Taxing Relationships - The New Tax Traffic Controller for Partnership/LLC Aircraft Owners see more
NAFA member David N. Corkern, J.D., LL.M., aviation attorney with Shackelford, Bowen, McKinley & Norton, LLP, shares information about the recent IRS changes made regarding partnerships and LLCs for aircraft owners.
Do you own an airplane through a limited liability company that is treated as a partnership to preserve privacy, or to minimize tax or other liability exposure? Or in which the airplane is held in a partnership of all “natural persons” (i.e. human beings)? Regardless of the reason, you’ll want to be aware of the recent changes made to the way those partnerships/limited liability companies (LLCs) are treated by the IRS during an audit.
In 2015, with the passage of the Bipartisan Budget Act, the U.S. Congress significantly revised the manner in which partnerships/LLCs are audited. (While LLCs differ from partnerships under state law, they are treated and taxed as partnerships by the IRS, unless they have elected to be taxed as corporations. All references to “partnerships” in this article refer to such LLCs as well.)
The IRS has issued regulations known as the Centralized Partnership Audit Regime (“CPAR”), effective for audits of partnership tax years beginning on or after January 1, 2018. The CPAR requires that all partnerships designate a “partnership representative.”
This designation must be made for each tax year of the partnership and replaces the “tax matters partner” under the old rules. Unlike the tax matters partner, the partnership representative may be someone other than a partner. Do exercise caution when choosing your new partnership representative, since the IRS will not deal with any other person or entity in case of a tax audit. In addition, the CPAR gives the partnership representative greater powers than the former tax matters partner – to bind the partnership and all of its partners in negotiations with the IRS, notwithstanding any contrary provision in the partnership agreement.
CPAR also changes the way in which tax adjustments are made. Prior to CPAR, if an audit resulted in additional taxes, penalties, and interest due for the audited tax year, those adjustments would have been made at the partnership level and each partner’s return also was adjusted. The net result of the pre-CPAR audit was that taxes, penalties, and interest were collected from those who were partners in the audited tax years.
Now under CPAR, the IRS will assess all taxes, penalties, and interest against the partnership, which shifts the burden to current partners, and not to those who were partners for the years under review.
For example, assume that “High-Flying, LLC” owns an aircraft. From 2012 through 2016, individuals A, B, and C were equal partners in High-Flying, LLC. When C sold his interest to D in January, 2017, D became an equal partner with A and B in High-Flying, LLC. If, after audit, the IRS determines that additional taxes are owed by High-Flying, LLC for tax year 2016, High-Flying, LLC will bear that cost, and D must pick up the tax tab for the former partner, C, absent an “opt-out” or “push-out election” discussed below.
How can a new partner be protected from bearing someone else’s tax liability under CPAR? There are two ways to do so:
First, a partnership with fewer than 100 partners and no ineligible partners (e.g., partnerships, trusts, and LLCs taxed as partnerships) may elect out of CPAR. This “opt-out” election is made yearly on the partnership’s tax return.
Second, a partnership may use a “push-out” election to shift the tax audit adjustments to former partners. The “push-out” election also must be made yearly on the partnership’s tax return.
If you are thinking of buying or selling an interest in a partnership or limited liability company that owns an aircraft, pay close attention to the shifting tax liability created by CPAR. These rules are somewhat complicated and it’s always a good idea to consult an expert before amending any partnership agreement to comply with CPAR.
This article was originally published in Business Aviation Advisor on July 1, 2019.
Business Aviation Industry Set To Grow In Size, Scale And Strength Over The Next Five Years see more
NAFA member Chad Anderson, President of Jetcraft, discusses the two major differences between this year's market forecast and those from previous years.
Last month we released our 5-Year New & Pre-Owned Business Aviation Market Forecast – the first report of its kind to take a precise, comparative and quantified look at both types of aircraft transactions.
Aside from introducing pre-owned market predictions, we’ve updated our overarching methodology as compared to previous reports, making it even more precise. We’ve shifted to a five-year rather than a 10-year outlook, to better reflect the current aircraft ownership experience, and adjusted the overall population of aircraft analyzed to more closely align with our expertise. Furthermore, we’ve classified new deliveries as transactions only from date of entry into service and retrospectively normalized classifications prior to 2012, when all aircraft built were considered new deliveries. Finally, we’ve leveraged more of our own transaction data for a truly consolidated outline of how we see the industry behaving.
The findings show that our industry will continue to grow in size, scale and strength over the next five years, hitting nearly $30bn per year in revenue by 2023 – a remarkable figure. This is the first time a value like this has ever been assigned to the industry. We also expect to see the business aviation fleet grow by 12.1% in that time frame.
The forecast predicts continued and significant growth in the pre-owned industry, with an expected 11,765 transactions over the next five years, totaling $61bn in value. By 2023, we forecast four times as many pre-owned transactions vs. new deliveries, primarily due to the growing value proposition of these aircraft. Maintenance capabilities are increasing, and we are seeing greater accessibility, rapidity and cost-efficiency of high-quality refurbishment. This is resulting in higher demand for older or out-of-production aircraft, including amongst buyers who previously exclusively bought new models. Our forecast reveals that the average aircraft retirement age is now 32 years – nearly a decade older than previously thought.
We continue to see a shift towards large aircraft types in both new and pre-owned markets worldwide. Buyers are looking for larger and longer-range models and as a result of this, manufacturers are focusing on producing aircraft almost entirely in the midsize segment and above.
New unit deliveries are predicted to stay flat throughout the forecast period whilst generating higher revenues, due to the increase in large aircraft transactions. Over the next five years, we’ll see many more customers turn towards large jets rather than light jets, as the needs of business travelers evolve on a more global scale.
On behalf of the team at Jetcraft, I am honored and excited to have produced the very first new and pre-owned business aviation market forecast, stemming from our 55 years’ experience in connecting buyers and sellers across the world. We hope you find it useful, interesting and insightful and we welcome your comments, questions and feedback.
