aviation industry

  • NAFA Administrator posted an article
    Used Aircraft Maintenance Analysis – October 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the October 2020 Used Aircraft Maintenance Analysis.

    Asset Insight’s October 31, 2020 market analysis of 134 fixed-wing models, and 2,174 aircraft listed for sale, revealed strong sales figures during October, leading to a 3.2% decrease of the tracked inventory (the fourth consecutive monthly reduction). Here are the aircraft that were most impacted...

    Curiously, buyer preference for lower-quality assets improved the tracked fleet’s Quality Rating and Maintenance Exposure.  October’s fleet ‘for sale’ Quality Rating (5.353) reflected a 12-month best, continuing to maintain the tracked fleet’s ‘Excellent’ standing for all of 2020 on Asset Insight’s scale of -2.5 to 10.

    October’s Aircraft Value Trends

    Average Ask Price increased 3.3% in October to set a 12-month high, while concurrently changing 2020’s downward trend to a Year-to-Date (YTD) increase of 1.7%. By aircraft group:

    • Large Jets’ average Ask Price was up 4.5%, reducing the YTD loss to 9.6%;
    • Mid-Size Jets’ pricing decreased a nominal 0.6% and is now up 3.8% in 2020;
    • Light Jets posted a loss of 0.9% in October, lowering the YTD gain to 7.8%; and
    • Turboprops gained 2.8% during the month, moving the YTD figure 0.6% into positive territory.

    October’s Fleet for Sale Trends

    Asset Insight’s tracked fleet posted its fourth consecutive monthly inventory decrease, down 3.2% (73 units), which led to a 0.4% YTD inventory decrease (-8 units).

    • Large Jet Inventory: Decreased 3.1% (-16 units), and is currently up 14.4% since December 2019 (+62 units).
    • Mid-Size Jet Inventory: Posted the largest decrease among the four groups (-23 units), and also the group’s fourth consecutive monthly reduction. Mid-Size Jet inventory is now down 7.7% YTD (-51 units).
    • Light Jet Inventory: Decreased for the fourth consecutive month, and October’s decrease of 3.2% (-20 units) reduced inventory by 4.7% YTD (-30 units).
    • Turboprop Inventory: Through its third consecutive monthly inventory decrease, this time 2.9% (-14 units), availability is currently up 2.4% (+11 units) YTD.

    October’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) improved/decreased 2.1% to $1.433m, signifying that upcoming maintenance events for available assets will be less expensive. The Maintenance Exposure figure by group was as follows:

    •    Large Jets: Improved 3.1% for October to a figure bettering the 12-month average.

    •    Mid-Size Jets: Worsened a nominal 0.2%, but Exposure was better/lower than the 12-month average.

    •    Light Jets: Improved 2.0% for the second consecutive month to a figure only marginally better than the group’s 12-month worst value.

    •    Turboprops: Improved 2.4% to a 12-month low/best figure.

    October’s ETP Ratio Trend

    The tracked inventory’s ETP Ratio improved/decreased to about the 12-month average figure at 69.8%, compared to September’s 73.7%. [The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.]

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increases, in many cases by more than 30%.

    During Q3 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale 50% longer than assets with an ETP Ratio below 40% (269 days versus 404 days). How did each group fare during October?

    • Turboprops: For the eleventh consecutive month, Turboprops registered the best/lowest ETP Ratio (40.7%), achieving the group’s second consecutive best 12-month value.
    • Large Jets: Recaptured second position with an ETP Ratio of 61.8%, better than the 12-month average and a substantial improvement over September’s 12-month worst value (74.1%).
    • Mid-Size Jets: Dropped to third place, but improved to 68.9% from September’s 70.9%, equating to a 12-month best.
    • Light Jets: Improved from September’s 12-month worst figure (100.3%) to a still-troubling 98.8%.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during October 2020.

    Read full report here.

    This report was originally published by AvBuyer on November 19, 2020.

  • NAFA Administrator posted an article
    NAFA Webinar: Final Comments - Overview of the Current State of the Aviation Industry see more

    Final Comments - Overview of the Current State of the Aviation Industry

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association

    This NAFA webinar originally aired on October 15, 2020.

