Business aircraft valuations are showing signs of rebound, with heavy jets increasing 13.8 percent in the last 12 months and light jets improving by nearly 25 percent, according to Amstat’s latest Aircraft Valuation Tool (AVT) report.
By the end of June, heavy jet values had jumped to $16.3 million, a gain that benefited from a steady climb over the past couple of months. While values have fluctuated in this category this year, the $16.3 million is still up 7.8 percent since the beginning of the year and more than $3 million up from the 12-month low point in October, when values skirted $13 million, the AVT report showed.
Light jets also have showed gains this year, up 4.8 percent since the beginning of the year, to a normalized valuation of $2.5 million. This category has climbed steadily since last August, when values were $2.2 million, and are up notably since June 2017, when they dipped below $2 million.
Medium and super-midsize aircraft values are on par with where they were a year ago. Medium jets have remained at roughly the $3 million level over the past 12 months, while super-mids came in a $6.7 million, near where they were a year ago but a dip from the $7.5 million value in April. Turboprops, meanwhile, are up 1 percent year-over-year, marking a rebound since a drop last fall. Year-to-date, values are up 7.8 percent.
Due to a growing global economy, there has been a turnaround in worldwide jet sales, and the aircraft market is balanced for the first time in years, creating a healthy, sustainable marketplace, according to a veteran broker. “The days of an airplane losing 20, 25 percent a year, which is of course not sustainable, are gone,” said Jay Mesinger, CEO of Mesinger Jet Sales, adding demand is now outpacing supply. “It’s the first time that my industry has been so bold to use words like ‘half full’ or ‘optimistic’ or ‘enthusiastic’ in years, and those are the words that are universally being used by all of us engaged in aviation.” Mesinger shares his perspective in this week’s NBAA Flight Plan podcast.
by NBAA 7/16/2018
NATA’s newly formed Illegal Charter Task Force is hoping to see increased enforcements against so-called gray charter practices as it continues to work with the FAA to highlight the issue. The association pointed to a June 29 announcement of a proposed civil penalty for illegal charter activity, and said, “This penalty brings to light the ramifications for operating an illegal charter business, and it’s expected that more will come.”
The FAA is proposing a $3.3 million civil penalty against The Hinman Co. of Portage, Michigan, the agency said, “for conducting hundreds of commercial aircraft operations in violation of the Federal Aviation Regulations, including failing to hold the required operator certificate for the flights being performed.” This activity occurred through Hinman’s subsidiary Hincojet and involved a Beechcraft Beechjet 400A and a Hawker 900XP, the agency added.
The company has 30 days to respond to the allegations, which include double-billing clients, charging more than permissible under Part 91, and failing to comply with Part 135 record-keeping and training requirements.
NATA in recent years has been meeting with the FAA over the issue, as illegal charter has been a long-standing concern. These concerns culminated in the formation of the Illegal Charter Task Force, which held its first meeting during NATA’s annual meeting and aviation business conference last month.
During that meeting, the task force focused on defining illegal charter and distinguishing between intentional and unintentional non-compliance. “Illegal charters bypass the FAA’s safety standards in order to undercut the pricing of legitimate businesses by creating a potential safety hazard, putting legitimate operators at a competitive disadvantage, and dodging the payment of appropriate federal excise taxes,” NATA said. “The goal of the task force is to work in conjunction with industry and the FAA to identify operators that attempt to evade the rules and regulations that constitute a legal charter operation, and ensure the protection, safety, and integrity of an industry held to a very high standard.”
by Kerry Lynch
– July 3, 2018, 10:47 AM
Average monthly business aircraft utilization reached 27.97 flight hours during the first three months of the year, marking the highest average level in any first quarter since 2008, according to maintenance support provider Jet Support Service Inc. (JSSI).
JSSI’s first-quarter 2018 Business Aviation Index, released May 1, found that business aviation average flight hours were up 2.9 percent year-over-year. The index tracks utilization of 2,000 business jets, turboprops, and helicopters worldwide, reporting average flight hours flown on a monthly basis by region, industry, and cabin type. “The end of 2017 saw the highest flight hour activity since the peaks of 2008. While the first three months of the year often sees a material drop in [quarter-over-quarter] flight hours, this first quarter dropped by only 0.3 percent,” said JSSI president and CEO Neil Book. “This strong start to 2018 is a positive sign and indicator for global markets.”
According to JSSI, the aviation sector led the growth, with an 8.4 percent increase in flight activity. Healthcare similarly helped drive this growth, with an increase of 8.3 percent, followed by the power and energy sector at 7.3 percent. The consumer goods sector, however, saw an 8.3 percent decline in business aviation activity, and the manufacturing sector reported a 10.4 percent decrease.
by AINalerts : May 1, 2018
Can a prospective aircraft owner benefit from claiming 100 percent “bonus depreciation” even though the owner expects to fly the aircraft for personal use? Yes, with limitations and careful structuring under the Internal Revenue Code (IRC). However, in doing so, it is essential to harmonize potentially conflicting rules in the IRCwith the Federal Aviation Regulations (FARs) and state law, including sales/use tax laws.
