business aviation

  • Tracey Cheek posted an article
    AINsight Blog: Tax Reform a Deal Changer for Bizav see more

    NAFA member, David G. Mayer, Partner at Shackelford Law, discusses the Tax Cuts and Jobs Act of 2017.

    If the Tax Cuts and Jobs Act of 2017, H.R.1, aimed to simplify federal taxes in the U.S., it missed the mark for business aviation. However, it did include significant tax benefits and other changes worth considering before a prospective business/taxpayer enters into an aircraft purchase, sale, lease, or management arrangement. Changes include full expensing of aircraft cost until 2023, repeal of like-kind exchanges, an exemption of aircraft management fees from federal excise taxes (FET) and continuing incentives for tax leasing.

    H.R.1 should boost new and preowned aircraft acquisitions and sales because it offers buyers immediate cash savings on purchases of aircraft. It does so by increasing “bonus depreciation” on business aircraft purchases from 50 percent to 100 percent starting Sept. 27, 2017, and ending in 2023. After that, it phases down 20 percent per year to zero.

    A business can, therefore, “fully expense” the aircraft cost in the year the business places the aircraft in service in its “trade or business,” meaning it must use the aircraft for more than 50 percent business use. Previously, bonus depreciation applied only to new aircraft, but H.R.1 extends bonus depreciation to preowned aircraft. If the business does not use the aircraft in its trade or business, this benefit does not apply.

    The cash value of full expensing helps offset the disappointing repeal of IRS section 1031 like-kind exchanges. To illustrate, assume a business purchases a preowned, “replacement aircraft” for $5 million in 2018 and sells its fully depreciated, old, “relinquished aircraft,” for $4 million that same year. The business receives $4 million in ordinary income from the sale of the relinquished aircraft and fully expenses the $5 million purchase price of the replacement aircraft.

    At the new corporate tax rate under H.R.1 of 21 percent, down from a previous 35 percent maximum, the business saves $840,000 in taxes on its $4 million sale. Before H.R.1, it would have deferred the taxable income under IRC section 1031 rather than achieve immediate tax savings. Importantly, as bonus depreciation phases down, income taxes will likely increase on proceeds of aircraft sales that a like-kind exchange could otherwise have continued to defer.

    In a change that provides some relief for business aviation, H.R.1 seems to protect management companies and their customers from FET on “aircraft management services.” This new term refers to a broad range of flight, administrative, and support services provided by management companies to aircraft owners and lessees.

    The key to structuring non-FET management arrangements appears to be simple: only aircraft owners and certain lessees may pay for flights of their managed (owned or leased) aircraft, even if they are not on the flight. This rule should ease the concern about IRS imposition of FET and provide a reliable basis for structuring management and leasing transactions.

    One key feature of H.R.1 arises from what it does not include. H.R.1 omits any reference to “possession, command, and control” (PCC) of aircraft, its controversial Chief Counsel opinion in 2012. There, it sanctioned the imposition of FET on management company fees largely because it found that the management companies exercised PCC.

    The absence of that factor in H.R.1 should insulate owners and certain lessees from IRS intrusion based on specious PCC arguments. Nevertheless, owners, lessees, and other operators should scrutinize existing and new aircraft lease and management documentation to align the provisions closely to applicable provisions in H.R.1.

    Management companies beware: H.R.1 does not change the imposition of FET on parties engaged in “transportation by air” under IRS Section 4261 for commercial operations/charter. Further, H.R.1 does not alleviate the existing ambiguity in categorizing private and commercial operations caused, in part, by the IRS’s persistent disregard of FAR Parts 91 and 135.

    Stated differently, the FAR and IRS apply different standards to identify private and commercial flights. Still, this disconnect should not interfere with the practical applications of H.R.1 or the FARs.

    Finally, H.R.1 alters the tax dynamics for leasing. Businesses already use leases, as lessees, to shift residual value risk to owner-lessors and achieve favorable pricing. Although higher pre-H.R.1 tax rates encouraged tax leasing, H.R.1 should nonetheless support tax leasing by lessees that lack a sufficient tax liability to use full benefit of 100 percent bonus depreciation, loan interest, and state income tax deductions.

    A lessor can help reduce its lessee’s after-tax cost of capital when using the tax benefits available to it on acquiring aircraft. By purchasing an aircraft, a lessor with an adequate tax appetite should use tax benefits efficiently and share its reduced tax burden by lowering rents payable by its lessee.

    H.R.1 should help lift the volume of business aviation transactions, but businesses must properly structure deals to make the most of it. As with any tax or legal matter, always consult your own expert to properly address your personal situation.

    David G. Mayer is a partner in the global Aviation Practice Group at the Shackelford Law Firm in Dallas, which handles worldwide private aircraft matters, including regulatory compliance, tax planning, purchases, sales, leasing and financing, risk management, insurance, aircraft operations, hangar leasing and aircraft renovations. Mayer frequently represents high-wealth individuals and other aircraft owners, flight departments, lessees, borrowers, operators, sellers, purchasers, and managers, as well as lessors and lenders. He can be contacted at, via LinkedIn or by telephone at (214) 780-1306.

    This article was originally published on AINonlnie on January 11, 2018.


  • Tracey Cheek posted an article
    Industry Leaders Voice Growing Concerns about Shutdown see more

    Business aviation leaders are expressing growing concern about the increasing ramifications of the prolonged partial U.S. government shutdown. “It is clear that the shutdown’s impact is being felt,” NBAA said in an update to its members today, pointing the cessation of activities such as the issuance of new pilot certificates and letters of authorization.

    In addition, training centers are concerned about the possibility for expiration of authorizations for evaluators and flight training devices, and certification of aircraft and equipment is affected. Further, the association has been concerned that Customs and Border Protection is not processing requests for new overflight exemptions.

    The FAA has indicated plans for a number of safety inspectors to return to work, but details about which functions will resume remain unclear, the association said, adding the primary focus is anticipated to be on safety surveillance.

    “Since the partial government shutdown began on December 21, our nation’s aviation system has functioned safely and efficiently thanks to the hard work of dedicated FAA professionals,” said NBAA president and CEO Ed Bolen. “That said, general aviation is a highly regulated industry, so it’s no surprise that some service disruptions are becoming visible.”

    NATA agreed, saying the aviation industry is one of the hardest hit because of safety and security requirements. “The shutdown has halted work on new aircraft certification, interactions between FAA and other nations, some aircraft registrations, commercial drone flight authorizations, aircraft mechanic licenses, introduction of new air traffic technology and airport construction approvals.”

    The effect has been “very real” for controllers and other workers missing paychecks, NATA said.