  • NAFA Administrator posted an article
    NAFA Webinar: Continuing Rise in Insurance Prices see more

    Continuing Rise in Insurance Prices 

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association)

    This NAFA webinar originally aired on October 15, 2020.

  • NAFA Administrator posted an article
    NAFA Webinar: Current and Future Issues in Aviation see more

    Current and Future Issues in Aviation

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association

    This NAFA webinar originally aired on October 15, 2020. 

  • NAFA Administrator posted an article
    NAFA Webinar: Advances in Technology and Hybrid Options in Aviation see more

    Advances in Technology and Hybrid Options in Aviation

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association)

    This NAFA webinar originally aired on October 15, 2020.

  • NAFA Administrator posted an article
    NAFA Webinar: Overview of the Current State of the Aviation Industry see more

    Overview of the Current State of the Aviation Industry

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association)

    This NAFA webinar originally aired on October 15, 2020.

     

  • NAFA Administrator posted an article
    NAFA Webinar: Illegal Charter Issues see more

    Illegal Charter Issues

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association)

    This NAFA webinar originally aired on October 15, 2020.

  • NAFA Administrator posted an article
    NAFA Webinar: The Industry's Response to Aircraft/Facility Cleanliness and Safety see more

    The Industry's Response to Aircraft/Facility Cleanliness and Safety

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association)

    This NAFA webinar originally aired on October 15, 2020.

  • NAFA Administrator posted an article
    NAFA Webinar: Fitness for Flight see more

    Fitness for Flight 

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association)

    Fitness for Flight from NAFA on Vimeo.

    This NAFA webinar originally aired on October 15, 2020.

     

  • NAFA Administrator posted an article
    NAFA Webinar: How the Priorities of the Aviation Industry Have Changed see more

    NAFA Webinar:  How the Priorities of the Aviation Industry Have Changed

    The Global Pandemic has had a profound effect on the industry and the way we do business.  What long-term effect will the CARES act have?  What about sustainable fuels, pilot shortages, and insurance rates?  Have those been affected, too? 

    Come listen to our distinguished panel of experts discuss the many ways industry priorities have changed in 2020.

    Meet our Moderator and Panelists:

    Gil Wolin, Publisher, Business Aviation Advisor Magazine.

    Ed Bolen, President and CEO, NBAA (National Business Aviation Association) 

    Pete Bunce, President and CEO, GAMA (General Aviation Manufacturers Association)

    Tim Obitts, President & CEO, NATA (National Air Transportation Association)

    Mark Baker, President, AOPA (Aircraft Owners and Pilots Association) 

     

     

    This NAFA webinar originally aired on October 15, 2020.

  • NAFA Administrator posted an article
    Business Aviation Flight Hours at an All-Time Low see more

    NAFA member, JSSI, shares their April 2020 JSSI Business Aviation Index showing business aviation flight hours at an all-time low.

    Latest month-on-month activity drops 69.3% due to COVID-19

    CHICAGO,  May 19, 2020 – Business aviation utilization has reached a record low, according to Jet Support Services, Inc. (JSSI), as highlighted by a single-digit monthly flight hour average of 5.9 per aircraft across JSSI’s entire portfolio in April, marking a first for the company. Following its quarterly Business Aviation Index publication, JSSI has released April 2020 data revealing changes in global flight activity and utilization of business aircraft, including jets, turboprops and helicopters between March and April 2020.

    The key findings are:

    • Overall flight hours have reached all-time lows, with activity dropping 69.3% between March and April 2020.
    • Flight hours dropped 77.5% year-over-year.
    • Average flight hours per aircraft across the entire JSSI portfolio averaged 5.9 hours per asset in April 2020.
    • By age, the hardest hit segments were newer aircraft aged under five years, followed by aircraft aged 6-10 years. Both segments saw the two largest month-on-month decreases between March and April 2020.
    • Large cabin aircraft activity slowed the most. Since March 2020, activity has dropped by 84.7%.
    • Helicopters have felt the least impact on flight hours from COVID-19, with flight activity reduced by 27.5% since March 2020.
    • All regions have been hit hard in April 2020, with month-on-month decreases ranging from 48.5% (Asia Pacific) to 74.2% (Europe). Flight activity in every region worldwide is down an average of 27.2% compared to the same four-month period in 2019.  