To download the full 2019 5-Year New & Pre-Owned Business Aviation Market Forecast, visit www.jetcraft.com/knowledge/market-forecast.
View video here.
This article was originally published by Jetcraft on June 28, 2019.
Back to the Future - 35 Years see more
NAFA member Bill de Decker, Co-Founder of Conklin & de Decker, shares his thoughts on business aviation.
Nobody could deny Business Aviation has come a long way in the last 35 years. Looking back to 1984, NetJets was only a vision of Richard Santulli who had just purchased Executive Jet Aviation.
The most popular business jet model was the Learjet 35A and Cessna was in the lead with the most combined deliveries of its Citation line of Light and Mid-size Jets. In the Long-Range category, the Falcon 50 was the leader for Dassault and the Gulfstream GIII was having a strong year.
Meanwhile, Bombardier’s Challenger was the first entry in the new Super Mid-size Jet class. What’s more, we were all looking forward to the all-new GIV, which was nearing its first flight. Impressively, many of these aircraft are still flying today, which is a testament to the quality of manufacturing, technology and years of proper maintenance.
But away from the manufacturing side, the launch of several entrepreneurial Business Aviation start-ups also took place at that time, including a company called Conklin & de Decker.
Al Conklin and I met while working at Falcon Jet in the early 1970s and we went on to publish the first Aircraft Cost Evaluator in 1972. Our combined experience spanned the military, aircraft sales, engineering and c ost analysis, and we had a passion for business jets. We recognized a demand for accurate, trustworthy, directly comparable aircraft cost and performance data that could help businesses and individuals make more informed decisions when buying an aircraft.
Since then, Conklin & de Decker has become a leader in that field and also consults on a wide range of subjects, including fleet planning, acquisitions and taxes. A little
over a year ago, we announced that Jet Support Services, Inc. (JSSI) had acquired our company. As JSSI added programs, expanded into parts and leasing, and introduced advisory services such as overhaul management, inspections and appraisals, it was a logical step to acquire our data, tax and consulting business in 2018.
The result is that JSSI and Conklin & de Decker are positioned for the future and no longer just provide hourly
maintenance programs or databases but support the entire life cycle of owning and operating an aircraft. Our two companies have many things in common but the most important, in my opinion, is our dedication to our customers.
What’s Changed in BizAv?
One of the great things about Business Aviation is the constant pursuit of innovation. In 1984, the push was for more range, more speed, better performance, lower fuel consumption, less noise, lower maintenance costs and better avionics. And that has not changed one bit today!
So what has changed? It’s the sheer amount of information that’s available to consumers. People consume vastly more data today and depend on it to make decisions. This was a big motivation for the creation of the Conklin & de Decker Report, ba sed on our flagship Aircraft Cost Evaluator that is now easily accessed via the web or mobile app.
Another change has been the globalization of Business Aviation with its Ultra-Long-Range Jets and worldwide operations. To address this, we’re expanding our research to accurately depict regional variations in operating costs, starting with the Asia-Pacific and European regions.
Meanwhile, the one area that hasn’t changed since 1984 is the importance of great customer service. Even with increased automation and digital access to our products I don’t foresee the personal level of our service we believe in going out of style.
And on to the Next Generation in BizAv...
As we look to the next generation of Business Aviation, we see supersonic transportation (SST) making a comeback; not the 1980s SST version but with new, efficient engines that will burn the latest sustainable alternative jet fuel blend and with no perceptible sonic boom. We see futuristic eVTOL designs and talk of autonomous aircraft.
However, one vital element to our industry’s longevity is its ability to attract and retain young talent—pilots, maintainers, design engineers, software developers and sales reps who share the same passion for aviation that led many of us to devote our entire careers to this industry.
With them we will continue the legacy of business aviation for many years into the future. More information from www.conklindd.com.
Bill de Decker is the Co-Founder of Conklin & de Decker, where he is responsible for consulting studies and developing new programs. His areas of expertise include financial management, business and fleet planning, certification issues, life cycle cost and operations. Prior to founding Conklin & de Decker, Bill managed the Falcon and Bell Learning Centers, as well as the Communications Systems Division for FlightSafety International.
This article was originally published in AvBuyer Magazine, Volume 23, Issue 6, 2019, p. 4.
3 Qualities to Look for in an Aircraft Manager see more
NAFA member, Clay Lacy Aviation, recommends what you should look for when hiring an aircraft manager.
Private jet ownership is complex in nature, as an aircraft asset requires daily management oversight. From operations, scheduling, crewing, maintenance, hangaring, and more— a private jet must be managed efficiently and effectively so that a private jet owner may experience the full benefits of ownership. The private jet experience— from pre-purchase to long-term ownership— is best placed in the care of a reputable and specialized aviation team. One component of owning a private jet is deciding who and how the aircraft asset will be managed.
With many aircraft management companies and aircraft managers to choose from, how does an aircraft owner make the best management decision for their goals and needs? What character traits differentiate a good aircraft manager from a great one? Here are three characteristics to look for when selecting an aircraft manager.
A masterful listener
As the point of contact for the aircraft owner and the individuals on the aircraft management team, the best aircraft managers have mastered the art of listening and utilize the skill continually. Effective communication is essential to the aircraft manager’s role but equally important is the necessity for an aircraft manager to be a masterful listener. Aircraft managers must listen to both what is being said by an aircraft owner and what is left unsaid. Many individuals are first-time aircraft owners and do not know what questions to ask or what to anticipate with ownership. This is where a skilled aircraft manager can step in. Not only can an aircraft manager listen, but an experienced professional will be able to ask pertinent and timely questions to assist in creating a beneficial ownership experience.
A conscientious professional
Beyond a standard level of professionalism, the best aircraft managers are honest, authentic, and emotionally intelligent. They communicate with an aircraft owner the important points while maintaining the ‘ease of ownership;’ a major benefit to working with an aircraft management company. Aircraft managers— who are excellent in their field— have a proven ability to connect and build trust between teams and clients. They not only communicate what they are going to do for a client but follow through with timely action. Additionally, the best aircraft managers can step into the aircraft owner’s shoes and understand the needs and wants of the owner; making decisions benefit the client time and time again.
