.
Here’s another example to consider. An aircraft that charters for $3,200 per hour can cost about $1,700 per hour for the variable expenses alone. After the charter operator takes its 15%, the owner is left with roughly $2,720 per hour before variable expenses. Factor those in and the owner receives $1,020 per hour in excess of the variable costs.
There are fixed costs and, even with discounts available to the owner, those costs might run to $500k per year.
Assuming the used jet is valued at $3m, the lease payments are $300k per year. Even if you purchased the aircraft, there is a cost of capital as you cannot invest this money elsewhere. Adding the lease expense plus the fixed expenses, you are now at $800k per year.
At an income over operating expense of $1,020 per hour, our owner needs 784 hours of charter revenue to break even before tax considerations. Very few charter operators can generate that much revenue flying in a year.
Who Could Benefit?
For the owner who flies infrequently or has a predictable schedule the revenues from charter can certainly help reduce the cost of flying. The charter operator generates profitable revenues and the owner offsets their costs.
With the proper relationship, both the owner and operator can come out ahead and the charter client gets lower rates and a greater selection of aircraft.
Risk Management Benefit
One less obvious advantage of a charter relationship relates to risk management. As the owner of an aircraft, you will have liabilities related to the safe operation of the aircraft. That’s why you have insurance, right?
If you charter your aircraft, however, the operational risk is shared with the charter operator, even when you are onboard. They assume responsibility for the safe conduct of the flight.
Next month, we’ll address more of the potential issues and concerns associated with chartering your aircraft.
More information from www.conklindd.com
This article was originally published in AvBuyer on January 23, 2019.
Whole Aircraft Ownership: Is It Right For You? see more
NAFA member, David Wyndham with Conklin & de Decker, highlights the benefits of sole ownership of a business aircraft.
If control over your company’s transportation is paramount, sole ownership of a business aircraft is particularly attractive. With high enough utilization, it is also very cost effective.
As a generalization, when your flying needs come close to (or exceed 200 annual hours), whole aircraft ownership can be more cost effective than fractional, charter or membership programs. Whole aircraft ownership offers the following benefits.
Freedom: With whole aircraft ownership a company has the freedom to select the best aircraft to satisfy its needs. Within safety and operating regulations, that aircraft can be operated as the owner requires.
Customization: When a company acquires its own aircraft, the outfitting of the aircraft can be done to suit its operational and travel requirements.
Options for colors, seating, carpeting materials (and more) are able to be matched to your needs and preferences. The larger the cabin size, the more flexibility there is in how the interior can be configured.
Service Levels: The aviation department personnel are the owning company’s employees. Not only is that company able to shape their training and manage their competence, it can affect how they interface personally with passengers.
The ability to hire the employees that fit the organization can be invaluable, and this service level generates a rapport that is effortless and comforting.
Control: In the US, Federal Aviation Regulations (FARs) allow the most flexibility and opportunity for control to not-for-hire operations flown on behalf of the aircraft owner. A company-owned aircraft that is used in support of the business of the company falls under these rules.
While all aircraft must be operated safely, the sole owner of a business aircraft has greater influence over operations than either a charter customer or a fractional owner. Factors influencing safety and security are within the operator’s control.
A whole-aircraft owner has the highest levels of privacy. You can discuss sensitive business, or leave important corporate documents and personal items on board the aircraft.
Responsibility: With this high degree of control comes an equally high level of responsibility. While the FARs state that the pilot in command is the ultimate person responsible for the safe operation of the aircraft, the owner is responsible for the hiring and training of that pilot. The owner has liability for the actions of its employees, and this extends to the aircraft operation.
The owner can manage this risk via high-quality training and insurance. The crew should be trained to the highest appropriate levels of competence. Maintenance engineers (if applicable) also require regular training.
An individual or company owning or leasing their own hangar is also responsible for ground safety. The owner shares the risk by properly insuring the aircraft and crew.
Managing and directing the detailed operation of aviation activities requires individuals versed in management and Business Aviation - a skillset commonly accomplished either by having an in-house aviation manager/director, or by contracting the management of the aviation operation to a management company.
