business aircraft

  • NAFA Administrator posted an article
    AINsight: 5 Incentives To Finance Business Aircraft see more

    NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, shares five important incentives when financing your next business jet.

    The business aviation industry has encountered intense downdrafts this year connected to the Covid-19 pandemic. Ironically, the same forces have increased certain charter flights, spurred newcomer acquisitions of whole and fractional shares in aircraft, and highlighted the value of business aviation.

    Concurrently, the August 27 issue of JetNet iQ Pulse revealed significant untapped interest in borrowing or leasing (financing) to make aircraft acquisitions, stating: “Since the onset of the Covid-19 pandemic and amongst respondents with an opinion, about two-thirds indicate that they plan to use some sort of financing to acquire their next new aircraft.”

    Understanding Today’s Aircraft Finance Markets 

    A few brief insights into the two dominant types of aircraft financing, “true leases” and secured loans, will help understand the interest in financing jet aircraft in a market typically dominated by cash purchases.

    A true aircraft lease is a transfer by an owner/lessor of the right to possession and use of the aircraft to a lessee for a lease term in return for rent and other consideration/value. In a true lease, the lessor provides 100 percent financing by purchasing the aircraft and leasing it to the lessee.

    Lessors expect the lessee to return the aircraft to the lessor at lease expiration, buy it during or at the end of the lease term, or renew the lease. Lessees enjoy the corresponding rights to drop off the aircraft to the lessor and walk away (after meeting the aircraft return conditions), purchasing the aircraft, and renewing the lease.

    A typical aircraft secured loan requires a borrower to grant a “security interest”– a lien –on an aircraft to the lender/secured party to secure the borrower’s payment or performance obligations under the loan documents. A lender does not own the aircraft; it just has an interest in the aircraft as collateral.

    Customers typically borrow between 50 percent and 80 percent of the price of the aircraft and make up the difference with the customers’ cash or, for refinancing, the value of the equity in the aircraft. These percentages fluctuate up or down for different lenders and loan structures, with a relatively few lenders advancing up to 100 percent loan to the value of the aircraft agreeing to a term of up to 20-years.

    Five Incentives To Finance Business Jets      

    Most customers in the U.S. have at least five incentives to finance their next (or first) aircraft:

    • Cheap money. The Federal Reserve (FR) recently announced a policy shift that the FR will average inflation rates to allow about a 2 percent inflation rate before increasing interest rates to tame the inflation. The FRprojects that interest rates will remain near zero for years to come. Financiers should, for the foreseeable future, offer customers very low rates consistent with the FR action.

    • No to low cash outlay. Many potential customers should readily appreciate that, rather than stroking a check for a new or used jet, they can more prudently or profitably use their cash elsewhere in their businesses for capital expenditures, investments, or, particularly during the pandemic, working capital.

    • Tax write-offs. If the lessor adheres to applicable federal tax law, including the lessor’s maintenance of residual value under the federal true lease guidelines, the lessor may be entitled to claim bonus depreciation on the new or used leased aircraft per the Tax Cuts and Jobs Act of 2017.

    In a loan transaction, the borrower, as the owner, may be entitled to bonus depreciation of the aircraft and other tax write-offs allowed under the Coronavirus Aid, Relief, and Economic Security Act plus bonus depreciation despite some personal use of the aircraft.

    • Lessor/lender competition. Most aircraft lenders and lessors compete aggressively on interest rates or lease economics to win business to the extent consistent with their respective business models, regulatory constraints, and internal credit policies. However, financiers will, except for the most creditworthy customers, expect customers to sign documentation that contains strong covenants, defaults, and other restrictive terms on aircraft and business operations.

    • Customized lease and loan structures. Structuring lease and loans constitute an integral part of competition among financiers. To facilitate planning and cost management of aircraft operations, a lessor can, within tax and other limits, create flexible structures that contain fixed and variable rents, options to purchase the aircraft during the lease term or at lease expiration, terminate the lease during the lease term or renew the lease term at lease expiration.

    Lenders can offer various loan structures that drive down periodic loan payments and achieve other customer goals. These loans might include a payment term of five to 12 years, asset-based financing (that primarily relies on aircraft value for re-payment), one large “balloon” or total principal payment at the end of the loan term, 10- to 20-year amortization periods, interest-only structures, and limited personal guarantees. Borrowers should negotiate early payoff rights so they can, at will, exit the relationship, refinance the aircraft loan, or use available cash to pay off the loan.

    Conclusion

    Though cash is king for many aircraft buyers, up to 70 percent of potential business aircraft owners or operators intend to finance the acquisition of their next new aircraft. The same should roughly be true for anyone interested in acquiring a used aircraft.

    Such financing can afford these potential customers cheap interest/rent rates, no or low cash use, and an immediate opportunity to buy or lease aircraft. For the business aviation industry, any boost in transaction volume this year, prompted by an expansion of financing, would be most welcome and perhaps generate a little optimism for a better 2021.

    This article was originally published in AINonline on September 11, 2020.

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

    NAFA member, Tony Kioussis, President of Asset Insight, shares the August 31, 2020 market analysis revealing a second consecutive monthly inventory decrease to the tracked business aircraft fleet, along with a 2.1% Ask Price increase.

    As August ended, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,281 aircraft listed for sale equated to a 2.1% inventory fleet decrease compared to July, reducing the year-to-date (YTD) increase to 4.5%...

    Moreover, the tracked fleet’s Quality Rating increased 0.7%, posting a 12-month best figure, and the latest ‘for sale’ fleet mix registered a 0.2% decrease to the anticipated cost for upcoming maintenance events. August’s 5.329 Quality Rating moved the inventory further into the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.

    August’s Aircraft Value Trends

    The average Ask Price increased 2.1% in August, reducing the tracked fleet’s value decline since the start of 2020 to 3.0%. By aircraft group, the figures were as follows:

    • Large Jets: Posted a 0.4% reduction, for a YTD loss of 12.2%.
    • Medium Jets: The only group posting an Ask Price increase in August, pricing rose another 2.8% to bring the YTD loss down to 1.1%.
    • Small Jets: The one group to hold a YTD price increase, Small Jet prices were down 2.5%, reducing their increase for the year to 6.5%.
    • Turboprops: Ask Prices were down a nominal 0.1% in August, and are now off by 2.5% for 2020.

    August’s Fleet for Sale Trends

    The tracked fleet’s total number of aircraft listed for sale decreased 2.1% in August (50 units), reflecting a YTD inventory increase reduction to 4.5% (99 units).

    • Large Jet Inventory: Increased by 0.6% (three units) and is now up 15.5% (67 units) YTD.
    • Medium Jet Inventory: Availability once again decreased by another 3.0% (20 units) and inventory is now down YTD by 2.9% (19 units).
    • Small Jet Inventory: Posted the largest decrease this month among the four groups, 4.1% (28 units), and is now up 2.0% YTD (13 units).
    • Turboprop Inventory: The group posted its first monthly decrease since January, dropping 1.0% of its inventory (five units) to maintain a YTD increase of 8.4% (38 units.

    August’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) a nominal 0.2% in August to $1.416m, signaling upcoming maintenance for the latest fleet mix would be marginally lower. All four groups posted improvements (decrease) in August, including…

    • Large Jets: A 0.7% improvement, the figure remained better than the group’s 12-month average.
    • Medium Jets: A 0.6% improvement, virtually tying with the group’s best (lowest) 12-month figure.
    • Small Jets: A 2.6% gain, improving from July’s 12-month worst (high) figure.
    • Turboprops: A 0.7%improvement, posting the group’s second consecutive 12-month low (best) figure.

    August’s ETP Ratio Trend

    The inventory’s ETP Ratio fell (improved) to 70.9%, from July’s 71.2%, bringing the tracked fleet to a figure half way between its 12-month worst and average figures.