Advocates for the client
The best aircraft managers advocate and operate with an aircraft owner’s best interest at the forefront of their decision-making and problem-solving. An aircraft manager is a private jet owner’s eyes and ears when it comes to the aircraft asset. So, without question an aircraft manager must do what is right by his or her client. In turn, the aircraft owner must have complete trust that the aircraft manager will make the best decisions regarding the aircraft operation.
Regardless of what aircraft management company an aircraft manager is employed with, the aircraft owner should believe— through action and solutions offered— that the aircraft manager is assisting the owner at every turn. Advocating for a client includes a foundation of knowledge, experience, and strong industry relationships, which allow for more efficient and practical solutions to be discovered.
Discover the benefits of aircraft management. Request a management proposal.
This article was originally published by Clay Lacy Aviation on their Insights Blog.
A Decade of Aircraft Finance Evolution see more
NAFA member, Ford von Weise, Global Head of Aircraft Finance at CIti Private Bank, shares why now is a good time to buy your business aircraft.
A decade ago, the question of whether or not you could finance your business aircraft acquisition had a complicated answer. With the economic crash of ’08, the bubble burst and the lending industry became harsh, especially for what were deemed illiquid investments, including business assets such as aircraft. Unless you met the significantly increased financial requirements, encompassing net worth and capital liquidity, as well as having “investment grade” credit and a well-established relationship with the bank, then financing an aircraft likely wasn’t an option for you.
Many banks raised interest rates across the board or got out of aircraft lending completely. This move was due to much tighter regulations that more than doubled the capital reserves requirement (new Basel III loan reserves), along with the quickly declining market value of both new and used aircraft. With these developments, coupled with heightened loan covenants (restrictions on borrower activities that could jeopardize their ability to repay), lending decreased and fewer transactions resulted. If you still pursued that aircraft investment, you either paid with cash, or waited for the aircraft market to shift again.
That shift began taking place with the recovering economy. The demand for light and mid-size aircraft increased. New (non-bank) lenders began filling the space in the middle of the aircraft market, capital started flowing back into aircraft finance, and loans on aircraft once again became an appealing investment. The diversity in lenders brought diversity in financing options, and opened up the aircraft market to older models (although mandatory avionics technology upgrades – cost-prohibitive for some – now had to be considered).
More customized financing, in the form of capital leases, operating leases, or traditional loans with varied terms, became available. The big banks leaned toward financing new or “like new” aircraft with secured loans, while non-bank lenders trended toward more varied aircraft and types of loans. Credit quality, along with the aircraft’s residual value, still were big factors for both. However, credit requirements lessened and residual values rose, preparing the aircraft lending market to take off. It wasn’t an awful time to buy a business aircraft anymore, but it also wasn’t the best, yet.
The big variable in financing terms had to do with the unpredictability of aircraft residual values. While it became easier to know what an aircraft was worth (compared to the years following the recession), residual values still were inconsistent. This situation was largely informed by the increasingly faster technology cycles in avionics, combined with new manufacturers’ discounting. Because banks look at an aircraft as an asset and need to secure collateral for its underlying worth, the make, model, and technology with which it is equipped (among other factors) influenced residual value and financing terms accordingly.
Demand for business aircraft continued to grow, along with financing capital in the aircraft finance market. Combined with more varied loan options and increasingly favorable terms, competition in the space soared. Banks revised their risk acceptance criteria in order to buy more volume, reducing financial requirements even more. Now, with lower interest rates, lower market values for business aircraft, mostly stable residual values, and an increasing number of buyers, “covenant light” transactions are increasing.
The developments in the aircraft finance market during the last decade may be complicated. Yet the question of whether or not to buy a business aircraft no longer is complicated: there’s no better time to buy! While we’re not back to the crazy deals of non-recourse lending seen prior to ’08, there’s little reason to wait to make an investment in business aircraft. However, borrow with caution. If you’re on the verge of acquiring a business aircraft, be sure to seek a lender with aviation specialization.
This article was written by Ford von Weise and originally appeared in Business Aviation Advisor May/June 2019.
SOLJETS Celebrates 100 Transactions see more
NAFA member SOLJETS celebrates completion of its 100th company transaction.
PARK CITY, Utah, March 4, 2019 /PRNewswire/ -- SOLJETS, a boutique business aircraft brokerage firm, recently announced its 2018 year-end results to its customer base with a predominant theme of growth. The SOLJETS team completed its 100th company transaction in late Q4 2018, and finished the year at 106 total transactions since the company was founded less than four years ago.
SOLJETS also saw a 10% YoY growth in sales revenue, and a 40% jump in the team's employee count. "We're incredibly proud of our team's achievements the past few years. We've also been humbled by the process of starting and building a business," said David Lee, Co-founder and Partner of SOLJETS. While Lee admitted each deal they've done thus far has had its own challenges, he noted all of them came with lessons learned. "You can't learn the aircraft transaction process by reading a book, nor can you be passive in the transaction itself and hope for a good result. It's creativity, steadfast perseverance, and expansive business and technical acumen that gets deals done these days," mentioned Lee, also adding these are all traits he looks for in all SOLJETS team members.
The company is looking forward to additional growth in 2019. "We recently hired a Regional Sales Director for the Western USA, and we currently have eyes on another two candidates for additional sales coverage in the U.S.," noted Greg Oswald, SOLJETS Co-Founder and Partner, of the company's immediate personnel plans. SOLJETS also just recently finished building their new offices in Park City, Utah. "We're building our future, literally and figuratively," said Oswald.
Of the 106 deals completed through the end of 2018, SOLJETS transacted a myriad of different aircraft types, 32 models to be exact, from light to midsize to super-mid business jets, and even jet fighters. The firm has bought and sold planes in 18 different countries.