The Role of Management Companies
A management company can offer a turn-key approach of contracting the function and oversight of the aviation operation. These companies specialize in flight operations.
For a first-time owner of a business aircraft, we usually recommend contracted management for starting the aviation operation. In additional to providing flight crews and functional oversight, the management company can provide economic benefits as well:
- Fuel can be purchased in bulk on behalf of multiple aircraft owners;
- Discounts can extend to maintenance (the management company with multiple aircraft should be able to negotiate discounts for spare parts);
- The management company can purchase insurance for its group of owners at rates that can be lower than for a single aircraft.
While management companies tailor their services to meet an owner’s unique requirements, they typically offer the following oversight:
- Hangaring the aircraft
- Managing the aircraft records
- Hiring and training the flight crews
- Managing the maintenance of the aircraft
- Handling the billing and verification of all variable operating expenses (including fuel, maintenance, etc.)
- Ensuring that all regulatory requirements are met by the aircraft and crew
- Refueling the aircraft
- Cleaning and cosmetic upkeep of the managed aircraft.
Offsetting the Costs of Whole Ownership
If you, as the owner, desire to further reduce your total costs, a management company can charter the aircraft when you’re not using it, provided the firm has authorization under FAA Part 135 (or its equivalent in non US countries).
This relationship is complicated as there are regulatory restrictions governing operational control of any aircraft used for commercial service. The general terms are as follows:
- The aircraft owner pays all the operating costs (fuel, maintenance and other aircraft operating expenses).
- The crew may be billed as salaries or as an hourly fee.
- The aircraft owner gets a set percentage of the charter revenue.
The charter revenue the owner receives should be more than enough to cover the operating costs, but will not be enough to cover all of the fixed expenses, debt service and depreciation. The charter revenue is shared between the charter operator and aircraft owner. Rarely, however, does a chartering arrangement with a management company produce a profit for the aircraft owner.
The relationship with the management company is as much a personal relationship as a business relationship. Communication and shared goals are important. If you want control, fly enough hours and accept the responsibility, whole aircraft ownership can be very rewarding.
This article was originally published in AvBuyer on May 14, 2018.
Is a Business Jet Lease Right for You? see more
NAFA member, Keith Hayes with PNC Aviation Finance discusses business jet leases.
Has the aircraft lease market changed since the Great Recession? What are the popular lease types available to business jet owners? AvBuyer spoke with PNC’s Keith Hayes to discuss how leases can benefit certain companies and individuals.
Keith Hayes began a lengthy career in the finance sector with GE Capital in 1985, having joined straight out of college. Starting as an internal auditor, he held several roles within the company transitioning into a credit role and then into a sales/finance role covering a multitude of asset types.
In 2004 he joined the GE Corporate Aircraft group as the National Sales Manager and has been in the aviation finance sector ever since. Today as the National Sales Manager for PNC Aviation Finance, he is well placed to offer insights into the Business Aviation finance market. He is based at the company’s Boise, Idaho offices.
AvBuyer spoke with Keith to discuss the types of leases commonly available to prospective business jet owners; trends in the aircraft lease market; and advice to buyers considering lease as an option for their next business jet purchase.
AvBuyer: How has the aircraft lease market developed/changed over the past few years? Do you foresee further change in the short- to medium-term?
Hayes: The biggest changes have taken place post-recession. Prior to the recession, a lot of aircraft were leased under 10- to 12-year leases with flexibility for the lessee to terminate early within years 4-6 of the lease.
Following the recession, when aircraft values began to plummet, lessees generally found they were ‘under water’ in their leases. Many had no choice but to continue to lease the airplanes until the end of the lease term before returning them to the lessor (the bank).
This was not a positive experience for the lessee or the lessor. Due to the challenges associated with selling the returned aircraft, many lessors stopped offering lease products altogether. Others, PNC Aviation Finance included, continued to offer the product and, now that aircraft values are stabilizing (along with the recent changes in the tax laws), lessors are seeing an uptick in lease activity.
Looking ahead, there are changes taking place in certain accounting rules coming into effect in 2019 and 2020 that will cause leasing to not be as advantageous for financial reporting purposes.