    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 Q2 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 53% longer than assets with an ETP Ratio below 40% (251 days versus 384 days). How did each group fare during August?

    • Turboprops: For a ninth consecutive month, Turboprops achieved the lowest ETP Ratio at 41.8%, unchanged from July’s 12-month low/best figure.
    • Large Jets: Worsened for the first time in four months, posting 63.2% (versus July’s 61.4%).
    • Medium Jets: Captured third place, improving to 71.7% from July’s 73.7%, a figure slightly worse/higher than the group’s 12-month average.
    • Small Jets: Posted the group’s second consecutive 12-month worst (highest) figure at 97.4%, further challenging sellers.

    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 August 2020.

    Most Improved Business Aircraft for August 2020, according to Asset Insight

    Most Improved Models

    All six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). From an Ask Price perspective, the Citation CJ1 posted a $77,143 Ask Price decrease, while the Gulfstream GIV-SP (operated under MSG3 maintenance rules) had no Ask Price change. The remaining models experienced the following price increases:

    • Dassault Falcon 50 (+$157,143)
    • Bombardier Learjet 40 (+$402,500)
    • Gulfstream GIV (+$27,389)
    • Beechcraft King Air 300 (+$237,167)

    Dassault Falcon 50

    Capturing August’s top position among the ‘Most Improved’ models is the Falcon 50. Two aircraft transacted during August, two were withdrawn from inventory, and one was added to create the current mix of 20 units (10.8% of the active fleet).

    Potential buyers need to keep in mind that these assets are now between 25 and 42 years of age. While the model made this list through a Maintenance Exposure decrease approaching $204k, along with an Ask Price increase exceeding $157k, the aircraft’s ETP Ratio, exceeding 98% should not be surprising.

    However, for assets whose engines are enrolled on an Hourly Cost Maintenance Program (HCMP), the Falcon 50’s HCMP-Adjusted ETP Ratio (accounting for the program’s value) might well place the asset below the 40% excessive Maintenance Exposure reference point.

    Bombardier Learjet 40

    We saw no transactions for this model during August, but one aircraft did join the inventory bringing the total to three (7.9% of the active fleet). The Learjet 40 made this list through a Maintenance Exposure decrease exceeding $71k, and an Ask Price increase approaching $403k.

    However, a closer look shows that the recent addition to the inventory is priced nearly 54% higher than the other aircraft showing Ask Prices. Though placing the Learjet 40 on this list might not seem equitable, the figures don’t lie and Asset Insight’s analytics will always be objective.

    Bombardier Learjet 40 private jet flies over fields

    Cessna Citation CJ1

    Third on this month’s ‘Most Improved’ list is a model that posted one sale in August and saw one aircraft enter the ‘for sale’ mix, maintaining a pool of 20 units (10.3% of the active fleet).

    A Maintenance Exposure decrease exceeding $263k, along with an Ask Price increase of more than $77k earned the CJ1 its place on the list. The CJ1’s 50.3% ETP Ratio is surprisingly low for an aircraft aged between 15 and 20 years.

    Gulfstream GIV

    Next is a model that found itself in second worst position among July’s ‘Most Deteriorated’ group. Swapping to this list through a Maintenance Exposure decrease approaching $226k, and an Ask Price increase exceeding $23k, the GIV’s 171.5% will, nonetheless not improve most sellers’ challenges.

    As if that were not enough, three transactions in August, an addition to inventory, and one withdrawal from the available fleet still left 20 aircraft listed for sale (12.1% of the fleet). As we mentioned previously, at the age of 27 to 34 years, this aircraft is beginning to approach financial obsolescence, so buyers must consider whether they’re purchasing a low-priced asset or one posing good value.

    Gulfstream GIV-SP (MSG3)

    Dropping from the top of July’s ‘Most Improved’ list to fifth place on August’s list is an aircraft whose 44.5% ETP Ratio should allow ample opportunity for sellers to structure transactions of reasonable value. The model achieved its position through no change in Ask Price, no change in fleet composition, but a Maintenance Exposure decrease exceeding $683k.

    As August ended, five aircraft were listed for sale, equating to only 5.6% of the active fleet. Did we mention that sellers should have ample opportunities to structure transactions…? Buyers will have to justify their offer if they wish to achieve a good price for an MSG3 GIV-SP.

    Beechcraft King Air 300

    The final aircraft to make the ‘Most Improved’ list did so thanks to a Maintenance Exposure decrease approaching $9k and an Ask Price increase exceeding $237k. During August, Asset Insight identified three sales.

    With the 17 aircraft available to buy representing only 8.9% of the active fleet, the model’s strong following, and 48.1% ETP Ratio, the stage is set for buyers to structure value-based transactions that also provide good prices for sellers.

    Most Deteriorated Business Aircraft for August 2020, according to Asset Insight

    Most Deteriorated Models

    Four of the six models on August’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase, while the Beechcraft King Air C90 posted an Ask Price increase of $4,008. The remaining models experienced the following price decreases:

    • Bombardier Challenger 601-3A (-$165,000)
    • Gulfstream G200 (-$377,667)
    • Bombardier Learjet 40XR (-$181,667)
    • Bombardier Learjet 45 w/APU (-$92,021)
    • Gulfstream G100 (-$197,500)

    Beechcraft King Air C90

    For the second consecutive month, the best aircraft among August’s ‘Most Deteriorated’ assets held the second-highest position on July’s ‘Most Improved’ list. The C90’s fall from grace was caused by a Maintenance Exposure increase exceeding $41k overshadowing a $4k Ask Price increase.

    Three aircraft sold in August, two joined the inventory, one was withdrawn from the available pool, and the remaining 46 aircraft equated to 11.9% of the active fleet for sale. This model has a strong following, but the average aircraft’s 124.2% ETP Ratio does not place sellers in a strong bargaining position.

    Bombardier Challenger 601-3A

    No stranger to this list, the CL601-3A recaptured a place in the ‘Most Deteriorated’ group thanks to a $169k Maintenance Exposure (would you believe) decrease along with a $165k Ask Price decrease.

    Two aircraft transacted in August and the 19 remaining ‘for sale’ units equate to 16.0% of the active fleet. With an ETP Ratio approaching 186%, sellers have few bargaining chips – even if the aircraft’s engines are enrolled on a HCMP.

    Gulfstream G200 private jet surrounded by clouds

    Gulfstream G200

    The third of four Gulfstreams occupying either list this month, the G200 posted one transaction during the month and three aircraft were withdrawn from the ‘for sale’ fleet. Still, that left 24 units available (10% of the active aircraft).

    The news for both buyers and sellers is quite positive: Sufficient selection exists for buyers to negotiate a deal with good value, while allowing sellers the opportunity to negotiate a reasonable selling price.

    The model posted a Maintenance Exposure increase exceeding $145k during August, along with an Ask Price decrease approaching $377k. With an ETP Ratio hovering around 54%, sellers with engines enrolled on a HCMP should see an adjusted ETP Ratio below 40%.

    Bombardier Learjet 40XR

    The second of three Learjets to occupy either of August’s lists attained its status through a Maintenance Exposure increase exceeding $64k and an Ask Price decrease approaching $182k. No aircraft transactions were recorded in August, but two assets joined the inventory increasing availability to 14.1% of the active fleet.

    With an ETP Ratio approaching 68%, sellers with aircraft whose engines are enrolled on a HCMP will have better opportunities to remarket their aircraft at a reasonable price, and in a reasonable timeframe.

    Bombardier Learjet 45XR (with APU)

    The Learjet 45XR (with APU) captured next to last place for some clear reasons. Its 76.3% ETP Ratio was caused by a Maintenance Exposure increase approaching $80k, along with an Ask Price decrease exceeding $92k.