    Discussing the April figures, Neil Book, president and CEO of JSSI, said:

    “March flight hours saw the largest decline since the global financial crisis of 2008. April’s flight hours are the lowest we have on record, down more than 75% compared to April 2019 and demonstrating the true impact of global lockdown restrictions and border closures since their implementation.”

    “Asia Pacific was the first region struck by COVID-19 and shut down the earliest. As the region has begun to reopen, flight hours in April have had a modest rebound. As a number of countries begin to ease restrictions and borders begin to reopen, we expect to see a slow but steady increase in flight hours worldwide for the month of May. However, we simply do not know how long it will take to get back to 2018 and 2019 levels. The time to market with an effective treatment or vaccine will clearly be the driver of this timeline.”

    “In April, the healthcare industry had the strongest flight hours. This could allude to the utilization of these aircraft for air ambulance and medical supply transportation, a trend continued from our Q1 2020 analysis.”

    “The largest demographic of business jet owners are males over the age of 60, who fall into a “high-risk” category for COVID-19. I’ve had extensive conversations with clients who’ve said they are going to significantly reduce their flying, because they simply will not be attending conferences or staying at hotels at least for now.

    “With that said, we are already seeing a significant number of new users migrating to a wide range of business aviation options, such as jet card, charter, fractional and even outright ownership. For many businesses and individuals with the resources, the health risks associated with walking through a commercial airport with thousands of people and getting onto a commercial flight is simply too great.”  

    Download the April 2020 JSSI Business Aviation Index.

    This article/release was originally published by JSSI on May 19, 2020.

  • NAFA Administrator posted an article
    Overview of the GAO Report on FAA see more

    In March of 2020, at the request of Congressmen Stephen Lynch and Peter King with the Subcommittee on National Security and the Committee on Oversight and Reform, the GAO released its long-awaited report on the FAA Registry’s ability to handle fraud and abuse risks in aircraft registrations.  As the title of the report clearly implies, the GAO found that the FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration.  

    More specifically, however, the report found that the FAA needs to better review and vet the actual owners of aircraft.  As we all know, the FAA currently takes filed documents at face value, and records them if they meet certain requirements as set by the FAA itself.  While the rest of the industry has been subject to more and more demands to Know Your Customer, and to adhere to KYC and OFAC guidelines, the FAA has remained immune.  This report suggests that it is time for the FAA itself to do more due diligence and better vet the entities registering aircraft on its registry.

    There is also a clear need to allow law enforcement agencies more access to the data contained in the FAA registry.  Currently, registration information is mostly provided in .pdf format which is not easily searchable or accessible.  Many law enforcement agencies expressed frustration with an inability to have easy access to this information, and the report outlines opportunities for the FAA to be a center point to house data that could help law enforcement agencies to not only have better access to information, but to potentially allow for better cross-agency coordination to crack down on illegal activity involving the registration and use of general aviation aircraft.  

    The report seems to focus on increasing transparency in “Opaque Ownership Structures” for registering aircraft, which the GAO believes are at the highest risk for fraud and abuse.  Opaque Ownership Structures are legitimate business structures that are widely used by corporations and individuals to facilitate commerce as well as for asset and tax management. However, they lack transparency related to aircraft registrations and can create challenges for safety and law-enforcement investigators seeking information about beneficial owners to support timely investigations. 

    These ownership structures can include the following:  

    • shell companies, especially in cases where there is foreign ownership that is spread across jurisdictions; 
    • complex ownership and control structures involving many layers of shares registered in the name of other legal entities;
    • formal nominee shareholders and directors where the identity of the beneficial owner is undisclosed;
    • trusts and other legal arrangements that enable a separation of legal ownership and beneficial ownership of assets; 
    • use of intermediaries in forming legal entities, including professional intermediaries.  

    It is worth noting that the report specifically excludes publicly traded companies, shifting the focus of these security measures away from commercial airlines and towards the general aviation industry.  

    On pages 58-59 of the report, the GAO outlined 15 recommendations for Executive Action by the FAA.  Many of the recommended improvements to the FAA system are expected to be implemented in the FAA’s modernization project, slated to be completed by October 2021.  Generally speaking, the modernization project is expected to help streamline and automate the aircraft registration process,  and make the FAA records available to the public at all times.  The GAO report includes recommendations for using this new system to improve the FAA’s vetting process of owners registering aircraft on the FAA’s system, and using that technology to allow law enforcement officials more access to registry data.  Initial conversations with the FAA indicate they are on track to complete this project by the stated October 2021 deadline.  

