AOPA Backs Emergency Airport Funding to Fight Coronavirus Impact see more
NAFA member, AOPA, urges Congress to support emergency airport funding.
AOPA and six other aviation groups are urging Congress to support needed funding for airports across the country while ensuring that small and general aviation airports also receive a portion of any funds made available to help cope with the coronavirus pandemic.
Assistance to airports should include funding “exclusively for small and general aviation airports that serve thousands of communities across the country and which have also been impacted by this situation,” the groups said in a letter delivered to the bipartisan leadership of the House and Senate appropriations committees on March 23.
“We need a strong and vibrant airport ecosystem in this nation and we want to do everything we can to ensure they get help to meet the operational challenges caused by this pandemic and ultimately continue to accommodate the millions of general aviation operations each year,” said AOPA President Mark Baker. “These airports will remain a priority for us.”
The letter noted that volunteer pilots fly from airports that are the lifeline of many small and rural communities to deliver goods and services during times of natural disasters and emergencies. The diverse general and business aviation aircraft fleet is “capable of rapidly responding to needs in every part of the country and transporting time sensitive supplies, medical and testing equipment, organs for transplants, and key personnel and patients on demand,” it said, adding that “now more than ever, the country will rely on our airport ecosystem.”
As the pandemic has continued, AOPA has been reporting on the coronavirus’s increasing impact on GA airports, events, and activities.
The organizations that joined AOPA in signing the letter include the Experimental Aircraft Association, the General Aviation Manufacturers Association, Helicopter Association International, the National Air Transportation Association, the National Business Aviation Association, and the National Association of State Aviation Officials.
This article was originally published by AOPA on March 23, 2020.
NBAA, Other Aviation Groups Join in Combating COVID-19 Spread see more
WASHINGTON, DC, March 18, 2020 – With the United States facing unprecedented challenges from the spread of the COVID-19 virus, the National Business Aviation Association (NBAA) has joined forces with four other aviation groups to inform lawmakers the nation’s general aviation (GA) industry, including business aviation, is prepared to assist as needed to respond to the crisis.
“As our nation works to respond to the threat of the coronavirus, we wanted to make ourselves available to assist in any way possible,” reads the associations’ letter to Elaine Chao, secretary of the U.S. Department of Transportation. “We stand ready to work with the administration so that the important role our industry can play in responding and mitigating the many challenges of this health issue is fully realized.”
The groups further note the diversity of the nation’s GA and business aircraft fleet, the industry’s ability to operate from more than 5,000 GA airports across the country and its extensive experience with responding to humanitarian crises, from transporting time-sensitive supplies, medical specimens and equipment, to flying critical care patients and medical personnel.
Read the full letter (PDF).
“Business aviation has always been at the forefront of relief efforts in times of need and to assist citizens and communities in their most challenging times,” added NBAA President and CEO Ed Bolen. “Just as we’ve joined together as a nation to face this challenging and evolving situation, I know that our industry is prepared and eager to provide whatever assistance we can to fight the spread of COVID-19.”
In addition to NBAA, the letter was signed by the Aircraft Owners and Pilots Association; the General Aviation Manufacturers Association; Helicopter Association International, and; the National Air Transportation Association.
The signatory groups have also adopted “proactive measures to inform operators, manufacturers, and maintenance providers about appropriate coronavirus response actions,” and committed to sharing the latest information and best practices with their respective members in responding to COVID-19, including regular consultations with subject matter experts on the situation.
# # #
Founded in 1947 and based in Washington, DC, the National Business Aviation Association (NBAA) is the leading organization for companies that rely on general aviation aircraft to help make their businesses more efficient, productive and successful. The association represents more than 11,000 companies and professionals and provides more than 100 products and services to the business aviation community, including the NBAA Business Aviation Convention & Exhibition (NBAA-BACE), the world’s largest civil aviation trade show. Learn more about NBAA at www.nbaa.org.
Members of the media may receive NBAA Press Releases immediately via email. To subscribe to the NBAA Press Release email list, submit the online form.
This release was originally published by NBAA on March 18, 2020.
CARES Act Impact on Federal Income Tax Deductions see more
NAFA member, GKG Law, shares the most recent update on the CARES Act impact on Federal Income Tax Deductions.