    As if that will not pose substantial challenges for sellers, the one aircraft that transacted in August was replaced by three additions to inventory. The 23 units now available equate to 27.4% of the active fleet. If you’re trying to sell one of these assets, you should carefully consider any offers you receive.

    Gulfstream G100 flies over clear ocean

    Gulfstream G100

    Dead last on August’s ‘Most Deteriorated’ list was the G100, an asset whose 126.1% ETP Ratio was driven by a Maintenance Exposure decrease (no, that is not an error) exceeding $18k and an Ask Price decrease of $197.5k.

    It isn’t that a plethora of such aircraft are listed for sale, although the four in inventory (no sales in August) equate to 19.1% of the active fleet.

    The problem for sellers is the limited production (22 units) and age of these assets (14 to 19 years), placing them in a space where competitive aircraft are newer and often viewed as more efficient. The few buyers seeking these assets are most definitely in the driver’s seat.

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an HCMP where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer, while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com.

    This article was originally published by AvBuyer on September 16, 2020.

  • NAFA Administrator posted an article
    Podcast: Drafting Your Team see more

    Listen in as NAFA member, Chris Younger, with GKG Law, talks with Gil Wolin in a recent Business Aviation Advisor "Drafting Your Team" Podcast.

    It’s not your first rodeo. You’ve bought business aircraft before, and now it’s time to make another move. Maybe your travel requirements have changed, the upkeep on your current aircraft has gone through the hangar roof – or today’s financing and tax opportunities are better.

    Or maybe it is your first acquisition. Occasional charter was OK, but your travel schedule now requires immediate access to your own aircraft.

    In both cases, buying the right aircraft at the right price today requires the right knowledge and expertise! In Drafting Your Team, aviation attorney Chris Younger of GKG Law describes what expertise you’ll need to make sure your first – or next – business aircraft acquisition meets your business and personal requirements.

    When there’s more to be said than space and copy deadlines allow, you can rely on the Business Aviation Advisor “Above and Beyond” podcast series to get you the information you need, enabling you to make the most of your aviation investments.

    Click here to listen to the podcast. 

    This podcast was originally published by Business Aviation Advisor on August 23, 2020.

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

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

    The number of aircraft transactions continued to be fewer than normal in May, primarily owing to uncertainty over the COVID-19 pandemic. Assets listed for sale continued to increase at a slower pace, but which models were impacted most? 

    During May 2020, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,324 aircraft listed for sale equated to a 0.7% inventory fleet increase over April, and a year-to-date (YTD) increase of 6.5%.

    While the fleet remained within the ‘Excellent’ range, posting a figure of 5.301 in May, the Quality Rating was lower than in April (5.311) on Asset Insight’s scale of -2.5 to 10.

    A more detailed examination of May’s inventory fleet mix revealed fewer near-term maintenance events, but individual event costs are anticipated to run slightly above the 12-month average.

    May’s Aircraft Value Trends

    Average Ask Price for the tracked fleet decreased another 4.4%, following April’s 1.6% reduction, with May’s pricing approximately half-way between the 12-month average and high figures. All four groups contributed to the decrease:

    • Large Jets: Ask Prices fell 6.4%, leaving them at their 12-month average.
    • Medium Jets: Ask Prices decreased 3.9%, virtually equidistant between the group’s 12-month high and average figures.
    • Small Jets: Ask Prices decreased 1.3% to only slightly lower than their 12-month high posted in April.
    • Turboprops: Lost 2.3%, but prices remained above the group’s 12-month average.

    May’s Fleet for Sale Trends

    The tracked fleet’s total number of aircraft listed for sale increased 0.7% in May (5.8% YTD). That’s a month-over-month increase of 16 units in May, and 142 units YTD.

    • Large Jet Inventory: Increased 1.0% (five units), and 13.5% YTD (+58 units).
    • Medium Jet Inventory: Rose another 0.3% (two units) for May, and 1.1% YTD (seven units).
    • Small Jet Inventory: Decreased 0.3% (two units) in May, but the total YTD increase is 9.0% (+58 units).
    • Turboprop Inventory: Increased another 2.4% (+11 units) during May, and is now up 4.2% (+19 units), YTD.

    May’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (worsened) 0.9% to $1.39m, meaning upcoming maintenance for the current fleet mix would be a bit more expensive to complete.

    The figure was slightly worse than the $1.385m 12-month average, and individual results were as follows:

    • Large Jets: Worsened (increased) 1.7% for the month, but remained better than their 12-month average.
    • Medium Jets: Worsened (increased) by 0.6%, but also managed to maintain a better (lower) figure than their 12-month average.
    • Small Jets: Worsened (increased) 1.1% to post the group’s second consecutive 12-month worst (highest) figure.
    • Turboprops: Improved (decreased) 1.8% to a Maintenance Exposure only slightly worse than the group’s lowest (best) 12-month figure.

    May’s ETP Ratio Trend

    The fleet’s ETP Ratio was unchanged during May 2020 at 69.8%, a figure half-way between the 12-month high and the 12-month average Ratio.

    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 Q1 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 68% longer than assets with an ETP Ratio below 40% (245 days versus 413 days). How did each group fare during May?

    • Turboprops: At 43.5%, the group maintained the top (best) spot by posting the lowest ETP Ratio – a figure only slightly worse than April’s 43.2%.
    • Large Jets: Worsened from April’s 64.4% to 66.0% in May, but remained in second place.
    • Medium Jets: Remained in third position by posting a second consecutive 12-month low (best) figure of 71.2%, following April’s 72.3%.
    • Small Jets: Deteriorated from April’s 87.8% to 88.5%, slightly increasing the selling challenge for most assets.

    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 May 2020.

    Read the full report here.

    This article was originally published by AvBuyer on June 19, 2020.

     

  • NAFA Administrator posted an article
    Webinar: Ready to Buy & Fly? see more

    Educational Webinar Covers Best Practices & Acquisition Strategies Teaming Strategies

    Are you thinking about purchasing an aircraft? It can be an overwhelming experience, especially if you’re a first-time buyer, but there are experienced industry professionals who are ready to help.

    In a free educational webinar on May 28 2020, Essex Aviation President and CEO Lee Rohde joined GKG Law Principal Chris Younger to talk about everything you need to know when it comes to purchasing an aircraft.

    The webinar, Ready to Buy & Fly? Best Practices & Teaming Strategies for a Successful Aircraft Acquisition, includes resources, tips, and information on the following topics:

    • Steps to a successful aircraft transaction (including a week-by-week timeline!)
    • The necessary parties you should include when it comes to purchasing a plane, including:
      • CFO, CEO, and the COO
      • Corporate general counsel
      • An aircraft technical consultant
      • Commercial lender
      • And many more
    • Key closing checklist items
    • Potential post-closing issues
    • Net operating loss (NOL) carrybacks and The Coronavirus Aid, Relief, and Economic Security (CARES) Act

    Essex Aviation handles everything from new and pre-owned aircraft acquisitions to private jet charter counseling and membership. GKG Law works with purchase and sale transactions, aircraft ownership, federal and state tax planning, aircraft ownership trusts, and more.

    To find out more about purchasing an aircraft or to ask our industry experts any questions, contact Essex Aviation today.

    View Webinar Here

    This webinar hosted by Essex Aviation and GKG Law originally aired on May 28, 2020.

     

  • NAFA Administrator posted an article
    Aircraft Insurance Considerations in a Tightening Insurance Market see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses aircraft insurance claims in a tightening insurance market.

    The recent uptick in insurance claims in the commercial airline world and in general aviation have caused a tightening of the aviation insurance market. As a result, many of my clients are seeing an increase in insurance premiums, limitations on conditions previously granted, and in some cases are unable to obtain the amount of liability coverage they would like to procure.