Among the changes is a requirement from the Financial Accounting Standards Board for organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases, and to provide disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.
However, we believe aircraft leasing will continue to be a value-added structure for certain owners.
AvBuyer: We’re hearing various forecasts of continued growth in the new and used aircraft sales marketplace during 2019. Would you expect to see aircraft leasing influence the aircraft sales trends over the coming year? If so, how?
Hayes: I have always said that financing does not drive the behaviour of aircraft owner. The average aircraft owner changes their airplane every four-to-five years regardless of whether they paid cash, financed or leased their airplane.
Some would argue that when banking ‘became tight’ during the last recession, aircraft sales were impacted, but I question if this was truly a factor. Cash has been, and continues to be, the number one method of paying for an airplane.
But as the global economy continues to thrive, I anticipate our industry will continue to grow; as companies and wealthy individuals continue to have opportunities to deploy cash into high-return assets, they will elect to finance or lease as opposed to paying cash for a ‘non-earning’ asset. Meanwhile, the lease versus finance question typically is driven by the owner’s tax appetite or financial reporting needs, not simply the drive to buy or not buy.
AvBuyer: For those weighing-up whether a lease is right for them, what are the common lease options, and what type of aircraft owner is each tailored to?
Hayes: In short, there are two types of leases: A tax-oriented operating lease (in which the lessor owns the airplane for Federal Income Tax purposes); and a synthetic lease (in which the lessee owns the plane for Federal Income Tax purposes).
Typically, an owner may enter a synthetic lease for a variety of reasons, including deferral of state sales tax and/or financial reporting and off-balance sheet treatment. Under a synthetic lease, the lessee would have full availability of all tax benefits for Federal Income Tax purposes.
Meanwhile, an owner may enter a tax-oriented operating lease for the same benefits realized in a synthetic lease but, most likely, they would do so because they cannot fully utilize the tax benefits.
There are a number of reasons why this would be the case including their level of personal use, passive versus active income, carrying forward of net operating losses, and more. Under a tax-oriented operating lease, the tax benefits are ‘passed’ to the lessor, and the lessor in return offers a lower cost of funds to the lessee.
Commonly, these tax-oriented leases are structured with eight- to ten-year terms with early buy-out options at a point determined by the lessee.
AvBuyer: For those considering whether an aircraft lease is the route they want to take into aircraft ownership, what are the most important things for them to understand?
Hayes: There are a number of variables an owner would want to keep in the front of their minds when leasing an aircraft.
While the documentation process for a lease (versus that for a loan) is not overly complicated, there are certain conditions you want to make sure are ‘market’ ones, including the return provisions, usage provisions and reporting requirements.
Additionally, the inclusion of an early buyout in the lease is an option the lessor may or may not offer. It is up to the individual lessee and their specific requirements to decide if this option is important.
Also worth considering, some lessors have a tax appetite while others do not. The lessee should recognize a lower cost of funds which can be analysed through the early buy-out in exchange for passing the tax benefits to the lessor. If it appears the rate of return is equivalent to debt financing, it could mean the lessor has no tax appetite.
Lastly, in many states, sales tax is paid on the rentals via use tax (as opposed to upfront payment). This can result in a significant deferral and, in some cases, avoidance of sales tax altogether (i.e. if the lease is terminated at an early buyout point and the airplane is then sold, the use tax on the remaining rental is potentially avoided).
This article was originally published on AvBuyer on January 7, 2019.
Financing Your Business Aircraft: Reaping Ownership Benefits, While Avoiding Leasing Pitfalls see more
NAFA member Martin Ormon, President and Founder of Aircraft Finance Corporation, compares the benefits of buying versus leasing your business aircraft.
With the new year comes the first full-year's tax filing under the Tax Cuts and Jobs Act of 2017. If your accountant or Chief Financial Officer (CFO) works like most, you'll have already engaged in a couple of briefings on the charges - on adapting to the law's new language - and you probably have another meeting planned to lay out for you the impact of those changes on this year's numbers.