ABOUT SOLJETS: Founded in 2015, SOLJETS is a business-aircraft brokerage firm with offices across the United States in Arizona, Atlanta, Boulder, Chicago, Park City, and Sacramento. The unique SOLJETS client-centric model focuses on fostering buyer and seller trust and peace of mind throughout every transaction. SOLJETS serves clients globally and has completed over 100 aircraft transactions…and counting.
SOLJETS. Freedom. Adventure. Delivered.
Tax Requirements on an Aircraft Purchase see more
NAFA member Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about tax requirements when purchasing an aircraft.
Question: I purchased a plane last year utilizing AOPA. One thing I was not made aware of until later in the process is that required sales tax (I live in TX) could not be included in the loan so I had to give up almost $7k which I was going to use ADS-B compliance. No one seems to talk about that. Is that normal?
Answer: The tax requirements on an aircraft purchase can vary drastically from state to state. Since lenders do not roll taxes into the financing, AOPA Aviation Finance does not typically get involved with tax questions. Often times the selling broker will account for sales tax but we always recommend consulting your CPA or a tax attorney. AOPA’s Pilot Protection Services has attorneys on staff and panel attorneys throughout the country that can assist members with such questions. Members of the PPS plan receive a free 30-minute consultation annually along with a number of other benefits.
Have questions for Adam? He is happy to answer them. Submit your questions here. Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.
This article was originally published by AOPA Aviation Finance Company on March 28, 2019.
NAFA member, Aircraft Guaranty Corporation, discusses the FAA Registry Update. see more
NAFA member, Aircraft Guaranty Corporation, discusses the FAA Registry Update.
There are changes ahead that will modernize the Federal Aviation Authority (FAA) – bringing it up to date with the latest technology and security measures. One of the key updates will be to the registry system, which is vital for ensuring aircraft are legally owned, maintained, and operated.
The deadline for the huge overhaul is now October of 2021, which doesn’t seem that far away. The Office of the Inspector General (OIG) recently issued a 29-page report – “FAA Plans to Modernize Its Outdated Civil Aviation Registry Systems, but Key Decisions and Challenges Remain” – regarding the progress the FAA is making in order to meet the modernization mandate.
The OIG delved into what they think the FAA needs in place to complete the required upgrade on time – their report put into question whether it could be accomplished, stating: “The Registry’s systems are outdated, and FAA has yet to develop a detailed plan for modernization.”
The FAA’s plans are not the only consideration in the timeframe though, given the Congress factor. Because “the regulations that govern aircraft registration do not reflect current technology or business practices”, modernizing the FAA’s registration system will require rulemaking by Congress, which can take some time.
A Modern System
This is a significant update to the Registry – many provisions were implemented with the Reauthorization Act of 2018 (HR 302) – which Aircraft Guaranty Corporation covered in more depth in Highlights of the 5 Year FAA Reauthorization Act.
The new registration system, Civil Aviation Registry Electronic Services (CARES), “is expected to streamline processes, allow for the submission of electronic applications and forms, improve controls, automate registration processes, and improve online data availability” according to the FAA. Its key aims are:
- Web-based access to all public data. For the first time in history, the general public will be able to view FAA records online in real time. Currently, what isn’t already electronically maintained is held in the Public Documents Room (PDR) available for those who have access. Any electronic records are only in real time via the computers at the PDR – outside access is limited to information that is updated once daily.
The modernization mandate includes digitizing all aircraft registration documents for real-time, public and web-based access, which means phasing out the PDR at the FAA. Furthermore, using the PDR will incur a fee if the business could have been conducted by electronic means as efficiently.
- Automation of application services (processes and procedures). For the first time in history, the general public will also be able to file any document electronically. Most aircraft registration functions still require paper documents that are manually scanned and reviewed by Registry examiners. Digitizing and automating the registration process means the role of FAA examiners will change, becoming more high-level.
In Order to Proceed
Detailed estimates of technical and operational requirements for the new system are vital right now – anticipating the rulemaking, cost and schedule that will be necessary to successfully complete the expansive project. Some key questions need to be answered:
What are the new components/upgrades needed in the new system? The FAA is considering: automated approvals for low-risk applications; automated verification of fraudulent or incorrect submissions; additional security controls such as crosschecking information with non-agency entities; the registry structure, including combining aircraft and airmen systems; and matters of data storage with a cloud- or server-based system.
How will the FAA fund the new system?It hasn’t been decided yet – funding modernization projects usually comes from its facilities and equipment (F&E) account, but they may be able to use money from its operations and maintenance (O&M) account. This must be decided before it becomes a part of the agency’s budget.
What rulemaking via Congress is necessary in order to proceed?The FAA will have to develop a rulemaking that revises current regulation and allows for the electronic registration of aircraft –to improve controls, strengthen requirements, and implement digital signatures and electronic payments – a complete outline of the new system is needed beforehand to know exactly what rules to change
Now What? – The Challenges
The OIG report contained four main recommendations to the FAA. The FAA accepted and outlined a schedule for implementing them:
- Develop and implement timeline for making key decisions regarding CARES by May 31, 2019.
- Define desired capabilities of CARES by Dec 31, 2019
- Develop and implement a procedure to obtain industry feedback by Oct 31, 2019.
- Develop and implement a plan for maintaining real-time access to data by June 30, 2019.
There are challenges to face though, including: the transfer of a huge amount of data (with a lot of outdated/large files) to a new system; meeting the needs of registry users – aircraft title companies, financial institutions, aircraft manufacturers, airmen, other government agencies etc. – to ensure the operation of aircraft worldwide; and addressing workforce issues arising from role changes.
The Transition & After
The OIG has concerns, but if the FAA stays on track with this schedule, they can meet the October 2021 deadline, barring delays with Congressional rulemaking.
Updating and modernizing the new system will be a great improvement but will not fully alleviate all the pitfalls in submitting documents, electronically or not. With the extensive rules in place for filing documents, there is a good chance it won’t be done correctly without industry knowledge of FAA rules and regulations.