    As a result of the price increases, some of my clients have been seeking alternative insurance for their aircraft. However, as with all insurance, not all insurance providers and policies are the same. It is important for owners to identify an aviation insurance broker who can explain the different types of coverage available and the exclusions that may limit that coverage. Recently my client was comparing two policies and focusing on the annual premium instead of what amounts and types of coverage were provided for the annual premium. It turned out that certain amounts of coverage under the liability policies were very different, thus reinforcing the need to focus not just on the annual premium when comparing policies.

    It is important to find one qualified broker and allow that broker to canvass the market. It is bad practice to have multiple brokers shopping the market for coverage for the same aircraft. In fact, it may make it impossible for any broker to obtain quotations or binding coverage.

    There is a rating system for insurers and it is important for owners to know and understand that rating system. The A.M. Best rating reflects an insurance company’s financial strength and its ability to meet contractual obligations. The rating categories range from A++ to F (in liquidation). Providers with less than an “A-” Best rating generally should not be considered, and many established brokers will not offer insurance with a lower rating. Owners should also know and understand what exclusions apply to the insurance contract.

    As is the case with all insurance policies, it is important to have the coverage you need when you need it. Coverage in aviation policies may vary if the aircraft is modified, flight crew qualifications change, normal routes of travel are changed, or travel outside the United States takes place. Before changing flight crews, modifying training programs or traveling outside the country, be sure to check the policy and check with your broker. There have been too many cases where a policy was not in effect due to a change in business practices or travel areas.

    The basic types of aviation insurance coverage are physical damage to the aircraft (hull insurance) and aircraft liability insurance. Hull insurance provides for payment to the owner of the aircraft for physical loss of or damage to the aircraft, including engines, propellers, instruments and equipment usually and ordinarily attached to the aircraft. Liability insurance covers the liability to others for bodily injury and property damage resulting from the ownership or use of the aircraft. Most liability policies offer coverage for the defense of lawsuits brought against the insured resulting from a covered peril, even if the suit is groundless. The amount of liability coverage, including any deductible, will depend on the owner’s risk tolerance and factors such as the number of passenger seats in the aircraft, average passenger load, passenger profile, number of pilots, pilot qualifications and any umbrella policy.

    When owning or operating an aircraft, the aircraft owner/operator often enters into agreements related to the aircraft, including, but not limited to, lender documents, time share agreements, dry leases, pilot services agreements, management services agreements and hangar agreements. It is important to understand the insurance requirements under all of these agreements and prior to execution, the agreements should be reviewed and approved by the insurance provider to make sure that there will not be an issue with any claim as a result of the agreement executed for the ancillary services.

    In a tightening insurance market, it is understandable that an aircraft owner/operator would focus primarily on premium costs when selecting aviation insurance. However, in the long run, an aircraft owner/operator would be better served obtaining the best available policy with appropriate liability limits, and fully understanding the terms and exclusions of the policy, rather than waiting until after an occurrence to focus on such details- by then it may be too late.

    This article was originally published in BusinessAir Magazine, March 2020, Volume 30, No. 3 on May 12, 2020.

  • NAFA Administrator posted an article
    A Capital Option see more

    NAFA members, Keith Hayes, PNC Aviation Finance, and Lou Seno, JSSI, discuss operating leases in the latest Business Aviation Advisor podcast.

    It’s time to think about rebuilding your business.

    And doing so as soon as it’s safe will require traveling via business aircraft, to reconnect personally, face-to-face, with your key customers, allies, and associates.

    It also may require redeploying your capital to fund those rebuilding efforts. Using an operating lease to finance your aircraft can help you do just that.

    Listen as Keith Hayes, PNC Aviation Finance Senior Vice President, and Lou Seno, JSSI Chairman Emeritus, detail how financing a new aircraft – or refinancing your current one – via an operating lease enables you to devote more capital to your core business.

    When there’s more to be said than space and copy deadlines allow, you can rely on the Business Aviation Advisor Above and Beyond podcasts to get you the information you need, to help you make the most of your aviation investments.

    Thanks for reading, listening – and flying safely!

    Listen to Podcast here

    This podcast was originally published by Business Aviation Advisor on May 18, 2020.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – January 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, discusses which business aircraft showed the most improvement and deterioration in terms of their maintenance exposure to ask price ratio during January 2020, and what the market factors impacting those models were. 

    During January 2020, the average Ask Price for aircraft in Asset Insight’s revised, and substantially expanded, tracked fleet increased 16.8%. Which models were impacted the most? Tony Kioussis explores.

    In January, Asset Insight expanded the number of aircraft in its tracked fleet of 134 fixed-wing models, and the new inventory mix posted a 1.6% unit decrease to 2,147 aircraft for sale, compared to the 2,182 assets comprising the same make/model list in December.

    Asset quality improved 1.3% during the month, from December’s 5.206 to 5.272, a 12-month best figure that moved the Quality Rating from ‘Very Good’ into the ‘Excellent’ range on our scale of -2.5 to 10.

    Additionally, at $1.332m, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the lowest (best) 12-month figure for the second consecutive month.

    January’s Aircraft Value Trends

    During January, the average Ask Price for aircraft in the expanded fleet increased 16.8%, with all four groups contributing.

    • Medium Jets led the way through an increase of 22.7%
    • Large Jets were a close second rising 22.4%
    • Turboprop Ask Prices increased 10.2%
    • Small Jets increased 1.6%.

    January’s Fleet for Sale Trends

    The total number of used aircraft listed for sale decreased 1.6%, although this comprised a larger overall fleet size by virtue of the increase in tracked models. Total tracked inventory decreased 35 units with individual group figures breaking down as follows:

    • Large Jet inventory: Increased 0.9% (+4 units since December 2019)
    • Medium Jet inventory: Decreased 7.0% (+46)
    • Small Jet Inventory: Increased 5.9% (+38) and
    • Turboprop inventory: Decreased 6.9% (+31)

    January’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased 1% to post a 12-month low figure in January. Individual results were as follows:

    • Large Jets: Increased (worsened) by 2%, based on January’s expanded fleet mix;
    • Medium Jets: Maintenance Exposure improved (decreased) 1.7%;
    • Small Jets: Worsened by increasing 6.5% due, in part, to the new fleet mix;
    • Turboprops: Improved by 10.5% as a result of the new models added in January.

    January’s ETP Ratio Trend

    The latest fleet mix increased (worsened) the average ETP Ratio to 72%, from December’s 64.8%, but Turboprops posted a respectable improvement (decrease).

    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) increase, in many cases by more than 30%.

    During Q4 2019, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 84% longer than assets with an ETP Ratio below 40% (215 versus 395 DoM). How did each group fare during January?

    • Turboprops held the top (best) spot by a wide margin posting the lowest ETP Ratio, 42.6% (a 12-month low/best figure for this group and a substantive improvement on December’s 52.1%);
    • Large Jets held on to second place, but the 70.7% Ratio represented the group’s record high (worst) figure;
    • Small Jets captured third position but worsened from December’s 67.3% to 76.8%;
    • Medium Jets took last place while posting the group’s record low (worst) figure of 87.4% compared to December’s 75.5%.

    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 January 2020.

    Most Improved Models

    Four of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement), while the Hawker 1000A and the Falcon 900 experienced a Maintenance Exposure increase. Excepting the Citation VI, which had no Ask Price change, the remaining five models experienced price increases as follows:

    • Hawker 1000A $264,250
    • Beech King Air C90 $17,714
    • Cessna Citation ISP $14,409
    • Gulfstream GIV $189,141
    • Dassault Falcon 900 $1,700,000

    Asset Insight Most Improved Aircraft - January 2020

     

    Hawker 1000A

    The Hawker 1000A captured top spot on the ‘Most Improved’ list, following its third place showing on December’s list after occupying the ‘Most Deteriorated’ slot in November. No transactions were posted for January, but two transactions were confirmed for December after we closed out that month.