For those looking to buy or lease a business aircraft after holding-off a while to weigh up the impact of the 2017 tax changes, now would be an excellent time to answer a recurring question asked before companies make a major decision on a big-dollar equipment outlay.
Should you buy or should you lease?
Each approach brings its own benefits and limitations, just as leases themselves vary in type to meet the differing needs of the operator.
But Martin Ormon of Aircraft Finance Corporation questions why so many operators are choosing to lease older aircraft, knowing that to keep it at the end of the lease means coming up with a buyout amount for the leasing company. "Otherwise, they walk away with nothing but their receipts," Ormon notes.
While Ormon acknowledges that for later-model business aircraft lease terms may benefit an operator's cash flow picture, "for many of the older aircraft (7 years and up), buying it with today's more attractive finance terms can make more sense for cash flow - and at the end of the term leave the owner with an asset, paid off and wholly owned," he elaborates.
"A lease structure and the supply of good aircraft and low financing costs for 20 years makes more sense financially than leasing."
But then, financing aircraft sales is Martin Ormon's business. He owns and operates Aircraft Finance Corporation, a rare lending operation with regular terms as long as 20 years for older business-turbine aircraft.
Aircraft Finance Corp: The Backdrop
When we last spoke with Martin Ormon in 2016, the topic focused on understanding the benefits to clients from dealing with Aircraft Finance Corp. versus more traditional banks and finance companies, particularly when financing business aircraft aged 10 and older.
Since then Ormon's business has continued to thrive, so we sought his input on the lay of the land in light of a small renewed 'boom' of recent months. Some credit the boom to the 2017 tax-reform law signed into law 13 months ago. Others credit the resurgent economy and strong market growth - a more tentative view recently.
Still others cite both of the above and a resurgence in market demand after a lengthy period in which many buyers held back. Against the backdrop of the Great Recession and the crash in business-aircraft sales, the resurgence, for whatever cause, is welcome among companies servicing business-aircraft transactions.
What hasn't changed is the availability of good finance terms, according to Ormon. "You get the deals from the secondary (market) guys; you don't get the deals from the guys who make the business."
That means operators looking to buy an older jet still face tougher terms than operators who are able to shop for new or near-new aircraft. "Leasing terms aren't what they once were," Ormon claims. "The guys in the leasing business today are struggling more because of the nightmare hit on residual values.
"And the residual value on some of these aircraft has gone beyond hitting bottom - and they're still getting a resurgence in market value because of increased demand."
Aircraft Finance Corporation continues to do a banner business because of its combination of competitive interest rates, competitive down-payment terms and loan terms as long as 20 years.
"The one thing that i've learned , "Ormon offers, "is that interest rates do not dictate demand for aircraft purchases - while it may effect some who don't have the credit history others do."
Used Aircraft Competing Against New
Ormon cites a number of loans recently written by Aircraft Finance Corporation, loans which took advantage of depressed prices of some older aircraft with loan terms more competitive than lease terms.
"With values where they are today, why would anyone buy a new aircraft?" he asked. "With our 20-year amortization system we can make an aircraft less expensive than leasing."
One example Ormon offers is for a Bombardier Challenger 605. The owner's situation had changed and they needed some relief from the cash-flow pressures. "We refinanced that Challenger 605, which ahd payments exceeding $70,000/month on a seven-year amortization. We did it for 20 (years) and their payment came down to about $20,000/month, solving the owner's problem."
Ormon says that many of the finance outfits don't want people to know that 20-year loan terms are available.
Lease Versus Buy
"At the end of the day, that 20-year term gives a lot of people more financial freedom and flexibility," Ormon highlights.
Todday's terms available from financing firms like Martin Ormon's make financing more attractive than leasing. "You'd still have to buy out the residual value to own that aircraft at the end of the lease. That or accept never owning the airplane."
Weighed against a lease structure with today's supply of good aircraft, the low financing costs for a 20-year term makes borrowing to buy more financially sensible than leasing, Ormon stresses, adding that Aircraft Finance Corporation underwrites its own financing, which makes dealing with the company more streamlined.
This different approach works for the buyers Ormon finances, for the sellers he helps sell their old aircraft, and for Aircraft Finance Corporation of a business.