Furthermore, it is paramount to know What to Look for in Owner Trustee Documents to uphold high standards for creating and maintaining the title to the aircraft. It will still be important to hire a company that knows the ins and outs of the FAA system to avoid costly errors that could take time and money to correct.
Ultimately, the changes ahead will modernize the FAA’s registry system, helping to bring the aviation industry up to date in technology and security measures. There is significant work to do, but we’re confident that every entity involved in this important endeavor will fulfill expectations.
This article was originally published by Aircraft Guaranty Corporation.
Are you looking to offer your private jet for charter, read more here! see more
A growing number of private jet owners are chartering their aircraft when not in use to reduce the cost of ownership. Before a jet can be chartered, it must conform to a specific set of rules set forth by the FAA (known as Part 135) and be listed on an FAA air carrier certificate. The best way to offer your private jet for charter is through an aircraft management company who holds a Part 135 air carrier certificate.
Once a private jet is acquired, a series of steps, both practical and regulatory in nature, must be addressed before the aircraft can conduct its first charter flight. The most effective way to conform a private jet for charter is with an aircraft management company who holds a Part 135 certificate. Within the aviation industry, the process of adding a jet to an air carrier certificate is termed conformity. This refers to the time after purchase, close of escrow, but before the first revenue producing charter flight.
The conformity process typically takes between thirty and ninety days and includes a long list of deliverables. From hiring and training of crew members, reviewing of maintenance records, conducting FAA inspections and more. To avoid delays or complications, the team managing the conformity process should be one with deep experience, a detailed organizational structure, and one who remains in regular communication with the aircraft owner (as well as communicating with the other aviation specialists involved). Here is a look at three critical elements to a smooth conformity process— experience, organization, and communication.
Not all air carrier certificates are equal, so before you select a management company, it’s important that an aircraft owner ask a few questions. Consider that an air carrier certificate is a security pass to a building with twenty floors. The pass is customizable to allow or authorize access to a particular set of floors. The security pass may authorize access to the lobby and first three floors, but not to the remaining fifteen floors. In the same way, the FAA issues an Air Carrier Certificate with certain “authorizations” that are increasing in their complexity and freedoms. Here are a few examples of such authorizations:
- Area of Operation
- The operator may be limited to conducting charters in the domestic United States, Canada, and Mexico vs. worldwide authority. Even flying to Hawaii requires special authorizations.
- Size of Aircraft as defined by number of seats
- Nine or fewer seats is one category vs. ten or more seats.
These are only two examples of authorizations. There are many more to consider when choosing to charter a jet. The management company selected should already have the proper authorizations and experience to charter the type of plane under ownership. If the jet operator does not have the prior experience with that aircraft type, the aircraft may be restricted on the particular charters. There is also a possibility that an aircraft owner introducing a new aircraft type to a management company will become a test case for the organization; which will most likely result in delays and unnecessary complications.
Experienced aircraft management companies understand that efficiency and streamlining operations is built upon exceptional organization. Due to the sheer number of tasks and wide-ranging topics addressed during conformity, it is impossible for one person to have the necessary experience and time to accomplish all tasks in an expedited manner. Therefore, a team of specialists must be employed. This team is led by the aircraft manager who acts as a central point of contact to keep the conformity process on schedule, while specialized software is utilized to digitally manage, categorize, and organize the varied tasks required to conform the aircraft to Part 135.
The aviation team surrounding an aircraft owner and set in place throughout private jet ownership. An aircraft manager acts as the focal point for the aircraft owner.
An experienced and organized team with state-of-the-art tools is great but without effective and timely communication, the conformity process can be difficult. Here again, the aircraft manager plays an essential role as the single point of contact for the aircraft owner. The aircraft manager acts as a leader and liaison to inform a private jet owner of key milestones and discussing options without burdening them with the intricate details and idiosyncrasies of the conformity process.
In addition to the communication that exists between an aircraft owner and an aircraft manager, the aircraft manager advocates for the aircraft owner during meetings with the rest of the management company team. Communication with the conformity team should be occurring multiple times a day to ensure everything is on schedule. “At Clay Lacy, our conformity team meets twice a week. During these meetings, we discuss what tasks have been completed, are being completed, and must be completed to reach current and future goals,” says Joe Barber, Director of Aircraft Management at Clay Lacy Aviation. “We keep the owner informed of what is being accomplished, so they have peace-of-mind that their aircraft will be conformed on schedule.”
This article was originally published by Clay Lacy Aviation on their Insights Blog.
- Area of Operation
GAMA Sees Good Start for Airplanes in 2019 see more
NAFA member, Pete Bunce, GAMA President and CEO, says 2019 has started off well for airplane deliveries.
General aviation airplane deliveries got off to a good start in 2019, according to statistics compiled by the General Aviation Manufacturers Association (GAMA). All sectors, including business jet, turboprop, and piston-powered airplanes, showed an increase in deliveries year-over-year for the first three months of the year, while industry billings rose by 10.5 percent, to $4.23 billion. "While our rotorcraft segment experienced some headwinds, our airplane segment remains strong," said GAMA president and CEO Pete Bunce. "Statements by our member companies point to solid order intakes during the first quarter, laying down a positive marker for later in 2019."
For business jets, the first quarter of 2019 saw 141 deliveries, an increase of nine aircraft from the same period in 2018. Gulfstream led the way, with an additional eight of its large-cabin jets in the first three months of this year, while its super-midsize G280 deliveries remained static at seven. Cessna saw a 22 percent increase year-over-year showing increases or the same number of deliveries across its entire product line, as its first-quarter totals rose from 36 in the first three months of 2018 to 44 this year. The Wichita airframer increased its output of the M2, Sovereign+, and Latitude by two each, while Pilatus added three additional examples of its PC-24 light jet year-over-year.