    There were nine assets listed for sale at the end of January, equating to 22.5% of the active fleet. The model earned its top spot via a 17.6% ETP Ratio improvement thanks to a Maintenance Exposure decrease approaching $13k, along with a substantial Ask Price ‘increase’, but only because the two least expensive aircraft were the ones that changed ownership.

    Seller Advice: With current listings averaging an Ask Price 53% higher than December’s average trading value, along with an average ETP Ratio of 91.4%, sellers should carefully consider offers that, on first blush, may appear to be low.

    Cessna Citation VI

    The Citation VI took second place on January’s ‘Most Improved’ list thanks to a Maintenance Exposure decrease exceeding $170k that played well with no change in the model’s Ask Price.

    One aircraft transacted in January, and the seven inventory units amount to 20% of the active fleet for sale. With an ETP Ratio exceeding 115%, sellers need to be sure before turning down any offers. Buyers are likely to be few and far between.

    Beechcraft King Air C90

    This model posted four transactions in January and 43 units remained for sale (10.8% of the active fleet). The King Air C90 joined the Most Improved list due to a 14.5% ETP Ratio improvement, and this was thanks to a Maintenance Exposure reduction approaching $53k and an Ask Price increase.

    Although the C90 fleet is between 38 and 49 years of age, this aircraft continues to enjoy a decent following. Its current ETP Ratio of 113.2% will create difficult decisions for some sellers, but there is sufficient market interest for most owners to find buyers, assuming they are realistic about the market’s view of their asset’s value.

    Cessna Citation ISP

    The Citation ISP found itself in this same position in November, and was on the ‘Most Deteriorated’ list in December. The 13.1% ETP Ratio improvement resulted from a near $66k decrease in Maintenance Exposure, along with an Ask Price increase exceeding $14k.

    Four transactions were posted in January, but 55 units were listed for sale at the end of the month (19.6% of the active fleet). The model’s current 94.3% ETP Ratio places buyers squarely in the driving seat.

    Gulfstream GIV

    Two aircraft joined the ‘for sale’ fleet in January, and with no transactions being posted, inventory rose to 25 units (14.3% of the active fleet). The model has demonstrated resilience over the past few years and earned its place on this list by virtue of an $18k Maintenance Exposure decrease along with an Ask Price increase exceeding $189k.

    However, at 27 to 34 years of age, and carrying an ETP Ratio of 131.5%, one wonders how much longer GIV aircraft that are not covered by an engine Hourly Cost Maintenance Program will be truly marketable.

    Dassault Falcon 900

    The final model joined this month’s ‘Most Improved’ list on technical grounds and proved, yet again, why small fleets can create misleading statistics. No Falcon 900s transacted in January, the lone December inventory aircraft was withdrawn, and two other units entered the for-sale fleet.

    These changes led to a $338k Maintenance Exposure increase, but a whopping $1.7m Ask Price increase helped secure a place for the Falcon 900 on the list. The problem is, the latest listings are priced over 60% higher than the withdrawn aircraft, making the Ask Pricing difficult to achieve while also artificially enhancing the group’s ETP Ratio.

    Hope is never a well-founded strategy.

    Most Deteriorated Models

    All six models on January’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Cessna Citation II and the Gulfstream GV posted an Ask Price increase of $5,504 and $249,167, respectively. The remaining models registered the following decreases:

    • Hawker 800A   -$64,968
    • Bombardier Global Express -$426,250
    • Piaggio P-180   -$58,696
    • Dassault Falcon 900B -$367,500

    Asset Insight Most Deteriorated Aircraft - January 2020

     

    Hawker 800A

    January’s ‘Most Deteriorated’ model posted no transactions during the month, and the 33 units listed for sale accounted for 14.3% of the active fleet. To achieve its position on this list, the Hawker 800A posted a Maintenance Exposure increase approaching $149k, and an Ask Price reduction approaching $65k.

    With a listed fleet ETP Ratio of 191%, any seller whose aircraft engines are not enrolled on an Hourly Cost Maintenance Program is likely to keep flying their aircraft until it reaches the salvage yard.

    Cessna Citation II

    The Citation II was second-best on the ‘Most Improved’ list in December, so how did it get here one month on? A Maintenance Exposure increase exceeding $93k was the primary culprit, but its problems do not stop there.

    Two units transacted in January, one was withdrawn from inventory, and five more aircraft joined the fleet to offer buyers a selection of 95 assets (18.5% of the active fleet) sporting an ETP Ratio of 108.8%.

    Seller Advice: If an offer comes your way, consider it a gift no matter how small!

    Bombardier Global Express

    This model occupied top spot on our ‘Most Improved’ list last month, but inventory changes through additions and withdrawals increased Maintenance Exposure over $1.1m, and an Ask Price reduction exceeding $426k certainly didn’t help.

    On a positive note, the model’s 13 listings equate to only 9% of the active fleet, and its ETP Ratio of 68.8% will make many of these aircraft quite marketable, especially if they are enrolled on an engine Hourly Cost Maintenance Program.

    Note: As we pointed out last month, the Bombardier Global Express still has plenty of financial and operating life remaining, along with a strong following. For this reason, many current and potential owners are considering upgrading their asset utilizing the JANUS Modernization Program, a decision that could add substantial value to the aircraft while making it virtually indistinguishable from a new production unit, particularly with respect to passenger amenities.

    Piaggio P-180

    The market has not been kind to this model, which is unfortunate considering its cabin size, low interior noise level, and speed for a turboprop. No transactions were reported in January, while the three additions to inventory increased buyer selection to 14 units, or 16.7% of the active fleet.

    The aircraft’s 115.9% ETP Ratio, created through a Maintenance Exposure increase approaching $75k and an Ask Price drop of nearly $59k, is undoubtedly challenging sellers. Buyers are firmly in the driving seat here as well.

    Dassault Falcon 900B

    One aircraft transacted in January and two were withdrawn from inventory, leaving 12 units listed for sale (8% of the active fleet). Unfortunately, those inventory changes increased Maintenance Exposure by nearly $247k, while Ask Price fell approximately $368k, landing the model on this list.

    With an ETP Ratio of 45%, most of these aircraft are infinitely marketable, especially if their engines are enrolled on HCMP.

    Gulfstream GV

    Even though the GV posted an Ask Price increase in January, the model could not overcome a Maintenance Exposure increase approaching $1.1m, created through the withdrawal from inventory of two assets and no sales transactions. The GV thereby found its way to this list after occupying sixth place on the ‘Most Improved’ group in December.

    With only 12 units listed for sale (6.3% of the active fleet), an ETP Ratio averaging 41.4%, the aircraft’s superb operating capabilities, and the market following for this model, most sellers should have the ability to extract good value from the sale of their asset.

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.

    This report was originally published by AvBuyer on February 17, 2020.

  • Tracey Cheek posted an article
    What Does it Cost to Operate a Large Cabin Jet? see more

    NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses the costs associated with operating a large cabin jet.  

    Any answer to questions asking what it costs to operate an aircraft must always start with, “it depends”. The following article discusses some of the dependent variables.

    For the purpose of our discussion, Conklin & de Decker defines Large Cabin Jets as those that typically seat 10+ passengers, have a flat cabin floor, include a galley for preparing a hot meal, and a lavatory. Cabin height should allow for most people to stand up without much of a stoop (i.e., approximately 70 inches). And range should allow for at least 3,000nm non-stop.

    Aircraft typical of this category are the Gulfstream GIV and G450 series; the Dassault Falcon 900 series; the Bombardier Challenger 600 (through 650) series; and Embraer’s new Praetor 600.