On March 27, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus bill passed by Congress. Our previous alert discussed CARES Act provisions that will benefit general aviation. However, the bill also contains several provisions impacting federal income tax deductions. Below are some provisions that may prove particularly helpful to business aircraft owners and operators:
- Modifications to the Use of Business Losses:
- The 2017 Tax Cuts and Jobs Act (TCJA) created limits on the ability for taxpayers to use Net Operating Losses (NOLs). The TCJA eliminated the ability of taxpayers to “carry back” losses to offset income taxes from prior years, and in general limited the “carry forward” use of NOLs to 80% of a taxpayer’s current-year taxable income. The CARES Act allows taxpayers to carry back NOLs from 2018, 2019, and 2020 tax years up to five years. The CARES Act also temporarily allows NOLs to offset up to 100% of current-year taxable income, by removing the limitation that prevents taxpayers from offsetting in excess of 80% of a taxpayer’s current taxable income. Aircraft owners often generate net operating losses in connection with the use and depreciation of their aircraft, so the ability to further utilize these losses could prove helpful to reducing an aircraft owner’s otherwise taxable income.
- The CARES Act also modifies the excess business loss limitation applicable to noncorporate taxpayers, which limited the ability to offset business losses against other income to $250,000 ($500,000 for married taxpayers filing jointly), by temporarily allowing those business losses to offset up to 100% of other taxable income for the taxpayer’s 2018, 2019, and 2020 tax years. Since aircraft owners often have income from many different sources, this modification may be helpful in allowing aircraft-related losses to be used as an offset against the taxpayer’s income from other sources without the limits in the TCJA.
- Modifications to Limitations on Business Interest Expense Deductions: The amount of business interest expenses that a taxpayer is allowed to deduct is generally limited to 30% of the taxpayer’s adjusted taxable income. The CARES Act increases this limit to 50% for 2019 and 2020 tax years. Aircraft owners frequently finance the purchase of their aircraft, so this provision could allow those owners to deduct additional business interest expenses that would have been nondeductible under the prior rules.
The tax provisions discussed above are complex in application and often require a holistic look at a taxpayer’s particular facts and circumstances to determine their potential benefit.
Please do not hesitate to contact a member of our Business Aviation team with questions regarding the CARES Act as it relates to your business needs and decisions.
This article was originally published by GKG Law on March 31, 2020.
- Modifications to the Use of Business Losses:
AINsight: Negotiating Business Aircraft Financing see more
NAFA member, David G. Mayer, partner at Shackelford, Bowen, McKinley & Norton, LLP, discusses negotiating business aircraft financing.
Like large companies, an increasing number of high/ultra-high-net-worth individuals apparently like using other people’s money (OPM) instead of cash to close private aircraft transactions. These transactions include true tax leases, sale leasebacks, financing leases, secured loans, and refinancing of private aircraft by lessors and lenders. These deals also cover a broad range of aircraft by value, cost, cabin size, age, make and model.
It might just be my passing anecdotal experience that these “customers” seem to be more patient, flexible and engaged with their financiers than before the fourth quarter in resolving deal points that matter to them. Perhaps customers have discovered what I regularly see today: financiers, though controlled by bank regulations and internal credit policies, will work diligently and productively with their customers to develop structures and terms acceptable to their customers and the financier.
For lessors and lenders, this apparent surge in financing activity is good news. Yet, they widely acknowledge that “cash is king” in how high/ultra-high net worth individuals typically purchase new and preowned aircraft. According to JetNet, cash wins over secured loans to purchase jets, in an estimated 70 percent of U.S. aircraft purchases or a lower percentage of cash purchases depending on other sources of the information.
Financiers often encounter objections to financing like these: “I have cash available to buy the aircraft with minimal effect on my net worth”; “I really want to avoid the ‘brain damage’ associated with negotiating documentation, responding to onerous credit disclosure requests and abiding by restrictions that financiers will impose on me.”; and “I just prefer, like my buddies, to own the aircraft outright.”
Some financiers apparently have found the magic sauce to overcome these typical customers’ objections when combined with three particular attributes of financing today that appear to underpin the elevation in financing activity.
First and foremost, while money is cheap in the current highly competitive financing market, every client pursues the lowest loan or lease rates, though most lease pricing entails more variables and assumptions than loans.