Embraer remained even with 11 deliveries in each year, the two Legacy 450s handed over in 2018 were offset by the delivery of an additional Legacy 500 and a Legacy 600/650 this year.
Canadian OEM Bombardier noted a nearly 23 percent decrease in deliveries for the quarter, moving from 31 in the first three months of 2018 to 24. All models saw a decline with the exception of its flagship Global 7500 which received certification late year.
Honda saw first-quarter deliveries of its light HondaJet down by nearly 42 percent, year-over-year, moving from 12 in the first quarter of 2018, to 7 in the first three months of 2019.
Dassault presents its delivery totals for its Falcons at mid-year and year-end.
In the bizliner category, Airbus handed over a pair of ACJ320neos in the first quarter of 2019, after posting no deliveries in the same period last year, while Boeing, which had four deliveries early in 2018, had none through March of this year.
While the overall turboprop segment saw a 7 percent rise year-over-year, the higher-end pressurized models remained flat with 50 deliveries in the first quarter of both years. Textron handed over five additional Beechcraft King Air 250s in the first quarter of 2019, contributing to a 35 percent overall increase for the manufacturer, as Daher and Pilatus remained steady on their single-engine turboprops, delivering eight and 12 both years, respectively. Piper handed over seven M500s during the first quarter of 2019, down from the same period last year when it delivered three M500s and seven M600’s. Piaggio, which delivered three Avanti Evo twin pushers in the first three months last year, reported none in the same period this year.
On the rotorcraft side, total shipments were down more than 19 percent year-over-year, and billings declined by nearly $100 million, while turbine-powered helicopters slid more than 22 percent, from 134 in the first quarter of 2018 to 104 during the same period this year. Bell, which delivered 46 helicopters in 1Q 2018 saw that total fall to 30 in the first three months of 2019. The Textron-subsidiary transitioned from the 407GXP with 17 deliveries in the first quarter of 2018 to just one this year, while ramping up to the 407 GXi with six handed over in the first three months of 2019. It also delivered seven fewer 505s year-over-year. Airbus Helicopters, which delivered 46 civilian rotorcraft in the first quarter of 2018, handed over three less this year, the difference mainly being four fewer H135s in the first quarter.
Leonardo was down by 34 percent from its first quarter 2018 totals. The company delivered no AW189/149s in the first three months of 2019, as compared to the six it handed over a year earlier. Likewise, it had no AW119Kx deliveries, having four in the first quarter of 2018. It did exceed its 1Q 2018 tally on the AW169 by three units, delivering six in the first three months of 2019.
Robinson Helicopter dialed back its deliveries on the R66 by six, handing over 12 in the first quarter of the year, while Sikorsky which had one delivery, an S92, in the first three months of 2018, had none this year.
This article was originally published by Curt Epstein in AINonline on May 17, 2019.
What Is the Income Approach to Aircraft Appraisal? see more
NAFA member Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services, writes about the income approach method when determining the value of an aircraft.
It can be difficult to find out the process that goes into learning the value of an aircraft, and that leaves many aircraft owners confused as to what steps they should take, especially when they need to know the income approach.
Luckily, the actual process isn’t very challenging at all to do. In fact, we’ve managed to break it down for you and place it into this article for you to learn the proper steps for the appraisal. Keep reading to learn more.
Learn the Income Approach by Knowing Your Definitions
For every piece of personal property, there is an official way of determining its appraisal or value. The ASA Personal Property Committee is the one that determines the value of personal aircraft.
There are three ways to determine aircraft value are known as definitions. These are the sales comparison approach, the cost approach, and the income approach.
We will be focusing on the income approach definition in this article.
Determining Aircraft Appraisal Through Income
The income approach method is unique in comparison to the other two definitions.
Whereas the sales comparison approach and the cost approach determine value through the property price of a similar property or through the cost of the materials it takes to build the property, income appraisal does things differently.
By appraisal through income, one doesn’t determine value through the property itself. Instead, they look at the anticipated monetary benefits of the property.
Let’s break it down. Every piece of property comes with a certain amount of value attached to it. In this manner, each of these properties has the ability to bring in a certain amount of income based off of its current value.
There a number of things that factor under these anticipated monetary benefits, such as the current market price, the expected increase or decrease in value over the years, and the stream of income.
If we were to summarize this appraisal method, it’s basically looking into the future to determine the value of the property and how much money it could bring to the owner using mathematical and statistical calculations.
Though it’s an indirect way of gauging the value of your aircraft, this method of appraisal still serves as one of the most popular ways to find property value.
Get the Right Appraisal
In order to get your income approach appraisal done right, you need to go to the people who have the knowledge and experience to do it right the first time. You won’t have to look any further than us.
At VREF, we take our valuations seriously. We’ve helped to appraise thousands of personal aircraft and know everything there is to know about determining the value of each and every aircraft.
Make sure to get one of our valuation guides so you can determine the price of your aircraft. We look forward to helping you with your appraisal!
This article was originaly published by VREF on May 17, 2019.
Embraer Bizjet Deliveries Hold Steady in Q1 see more
NAFA member, Embraer announces steady business jet deliveries in the first quarter.
Embraer delivered 11 executive jets in the first quarter, remaining on par with 2018 shipments. As in the first quarter of 2018, the Brazilian manufacturer handed over eight "light" jets (Phenoms) and three "large" jets (Legacys/Lineages) in the first three months of the year. Embraer, which delivered 91 executive jets last year, has projected shipments to fall between 90 and 110 executive jets this year.
While its business jet deliveries held steady in the quarter, Embraer's commercial aircraft shipments slid by three units to 11. Backlog, meanwhile, dipped slightly from $16.3 billion at the end of 2018 to $16 billion by the end of March.
The first quarter marked the 500th delivery of the Phenom 300, a milestone reached in less than 10 years after the aircraft first entered service in 2009—and one of the few current business jets to reach that delivery level. One of the most-delivered aircraft over the last decade, the Phenom 300 is in operation in more than 30 countries and has accumulated more than 780,000 flight hours.