    How Much Does it Cost to Buy a Large Cabin Jet?

    Acquisition costs for new models in the Large Cabin Jet category run between $32m to $45m. Pre-owned prices vary as many of these models will have been in production for many years. However, a typical 20- year-old Large Cabin Jet can be purchased for between $4m and $6m.

    Keep in mind that placing a pre-owned aircraft into service will probably require additional funds, and a buyer may elect to spend a further $1m to $2m on upgrades, paint and interior refurbishment.

    Major maintenance checks may be due soon and must be budgeted for at the time of purchase. If the engines are close to overhaul and are not enrolled on a guaranteed hourly maintenance plan, then buyers should budget another $1m+ per engine for the overhaul. It’s essential that the pre-owned Large Cabin Jet buyer plans on these major expenses.

    What’s the Operating Cost of a Large Cabin Jet?

    Operating costs depends on the size and age of the aircraft. Below are some illustrative averages for a Large Cabin Jet, taken from the Conklin & de Decker Report. These have been rounded-off:

    • Average variable cost per hour: $4,000
    • Fuel*: $2,000
    • Maintenance: $1,200
    • Parts, Labor, Major Maintenance Reserves
    • Engine Reserves: $800

    (* Fuel cost depend on fuel price (per gallon) and fuel burn.)

    What are the Data Costs of a Large Cabin Jet?

    Another variable cost to budget for is Wi-Fi or airborne internet. The ultimate costs will vary, based on the type of connection, speed and amount of data used, and where you fly. If flying in the US, you could use an air-to-ground (ATG) system connected to cellular towers.

    Large Cabin Jets are typically used to fly globally, however, and if flying over water or in remote regions, maintaining internet connectivity will require a satellite-based system.

    There are different installation and rate plan options designed to fit the needs of both the passengers and pilots. New installations for a satellite system can run anywhere from $650k to $800k.

    Monthly rates based on data used and download speeds can start at $25,000 per month. An approximate data estimate is $2,000 to download a movie in HD or $4,000 to stream a live sporting event.

    What are the Fixed Costs of Large Cabin Jet Ownership?

    Fixed costs of Large Cabin jet ownership typically run between $1m and $1.2m per year and include the following:

    1. Salaries
    2. Training
    3. Hangar
    4. Insurance
    5. Refurbishment

    Here’s how the costs for these elements looks:

    1) Salaries: The pay for two pilots ranges from $170,000 to $200,000 per pilot, depending on job duties and level of experience. Depending on your operating location and travel schedule, it may be wise to employ an aircraft maintenance engineer/technician on a salary of $80,000+ per year.

    And if the schedule is complex, involving frequent changes and multiple individuals who can authorize use of the aircraft, a flight scheduler is recommended as well as an administrative person. Their salaries can be in the region of $60,000 per year.

    2) Training: Pilots need training at least annually and that can cost between $75,000 to $80,000 for two crew members.

    3) Hangar: For hangar rental, plan on an annual fee between $50,000 and $60,000 for a typical metropolitan area. Premium locations, like New York City, Hong Kong and Geneva, will be significantly higher.

    4) Insurance: This can range between $30,000 to $60,000 depending on the aircraft value and liability limits. If the aircraft spends a lot of time outside of developed countries, those costs may increase substantially.

    5) Refurbishment: Paint and interior should also be considered. A new interior and paint job may last from seven to nine years with excellent care. Depending on the level of completion, materials and extra features, you should budget approximately $1.2m to $2m for this work.

    Additional costs that can be incurred include acquiring aircraft technical publications for the flight crew and additional maintenance, office and travel expenses.

    What’s the Overall Cost of Owning a Large Cabin Jet?

    In summary, it’s reasonable to plan an operating budget of approximately $2.8m per year for 400 annual hours operations in a Large Cabin business jet, excluding the costs of capital, taxes and depreciation.

     

    This article was originally published by AvBuyer on January 13, 2020.

     

     

  • Tracey Cheek posted an article
    Ain’t Nobody’s Business see more

    NAFA member, Edward Kammerer, with Greenberg Traurig, discusses aircraft ownership privacy and security.

    When asked why you use business aircraft, you likely would list “security” and privacy” among your top reasons. These legitimate and valid concerns include industrial security, personal security, a desire to keep trips and destinations confidential, and a good old fashioned sense of MYOB. 

    Many owners go to great lengths to keep the identity of their aircraft and their flying patterns hidden from view. However, despite owners’ best efforts, prying eyes easily can detect and track aircraft and identify their owners. Information available at the FAA Registry and other publicly available government filings, as well as aircraft information websites and services, make aircraft ownership information and destinations easy to obtain.  

    How Private and Secure is Your Aircraft?

    Many aircraft are owned in LLCs formed just for this purpose. While the names of such LLCs may intentionally obfuscate the identify of the aircraft’s “true owner,” public information regarding the ownership and management of such LLCs often point to a company or individual owner. Additionally, services such as JetNet and Amstat are very effective at revealing an aircraft’s “true ownership.” 

    Contrary to what many think, taking title to an aircraft in an “Owner Trust” does not protect the owner’s identity. The name of the beneficiary of an Owner Trust must be disclosed in the aircraft’s publicly available registration documents. The use of a so-called “Double Trust Structure” can be effective to shield an owner’s identity. A Double Trust uses an Owner Trust with a second trust as the beneficial owner of the Owner Trust. The name of the second trust is a matter of public record, but the name of true owner of the second trust is hidden. Even with a Double Trust, the identity of the true owner can be discovered if the owners are not vigilant. 

    Flight Tracking

    Anyone with an internet connection can track an aircraft simply by typing a tail number into aircraft tracking websites such as Flightaware.com or various other “plane spotter” websites. 

    The January 1 requirement that aircraft update their navigation tracking systems to ADS-B standards makes following aircraft movements an option for anyone with readily available and inexpensive equipment. Fortunately, the FAA and the National Business Aviation Association (NBAA) recently announced a program which will allow an owner to block public tracking of real-time positioning and identification information for ADS-B compliant aircraft.

    What Can You Do?

    While there are no fail-safe methods of keeping your aircraft’s ownership and movements secure, there are several precautionary measures which you can take to help preserve privacy and security.

    • Avoid the use of vanity tail numbers and identifying marks on your aircraft which may provide telltale clues to ownership.
    • Carefully monitor the identity of signatories to public documents. The identity of the “true owner” of an aircraft can be disclosed by cross-referencing the names of LLC documents to the “true owner” through websites such as LinkedIn. Documents filed at the FAA, such as tail number reservations and re-assignment, can help a determined investigator connect the dots between the true owner and the actual registrant.
    • Double Trust structures, if properly formed and vigilantly monitored, can help protect your identity. 
    • By making an Aircraft Situation Display to Industry (f/k/a as NBAA’s “BARR Program”) blocking request, owners and operators can opt out of having their aircraft information broadcast over the internet. 
    • Sign up for the NBAA/FAA Program which allows your ADS-B tracking data to be broadcast in a format which is not readily accessible to the public. 

    Modern technology makes keeping your aircraft’s identity and location private and secure more difficult than ever. However, by taking a few simple precautions, you can shield your identity and aircraft movements from your competition, the media, those with political motivations, and the curious general public. 

    This article was originally published by Business Aviation Advisor on January 1, 2020.

  • Tracey Cheek posted an article
    The Closing: The Final Step to Completing the Aircraft Acquisition! see more

    NAFA member, Amanda Applegate, Partner, Aerlex Law Group, discusses steps to completing your aircraft purchase.