    The association further pointed to specific disruptions, such as a member company that has had two aircraft stranded in Canada, awaiting FAA approval to return. Others have had issues with ferry permits and/or special flight permits, both domestic and international-bound flights and NetJets has not been able to add new aircraft into its operations, NATA added. Training companies, including FlightSafety International, have reported multiple delays and cancellations.

    GAMA president and CEO Pete Bunce, meanwhile, warned during a recent rally that even though the aircraft registry is open, the FAA and DOT have taken a narrow view of what is authorized registry activities, hampering its full use. If the shutdown was to continue in the next few weeks, the costs could run into the billions, he added.

    The associations were among the more than 30 organizations signing a letter last week to leaders on Capitol Hill, outlining some of the many ramifications and urging them to work to end the shutdown.

    Another signatory of that letter, NATCA, meanwhile, has taken a multipronged effort to put pressure on the government to end the shutdown, through a rally, leaflet campaign, and lawsuit. The organization, however, did welcome passage and signing into law of the Government Employee Fair Treatment Act of 2019, which guarantees back pay to federal employees affected by the shutdown. But NATCA president Paul Rinaldi added, “There is no reason to keep employees home and furloughed now that they are guaranteed their pay. Our elected leaders need to be responsible stewards of American taxpayer dollars and end this shutdown immediately.”

    He added that the shutdown is “eroding the layers of redundancy and support necessary” for the National Airspace System.

    This article was originally published on AINonline on January 17, 2019.

  • Tracey Cheek posted an article
    Whole Aircraft Ownership: Is It Right For You? see more

    NAFA member, David Wyndham with Conklin & de Decker, highlights the benefits of sole ownership of a business aircraft.

    If control over your company’s transportation is paramount, sole ownership of a business aircraft is particularly attractive. With high enough utilization, it is also very cost effective. 

    As a generalization, when your flying needs come close to (or exceed 200 annual hours), whole aircraft ownership can be more cost effective than fractional, charter or membership programs. Whole aircraft ownership offers the following benefits.

    Freedom: With whole aircraft ownership a company has the freedom to select the best aircraft to satisfy its needs. Within safety and operating regulations, that aircraft can be operated as the owner requires.

    Customization: When a company acquires its own aircraft, the outfitting of the aircraft can be done to suit its operational and travel requirements.

    Options for colors, seating, carpeting materials (and more) are able to be matched to your needs and preferences. The larger the cabin size, the more flexibility there is in how the interior can be configured.

    Service Levels: The aviation department personnel are the owning company’s employees. Not only is that company able to shape their training and manage their competence, it can affect how they interface personally with passengers.

    The ability to hire the employees that fit the organization can be invaluable, and this service level generates a rapport that is effortless and comforting.

    Control: In the US, Federal Aviation Regulations (FARs) allow the most flexibility and opportunity for control to not-for-hire operations flown on behalf of the aircraft owner. A company-owned aircraft that is used in support of the business of the company falls under these rules.

    While all aircraft must be operated safely, the sole owner of a business aircraft has greater influence over operations than either a charter customer or a fractional owner. Factors influencing safety and security are within the operator’s control.

    A whole-aircraft owner has the highest levels of privacy. You can discuss sensitive business, or leave important corporate documents and personal items on board the aircraft.

    Responsibility: With this high degree of control comes an equally high level of responsibility. While the FARs state that the pilot in command is the ultimate person responsible for the safe operation of the aircraft, the owner is responsible for the hiring and training of that pilot. The owner has liability for the actions of its employees, and this extends to the aircraft operation.

    The owner can manage this risk via high-quality training and insurance. The crew should be trained to the highest appropriate levels of competence. Maintenance engineers (if applicable) also require regular training.

    An individual or company owning or leasing their own hangar is also responsible for ground safety. The owner shares the risk by properly insuring the aircraft and crew.

    Managing and directing the detailed operation of aviation activities requires individuals versed in management and Business Aviation - a skillset commonly accomplished either by having an in-house aviation manager/director, or by contracting the management of the aviation operation to a management company.

    The Role of Management Companies

    A management company can offer a turn-key approach of contracting the function and oversight of the aviation operation. These companies specialize in flight operations.

    For a first-time owner of a business aircraft, we usually recommend contracted management for starting the aviation operation. In additional to providing flight crews and functional oversight, the management company can provide economic benefits as well:

    • Fuel can be purchased in bulk on behalf of multiple aircraft owners;
    • Discounts can extend to maintenance (the management company with multiple aircraft should be able to negotiate discounts for spare parts);
    • The management company can purchase insurance for its group of owners at rates that can be lower than for a single aircraft.

    While management companies tailor their services to meet an owner’s unique requirements, they typically offer the following oversight:

    • Hangaring the aircraft
    • Managing the aircraft records
    • Hiring and training the flight crews
    • Managing the maintenance of the aircraft
    • Handling the billing and verification of all variable operating expenses (including fuel, maintenance, etc.)
    • Ensuring that all regulatory requirements are met by the aircraft and crew
    • Refueling the aircraft
    • Cleaning and cosmetic upkeep of the managed aircraft.

    Offsetting the Costs of Whole Ownership 

    If you, as the owner, desire to further reduce your total costs, a management company can charter the aircraft when you’re not using it, provided the firm has authorization under FAA Part 135 (or its equivalent in non US countries).

    This relationship is complicated as there are regulatory restrictions governing operational control of any aircraft used for commercial service. The general terms are as follows: 

    • The aircraft owner pays all the operating costs (fuel, maintenance and other aircraft operating expenses).
    • The crew may be billed as salaries or as an hourly fee.
    • The aircraft owner gets a set percentage of the charter revenue. 

    The charter revenue the owner receives should be more than enough to cover the operating costs, but will not be enough to cover all of the fixed expenses, debt service and depreciation. The charter revenue is shared between the charter operator and aircraft owner. Rarely, however, does a chartering arrangement with a management company produce a profit for the aircraft owner.

    The relationship with the management company is as much a personal relationship as a business relationship. Communication and shared goals are important. If you want control, fly enough hours and accept the responsibility, whole aircraft ownership can be very rewarding.

    This article was originally published in AvBuyer on May 14, 2018.

  • Tracey Cheek posted an article
    What’s the Case for Becoming a Jet’s Last Owner? see more

    NAFA member, David Wyndham, VP and Director of Business Strategy with Conklin & de Decker, discusses options for a specialized aircraft buyer and how the operator justifies the decision to buy with a view to becoming an aircraft’s last owner.

    As aircraft age, they cost more to maintain and support. Spare parts for aging aircraft can be harder to come by as fewer of these models remain in service today and the OEMs shift focus to their in-production aircraft.