Also in the quarter, Embraer announced it had captured the first Phenom 300E and Praetor 600 business jet sales to Brazilian customers. Its delivery lineup is slated to expand this year with Embraer recently receiving Brazilian ANAC approval for the Praetor 600.
Click here to download the 1st Quarter 2019 report.
This article was originally published by AINonline on May 6, 2019.
The Airplane Acquisition Checklist Series: Part One: The Pre-Purchase see more
NAFA member Adam Meredith, President of AOPA Aviation Finance Company, shares his pre-purchase airplane acquisition checklist.
Did you resolve to upgrade your current aircraft or to buy your first airplane in 2019? Congratulations!. With low inventory and high demand, how you approach the buying process may be the difference between getting your first-choice or settling for an also-ran.
Buying an airplane is like flying an airplane. It’s all about planning, crew resource management and checklists. Your “crew” includes your lender, your insurer, your maintenance contractor and AOPA’s Aviation Finance Group. AOPA Finance can match you with the right lender, and our extensive experience can also provide you the additional leverage you may need in a tight market, at no cost to you.
Like flying, how well you plan, manage your crew and follow your checklists help determine how well the purchase process goes. We’re not talking about pre-flight, flight and post-flight checklists, though. We mean these checklists:
3. Aircraft Delivery
Let’s start with the Pre-purchase Checklist:
• Ownership—personally or through a company or LLC?
• Use—personal or commercial?
• Loan Pre-approval
• Private hangar or shared?
• Aircraft maintenance contractor
Ownership. Are you going to own the airplane yourself or through your company? Will you create an LLC, a partnership or some other type of corporate body? Iron out those details first. They guide which lender can pre-approve you and may also influence the length of the pre-approval process. There are advantages and disadvantages to all ownership scenarios. What’s important to know is that if you decide to change structure at the last minute, it’s a bit like telling your building contractor you want to move a door. At a minimum you know there’s going to be delays in the process and it may completely change the structure.
We’ve seen too many situations where potential buyers got a loan pre-approval based on one ownership scenario (like a partnership), only for them to change the scenario (like dissolving the partnership). That kind of change will negate the pre-approval process and will force the buyer to start over. It may also necessitate finding a different lender.
Use—Personal or Commercial? Part 91 transport for you alone, for your company’s employees or leaseback to the local flight school? Decide how you intend to fly your aircraft and commit to it. There is no advantage in telling your prospective lender and insurer it’s for personal use, only to conduct commercial operations once purchased. Should the discrepancy come to light because of an accident, incident or investigation, it could trigger a steep default interest rate, or worse. Transparent communication is the best way to keep this complex transaction simple.
Now it’s time for:
Loan Pre-Approval. Getting pre-approved confirms what you can afford and enables you to move quickly on an aircraft, both essential in this seller’s market.
Some think it’s a waste of time to get pre-approved because the pre-approval is time-limited. True, pre-approval is good for anywhere from 60 to 90 days, depending on the lender. That’s generally enough time to find the right aircraft. But, if the search period does exceed the pre-approval timeframe, it may be possible to extend the pre-approval period.
Even if the lender won’t extend, re-approval is quicker than an initial pre-approval. So you’re still ahead of the competition.
While waiting on pre-approval, finish the rest of the checklist:
Escrow. Have cash ready to put in an escrow account. Escrow gives you an exclusive option on an aircraft within a specific timeframe. When entering escrow, ask for generous restrictions. The more time you can negotiate, the better. It gives your lender, insurer or AOPA Finance space to conduct background checks, damage history and title searches. Also consider keeping extra money in reserve to add to escrow should the seller require an additional incentive.
Next time: The Purchase and Aircraft Delivery checklist.
This article was originally published by AOPA Aviation Finance Company on February 21, 2019.
Continued Global Advocacy Supports Industry Growth see more
NAFA member Ed Bolen, President & CEO of National Business Aviation Association (NBAA), discusses how continued global advocacy supports industry growth.
Business aviation has always been a global industry that requires advocacy in all parts of the world. NBAA understands this mission and works continually, at regional and international levels, to support policies that foster the industry's growth and prosperity.
For example, NBAA has been working for over a decade to help international operators comply with the European Aviation Safety Agency (EASA)'s Safety Assessment of Foreign Aircraft (SAFA) ramp check program. NBAA recently commented on proposed changes in SAFA inspections, making EASA aware of operators' concerns and explaining how business aircraft flying differs from airline operations.
Beyond our work in specific regional theaters, the association also advocates for the industry at the global level. Much of our work in this regard is undertaken in coordination with the International Business Aviation Council (IBAC), business aviation's official observer to the proceedings of the International Civial Aviation Organization (ICAO).
As of this writing, NBAA is helping IBAC prepare for the next major meeting of ICAO, which will deal with a variety of important topics that affect business aircraft operators, such as using data-driven risk assessment to enhance safety and facilitating worldwide adoption of innovative air-traffic management initiatives.
NBAA and IBAC also continue working to achieve reasonable compliance limits and procedures for ICAO's global aviation emissions plan, known as the Carbon Offsetting and Reductions Scheme for International Aviation, or CORSIA.
We were pleased that ICAO heard and understood our position on the plan's introduction, that business aircraft emissions represent a tiny fraction of all aviation emissions, and that the segment should be given proportionate consideration under CORSIA. This understanding led ICAO to grant the vast majority of business aircraft operators a "small emitter" exemption from the policy, greeted with strong support from NBAA and IBAC. That said, the 2 organizations continue monitoring the voluntary compliance requirements in place for CORSIA, with an eye toward ensuring compliance is workable.
Of course, not all of the advocacy work done by NBAA relates to compliance with government mandates. Business aviation has a long record of support for industry-driven initiatives, and NBAA is active on a number of those as well. One of the most promising among these is the development and use of Sustainable Alternative Jet Fuels (SAJF), derived from a broad variety of renewable sources and blended with petroleum jet fuel, resulting in a mixture indistinguishable from straight Jet-A.