Some clients even acknowledge what is almost universally true: they can make more money using their cash elsewhere for their businesses or investments. Other clients simply prefer using OPM and holding their cash. With the current volatility in the stock market, coronavirus fears, and concerns about the future economy, OPM may, and maybe should, attract even more interest.
Second, with the passage of the Tax Cuts and Jobs Act of 2017, clients almost always ask whether the aircraft qualifies for bonus depreciation. Correspondingly, they assume, often incorrectly, that they can use and qualify to take these substantial tax benefits. What is important here are ways in which leasing still might enable customers to enjoy some of these tax benefits.
How is that possible? Certain lessors can and do use the tax benefits in pricing leases—when setting rents and casualty values—sums lessees must pay the lessor on the occurrence of a total loss of the aircraft. These lessors can, but might not offer to, share the depreciation tax benefits with the lessee, primarily in the form of lower rents and casualty values.
Importantly, the tax benefits might be available not only when the lessor purchases the aircraft directly from the third-party seller and leases the aircraft to the lessee/customer. These tax benefits might also be available when the lessor purchases the seller’s/lessee’s owned aircraft and leases it back to the seller/lessee. The latter strategy allows the seller/lessee to monetize the value of its aircraft while keeping possession and use of the aircraft subject to the new “sale leaseback” arrangement.
In true operating or tax lease transactions, customers get a third benefit. Lessors assume the residual value risk arising out of aircraft ownership and leasing.
Under federal income tax true lease guidelines and other applicable law, an owner/lessor must, among other requirements, retain continuous residual value risk during the lease term of not than 20 percent of the original cost of the aircraft. Residual value refers to the market value of the aircraft at the end of the applicable lease term.
In reality, the residual value assumed usually far exceeds 20 percent due to the inherent value of aircraft, enabling lessors to assume far higher residual values. The customer is entirely free from residual value “downside” losses in value from, or “upside” gain over, assumed residual value in connection with any subsequent sale, lease or other disposition of the customer’s leased aircraft.
THE RIGHT TEAM
Although customers often have relationships with non-aviation professionals, aircraft transactions will almost always progress more easily, efficiently, and at a lower transaction cost with the right aviation team. It is imperative that the transaction team thoroughly understands and adopts a strategy to fully satisfy the customer’s desired participation, attitude towards the financing negotiation and distinguishing between the “must have” an “nice to have” modifications in the documentation.
As a result, every financing transaction is unique, even when a financier provides basically the same “form” of documents to different customers covering similar aircraft. The right transaction team will understand the big issues, nuances, documents, and characteristics of the financier.
Some clients want to negotiate/win every point. Others simply want the best loan or lease rates from financiers that will stay out of their businesses, minimize fast-trigger defaults, not reach for non-aircraft related collateral such as securities accounts, and impose the fewest restrictions on flight operations.
To achieve the best outcome, the transaction team, especially brokers and technical advisors, should ideally participate starting before the hunt for the right aircraft. The customer should engage the other team members before the negotiation of the letter of intent (LOI) or the financing proposal.
For buyers, the key is to allow adequate time for tax planning, aviation regulatory structuring, identification of the best financier for the particular situation and risk management planning, especially in current volatile insurance markets.
Financiers draft the financing documents in their favor even though they expect the provisions to change depending on the relative bargaining, credit, and relationship strength of the customer. True tax lease transactions usually entail more complex and opaque provisions than secured loans, including extensive aircraft maintenance requirements, aircraft return conditions and federal tax indemnification.
For reasons that differ and do not appear to show a discernable pattern, more high and ultra-high net worth customers seem to be gravitating toward financing private aircraft. Perhaps these potential customers, on closer reflection, have concluded that aircraft financing has significant value and, with the right aircraft transaction team, are easier to close than they anticipated.
The content provided above is intended for informational use only and does not constitute legal advice. Each person involved in these transactions should consult his or her aviation team advisors.
David G. Mayer is a partner in the global Aviation Practice Group at Shackelford, Bowen, McKinley & Norton, LLP 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 aircraft owners, flight departments, lessees, borrowers, operators, sellers, purchasers, and managers, as well as lessors and lenders. He can be contacted at email@example.com.
This article was originally published by AINonline on March 13, 2020.
Key Provisions for General Aviation Businesses in the CARES Act see more
NAFA members, Edward Kammerer and Thomas Richardson with Greenberg Traurig, LLP., share key provisions for the general aviation businesses in the CARES Act.