    Parts suppliers may ‘build to order’ certain spares when demand levels no longer justify keeping a production line running. Be aware that the cost of these spares can fluctuate greatly as the effects of supply and demand take hold. Finding airworthy used spares is often only possible if there were enough aircraft built for salvage companies to tear down and use as sources.

    These incremental maintenance costs and procurement hurdles can render an old aircraft unsuitable for a regular schedule of frequent flying. Nevertheless, for the savvy buyer with specific needs and managed expectations, there may be some value left in these airworthy but aged aircraft.

    How Old is too Old?

    If an aircraft is well cared for, it can have an almost unlimited life with respect to safety and airworthiness. There are DC-3 aircraft that were in service in the late 1930s still flying today. While not much more than the pilots’ control wheels and OEM’s data plate may be “original equipment”, they are still airborne.

    Such aircraft are in the hands of loving and dedicated teams who fly for the joy of keeping them flying, not for transportation or business use.

    What ends the life of most aircraft is economics—when the cost of flying them becomes more than the cost of replacing them. This is called the economic useful life, which is defined by the International Society of Transport Aircraft Trading (ISTAT) as follows:

    “As it pertains to an aircraft or engine, the economic useful life is the period of time over which it is (or is expected to be) physically and economically feasible to operate in its intended role. Periodic maintenance and repair will usually be required in order to preserve safety and efficiency during the economic useful life.”

    This age is contextual. An airliner flying 2,000–3,000 hours per year in short-haul trips will reach its end of life much sooner than a long-range business jet flying 300–400 hours annually. For a piston airplane flying 100 hours per year, its end-of-life can easily extend past a half-century. Age is a factor of calendar time and utilization, or flight time.

    Research from Boeing Commercial Airplanes published in an article titled ‘Key Findings on Aircraft Economic Life’ (March 2013) found that while no exact definition exists, their data on over 31,000 airliners suggest that this economic life can be expressed in two general ways:

    • The average age of airplanes when they are permanently withdrawn from service;
    • The interval of time between delivery of a cohort of airplanes and the date when 50% (or some other fraction) of the cohort has been retired.

    But what is a typical useful economic life for a business jet?

    Data from JETNET showing the business jet retirements from 2011 to 2015 notes that 144 business jets retire each year on average. The vast majority of these are over 30 years of age. Meanwhile, AMSTAT data shows that today, of the more than 7,300 business jets built before 1998, about 46% of the fleet has been removed from service. This data suggests the useful economic life for a business jet is just over 30 years.

     When Does an Aircraft Reach Salvage?

    An aircraft at the end of its useful economic life can be sold for parts for salvage or scrap value. The Machinery & Technical Specialties Committee of the American Society of Appraisers (July 2010) defines scrap, or salvage, value as follows:

    “An opinion of the amount, expressed in terms of money that could be realized for the property if it were sold for its material content, not for a productive use, as of a specific date.”

    So, when does the scrap or salvage value of an aircraft exceed its ‘retail’ value as a flying asset?

    If the maintenance to be done exceeds the retail value of the aircraft and, if accomplished, does not return enough retail value to cover the cost of the maintenance, then your aircraft is at salvage. In summary, an aircraft would reach salvage when the upcoming maintenance costs exceed the value of the airplane. That can be any maintenance, be it airframe, engines or avionics.

    In Conclusion…

    Combining all the above information leads to the following conclusion: If you are the owner of an airworthy aircraft aged 25 years or older, you could be its final owner.

    Nevertheless, there may be aircraft younger than 25 that, owing to limited production runs and a lack of product support, will not be economically feasible to fly for much longer than a few years. Meanwhile, for some of the more popular aircraft with a long production run, you may see 40-year-old aircraft still in the air in sufficient numbers to make supporting them economically feasible.

    So why would anyone want to become the last owner of a business jet?

    If you understand the limitations, your value proposition is likely to be something like this:

    You buy a very old business jet for $2m, spending $3.5m operating it for four years, before selling it for salvage at $500k. The net cost to you is $5m. The owner of a new business jet that paid $30m, meanwhile, will see more than that in market depreciation alone.

    However, keep in mind that these older jets spend a lot of time in maintenance and there is a higher chance that you will not be able to “call when needed”, but if your flying needs are infrequent and predictable, you may find there is enough value left in these older jets to make the case for buying one.

    Next month, we will illustrate with a case study. Stay tuned!

    More information from or

    This article was originally published by AvBuyer on November 5, 2018.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – October 2018 see more

    NAFA member, Tony Kioussis, President of Asset Insight, discusses which models were the big movers and shakers in October’s used aircraft marketplace. 

    With inventory asset quality at a 12-month high, and maintenance exposure at a near 12-month best, it would be difficult to conceive a better environment for aircraft trades. So which models were the big movers and shakers in October’s used aircraft marketplace?

    Asset Insight’s market analysis on October 31, 2018 covering 93 fixed-wing models and 1,589 aircraft listed for sale revealed an Ask Price increase of 3.4%.

    • Large Jet values improved 5.3%, and prices are now up nearly 12% since December 2017;
    • Medium Jets lost 1.5%, and are now down 16.4% since December 2017;
    • Small Jet values gained 7% to post a 12-month high and a 7.5% gain in 2018;
    • Turboprops remained virtually unchanged, having lost 2.3% this year.

    The total number of used aircraft listed for sale for Asset Insight’s tracked fleet increased 2.3% (36 units). Large Jet inventory did not change, Medium Jet inventory increased 3.7% (18 units) and Small Jet inventories increased 5.5% (25 units). Turboprop inventory was the only one to experience a reduction, 2.4%, equating to seven aircraft.

    As the inventory fleet’s upcoming maintenance events are expected to be less expensive, average Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) decreased (improved) slightly, nearly matching the 12-month best figure.

    • Large Jets increased (worsened) 0.5% as younger, higher-quality aircraft transacted;
    • Medium Jet transactions were of mixed asset quality, causing Maintenance Exposure to increase 1.3%;
    • Small Jet trades and fleet additions helped improve (decrease) Maintenance Exposure 1.1%;
    • Turboprops (possibly due to seller pricing concessions) helped improve the group’s Maintenance Exposure 5.9% to a 12-month best (lowest) figure.

    All this led to a Maintenance Exposure to Price (ETP) Ratio decrease (improvement) of 3% during October that, at 65.1%, was slightly better than the average figure for the past 12 months. Why is this information important?

    ETP Ratios Explained…

    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 Market increase (in many cases by more than 30%).