    While the GAO has many recommendations to the FAA, there are still many questions to be answered.  These are the Top Issues we have identified:

    • The biggest unanswered question causing the most consternation in the industry, is the one involving transparency of ownership information.  How much transparency will there really be?  Will all aircraft ownership information be made available to the public, or only some?  Will there be sections of registry data that remain “private” and only made available to authorized government agencies?  That remains to be seen.  
    • Possibly the second largest question includes cost.  The report is clear that the $5 filing fee set in 1964 is not enough to cover even today’s operating expenses, much less the costs to modernize the system.  FAA has been talking about increasing registration costs for years, so an increase can likely be expected, but the question of how much remains to be answered.   How much will it cost to register an aircraft in the future?  
    • Time is money, so questions about increases in registration time also remain.  If FAA will be doing more vetting of its registrants, how much time will that take?   How much longer will it take to register an aircraft with the FAA?  What will this do to aircraft closing timelines?
    • Lastly, there is the issue of international operations.  The report expresses clear concern for FAA’s ability to issue Declarations of International Operations without knowledge or consent of specific law enforcement agencies.  FAA currently expedites requests for international flights on a daily basis for the general aviation community, but will they be able to do that in the future?  Or will there be a more stringent system of checks and balances required to issue Declarations of International Operations?  And how long will it take to finally have one issued?

    The FAA has yet to officially respond to the GAO’s report, but they have updated their website on the CARES Initiative to enhance and modernize the FAA registration services.  To learn more about it, you can go to their website here:  https://www.faa.gov/about/initiatives/cares/

    Furthermore, on March 30, 2020, they issued their Third Request For Information, requesting information from the industry.  To participate, click here:  https://beta.sam.gov/opp/8b7d6e20940d4d5b8b4e8e9e76a991b3/view  

    As NAFA members, it is important that we participate in any proposed changes to the FAA registration process as much as possible.  To the extent that you have time to fill out the FAA’s RFI, we encourage our members to do so. 

    NAFA will continue to monitor the proposed changes and the FAA’s eventual response and will report those to the membership.  

    The full report can be found here:  https://www.gao.gov/assets/710/705505.pdf

     

  • Tracey Cheek posted an article
    Industry Leaders Praise Passage of More Relief Funding see more

    Industry groups welcomed U.S. congressional approval this week of additional funding for the Paycheck Protection Program (PPP), saying it provides the opportunity for much-needed relief for small aviation businesses. The nearly $500 billion measure—which included more than $300 billion to replenish the depleted PPP fund with $60 billion set aside for small lenders—passed the House yesterday, following Senate passage on Tuesday.

    “We are very pleased to see Congress respond to the continuing, highly challenging needs of many small businesses and their employees,” said NBAA president and CEO Ed Bolen.

    Noting the majority of Helicopter Association International’s membership comprises small businesses, HAI president and CEO James Viola added, “Like most small businesses around the world, they are suffering from the effects of the economic disruption caused by the Covid-19 pandemic.”

    The business and general aviation community have been working to ensure Congress understands the harm the Covid-19 pandemic is having on the industry and continues to seek further assistance as Congress considers future measures.

    This is particularly true as smaller carriers are still struggling to obtain resources for that and funding that was specifically set aside for aviation. “We are hearing stories of difficulties with the PPP and the Air Carrier Worker Support Program,” NATA president and CEO Timothy Obitts said, adding the organization is continuing to educate and push for access to all available relief programs.

    “As Congress considers additional legislation related to the Covid-19 pandemic, NATA has already begun discussions with key policymakers regarding the need for additional support for our industry,” said Jonathon Freye, NATA vice president of government and public affairs.

    Alluding to a possible fifth economic stimulus package, HAI pointed to “much-needed additional funding,” and said it would continue to impress upon Congress the importance of keeping the industry viable.

    This article was originally published by AINonline on April 24, 2020.

  • Tracey Cheek posted an article
    What Lies Ahead for Business Aviation After COVID-19? see more

    NAFA member, NBAA, shares their recent NBAA Flight Plan podcast regarding the future of business aviation post COVID-19. 