On March 27, 2020, the $2 trillion stimulus bill known as the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law. While the CARES Act sets aside $250 billion of direct payments to individuals and families and $377 billion in small business loans, it also contains provisions that directly support general aviation. The general aviation community should be aware of the following elements within the CARES Act:
1. Temporary suspension through the end of the year of federal excise taxes for commercial operations, including the 7.5% FET applicable to Part 135 charter flights.
2. The suspension of the tax on aviation fuel until January 1, 2021.
3. A series of extensions allowing Part 135 charter operators to temporarily postpone certain training requirements related to crew safety concerns.
4. Allowing up to an additional three months to complete recurrent and upgrade training and qualification activities.
5. Relief allowing airmen whose medical certificates expire between March 31 and June 30 to continue to fly in order to reduce stress on the nation’s healthcare system.
6. $25 billion in direct lending and loan guarantees for passenger air carriers, including Part 135 charter operators, and Part 145 repair stations.
7. $4 billion in direct lending and loan guarantees and $4 billion in grants for cargo air carriers, including Part 135 operators that conduct cargo charter operations.
8. $3 billion in grants for aviation industry contractors.
9. Congress further allocated an additional $25 billion in grants for passenger air carriers and $4 Billion in grants for cargo air carriers that are for continued payment of wages to employees.
10. $10 billion in grants allocated for airports, a significant portion of which was designated for improvement of General Aviation airports. These loans and grants come with restrictions and eligibility requirements. Loan and grant recipients are subject to employee retention requirements and restrictions on executive compensation, stock buybacks and dividends.
Because much of the General Aviation Community is comprised of small businesses, the GA Community should be aware of those provisions of the CARES Act that are generally available to small businesses:
1. $350 billion in funds available for loans through a “Paycheck Protection Program.” Loans will have no fees and are available in amounts up to 250% of an employer’s average monthly payroll, up to $10 million. Payment of principal and interest can be deferred up to a year. Up to eight weeks of average payroll and other costs may be forgiven if the business retains its employees at current salary levels.
2. $10 billion is available for an advance up to $10,000 in SBA Economic Injury Disaster Loans that may be used for expenses, including payroll and other operating expenses that would otherwise have been met had the COVID-19 pandemic not occurred. The principal amount of these loans can be up to $2 million, with an interest rate of up to 3.75%. Payment of principal and interest can be deferred up to a year.
3. An additional $17 billion is provided to cover six months loan payments for existing SBA borrowers. This relief is also available to new borrowers that take out an SBA loan within six months of the signing of the CARES Act into law.
For more information and updates on the developing COVID-19 situation, visit GT’s Health Emergency Preparedness Task Force: Coronavirus Disease 2019.
 CARES Act relies on 40 U.S. Code §40102(a)(2) to define “air carrier” as “a citizen of the United States undertaking by any means, directly or indirectly, to provide air transportation.”
 Under the CARES Act, this is includes a small business, 501(c)(3) nonprofits, 501(c)(19) veteran’s organization, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees, or the applicable size standard for the industry as provided by SBA, if higher. Sole-proprietors and independent contractors may also avail themselves of this relief.
 Section 7(A) of the Small Business Act, 15 U.S.C. 636(a).
This article was originally published by Greenberg Traurig, LLP. on March 30, 2020.
Coronavirus Aid, Relief, and Economic Security (CARES) Act Provisions to Benefit General Aviation see more
NAFA member, GKG Law, shares the latest on the CARES Act.
On March 25, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus bill. The House of Representatives is expected to approve the legislation, and President Trump has indicated he will quickly sign the bill into law. In addition to general loan programs for small and mid-size businesses that are made available, the CARES Act contains provisions that will benefit general aviation specifically. The business aviation community should take note of the following provisions included in the CARES Act:
- Relief from the 7.5% air transportation federal excise tax for general aviation commercial operations (including flights operated under FAR Part 135), and from the commercial fuel tax through December 31, 2020 (This will not apply to amounts paid for transportation on or before the date of enactment of the CARES Act.);
- Loans and grants to passenger and cargo air carriers, including
- $25 billion in direct loans and loan guarantees for FAR Part 135 Operators providing passenger operations and an additional $25 billion for wages, salaries and benefits for employees;
- $4 billion in direct loans and loan guarantees for FAR Part 135 Operators providing air cargo operations and an additional $4 billion for wages, salaries and benefits for employees;
- $25 billion in loans and loan guarantees for Part 145 maintenance facilities;
- $10 billion for airport grants, with $100 million specifically allocated to general aviation airports.