Ormon's small aircraft finance bank began operations in August 2000, and he let it make money for him while he continued in his own business. "I didn't think much more about the small amount of business we were doing ... until the downturn," he recalls.
"Now, it's going great, because we help people and they come back again for their next deal."
It's good for Business Aviation - and what's good for Business Aviation is good for the aviation economy.
This article was originally published in the February issue of AvBuyer Magazine.
The FAA and aircraft ownership - use a trusted, neutral third party to handle transactions. see more
By Wright Brothers Aircraft Title
Not necessarily. Here’s why.
Philko Aviation, Inc. v. Shacket
United States Supreme Court 462 U.S. 406 (1983)
This is a great example of aircraft ownership and the role of the FAA in sales transactions. In this case, a shady character, Roger Smith, sold an aircraft to the Shackets. Smith provided the aircraft and a photocopy of the bill of sale and told Shacket that he would take care of the paperwork. He never filed the bill of sale with the FAA, so there was no record the transaction ever happened. Shady Smith then resold the same aircraft to Philko Aviation. He told Philko that the plane was in Michigan but provided them with the title documents. Because he provided a bill of sale and there was no record at the FAA of Shacket sale, Philko’s bank closed the deal and filed the bill of sale with the FAA.
So, both parties paid for the plane, but Shacket had the aircraft and Philko had the title. Who really owned it?
The Shackets sued in federal court for ownership of the aircraft. Philko claimed that they had the right to the aircraft because the Shackets did not file any title documents with the FAA (as required by § 503(c) of the Federal Aviation Act of 1958. 49 U.S.C. §§ 1301 et. seq). Obviously, both parties felt they had a right to own the plane. After all, they both paid for it, right?
The court ruled in favor of the Shackets. The reason? The Shackets had a good title under Illinois’ Uniform Commercial Code, which was NOT preempted by the Federal law § 503(c). The law stated that an oral sale is valid against third parties once the buyer takes possession of the aircraft.
The FAA and Aircraft Ownership
What is interesting and notable about this case is the party who held title according to the FAA records was not the party who won the case. In other words, the FAA said that Philko owned the plane, but the courts disagreed and gave the plane to the Shackets because they were in possession of it. Philko Aviation did the right thing by filing with the FAA, but that was not the deciding factor. Possession is 9/10ths of the law, and this case was no different. The party in possession won.
What can we learn from this? Be careful who you deal with. The global nature of aircraft transactions makes it hard for buyers and sellers to know each other. In a previous blog, Born in a Pool Hall, we outline the origins and reasons for using a trusted escrow agent. In this instance, having used a trusted, neutral third party to handle funds and documents would have saved both parties a lot of time, energy, and heartache.
Can a prospective aircraft owner benefit from claiming 100 percent "bonus depreciation"? see more
Can a prospective aircraft owner benefit from claiming 100 percent “bonus depreciation” even though the owner expects to fly the aircraft for personal use? Yes, with limitations and careful structuring under the Internal Revenue Code (IRC). However, in doing so, it is essential to harmonize potentially conflicting rules in the IRC with the Federal Aviation Regulations (FARs) and state law, including sales/use tax laws.
The Tax Cuts and Jobs Act of 2017, which became law on December 22, for the first time allows aircraft owners temporarily to take 50 percent or 100 percent bonus depreciation deductions on preowned aircraft. It also doubles the pre-existing 50 percent bonus depreciation to 100 percent of the cost of certain new aircraft.
A business taxpayer who owns an aircraft can take 100-percent bonus depreciation deductions under the IRC against gross income if it uses the aircraft in its trade or business or for production of income. However, an owner cannot take depreciation deductions for personal use, including entertainment, amusement, or recreation.
The IRC allows certain owners to deduct depreciation from gross income by two methods. The first is straight-line depreciation created under the Alternative Depreciation System. This allows owners to take equal depreciation deductions each year of the “recovery period”—the years to fully write off aircraft. That is six years for aircraft operated under Part 91 and 12 years for aircraft operating under Part 135.
Read the full article on AINsight.