    So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2018 were listed for sale an average 72% longer than aircraft whose Ratio was below 40% (169 days versus 291 days on the market, respectively), while during Q3 2018 aircraft whose ETP Ratio exceeded 40% took nearly 34% longer to sell (280 versus 374 Days on Market).

    • Turboprops continued to post the lowest (best) ETP Ratio at 49.1%, reflecting a 7% improvement during the past 90 days;
    • Large Jets followed with 62.7%, a 2.3% improvement from last month but still 10.6% higher for the year;
    • With an impressive 18.7% reduction during September, and an additional 7.2% improvement in October (the group’s best figure during the past 12 months), Small Jet ETP Ratio has improved nearly 21% this year;
    • Medium Jets improved slightly in October, but the group’s ETP Ratio, at 77.5%, reflects a 19% increase during 2018 and quantifies the challenges faced by sellers within this highly competitive market sector.

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual models fared the best, and which fared the worst in October 2018…

    Most Improved Models

    All of the ‘Most Improved Models’ experienced a Maintenance Exposure reduction (improvement). The Gulfstream GIV-SP (MSG-3) and Bombardier Learjet 45 experienced an Ask Price reduction of $77,000 and $72,000, respectively, while the remaining models posted the following price increases:

    • Bombardier Learjet 35A (+$16,400)
    • Hawker Beechjet 400A (+$17,815)
    • Beechcraft King Air 350 Pre-2001 (+$1,071)
    • Embraer Legacy 600 (+$1,566,667)

    Most Improved Business Aircraft in October

    Gulfstream GIV-SP (MSG-3)

    Three retail transactions and two additions to the inventory fleet led to the model posting a near $778k Maintenance Exposure reduction (improvement) that overtook (by a factor of ten) an Ask Price decrease to earn top honor among the Most Improved models in October.

    With only 3.6% of the active fleet listed for sale, aircraft with engines enrolled on an Hourly Cost Maintenance Program (HCMP) could easily generate an HCMP-adjusted ETP Ratio below the 40% mark, improving their selling environment.

    Bombardier Learjet 35A

    The Bombardier Learjet 35A made this list for a second consecutive month by virtue of a $60k Maintenance Exposure reduction and an increased Ask Price.

    Actually achieving the price increase may be the real challenge, judging by the two October transaction, the group’s ETP Ratio, and the 36-unit inventory level (even though it represents less than 7% of the active Learjet 35A/36A fleet).

    Hawker Beechjet 400A

    The 59-unit inventory level remained unchanged in October, as one aircraft transacted, one was withdrawn, and two more assets were listed for sale. The model joined the ‘Most Improved’ list due to a $100k Maintenance Exposure reduction along with a price increase.

    However, with 18.4% of the active fleet on the market, sellers whose aircraft are not enrolled on HCMP are on the wrong side of the model’s 52.3% average ETP Ratio and must come to terms with market pricing reality if they hope to structure a deal before year-end.

    Hawker Beechjet 400A

    Beechcraft King Air 350 Pre-2001

    Only 20 units were listed for sale at the end of October, and with five units trading during the month the pre-2001 King Air 350 trading environment is very active. With only 7% of the active fleet listed for sale and considering the ETP Ratio ended October at 27.9%, sellers are definitely well-placed to secure good value.

    Interestingly, the model’s Maintenance Exposure dropped nearly $173k in October due to lower quality assets transacting, so good value is also available for buyers, assuming they understand the maintenance condition of aircraft they are considering.

    Beechcraft King Air 350

    Bombardier Learjet 45

    One aircraft sold in October and one joined the inventory to maintain the eight-unit fleet for sale. The changes reduced Maintenance Expense by a substantive $189k. More importantly, the $72k ask price reduction resulted from pricing reductions on previously listed aircraft; it was not affected by either the single unit sale or the new addition to the fleet.

    It would appear that at least some Learjet 45 owners are focused on selling their aircraft prior to year-end.

    Embraer Legacy 600 

    We were a little surprised to find the Legacy 600 on this list, but detailed analytics provide plenty of explanation. Only three inventory aircraft listed an actual selling price in September, and two of them traded in October (a third one was withdrawn from inventory).

    Of the ten listings that were left (5.3% of the active fleet), only one posted an actual Ask Price, and it was substantially higher than those posted for the two traded assets.

    Between the model’s relatively low ETP Ratio, the limited listings, and a Maintenance Exposure reduction exceeding $241k, this aircraft might have made the list even without the ‘technical Ask Price reduction’, but it goes to show how figures can be misleading without the benefit of interpretation.

    Embraer Legacy 600 Jet


    Most Deteriorated Models

    All of the ‘Most Deteriorated Models’ experienced a Maintenance Exposure increase, while Ask Price changes were as follows:

    • Gulfstream G100 (No change)
    • Hawker Beechjet 400 (No change)
    • Bombardier Learjet 31 (No change)
    • Cessna Citation VI (+$2,000)
    • Cessna Citation CJ2 (+$63,214)
    • Beechcraft King Air 300 (-$36,111)

    Most Deteriorated Business Aircraft in October

    Gulfstream G100

    No Gulfstream G100 transactions closed in October, and with one addition to the fleet the inventory stands at only three units. This might sound positive, but with production totaling only 22 units that means 13.6% of the fleet (aged between 12-17 years) is listed for sale.

    A Maintenance Exposure increase exceeding $1m is unlikely to invite buyers, let alone help sellers. The best opportunity for sellers to market their aircraft lies in identifying a ‘disposable aircraft buyer’ and coming to terms with the true (read, ‘low’) value of their asset.

    Hawker Beechjet 400

    To understand how quickly marketing opportunities can go from bad to worse, readers might recall that this model was on the ‘Most Improved’ list for September. One model transacted in October, but another joined the inventory to keep the total at five units (9.3% of the active fleet).

    The issue challenging sellers is their aging aircraft’s value since ask prices (ranging from $195k to $550k) have little negotiating room. Couple an $87k Maintenance Exposure increase to an already high ETP Ratio and it becomes clear why the Beechjet 400 is on this list.

    Bombardier Learjet 31

    One transaction closed in October, and the four remaining units represent 11.4% of the active fleet. Similar to the previous two models on this list, Learjet 31 sellers are hobbled by a lack of negotiating room when it comes to their aircraft’s value.

    Add a $76k Maintenance Exposure increase to the model’s ETP Ratio and the situation becomes virtually irrational, even if a seller is able to locate someone willing to become the asset’s final owner.

    Cessna Citation VI

    With only 36 aircraft in the active fleet, the nine listed for sale represent too large a competitive fleet for sellers to benefit. The addition of one lesser quality aircraft increased fleet Maintenance Exposure by over $100k, and the nominal Ask Price increase could not prevent the Citation VI from joining the Most Deteriorated list.