Note that companies receiving loan and loan guarantees under the CARES Act will be subject to certain requirements, such as maintaining March 24, 2020 employment levels to the extent practicable through the end of September and limits on employment level cuts, limits on executives’ compensation and stock buybacks, and the Department of Transportation would have authority until March 1, 2022 to order any carrier accepting federal assistance to maintain certain air routes.
Please do not hesitate to contact a member of our Business Aviation team with your CARES Act questions or concerns in the days to come.
This article was originally published by GKG Law on March 26, 2020.
- Relief from the 7.5% air transportation federal excise tax for general aviation commercial operations (including flights operated under FAR Part 135), and from the commercial fuel tax through December 31, 2020 (This will not apply to amounts paid for transportation on or before the date of enactment of the CARES Act.);
Aircraft Purchases During Stock Market Swings see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses aircraft purchases during stock market swings.
Q: Given the current volatility of the market, what advice are you giving to members contemplating an aircraft purchase?
A: In times of volatility, in particular with wild stock market swings, you want to maintain as much cash as possible. Taking a methodical approach of buying into markets that are depressed is arguably more important than having the proverbial crystal ball that helps you get out of the market before a crash. That said, there has probably been no better time to obtain financing, whether it be for your house or airplane, or any other relatively stable asset then now. With interest rates for excellent credits on loans over $2M in the 2.5 to 3.0% range, this is truly an unheard-of period of time. Knowing what options are available is what AOPA Finance does best because of the strength and depth of our membership. Don’t wait to find out what your specific situation looks like, call us and find out how we can help you take advantage of this rare time.
This article was originally published by AOPA Aviation Finance Company on March 11, 2020.
Congress Introduces Legislation for a National Aviation Center see more
NAFA member, AOPA, shares the latest on legislation for a national aviation center.
Known as the National Center for the Advancement of Aviation (NCAA), the bill has already garnered overwhelming support from AOPA and organizations representing all segments of aviation across the country.
The proposal will open the door for all stakeholders to come together in support of a long-overdue, national industry forum. It will help ensure science, technology, engineering, and math (STEM)-based aviation curriculum reaches the 25,000-plus high schools across the country, assist in apprenticeships, and help military veterans and others transition to good paying technical jobs in the aviation industry.
The NCAA would be a private entity and no general fund taxpayer dollars would be used to support it. The legislation calls for funding the initiative by using a small percentage of the interest that is accrued annually on the taxes and fees collected from users and deposited into the aviation trust fund. Today, users of our aviation system pay for nearly all the costs associated with the operations of the FAA including air traffic control modernization. Moreover, the proposed center would be prohibited from involvement in any political or legislative activity.
Spearheaded by U.S. Sens. James Inhofe (R-Okla.) and Tammy Duckworth (D-Ill.), the NCAA would focus on four key initiatives: aviation workforce development, including the facilitation of STEM-based aviation curriculum for high school students; a repository for aviation research; safety and economic data analysis; and the fostering of needed collaboration among the entire aviation industry.
“The widespread support for this center is very encouraging. This center would do more to promote needed cooperation in the aviation community including efforts to address the workforce challenges our industry is facing now and into the future. Whether it be pilots starting in general aviation, military or commercial pilots, technicians, maintenance workers, or others, we need to ensure that our industry remains competitive and can meet these challenges,” said AOPA President Mark Baker. “AOPA is proud to work alongside allies in Congress and respected aviation leaders to make this center a reality.”
Demand for air travel, a sizeable cohort of commercial pilots nearing the mandated retirement age, and the high cost of training have all led to a shortage of qualified professionals in the industry. Boeing’s 2019 Pilot and Technician Outlook predicts the need for 804,000 new civil aviation pilots, 769,000 new maintenance technicians, and 914,000 new cabin crew over the next 20 years to fly and maintain the global aircraft fleet. In North America alone, Boeing suggests 212,000 new pilots and 193,000 new technicians will be needed over the next two decades.