    At long last, you have found the aircraft that fits your needs, the pre-purchase inspection is complete and the discrepancies have been remedied. It is now time for the closing. What does this mean and what needs to be done? For many first-time aircraft buyers, they think the closing will be a long drawn out event. However, I tell all of my clients that the closing should be a non-event and if all of the work has been done in advance, the actual closing should take less than 10 minutes. Once the purchase agreement is executed, a closing checklist should be developed to track all of the deliverables needed through closing. Here is a list of the important items that need to be accomplished shortly before closing:
    1. Aircraft Positioning –
    The purchase agreement should identify the delivery location and who is required to pay the movement costs, if any. The closing cannot occur until the aircraft arrives at the delivery location and in the required delivery condition.
    2. Closing Documents –
    There is an actual filing window at the Federal Aviation Administration (“FAA”) registry in Oklahoma City, OK. All of the closing documents should be pre-positioned with the escrow agent in Oklahoma City, as the escrow agent will be responsible for filing the applicable documents with the FAA. As the buyer, the required FAA closing documents are a registration application FAA Form 8050-1, a statement in support of registration if the purchasing entity is a limited liability company, lender documents if applicable, and a declaration of international operations if there is an upcoming international trip. As the seller, the required FAA closing documents are a bill of sale FAA Form 8050-2, as well as any lien releases if necessary. Additionally, the buyer and seller will each need an active transacting user entity account with the international registry in order to register the contract of sale at closing. Further, the purchase agreement more than likely requires other non-FAA closing documents, such as a delivery receipt and warranty bill of sale.
    3. Insurance –
    During the purchase process an insurance carrier should have been selected and a determination on the amount of coverage required. Shortly before closing, insurance should be bound and the buyer should receive and review the certificate of insurance. If the aircraft is financed or managed by a third party, these parties will have specific insurance requirements which need to be evidenced on separate insurance certificates.
    4. Maintenance Programs and subscriptions – 
    If the aircraft is enrolled in any maintenance programs or subscription services, the third party providers must be contacted to confirm the account is in good standing, paid in full and transferrable upon closing.
    5. Closing Statement –
    The escrow agent will prepare a final accounting statement based on the terms of the purchase agreement and information provided by the parties. The statement will usually include the purchase price and any other fees due under the purchase agreement or to third parties, such as brokers. Any movement costs or similar expenses should be calculated a few days prior to closing and agreed upon by the parties prior to the day of closing.
    6. Inspection Facility Invoice –
    Oddly this is an item that can often cause a delay in closing. The aircraft cannot depart the inspection facility for the delivery location until all invoices are paid. However, invoices can’t be paid until they are final. The invoices from the inspection facility are very detailed and often take a long time to get into final form. Once received they must be reviewed in detail since certain costs are buyer costs and other costs are seller costs as dictated by the purchase agreement.
    7. Tax plan – 
    The tax planning at the federal and state level for the acquisition should have been completed while the pre-purchase inspection was occurring. At closing, the tax plan should be implemented. 

    All of the items above can be accomplished in the days leading up to closing. If done properly the actual closing is a series of emails or a conference call with all parties lasting less than 10 minutes!

    This article was originally published by BusinessAir Magazine, The Latest, on November 19, 2019.

  • Tracey Cheek posted an article
    Structuring an Aircraft Sale to a Flight School see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your aviation finance questions.

    Q: Hi Adam, I’m the owner of a 77 B-55 Baron. My local flight school is interested in purchasing it but is unable to finance. Any ideas on how to structure a sale?

    A: If the flight school is unable to secure financing through an SBA loan or other means, seller financing might be an option. With AOPA’s Pilot Protection Services added to your membership you will have access to consultation with one of our panel attorneys. They would be able to help set up the appropriate contracts to facilitate the sale. 

    Q: I'm an AOPA member that recently purchased an airplane in Missouri and brought it back to North Carolina two days after purchase.  I intend to eventually incorporate business use into my flight time, but for now the use is personal.  I have two questions:  What sales tax can I expect to pay on this purchase, and from what state would I be taxed? I intend to upgrade avionics for ADS-B requirements.  If I incorporate business use into my flying before the avionics purchase, is any of this deductible or do I need to put it under an LLC before this happens?

    A: For tax-related questions your CPA would be able to provide the appropriate answers. Additionally, AOPA’s Pilot Protection Services has in house attorneys that specialize in aviation tax law. Adding PPS to your membership will give you access to these attorneys.  

    This article was originally published by AOPA Aviation Finance Company on October 23, 2019.

  • Tracey Cheek posted an article
    Insurance Will Not Cover An Unqualified Pilot in Command see more

    NAFA member, Greg Reigel, Partner at Shackelford, Bowen, McKinley & Norton, LLP, discusses aircraft insurance coverage regarding an unqualified pilot in command. 

    If you buy insurance to cover the aircraft you own or fly, you want to make sure the policy covers you and your aircraft if you ever have a problem. It is important to understand that your insurance policy is a contract between you and your insurer. That contract has terms and conditions that spell out the rights and responsibilities of both you the aircraft owner and/or pilot and the insurer.

    As you may be aware, if an aircraft owner and/or pilot does not comply with the requirements of the insurance contract, the insurer can deny coverage. This can sometimes lead to arguments between the insurance company and the insured aircraft owner or pilot.

    This was the situation in one recent case in which the insurance company denied coverage to an aircraft owner whose aircraft was destroyed during an emergency landing. In Hund v. Nat’l Union Fire Ins. Co. of Pittsburgh (D. Kan., 2019), the aircraft owner was flying his aircraft along with another pilot. During the flight the aircraft’s engine experienced a loss of power and the other pilot—who was piloting the plane at the time—told the aircraft owner “your airplane,” at which point the aircraft owner assumed the role of pilot in command and attempted to restart the engine. Unfortunately, the aircraft owner was unable to restart the engine and was forced to perform the emergency landing that resulted in the destruction of the aircraft. After the accident, the aircraft owner submitted a claim to his insurer for the value of his aircraft.

    In determining whether to pay the claim, the insurer looked to the insurance policy which addressed coverage for both the aircraft owner as a named insured, and for other pilots operating the aircraft. The policy conditioned coverage on compliance with the policy’s “Pilots Endorsement” which required, unsurprisingly, that the pilot in command have a valid FAA pilot certificate, a current and valid FAA medical certificate, if required, and a current and valid flight review.

    Unfortunately, neither the aircraft owner nor the other pilot satisfied these conditions: The aircraft owner possessed a current flight review, but not a current medical certificate; the other pilot did not have a current flight review. Although these facts were undisputed, the aircraft owner argued that 14 C.F.R. § 91.3(b) suspended the policy requirements during an in-flight emergency, which he and the other pilot faced during the emergency landing.

    14 C.F.R. § 91.3(b) provides that “[i]n an in-flight emergency requiring immediate action, the pilot in command may deviate from any rule of this part to the extent required to meet that emergency.” Specifically, the aircraft owner argued that § 91.3(b)’s emergency rule was in effect when he assumed control from the other pilot, and the emergency rules “suspended all other rules” except to do what is necessary to respond to the emergency. The insurer didn’t agree, and neither did the Court when the aircraft owner sued his insurer for denying his claim.

    The Court initially observed that Section 91.3(b) allows a pilot in command to “deviate from any rule of this part to the extent required to meet that emergency.” It then concluded that Section 91.3(b) applied only to the rules in Part 91, and not the regulations governing pilot qualifications in 14 C.F.R. Part 61.

    Makes sense to me. Certainly, the aircraft owner’s argument was creative. But I agree that the plain language of the insurance policy and the regulations are inconsistent with that argument.

    The moral of the story? If you are going to act as pilot in command, make sure you satisfy both the applicable regulations, as well as the requirements of any insurance policy covering the aircraft you are flying.

    This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP, on April 1, 2019.