    Business aviation has never faced a situation like the COVID-19 pandemic, and it’s no secret that both U.S. domestic and international business aviation operations have fallen dramatically over the past few months. How long should we expect these challenges to last, and what lies ahead for our industry? “We’ve been trained as a society to stay away from other people in a very short time,” notes industry analyst Brian Foley. “So I could make the case that business aviation will come back a little sooner than the airlines, and certainly those in the industry will take the demand as it comes and do what they can with it.”

    In this episode of NBAA Flight Plan, host Rob Finfrock speaks with:

    • Brian Foley, president of aerospace research and guidance firm Brian Foley Associates and contributor to Forbes.com
    • Doug Gollan, Forbes.com contributor and editor in chief of PrivateJetCardComparisons.com

    Listen to the podcast here.  

    This article was originally published by NBAA on April 20, 2020.

  • Tracey Cheek posted an article
    CARES Act Includes Tax Provisions Affecting Business Aircraft Operators see more

    NAFA member, John B. Hoover, Partner at Holland & Knight, LLP, discusses the CARES Act tax provisions that affect business aircraft operators.

    This information is intended to provide members with an introduction to tax provisions in the CARES Act. Readers are cautioned that this information is not intended to provide more than an introduction to the subject matter, and since the materials are necessarily general in nature, they are no substitute for seeking the advice of legal and tax advisors to address your specific business/personal needs. Download a copy of this article in PDF format.

    The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) was signed into law on March 27, 2020. It includes numerous relief provisions that may benefit companies operating business aircraft. In addition, the CARES Act provides a tax holiday for the remainder of 2020 from the federal excise tax on air transportation and amends several income tax code sections that may affect owners and operators of business aircraft.

    Given the complexity of these tax law amendments, this resource offers only a general description of the amendments. For details regarding the calculations and their application to fiscal years, please refer to the statute.

    Federal Excise Tax (CARES Act § 4007; I.R.C. § 4261)

    The CARES Act provides that the federal excise tax (FET) on air transportation under Internal Revenue Code (I.R.C.) §§ 4261 and 4271 does not apply to amounts paid during the excise tax holiday period from the day after enactment of the CARES Act (i.e., from March 28, 2020) through the end of calendar year 2020. This means that FET does not need to be collected on amounts paid for charter flights, time share flights, or any other flights, irrespective of whether the flights are conducted under FAA Regulations Part 91, 135 or otherwise.

    During this excise tax holiday period, no fuel tax will be required to be collected on jet fuel used for commercial aviation. If fuel tax is collected on kerosene used for commercial aviation, then the purchaser can request a refund of such fuel tax. The foregoing exemption does not apply to the 0.1 cent per gallon Leaking Underground Storage Tank (LUST) tax. This means that only the 0.1 cent LUST tax is ultimately due on fuel purchased for commercial aviation.

    The definition of commercial aviation for tax purposes is generally based on whether air transportation is provided for compensation or hire, and it is not tied to the FAA Regulatory definition. I.R.C. § 4083(b). Accordingly, only the 0.1 cent LUST should ultimately apply to typical charter flights and flights conducted pursuant to a time sharing agreement. However, the full fuel tax amount (21.9 cents or 24.4 cents per gallon) would apply to fuel purchased for use in noncommercial operations such as when a company purchases fuel for use in operating its aircraft for flights conducted for its own business.

    Fuel purchased for fractional program aircraft is subject to the fuel tax on fuel used for noncommercial aviation (21.9 cents or 24.4 cents per gallon) plus a surtax of 14.1 cents per gallon. Since the excise tax holiday does not apply to fuel for noncommercial aviation or the surtax, the fuel taxes paid by fractional program operators would not appear to be affected by the excise tax holiday.

    Limitation on Deduction of Business Interest (CARES Act § 2306; I.R.C. § 163(j))

    Under the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) beginning in 2018, taxpayers’ deductions of business interest expense were limited to 30% of adjusted taxable income (generally net business income). The excess business interest was not deductible and was treated as business interest expense subject to the limitation in the next year.