    Unlike the previous three models, sellers have some pricing room to maneuver but generating interest in this well-aged fleet will be difficult.

    Cessna Citation VI

    Cessna Citation CJ2

    Sales were non-existent during the month of August, and the listed fleet increased by over 50%. The additions increased Maintenance Exposure by over $238k, not a minor figure for this model, nor a number that a $63k average Ask Price increase could overcome.

    On the surface, opportunities for sellers do not appear good. However, the 23 aircraft available for sale represent only 9.7% of the active fleet.

    With an ETP Ratio averaging 35.1% we believe sales figures will increase once October’s newly-listed eight aircraft have had some market visibility. Prospective buyers are encouraged to act, as CJ2s representing good value are unlikely to enter 2019 as inventory.

    Beechcraft King Air 300

    No transactions closed in October, and the fleet saw three more aircraft enter inventory, raising the total to 14 units (7.6% of the active fleet). While the King Air 300 is a well-aged model, it continues to experience decent sales due to its operating performance and characteristics.

    A Maintenance Exposure increase exceeding $78k and an Ask Price reduction (due to a couple of lower priced units entering inventory) helped secure the model’s place on this list, but several inventory assets offer good value and should be quite marketable.

    Since most King Air 300 engines are not enrolled on Hourly Cost Maintenance Programs, owners marketing (or considering selling) non-HCMP aircraft nearing major engine events should be aware that the financial penalty buyers will assess is likely to exceed the cost for each overhaul.

    The Seller’s Challenge

    Aircraft are, and will continue to be, depreciating assets, making it illogical to think of how one can profit through the sale of an asset acquired five years earlier. However, one can ‘optimize’ their aircraft investment by:

    • Acquiring an aircraft, at a reasonable price, able to perform the mission requirements;
    • Correctly projecting maintenance costs during the ownership period, perhaps through Hourly Cost Maintenance Program enrollment;
    • Limiting scheduled maintenance expense (not covered through HCMP) through detailed analytics of the aircraft’s future maintenance requirement when considering its purchase;
    • Securing science-based, objective, Residual Value analyses on an ongoing and regular basis; and
    • Remarketing the aircraft at a point in time when its ETP Ratio is below 40%.

    It is also 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 enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on HCMP.

    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

    This article was originally published by AvBuyer on November 13, 2018.



  • Tracey Cheek posted an article
    Where is Business Aviation Heading in 2019? see more

    NAFA member, Johnny Foster, President and CEO of OGARAJETS spoke with AvBuyer’s Rebecca Applegarth to discuss some of the current trends in the Business Aviation marketplace and offer insights on where the aircraft sales market could be heading in 2019.

    Johnny Foster, President and CEO, OGARAJETS, grew up around Business Aviation. His father, John Foster III, known as the ‘World’s Greatest Fighter Pilot’, retired from the US Navy in 1973 and moved directly into Business Aviation. Johnny and his brother David have many early memories of playing around aircraft in the hangars and flying as their father’s co-pilot on both business and personal trips.

    John Foster III formed O’Gara Aviation Company in 1980 with a Naval squadron mate Ed O’Gara, and Johnny joined the team in 1991 just after the company had purchased three Gulfstream GIIs and the outbreak of the Gulf War.

    Those were challenging times for a small family business, but tenacity and commitment saw it emerge through recession with its head above water and grow from Turboprop and Light Jet sales into heavy aircraft.

    With almost 30 years in the industry, Johnny has experienced up and down cycles in aircraft sales, was appointed president of the company in 2006 and oversaw the rebranding of his business as OGARAJETS in 2013.

    Now, at a time that he notes a lack of transparency in much of the industry (with back-to-back deals and ‘flip’ structures common), Johnny points to his father’s vision for the company which has never faltered: “Family values, unquestioned integrity, personal relationships, and roll-your-sleeves-up hard work remain at the cornerstone of our commitment to clients and assurance of continued success,” he offers.

    Since its formation, OGARAJETS has completed roughly 1,100 transactions in over 60 countries, totalling more than $5bn in market value. Services offered by OGARAJETS range from sales, brokerage and acquisition to management, leasing and flight operation services.

    Tapping in to his vast experience of the pre-owned business jet marketplace, AvBuyer spoke with Johnny to get his perspectives on where the market is, and where it’s going as 2018 draws to a close…

    AvBuyer: A review of AMSTAT data released in October representing used aircraft sales between January-August shows the percentage of Heavy/Large Jets for resale to be at its lowest since 1998.

    Notably the biggest improvement in turn-over YTD was in the Large Jet ‘mid-age’ segment. What does this tell you about that market, and how do you see the scenario playing out as we move into 2019?

    Foster: More than anything, I believe the positive statistics of the pre-owned space reflects a high level of confidence that remains in the market, and that today’s prices (which largely have been compressed over the previous eight-plus years) represent unimaginable values.

    As for the Large Jet segment, a quality turnkey aircraft, fully programed, and capable of flying 5,000-plus miles for less than $10m? Wow! There are some tremendous transportation values in this space across all makes and models, especially those aged under 20 years.

    The OEMs have largely remained disciplined in their new jet production, which has helped to strengthen the jets aged less than five years old. This is one of the few segments we have actually seen prices rise over the previous 12 months. This thinning supply and strengthening of prices are now opening the door to ‘recovery’ for the six-to-15-year-old space, as AMSTAT is reporting.

    While the transaction pace remains feverish, and good quality aircraft that are priced appropriately are selling quickly, the value opportunities remain. Buyers in today’s market must be prepared to move quickly when the right opportunity presents itself. There could never be a more appropriate time to engage a trusted professional to guide purchase efforts and success.

    Let’s not overlook that the ‘Tax Cuts and Jobs Act’ has imparted a very measurable and positive impact on the pre-owned aircraft marketplace. We believe the market will continue to enjoy a continued boost into 2019 and beyond.

    AvBuyer: At the other end of the market, AMSTAT says the Light Jet fleet for sale is at 10.8%, down 0.7% from this time last year. Can you see a point in the next year or so where the Light Jet market actually moves into traditional sellers’ market territory (i.e. <10% for sale)?

    Foster: Business Aviation is not immune to Business 101 lessons of supply and demand. As values across the board have compressed significantly over the last decade, buyers today can simply purchase ‘more’ cabin for the same dollars. So, much of the Light Jet market has continued to lag in transaction flow.

    All the while, the OEMs in this segment continue to produce significant numbers of new aircraft of many varieties. There simply is not the demand to absorb the supply. Price compression, or market depreciation will continue.