According to the Aeronautical Repair Station Association the technician shortage is costing the U.S. aviation maintenance industry an estimated $118 million per month ($1.421 billion per year) in lost economic opportunity. Additionally, the Aviation Technician Education Council predicts that the mechanic population will decrease 5 percent in the next 15 years. New entrants make up just 2 percent of the technician workforce annually, while 30 percent is at or near retirement age.
The U.S. Air Force is short thousands of fighter pilots but has taken significant steps to reduce that gap and seek initiatives to retain more airmen. Using 3D virtual reality, the Air Force is looking to speed up pilot training—a technique that could also benefit the civilian pilot training sector. The NCAA would be an avenue for the Air Force to share its experience, allowing for cross-industry collaboration and potentially reducing the cost of civilian flight training.
The future of the entire aviation ecosystem depends on effective training, resources, and innovative ideas, which can be accomplished through the establishment of the NCAA.
Additionally, this center would allow the FAA to focus on safety and certification while the industry invests in the collaboration of promoting aviation through education, training, research, and awareness of the many job opportunities in the aviation industry.
This article was originally published by AOPA on February 27, 2020.
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
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.
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
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.
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.
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.
Global Jet Capital’s Q4 2019 Quarterly Business Aviation Market Report see more
NAFA member, Global Jet Capital, shares their quarterly business jet market briefing.
Global Jet Capital’s Q4 2019 Quarterly Market Briefing covers the state of the aviation market for new and pre-owned business jets in 2019. Additionally, this report provides an overview of overall economic conditions, business jet flight operations, pre-owned and new market conditions, business jet transactions, and changes in aircraft residual values.
This report includes the following insights:
- Led by new deliveries, the business jet transaction market stabilized in the second half of 2019 after a weak first half
- Despite threats to trade, economic growth remained slow and steady while consumer confidence and low unemployment served to reassure many business jet market participants
- New deliveries refreshed a jet fleet that has been aging since the end of the financial crisis
- As the overall market stabilized, inventories continued to increase, but at lower rates in Q4 than earlier in the year
- Overall average residual values remained stable in 2018 and 2019, but model by model volatility continued, particularly in the heavy jet segment towards the end of 2019
- Sustainability will become increasingly important to the industry, which is now developing new techniques and technologies to offset and reduce carbon emissions
Click here to download the full report.
This report was originally published by Global Jet Capital on February 11, 2020.
ADS-B Compliance: The Potential Consequences Of Violating Rule Airspace see more
NAFA member, Greg Reigel, Partner with Shackelford, Bowen, McKinley & Norton, LLP., discusses ADS-B Compliance and Rule Airspace.
As most aircraft operators know, or should know, aircraft must now be equipped with ADS-B Out in order to fly in most airspace within the U.S. Although it is possible to take advantage of limited waivers or exceptions, generally speaking ADS-B Out is required for operations in “Rule Airspace.”
In connection with this requirement, the FAA recently updated Order 2150.3C – FAA’s Compliance and Enforcement Program to explain potential sanctions for aircraft operations that do not comply with the ADS-B Out mandate. Specifically, Chapter 9 of the Order now identifies the FAA’s sanction policy/guidance for ADS-B related violations.
It is important to understand that the FAA will be taking these violations seriously. For example, if the FAA believes an airman is transmitting inaccurate ADS-B Out or transponder information with the intent to deceive, or is operating an aircraft without an activated transponder or ADS-B Out transmission (except as provided in 14 C.F.R. §91.225(f)) for purposes of evading detection, it will revoke that airman’s certificates.
The sanction for other violations are not as severe, but are nonetheless significant. The FAA characterizes the severity of the violation based upon levels of 1, 2 or 3, with Severity Level 3 being the most serious. And depending upon whether the FAA views the violation as careless or reckless/intentional, the sanction range could vary from low to maximum.
The FAA evaluates violations based upon impact on safety. “Technical Noncompliance” involves violations where serious injury, death, or severe damage could not realistically occur as a result of the violation conduct, even if theoretically possible. A violation with a “Potential Effect on Safety” occurs in a situation where serious injury, death, or severe damage could realistically result, but under the facts and circumstances would not often occur. Finally, a violation falls into the “Likely Effect on Safety” category where serious injury, death, or severe damage may occur more often as a result of the violation conduct.