Illustrating the industry's long-standing commitment to reducing its already small emissions footprint, several business aviation stakeholders in May will recognize the 10th anniversary of the Business Aviation Commitment on Climate Change, which identified SAJF among other initiatives for further reducing overall emissions in business aviation.
Over the past year, as part of that commitment, a coalition of international business aviation organizations released the Business Aviation Guide to the Use of Sustainable Alternative Jet Fuels, which outlines the pathway toward the adoption and use of SAJF and sponsored a demonstration day in the US to prove these fuels' viability and safety.
In fact, the promotion and use of SAJF will be in focus as never before at the 2019 European Business Aviation Convention & Exhibition (EBACE) taking place May 21-23 in Geneva. The event will include the SAJF-focused technical panel discussion at the EBACE Innovation Zone on the show's opening day, while TAG London Farnborough Airport will host the 1st European SAJF demonstration day on May 18, building on the US event earlier this year at VNY (Van Nuys CA).
Clearly, as business aviation continues to grow around the world, NBAA will continue to reflect the industry's needs across multiple areas, engaging with government officials and industry stakeholders to protect and promote business aviation in an evolving global environment.
This article was originally published by Professional Pilot Magazine in May 2019, p. 12.
Avoid Overpaying for Your Jet Operation see more
NAFA member David Wyndham with Conklin & de Decker considers ways for you to safeguard against being taken advantage of when it comes to aircraft bills and ways to manage operating costs efficiently.
A recent Bloomberg article described how high net worth individuals are potentially being taken advantage of by aggressive overcharges on their aircraft bills. David Wyndham considers this, and highlights ways to understand and manage your operating costs.
Few specific examples were cited in the Bloomberg article, and unsurprisingly no aircraft owner was willing to attribute their name to such a story, but what it highlighted is that there are many different costs associated with owning and operating an aircraft. These will vary significantly from trip to trip.
While transparency is offered as one solution to the issue of overcharging, that approach misses one important area: understanding.
Aviation, like medicine or law, has a complex language that seems designed to confuse the layperson. With medicine and law, you have a professional at your disposal to assist with questions such as, "What do you mean I have hypertension?" or, "Just what is a waiver of subjugation?"
Many aircraft owners, when faced with complex aircraft bills, have accountants to review and authorize bills for payment. But the accountant often lacks the expertise to fully understand the aircraft costs they are responsible for paying.
How Should Aircraft Costs be Presented?
Each bill submitted to an aircraft owner should be itemized with taxes, fees, labor, services and parts. Even with that level of detail, however, many are still unsure as to what the bill means and whether it is too costly.
I have assisted several owners recently with a detailed review of their costs. While I have yet to come across fraudulent bills or blatant overpricing, it is easy to see why a reasonable question may be, "Why are these bills so high?"
The first place to start to understand these costs is with a budget. The management company or aviation department must provide a budget based on the expected utilization of the aircraft. At the financial management level there needs to be enough detail so that individual accounts have differentiation, but not so many details that the complexity outweighs the benefits of detail.
Operating Cost Categories to Consider
Fuel: A major cost driver for most aircraft, the cost of fuel per gallon will vary and, in many instances, cheap fuel will beget add-on fees away from home. For example, itemized bills will often contain ramp fees and other services.
Other Trip Expenses: These need to be verified too, and include items such as the catering, hotel and meals for the crew. I had one owner who stayed at high-end hotels. Wanting the crew to be immediately available, he had them stay at the same hotels. As a result, crew travel costs were far greater than what many would consider ‘normal’.
Maintenance Costs: More detail is required for this within the budget than just one item. Categories should specify whether the bill is for scheduled maintenance (i.e., an 800-hour inspection), or for unscheduled maintenance (i.e. changing a flat tire or replacing a burned-out landing light).
Component overhauls and life-limited part replacement should also be noted.
The annual budget should note the scheduled inspections with the expected flat rate, or the cost to inspect and replace mandatory items, and allow for the on-condition or unscheduled items that may also require service.
The management company or flight department should get quotes for major maintenance from at least two qualified sources, if possible. And when requesting quotes, you should account for what is included and excluded. If, for example, there are scheduled parts to be replaced, is labor included or only the cost of parts?
You must also consider time. For example, a low-cost bid that takes 60 days to accomplish may be worse than the higher cost bid with a 30-day return to service.
Maintenance costs vary from year-to-year and major inspections will cause a large increase in expenditures.
These major scheduled inspections can occur every 6–10 years on the airframe; sometimes longer. Older airframes exceeding 20 years may see more age-related checks, and these should be accounted for.
Engines are a separate consideration and require a major service very infrequently. For most private and corporate operations, an engine may have a 4,000-hour mid-life inspection and run 8,000 hours before it gets overhauled. At 400 annual hours, that overhaul is going to occur when the aircraft is 20 years old. Unscheduled events tend to be rare for turbine engines, but they do occur and can be extremely costly.
How to Make Maintenance Costs Predictable
Guaranteed hourly maintenance programs (GHMPs), as the name implies, set a fixed guaranteed rate for the maintenance. An engine GHMP is very common for jet engines. In fact, since the financial crisis many lenders and lessors now require them as a standard term of condition.
There are also airframe and parts-only programs available for many turbine aircraft.
A GHMP will usually have a contracted price based on utilization and aircraft age and may incur a calendar and hourly fee, or just an hourly fee. A GHMP provides budget stability and peace of mind, as well as added resale value for the aircraft.
There needs to be good communication and clear expectations between the owner and management company or aviation department. Cost overruns need to be communicated as soon as they are known, and not after submitting the bill.
Someone should spend a little time with the owner or accountant to review the major bills and, importantly, ensure there are no surprises. When in doubt, seek the opinion of a professional. Aircraft are complex machines that, when well-maintained, will provide safe and comfortable service for many years.
More information from www.conklindd.com
This article was originally published in AvBuyer on May 24, 2019.