    With that said, looking on a micro-level, there are some specific over-performers in this space, namely Embraer’s Phenom 300.

    AvBuyer: Price depreciation has been a hallmark of the used jet market since the great recession. What needs to happen for values to increase again, beyond the newest, best conditioned aircraft on the market?

    Foster: This is an interesting thought. Until the collapse in 2008, most owners experienced at least a level (even a rising) value over the term of their ownership. Sure, there were dips in the economy that drove values down in spurts, but most were short-lived and generally owners enjoyed an appreciating asset.

    This really made owning aviation assets fun and often ‘justified’. Value appreciation was so common that it took several years after 2009 for me to stop apologizing to clients for their aircraft values slipping.

    By 2014, it was clear annual depreciation was here for good, similar to virtually every other piece of capital equipment. Today, in very general terms, we see annual depreciation of over 10% per year for less-than five-year-old assets, trailing down to 2-3% annually on aged assets.

    The positive transactions over the last 18 months have begun to flatten the curves, but I am confident depreciation is here to stay and should be factored in any purchase decision.

    AvBuyer: In which segments of the market would you expect to see higher demand in 2019?

    Foster: I believe the Large Jet sector will remain a point of focus, driving all markets. Each of the OEMs have some amazing launches planned for 2019; significantly more speed, range and comfort all in one package! I suspect there are some more announcements coming, too – though only time will tell…

    We also like what we’re seeing with some of the ‘disruption’ now present in the Super-Mid-Size sector; jets with capacity to fly eight passengers over 3,500 miles at a fraction of the capital and operating costs of the Large Jet market. There’s some tremendous value all around.

    What do I see ahead for 2019?

    Our enjoyment of favorable conditions remains very closely tied to domestic and global environments. So we’re keeping a careful eye on a stock market that has been on an almost eight-year bull run.

    In addition, with US mid-term elections that just can’t seem to settle, tariffs being shuffled between global super-powers and ADS-B mandates that are now just 13 months away – there are many factors at play that could influence the pre-owned market for better or worse in 2019.

    More information from

    This article was originally written and published by Rebecca Applegarth with AvBuyer on November 12, 2018.

  • Tracey Cheek posted an article
    Wayne Starling’s advice for anyone starting out in business aviation see more

    NAFA member, Alasdair Whyte, Co-Founder and Editor of Corporate Jet Investor, talks with Wayne Starling, with Starling Consulting, LLC., about starting out in business aviation.

    Recently, I had the pleasure of being on a panel at the Corporate Jet Investor conference in Miami.  One of the questions asked was for any guidance or counseling that I could give a new person starting out in the aviation business.  My advice was for a person to find a mentor.

    I have thought about that question over the last few days.  I wished I would have had the time to go into more depth. Yes, a mentor is important throughout your career, but there are other important elements as well.    Throughout my career, I have hired and observed many young talented people come and go.  I often reflect on what makes the difference in people succeeding and what causes many of them to fail.  I have analyzed this for years and believe that the top 5% do many things that make a big difference in whether they “stay with the pack” or become top performers in their field.

    My observations watching those top 5%: 

    ATTITUDE:   It starts and ends with their attitude.  What is interesting is the fact that I have asked hundreds of people if they think they have a bad attitude.  No surprise here, but almost all of them never admit to being negative or having a bad attitude.  However, you and I know that when you are around a person that has a negative attitude, they will brighten a room by leaving! One person with a bad attitude can and will cause severe problems if they remain part of a team.

    MOTIVATED:  Have you noticed most people that complain and develop a bad attitude are the ones doing the least amount of work or nothing at all!  This is where they need help by taking an inventory of their activity.   It is hard to be unmotivated when you are busy.   If you want to get motivated, then get busy!  Do something, i.e. get motivated by making some calls, setting up appointments, talking with customers, reading, studying and learning.  Understand that real motivation comes from the “doing” not the “wishing” things would improve.

    STEP UP AND MOVE FORWARD:   Successful people have a desire to learn. They are involved in stepping up by setting realistic goals and then by moving forward.  They take action!  Do they make mistakes?  Yes, but that is a sign of stepping up and moving forward.  In many situations, they will learn from these mistakes more so than from the successes.   They don’t coast through life.  We all know if you are coasting, you can only coast downhill.

    PATIENCE AND COMMITMENT:  I don’t mean sit around and wait.  Yes, sustainable success takes real time and effort to get the greatest rewards. The road to success is not straight without bumps, hills, and plenty of detours.  How you handle the bumps and detours, will determine the person you become.  If you want to become a person of value, a person of character, a person respected, then you must be patient while you work and take the steps and move forward.

    MONITOR CLOSELY THE PEOPLE AROUND YOU:   Some person you meet along the road of life will either pick you up or pull you down, or just hang on to you for a ride.  People that don’t know you will form an opinion of your worth based on the people that are your associates. Who are your role models, your mentors, people you respect in the business and would like to emulate?  Life is full of choices on your way to success so be picky about your influencers!

    All of the above recommendations are part of the puzzle that will make up your success:  your attitude, people that you surround yourself with, your patience and commitment, staying motivated, finding a mentor.  All pieces of the success puzzle.

    Do you want to be one of the top 5% of highly successful people? Step up and move forward and you will not only enjoy the journey, but you will also enjoy success at the destination.   Good Luck!

    This article was originally published by Corporate Jet Investor on November 29, 2018.

  • Tracey Cheek posted an article
    Nardone and Company, Inc. Joins National Aircraft Finance Association see more

    FORT LAUDERDALE, Fla. – Dec. 4, 2018 – National Aircraft Finance Association (NAFA) is pleased to announce that Nardone and Company, Inc. has recently joined its professional network of aviation lenders. “NAFA members proudly finance - support or enable the financing of - general and business aviation aircraft throughout the world, and we’re happy to add Nardone to our association,” said Ford von Weise, President of NAFA.

    Nardone & Company, Inc., is a Veteran owned corporation in their 25th year of business. Experience within Nardone & Company exceeds 40 years in the salvage industry and since their establishment on July 8, 1993, they have been dedicated business partners, producing the highest salvage return on the sale of damaged goods - quickly and cost effectively. The company’s Aviation Technical Services focuses solely on aircraft-related salvage, sales/recovery, current market values, inventory loss, and damage evaluations.

    The company’s President, George Nardone, Jr. is a member of the National Aircraft Appraisers Association (NAAA).  Mr. Nardone has Airline Transport Pilot Ratings and over 40 years of aviation experience. Their staff of highly experienced and dedicated professionals, with senior certified aircraft and USPAP compliant appraisers, pride themselves on immediate response and rapid reporting with complete documentation on all assignments. 