The Tax Cuts and Jobs Act of 2017, which became law on December 22, for the first time allows aircraft owners temporarily to take 50 percent or 100 percent bonus depreciation deductions on preowned aircraft. It also doubles the pre-existing 50 percent bonus depreciation to 100 percent of the cost of certain new aircraft.
A business taxpayer who owns an aircraft can take 100-percent bonus depreciation deductions under the IRCagainst gross income if it uses the aircraft in its trade or business or for production of income. However, an owner cannot take depreciation deductions for personal use, including entertainment, amusement, or recreation.
The IRC allows certain owners to deduct depreciation from gross income by two methods. The first is straight-line depreciation created under the Alternative Depreciation System. This allows owners to take equal depreciation deductions each year of the “recovery period”—the years to fully write off aircraft. That is six years for aircraft operated under Part 91 and 12 years for aircraft operating under Part 135.
The other depreciation method is the Modified Accelerated Cost Recovery System (MACRS). MACRS allows an owner to write off its aircraft and certain helicopters in five years for Part 91 usage and seven years for Part 135 usage. An owner must qualify for MACRS to claim either 100 percent or 50 percent bonus depreciation.
IRC Section 280F prescribes that an aircraft must be “predominantly used in a qualified business use for any taxable year.” This deceptively simple idea presages complex rules about claiming depreciation deductions, including 100 percent bonus depreciation, on mixed personal and business use of aircraft.
It also contains a leasing trap: qualified business use normally does not include leasing aircraft to any 5 percent owner or related person, such as a family member. This rule could prevent an aircraft from qualifying for MACRS(and, by extension, for 100 percent bonus depreciation).
Further, the tax law introduces a new ambiguous requirement—to qualify for 100-percent bonus depreciation, “the original use” of the aircraft must begin with the taxpayer. It is unclear what this means, especially the word “use,” or how it affects new or preowned aircraft. The regulatory morass and value of tax reduction demand careful structuring and calculations to mitigate these risks.
Despite the best business planning, personal use inevitably happens. When it does, owners must calculate the “entertainment disallowance percentage” attributable to their personal use—the portion of entertainment use relative to total flight time or hours.
I often hear prospective owners worry that their personal use might unravel the benefits of 100-percent bonus depreciation, but a special regulation allows an owner to elect and calculate the disallowance in year one on a straight-line basis, spreading out depreciation over six or 12 years.
Once an owner takes 100 percent bonus depreciation, there is no depreciation expense left to deduct starting in year two. As a result, if the owner elects straight-line, the disallowed deduction will be a much smaller amount and, correspondingly, the economic benefit of 100 percent bonus depreciation to the owner should be greater. This approach enables an owner to maximize tax savings and minimize the adverse effect of personal use on bonus depreciation.
Planning for depreciation benefits alone is not enough. Even if the aircraft owner designs the structure to comply with the tax law, that is irrelevant to the FAA. As a result, owners should anticipate facing other structuring hurdles due to potential conflicts of the IRC with the FARs and other laws, particularly state sales- and use-tax laws. For example, under a very common ownership structure, the FARs might compel an owner to push operational control out of certain limited liability companies to persons permitted to operate the aircraft under the FARs.
Although taking that step might avoid conducting illegal flight operations in a “flight department company,” the structure might involve leasing the aircraft to 5 percent owners and related persons. Similarly, 5 percent members of an LLC aircraft owner might lease the aircraft to themselves or related persons to spread out sales tax over a lease term. Owners should vet any such structure as it might run afoul of owner qualifications for MACRS.
With strong interest in tax benefits afforded by the tax law, potential purchasers might join committed ones and “pull the trigger” to acquire a new or preowned aircraft. If, in any aircraft purchase, the prospective owner properly structures its transaction to claim bonus depreciation consistent with the rules in the IRC, the FARs, and state tax laws, bonus depreciation should lower the owner’s cost of capital, increase its after-tax cash flow and reduce its federal tax bill. The value proposition seems obvious, but each owner must decide whether taking bonus depreciation when purchasing an aircraft is worth its while.
The author would like to thank Julianne Christensen, managing member of AeroCPA, LLC, for her extensive assistance on this story.
Business aircraft flying in the U.S. and Canada continued its upward trajectory last month, with activity up 3.5 percent year-over-year, according to TraqPak data released today by Argus International. That was slightly below the 3.8 percent gain the business aviation services company predicted for February; this month, it is expecting a 4.2 percent rise.
By operator category, Part 135 flying once again led the pack, rising 8.8 percent year-over-year, while Part 91 reported a 0.7 percent gain. Fractional activity dipped into the red, falling 0.6 percent from a year ago.
All aircraft categories saw increases last month, with large-cabin jets coming out on top with a 7.1-percent year-over-year uptick. This was followed by midsize jets, up 3.6 percent; turboprops, 2.5 percent; and light jets, 2.3 percent.
The only double-digit gain in individual categories last month belonged to Part 135 large-cabin jets, which rose 14.5 percent from a year ago. Fractional turboprops and large-cabin jets saw double-digit decreases, falling 10.5 percent and 12.6 percent, respectively.
Activity has steadily increased over the past three Februarys, climbing from approximately 212,000 flights in January 2015 to 237,000 last month, according to Argus. Weekday flying was up 3.2 percent from a year ago, while weekend activity rose 2.6 percent.
by AIN Alerts 3/8/2018