When the operator fails to comply with ADS-B Out performance or broadcast requirements due to technical noncompliance, the violation is considered Severity Level 1. If the failure to comply with ADS-B Out performance or broadcast requirements has a possible effect on safety then the violation is Severity Level 2. And, not surprisingly, when the failure to comply with ADS-B Out performance or broadcast requirements has a likely effect on safety then it is a Severity Level 3 violation.
The specific sanction will also depend upon the type of violator. If the violation is by an individual certificate holder, the airman will likely be facing suspension of his or her certificates. An individual acting as an airman or a business entity will face a monetary civil penalty. In the case of a business, the amount will vary depending upon the size and revenue of the entity.
So, depending upon the circumstances, an individual certificate holder could face a suspension of his or her certificates for 20 -60 days, 60 -120 days, 90 -150 days, or 150 -270 days, depending upon whether the violation is in the low, medium, high, or maximum range, respectively. Other individuals and businesses could face civil penalties ranging from $100 to $34,174 per violation, depending upon the nature of the violator and how the FAA categorizes the violation.
In the event of multiple violations arising from the same act or omission, the FAA may give special consideration if the violation was careless, as opposed to reckless/intentional violations which receive no special consideration. For an individual certificate holder the suspension could be anywhere from 30 -90 days, 90 -150 days, or 120 -180 days, depending upon whether the violation is Severity Level 1, 2 or 3, respectively. And an individual acting as an airman could be assessed a civil penalty in the amount of $5,000 -$10,000, $7,500 -$15,000, or $10,000 -$20,000, again depending upon whether the violation is Severity Level 1, 2, or 3, respectively.
For other individuals, the civil penalty could range anywhere from $50,000 to $200,000. And business violators could be assessed civil penalties ranging from $50,000 to $600,000 depending upon the nature and size of the business, as well as the Severity Level of the violation.
Order 2150.3C provides the FAA inspectors and attorneys with a checklist for determining sanction in any given case involving an ADS-B violation. Unfortunately, when a case gets to the point where the FAA is determining sanction, the actual calculations and method for arriving at the final assessed civil penalty is usually withheld.
However, it is important to understand that the facts and circumstances involved in any given case have an impact on both how the sanction is calculated as well as the amount of the civil penalty assessed. If you find yourself defending against an alleged violation of Rule Airspace, knowing this information can help you defend yourself and, hopefully, successfully resolve the matter.
This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP. on February 3, 2020.
FAA Responds to NBAA’s Call for COVID-19 Accommodations on Part 135 Training see more
NAFA member, NBAA, shares FAA's response to call for COVID-19 accommodations on Part 135 Training.
Faced with an unprecedented situation driven by the escalating COVID-19 pandemic, the FAA has answered NBAA’s call for the agency to take unprecedented steps to ensure that many charter operators are able to continue flying through the crisis.
On March 25, the agency issued the following four exemptions in effect through May 31, 2020, and applicable to most Part 135 operators:
- FAA-2020-0291, exempting Part 135 operators from the requirement that crewmembers don protective breathing equipment or oxygen masks during recurrent and upgrade training, testing and checking.
- FAA-2020-0292, allowing Part 135 ground personnel and crewmembers to complete recurrent training and qualification activities up to three calendar months after the month that the activity was due to have been completed, for requirements that were due to be completed through May 31, 2020.
- FAA-2020-0307, exempting Part 119 certificate holders, including some Part 135 operations, from the requirement that crewmembers don protective breathing equipment or oxygen masks during recurrent and upgrade training, checking and evaluation.
- FAA-2020-0308, allowing Part 119 certificate holders, including some Part 135 operations, allowing ground personnel, crewmembers and dispatchers to complete recurrent training and qualification activities up to three calendar months after the month that the activity was due to have been completed, for requirements that were due to be completed through May 31, 2020.
“We thank the FAA for its responsiveness to our request for these accommodations to ensure that business aviation operators will be able continue flying through this unprecedented and challenging situation,” said Brian Koester, NBAA director of flight operations and regulations. “As we continue to adapt to the realities of the COVID-19 environment, NBAA will work to ensure our industry is fairly represented in these and other actions taken to maintain our nation’s aviation infrastructure.”
In issuing these exemptions, the FAA noted that the agency has circumvented the typical publication process in the Federal Register, as “delaying action would have an adverse and potentially immediate impact on [the] continuity of critical aviation operations essential to the public interest.”
This article was originally published by NBAA on March 26, 2020.