    Aircraft appraisals by Nardone and Company’s professionals provide the buyer or seller with onsite inspections, valuation utilizing current market conditions and their sophisticated NAAA appraisal that measures every aspect of the aircraft's value at a reasonable cost. They can also manage pre-purchase inspection and provide consulting services to help match clients with the appropriate aircraft to meet their specific requirements. 

    Much like NAFA, Nardone and Companyupholds the highest standards in aircraft appraisal throughout the aviation industry as dedicated partners with their clients. “We provide credibility and trust every time,” said George Nardone, President and CEO. Nardone and NAFA are committed to fostering the education and experience necessary to develop the aviation industry as a whole.

    For more information about Nardone and Company, Inc., visit

    About NAFA:  

    The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit

  • Tracey Cheek posted an article
    Latest Harris Poll Survey Reaffirms Importance of Business Aviation to Companies, Communities see more

    NAFA member, GAMA, releases the latest Harris Poll survey findings.

    Orlando, FL –– The General Aviation Manufacturers Association (GAMA) today joined with the National Business Aviation Association (NBAA) to release the findings of the latest survey conducted by The Harris Poll demonstrating the value of business aviation in providing safe, efficient transportation to companies of all sizes, particularly those located in smaller communities with little to no commercial airline service.

    “The Real World of Business Aviation: 2018 Survey of Companies Using General Aviation Aircraft,” represents a statistically valid representation of the use of business aircraft. The following are among the survey’s key findings:

    • Most users of business aviation are small companies employing 500 or fewer workers. Sixty-two percent of pilots and flight department leaders (identified as "pilots" for survey purposes) stated their companies utilize a single, turbine-powered aircraft.
    • Many business aircraft are largely flown to towns with little or no airline service, with pilots reporting that, on average, 31.5 percent of their flights over the past year were to destinations lacking any scheduled airline service.
    • Scheduling flexibility remains a key driver for business aviation, with 51.6 of passengers stating that traveling on business aircraft enables them to keep business schedules that could not be met efficiently using the scheduled airlines.
    • A significant portion of business aircraft passengers are technical specialists, managers and other company employees, as well as customers. These passengers spend an average of 63 percent of their time on board business aircraft engaged in work, compared to just 42 percent when traveling commercially. Furthermore, two-thirds of these passengers say they are more productive on business aircraft flights than when they are in the office.
    • During the past year, 38 percent of pilots reported flying business aircraft on humanitarian missions, averaging three such missions annually.

    "Since 2009, we've said, 'No Plane No Gain,' and this updated survey confirms the power of the slogan," said GAMA President and CEO Pete Bunce. "General aviation aircraft are indispensable business productivity tools, allowing flexibility, connectivity and efficiency. But they are also on the front line, providing an essential transportation and supply link for those in need around the world."

    “Once again, we see that business aviation is a vital tool for companies of all sizes, enabling passengers to use their travel time for more effectively and efficiently than alternatives, while also providing critical lift to smaller communities and areas in need of emergency relief,” NBAA President and CEO Ed Bolen said.

    The Harris Poll conducted 202 online interviews of pilots, flight department managers and directors of flight operations or aviation for this survey, with 276 interviews among passengers on business aircraft. Its findings are in line with previous Harris Poll surveys in 1997, 2009 and 2015. Like those examples, the 2018 study was conducted on behalf the No Plane No Gain industry advocacy campaign, co-founded by NBAA and GAMA.

    View the complete survey.

    This press release was originally published by GAMA on October 16, 2018.

  • Tracey Cheek posted an article
    Jetcraft Releases Fourth Annual 10-Year Business Aviation Market Forecast see more

    NAFA member, Jetcraft, has released the findings from its fourth annual 10-year business aviation market forecast, building upon the 2017 prediction of a new business cycle of steady, healthy growth and expanding revenues.  

    Jetcraft, the global leader in business aircraft sales and acquisitions, is today releasing its fourth annual 10-year business aviation market forecast.

    The annual market forecast reaffirms that steady growth in the private jet industry is set to continue, with predictions of 8,736 unit deliveries over the next 10 years, representing $271bn in revenues (based on 2018 pricing). North America will once again take the lead, accounting for 60% (5,241) of predicted new unit deliveries over the forecast period, with Europe expecting 18% (1,572), and Asia-Pacific 13% (1,136).

    Jahid Fazal-Karim, Owner and Chairman of the Board at Jetcraft, says: “2018 has been a real turning point for business aviation, as we have now successfully navigated through our industry’s most difficult period. This year’s forecast predicts the continuation of our current business cycle of steady and healthy growth, driven by an increase in wealth creation and the demand for larger and more expensive aircraft.”

    The increase in wealth creation over the past decade has spurred growth in family offices that are now offering a wide variety of specialized services, including business aviation. Together with the increase in block charter and fractional programs, this is exposing more UHNWIs to the industry than ever before.

    However, despite continued economic growth, Fortune 500 companies have yet to return to historical aircraft transaction levels, due to maintaining a focus on other financial priorities, such as share buybacks and paying down debt. This customer segment is unlikely to restart aircraft purchasing programs until well into the cycle.

    The forecast predicts that the large jet category, comprising super large, ultra long range and converted airline segments, will constitute 32% of total units (2,778) and 64% of total revenue over the next decade. All new aircraft model programs, both announced and projected, during the forecast period are exclusively widebodies.

    Fazal-Karim adds: “Predicted unit deliveries in the large jet category account for a huge proportion of total revenues in the industry, demonstrating the trend towards larger, long range aircraft to support today’s global business needs.”

    While the industry is set to embark on a period of substantial growth, its resilience during the challenges of the previous business cycle has prepared it well for expansion.

    Fazal-Karim concludes: “We’re confident that the lessons we’ve learned over the past decade will ensure sustainable growth for business aviation in the years to come. Ours is an enduring industry, and one with a buoyant future ahead.”

    Jetcraft’s full 2018 10-year Business Aviation Market Forecast is available to download here. Report graphs available for publication on request.

    This market report was originally published by Jetcraft on October 10, 2018.  


  • Tracey Cheek posted an article
    Making business aviation work for your organization see more

    NAFA member, Alex Overstrom, Head of PNC Aviation Finance, writes about the impact business aviation has on your organization.

    World’s Top Companies Use Business Aviation

    A recently released study of U.S. corporations found overwhelming evidence of the ubiquity of business aviation at America’s leading firms. The study, undertaken by NEXA Advisors, looked at top corporations across a variety of dimensions, including innovation, customer service, brand value, corporate citizenship and financial performance, and found that in each case more than 90% of the firms recognized for excellence in these areas utilized corporate aviation assets.