  • Tracey Cheek posted an article
    Aircraft Operating Costs: How to Measure Them see more

    NAFA member, David Wyndham, Vice President at Conklin & de Decker, discusses where some of the common mistakes are made when comparing the operating cost of one business aircraft against another and how data can be used to give a true apples-to-apples comparison.

    When comparing business aircraft operating costs, data from multiple sources is likely to provide inconsistent results. Your first consideration should be the quality of the data and where it is from.

    A quality supplier of cost data should explain where and how their costs were calculated.

    • Good cost data should clarify whether you are looking at the operating costs for a new aircraft or a used model;
    • It should detail how many years the costs are projected (for example, a five-year budget will differ significantly from a 10-year budget);
    • You also need to establish if the costs only cover scheduled maintenance during the projected period, or whether they accrue for other maintenance and unscheduled maintenance.

    How Does Utilization Affect Operating Cost?

    Many aircraft have calendar-based maintenance requirements. If an inspection is due every six months, the aircraft will have a different average hourly cost at 250 annual hours versus 500 annual hours. The trip profile will also further impact cost, as will varying fuel consumption for long or short trips.

    For helicopters, flying with external loads or in a high-cycle operation will significantly affect the costs. Likewise, high-frequency utility operations are going to see very different costs compared to a low-utilization VIP operation. The cost of special equipment also needs to be accounted for.

    To be fully understood, all costing assumptions must be stated and fully explained.

    Operating Costs: Which Key Terms Need to be Defined?

    Fuel cost will clearly be different for a long trip versus a short trip but what is the assumed cost of that fuel? It will only create confusion if you attempt to directly compare fuel costs for Business Jet A flying a 600-mile trip at $4.50 per gallon versus Business Jet B flying a 1,200-mile trip at $5 per gallon.

    There are many other terms that need to be defined beyond fuel cost. For example, are the salary costs based on two senior captains, or one senior captain and a first officer? Is the hangar-cost based on a major metropolitan area?

    Maintenance costs can take days to analyze in detail. In general, you need to define the period for which the costs are assumed and clarify if they accrue for maintenance outside this period.

    Are the engines accruing for only the overhaul, or are they on a guaranteed hourly maintenance program with full coverage for all engine maintenance, including unscheduled events? It’s important to have a clearly defined explanation of what maintenance is assumed to be included and for how long.

    You should also clarify if the costs cover fuel and maintenance costs only, or additional items too. When trying to determine the total costs to own and operate an aircraft, more data is always better.

    What is the Cost per Nautical Mile?

    In aviation, we have a habit of always talking in terms of flight hours. However, if the aircraft is used to transport persons from one location to another, the aircraft's job is to fly a given distance. Airplanes that fly point to point should be compared on a cost-per-mile basis.

    Let's compare a King Air 350i and a Citation CJ4. Using the default Conklin & de Decker variable cost per hour, the King Air 350i variable cost is $1,312 per hour and the CJ4 shows $1,708 per hour.

    There you have it, the jet costs almost $400 per hour more to operate! But what's missing here?

    It’s the cost per nautical mile.

    If the King Air averages 281 nautical miles each hour, the cost per mile is $4.67. If the CJ4 averages 409 nautical miles each hour, the cost per mile is $4.18. What initially may look like one airplane having 30% higher variable costs per hour really has a 1.5% per mile lower variable cost.

    There is not a single set of correct assumptions and methodology to apply when comparing aircraft costs. The director of maintenance will be concerned with seeing the details of the maintenance budget.

    The CFO, although requiring accurate maintenance costs, will need to know the tax implications of the deal and depreciation predictions but is not likely to need all the maintenance line items. The finance representative will need a full set of costs to know that the buyer or lessee can afford to operate the aircraft, not just make the payments.

    In Summary: Consider the Source

    The supplier of the cost data needs to not only accurately represent the costs but also explain them and answer your questions.

    Costs are not a commodity where cheaper is always better. An aircraft that has been well maintained and has up-to-date avionics and a guaranteed maintenance program will cost more to acquire than the same model with a sketchy past, poor records, and engines that are approaching a major check. In the end, it’s true to say that you get what you pay for.

    This article was originally published by AvBuyer on November 8, 2019.

  • Tracey Cheek posted an article
    Why Use An Accredited Aircraft Appraiser? see more

    NAFA member, Louis Seno, ASA, Chairman Emeritus and Special Advisor to the Jet Support Services, Inc. Board of Directors, discusses why using an accredited aircraft appraiser is best.

    Keeping a finger on the pulse of your aircraft’s current valuation is crucial, both for tax and depreciation purposes, and when you seek to refinance or sell your aircraft. (Listen to “Regular Check-Ups,” Above & Beyond Podcast, June 2019.)

    The demand for reputable appraisers is increasing throughout the business aviation industry. Original equipment manufacturers (OEMs), banks and leasing companies, insurance underwriters, and on-demand charter operators all need knowledgeable appraisers they can trust. But what makes an individual qualified to become an appraiser?

    Due to the complex nature of the appraisal profession, education and experience are crucial. However, there are no legal requirements, nor license needed, so anyone can call him- or herself an aircraft appraiser, regardless of their knowledge, skills, experience, or abilities. In response, the American Society of Appraisers (ASA) established an aircraft-specific discipline and designation program, to help assure owners and financial institutions that the aircraft are accurately valued.

    An increased demand for aircraft valuation experts in the early 2000s mandated something more be done. And so a 2016 partnership was formed between ASA and the David B. O’Maley College of Business at Embry-Riddle Aeronautical University to establish a universally accepted industry standard. Together, they developed a series of four courses designed specifically for professional aircraft appraisers, enabling those so committed to achieve a new official accreditation.

    Successful completion of the courses provides participants with the necessary fundamental appraisal coursework to apply for professional accreditation through ASA, with a specialty in aircraft appraisal. The curriculum covers commercial, business, and general aviation aircraft, including fixed-wing and rotorcraft, and other aerospace assets, such as tugs and ground power units.

    ASA’s coursework and testing builds a solid foundation of aviation knowledge. A thorough peer evaluation of appraisal reports is then conducted before an individual can receive the Accredited Member (AM) credentials for two years of experience, or the Accredited Senior Appraiser (ASA) credentials for five years of experience. 

    Additionally, there is a 100-hour continuing education requirement to be completed during the five years after receiving ASA accreditation. Courses and advanced conferences are offered around the globe for ASA appraisers to learn more about current issues and prepare for future valuation challenges.

    “The accreditation process is detailed and meticulous,” said Johnnie White, ASA’s CEO. “We recognize that your turbine aircraft is a multimillion-dollar asset. To ensure its proper valuation, we set high standards on educating our designated members.”

    You can secure a qualified appraisal for your aircraft in one of two ways:

    • In a desktop valuation, the appraiser will go well beyond a simple pricing comparison by researching the current aircraft on the market, establishing the average days the aircraft model has been on the market, and evaluating any trending data. The appraiser also will assess the maintenance status, look for any major inspection expenses that could be coming due, and perform a cursory check of the logbooks and specifications for the aircraft without looking at the asset. This is the less costly option.
    • A physical, onsite appraisal will consist of all of the above, plus a hands-on inspection that includes a thorough examination of the aircraft, including engine and airframe maintenance logbooks. With this option, you will pay for the appraiser to travel to and from your aircraft, for the time spent on the physical inspection of the aircraft and records, and for research of recent sales of comparable make/model aircraft to establish the asset’s current market value.

    When your aircraft needs an appraisal or reappraisal for insurance or refinancing purposes, or to prepare for its disposition, choose an ASA-accredited appraiser who has invested in their profession to become the most accomplished and skilled person to appraise your aircraft and to keep a pulse on its value for years to come. 

    This article was originally published by Business Aviation Advisor on November 1, 2019.