Bolen Sternly Questions CNBC’s Recent Mischaracterization of Business Aviation see more
NAFA member, NBAA President and CEO Ed Bolen responded strongly this week to a recent CNBC article about the general aviation community’s collective request for inclusion in a congressional COVID-19 relief package, saying the network’s coverage was based on a “pre-determined narrative” that cast the industry with a negative brush, while ignoring the reality of its pressing economic challenges.
Bolen cited the pandemic’s impact on business aviation operations large and small, from the sweeping furloughs and layoffs at OEMs, maintenance facilities and other aviation businesses, to dwindling traffic at business aviation airports.
Bolen also emphasized the industry’s efforts to support relief efforts against the pandemic, citing a family-owned maintenance company that has converted some of its operations over to production of protective face masks for humanitarian purposes.
“All of this points to the larger picture missed in your report: As the U.S. economy moves rapidly from slowdown to shutdown, this critical industry, like countless others, is in need of support,” Bolen wrote. “By settling for sizzle over substance in a time of national crisis, CNBC is not only misinforming readers, but also attempting to smear a vital industry with a long history of serving the nation, and thousands of communities in times of need.”
This article was originally published by NBAA on March 26, 2020.
A Solution for FAA Registration Delays see more
March 20, 2020, Oklahoma City, OK – AvSure, Inc., the U.S. aviation industry’s only provider of aircraft title insurance for domestic transactions, is proud to announce a solution that will enable parties to aviation transactions to close without concern about filing and registration delays being caused by the temporary procedures implemented by the FAA Civil Aviation Registry in response to the coronavirus (COVID-19) pandemic. It can be business as usual for commercial and business aviation, financiers, law firms, buyers, sellers and brokers.
The Registry’s temporary procedures, implemented on March 18, 2020, have presented issues when it comes to obtaining timely information about the filing and indexing of aircraft registrations. Instead of being passed through the infamous “window “and immediately time-stamped, registration and filing documents are now being placed in drop-boxes in the lobby outside the Public Documents Room and collected twice a day for regular registrations and once each hour for priority registrations. An extended “gap” now exists between the time documents are deposited in the drop-boxes, filed by the Registry, and ultimately recorded in the public records. A “gap” during which adverse claims and interests might be asserted against an aircraft’s title.
AvSure’s solution is to offer an endorsement to aircraft title policies that address the risk created by the extended “gap” and the registration delays. “We are glad to be here to keep transactions moving forward in any way that we can,” stated Holly Healey, President of AvSure, Inc.
Anyone concerned with the ramifications that the Registry’s temporary processes might have on an aircraft transactions should contact one of AvSure, Inc.’s four (4) Oklahoma Insurance Commission licensed Aviation Title Insurance specialists at (405) 948-1811 for further details and program requirements.
About AvSure, Inc.
Based in Oklahoma City, OK, AvSure, Inc. is the sole provider of aircraft title insurance to the lenders and aircraft owners in the U.S. aviation industry. The International Insurance Company of Hanover, Fidelis and Swiss Re reinsure risks underwritten by AvSure up to $100MM in coverage. For more information, please visit www.avsure.org or call us at 1.800.288.2519.
This release was originally published by AvSure Title Insurance on March 20, 2020.
Update: Additional Change to FAA Public Documents Room Due to COVID-19 see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, Inc., shares additional updates on the FAA Civil Aviation Registry and Public Documents Room.
The FAA's Civil Aviation Registry has made another important change to their Public Documents Room (PDR) procedures in light of the continued spread of COVID-19, or Coronavirus.
After multiple changes made last week in order to protect their employees, permit-holders who regularly access the PDR, their families and the public at large, they have taken a significant new measure.
As of Tuesday, March 24, 2020, the Civil Aviation Registry will quarantine "all incoming physical documents, including priorities, for 72 hours."
The Coronavirus is able to survive on surfaces for up to several days, which heavily increases employee exposure to the virus.
There will be no change in processing timelines of priorities submitted via the email portal, which was made available in the initial procedure changes.
However, the "20 page email maximum" referenced in those initial changes is now lifted for priority cases - multiple submissions can be made if the file is too large to be accepted at once.
The FAA continues to try to mitigate transmission of Coronavirus while providing essential services and minimizing negative impacts.
For more information and assistance please contact your local agent.