    • 92% of the Forbes’ 50 Most Innovative Companies use Corporate Aviation
    • 95% of Fortune’s 100 Best Places to Work use Corporate Aviation
    • 97% of Zagby’s 50 Best Customer Service Organizations use Corporate Aviation
    • 92% of Interbrand’s 50 Best Brands use Corporate Aviation
    • 98% of Fortune’s 50 Most Admired use Corporate Aviation
    • 95% of Forbes’ 50 Top Performing Global Companies use Corporate Aviation
    • 100% of Forbes’ 100 Most Trustworthy Companies use Corporate Aviation
    • 92% of The CRO’s 100 Best Corporate Citizens use Corporate Aviation

    A True Performance Enhancer

    In addition, NEXA compared the performance of S&P 500 firms using business aircraft against those that do not, and found that between 2012 and 2016:

    • Firms utilizing business aircraft grew enterprise value 70% more than non-users
    • Firms utilizing business aircraft grew revenue 2.4x faster than non-users
    • Firms utilizing business aircraft had average ROEs 1.6x higher than non-users

    In summary, the study confirmed what we have long known: business aircraft are essential tools for driving productivity and performance, and are used by nearly every leading company in the United States.

    What’s more, the value that these aircraft can deliver extends far beyond the largest U.S. firms, and can enhance how companies of all sizes and in all industries effectively compete in the marketplace.

    In particular, business aircraft allow organizations to better leverage what is almost always their most important assets: their people. They do this by saving employee time and creating productive environments in transit, two things that are nearly impossible leveraging other forms of transportation.

    Making Business Aviation Work for Your Organization

    The good news is that transitioning from using commercial aviation to owning a business aircraft is becoming increasingly easy, in large part thanks to attractive market prices for aircraft and a wide range of available financing options.

    Indeed, buyers today can acquire an aircraft and obtain up to 100% financing on the purchase price, allowing them to continue to direct their investment dollars towards their businesses. Moreover, that financing can be structured to the needs of a buyer, with the potential for:

    • Traditional loans and leases up to 100% of the value of the aircraft
    • On balance sheet or off balance sheet treatment
    • Non-recourse or limited recourse loans up to 80% of the value of the aircraft

    And financing can be provided on new or pre-owned aircraft, giving buyers maximum flexibility.

    There has never been a better time or reason to own and finance a business aircraft. Let us help you find the solution you need.

    This article was originally published by PNC Aviation Finance.


  • Tracey Cheek posted an article
    Impact of New Tax Bill on Aircraft Values see more

    NAFA member, Pablo Perez discusses the impact the new tax bill has had so far on aircraft values.

    It is difficult, if not impossible, to isolate the exact impact of the new tax bill on aircraft values. There are many concurrent factors that may have an impact on aircraft values, e.g. the economy, regulatory environment and inventory, to name a few. However, we can observe what has been going on in the market since the enactment of, “Tax Cuts and Jobs Act of 2017” (Pub.L.115-97).

    How was the pre-owned business aviation market doing before the tax changes?

    Excessive enthusiasm with the economy before the subprime crisis was certainly a factor in manufacturers flooding the market with new aircraft. Since the crisis, OEMs reduced the general production but the number of new models has increased. We also have new competitors such as Honda and Pilatus entering the business jet market. The accumulated oversupply is still present in the pre-owned aircraft market. These factors have driven down prices for the pre-owned market, permitting buyers to acquire quality aircraft at a considerably lower price.

    This tendency may change given the new tax law.  There is already some information about changes in aircraft values, but before we look at that, we want to summarize the tax changes affecting the industry. 

    What are the tax changes that will have an impact in business aviation? 

    As reported by the Congressional Budget Office (CBO), high net wealth individuals, pass-through entities and corporations should benefit immediately. While the current number of tax brackets has been retained, each has been reduced, and for those operating an entity with pass-through income, there is a new 20 percent deduction for business income.

    For aircraft owners, the savings under the new law are even better. The current bonus depreciation has been amended to provide for 100 percent expensing of the cost of new and pre-owned aircraft (up from 50 percent) acquired and placed in service, provided it is the taxpayer’s first use of the aircraft. Previously, bonus depreciation was only available on new equipment purchases.  

    Unfortunately, for those who previously used Rev. Code §1031 ‘like-kind’ exchanges (usually for upgrading into larger or longer range aircraft) taxpayers will no longer have the ability to defer taxable gains on the sale of aircraft. In theory, the enhanced depreciation discussed above should offset the repeal of like-kind exchanges for aircraft. 

    Additionally, changes have been made to travel expense deductions and the Federal Transportation Excise Tax (FET) has finally been clarified (owner flights on managed aircraft are not subject to FET but are subject to non-commercial fuel tax). 

    Note, for those using aircraft for both business and pleasure, please ensure you speak with your CPA about maximizing the first-year bonus depreciation to ensure non-business guests do not result in disallowances. 

    What is going on with aircraft values in 2018?

    AMSTAT, Aircraft Valuation Tool Report, released in early April 2018, indicates a recent uptick in business aircraft values. According to this re–port, the average estimated values for four of the five major business aircraft segments have risen since the start of Q4 2017.

    According to Andrew Young, AMSTAT General Manager, “the increase in estimated values reflects recent increases in market demand and a tightening market with fewer options for buyers.”

    The National Aircraft Resale Association (NARA) believes that tax reform is driving aircraft values. 

    “While political and economic developments around the world can influence the market, now is a great time to buy an aircraft before prices increase,” said NARA Chairman, Brian Proctor. He notes that used aircraft in excellent condition are selling at a faster pace than in years past.

    “Our NARA-certified brokers have recognized a change in the marketplace just in the first few months of 2018 since the U.S. tax reform was enacted,” Proctor said. “The market is generating more activity and demand and that is likely to increase as the economy continues to heat up, interest rates rise, and most indicators point to a general economic upturn.”

    What is the tendency for the rest of 2018?

    The 100 percent expensing rule is an excellent incentive for aircraft owners to step up to a high-quality aircraft. Also, the decrease in the federal income tax rate should be a good incentive for companies and wealthy individuals to buy an aircraft for the first time because they can redirect money savings from taxes to buy an aircraft.

    If buyers take advantage of the new tax benefits during the rest of the year by accelerating the purchase of pre-owned aircraft, very soon aircraft will start selling faster and the oversupply should start decreasing. As a consequence, pre-owned aircraft values should rise slowly in 2018 (given all other factors affecting aircraft values remain stable).

    This article was originally published in Twin & Turbine on June 5, 2018.