    Although the deduction limitation applied beginning in 2018, adjusted taxable income is calculated without deducting depreciation in 2018 through 2021. In the case of partnerships and S corporations, the interest deduction limitation was determined at the entity level. The deduction limitation generally did not apply to taxpayers with gross income below $25 million (determined by aggregating income of related entities).

    This limitation is particularly important in the case of business aircraft that are financed. After the three-year grace period during which depreciation is not deducted in calculating adjusted taxable income, this limitation will become even more relevant to business aircraft.

    The CARES Act increases the interest deduction limit from 30% of adjusted taxable income to 50% of adjusted taxable income in 2019 and 2020. This temporary increase in the limitation provides some relief to owners of business aircraft. (Taxpayers can elect out of this increased deduction limit.)

    There is an exception to this temporary relief in the case of partnerships (although not for S corporations). While the 50% limit applies to partnerships in 2020, it does not apply to partnerships in 2019. Instead, a special limitation applies to partnerships in 2019. Under the special rule, the 30% limit applies, and if the partnership has any excess business interest expense, 50% of the excess is allowed as deductible business interest in 2020 (unless the partner elects out of this special rule). The other 50% of excess business interest is carried over like other excess business interest.

    Taxpayers can also elect to use their 2019 adjusted taxable income to calculate their business interest deduction limitation for 2020. This special rule provides some relief for taxpayers whose taxable income decreases in 2020.

    Net Operating Losses (CARES Act § 2303; I.R.C. § 172)

    Owners of business aircraft may incur Net Operating Losses (NOLs), particularly due to large depreciation deductions. Under the TCJA, effective generally with respect to NOLs arising in 2018 or subsequent years, NOLs could only be carried forward (not back) and could be deducted against only 80% of taxable income in future years. Under the CARES Act, these limitations are temporarily relaxed.

    Under the CARES Act, NOL carryforwards can offset 100% of taxable income in 2020 or earlier years. In 2021 and later years, taxpayers can deduct: (1) NOL carryforwards arising in 2017 and earlier years against 100% of their taxable income (because the TCJA 80% limit did not apply to NOLs arising in 2017 and earlier years), and (2) NOL carryforwards arising in 2018 and later years against up to 80% of their taxable income. Also under the CARES Act, NOLs arising in 2018, 2019, and 2020 can be carried back 5 years. Allowing NOL carrybacks can be particularly valuable to corporations in view of the higher corporate income tax rates prior to 2018.

    Excess Business Losses (CARES Act § 2304; I.R.C. § 461(l))

    Beginning in 2018 under the TCJA, individuals’ deductions of net business losses were limited to $250,000 for single taxpayers and $500,000 for married taxpayers. Their excess business losses were carried forward as NOLs. In the case of partnerships and S corporations, this loss limitation was imposed at the partner or shareholder level. The business losses subject to this rule included active trade or business losses and any otherwise allowed passive losses.

    This provision can be especially important to business aircraft owners who incur large depreciation deductions that result in business losses. However, since excess business losses were carried forward as NOLs, and as NOLs they were not subject to the excess business loss limit in future years, the limitation on excess business losses often resulted in only a one-year delay in the deduction.

    Nevertheless, the excess business loss limitation was problematic for taxpayers who reported large capital gains from the sale of a business in the same year that they incurred large business losses from depreciation deductions on aircraft. In that situation, the excess business loss from aircraft depreciation would result in NOL carryforwards to future years, which may not be deductible if the taxpayer had no significant business income in future years.

    Under the CARES Act, the excess business loss limitation is retroactively amended so that it does not apply in 2018, 2019, and 2020. Instead, it first applies in 2021.

    The CARES Act also made changes to the excess business loss calculation, which will become relevant when the limitation applies in 2021. The calculation of net business losses that could be taken into account under the TCJA appeared to include salaries and wages income, but the CARES Act clarifies that such income is excluded from the calculation. In addition, the CARES Act clarifies that gains from sales of capital assets are only included if such gains are attributable to a trade or business, and losses from sales of capital assets are excluded entirely.

    Acknowledgements: NBAA thanks Tax Committee member John B. Hoover for contributing this article for the benefit of members. Hoover is a partner with NBAA member Holland & Knight, LLP, specializing in business aviation tax matters. He can be reached at 703-720-8606 or by email.

    This article was originally published by NBAA on April 2, 2020.