Negotiators on Capitol Hill agreed to retain two key provisions in the final version of the tax overhaul package: one that would extend immediate expensing measures to both used and new aircraft and another clarifying that the 7.5 percent air transportation tax does not apply aircraft management fees. The package could receive a final vote in the House and Senate this week.
The bill would allow for the write-off of the expenses for both used and new aircraft in one year. Past “bonus” depreciation measures have covered only new aircraft. Currently, businesses depreciate aircraft over a five-year period. The bill repeals like-kind exchanges for business property, but NBAA said it believes the immediate-expensing measure will offset that elimination. The immediate-expensing measure is set to expire in 2022, but has a phaseout period through 2026. “It is a priority for NBAA and will help provide the tools necessary to grow our economy,” said NBAA president and CEO Ed Bolen.
Meanwhile, the managed aircraft measure, meanwhile, will provide certainty on the tax treatment of the fees for the first time, bringing to an end an issue that that had been at the forefront for management businesses for years. The issue became particularly critical after a 2012 IRS Chief Counsel opinion left aircraft management firms vulnerable to back taxes and penalties. The IRS had audited a number of companies, assessing hefty taxes on the management fees. But after an outcry from industry, the IRS put the opinion on hold in May 2013 and stopped enforcing the audit findings surrounding the fees, pending clarification. However, the agency still has not issued a clarification.
“NATA is deeply appreciative that…conferees retained provisions in the tax bill that provide our member companies with long-sought certainty as to the tax status of aircraft management services and encourage investment in the new and used aircraft markets,” stated NATA president Martin Hiller.
NBAA noted that the legislation contains a number of other helpful provisions, including the reduction of the corporate tax rate from 35 percent to 21 percent, as well as a new 20 percent deduction for pass-through businesses. The association added it would work with a broad coalition to restore like-kind exchanges.
NBAA is encouraging its members to weigh in with their lawmakers on bonus depreciation, like-kind exchanges and business aircraft management fee measures as Capitol Hill negotiates a final comprehensive tax bill this week. The House and Senate versions of the tax bill address different aspects of these measures.
Both provide for 100 percent immediate expensing, or “bonus depreciation,” of business assets, but the House bill covers both new and used aircraft. The measures would apply to purchases through 2023, but the Senate has a phase-down that continues through 2027.
Like-kind exchanges for business assets would be repealed under both bills. Under like-kind exchange, taxable gains on the sale of a business asset can be deferred if that asset is exchanged for a similar asset. “The immediate expensing provision helps make up for the like-kind exchange repeal, but there is, of course, a sunset date for immediate expensing,” said Scott O’Brien, the senior director of government affairs for NBAA. “But the Senate language, which does not allow immediate expensing for preowned equipment, is a disincentive for the purchase of preowned business aircraft.”
NBAA also noted the Senate bill measure clarifies that business aircraft management service fees are not subject to the commercial airline ticket tax. The association created an electronic letter to help members contact Congress specifically on accelerated depreciation.
Get ready to fork up a few dollars to register that hefty but totally innocent drone of yours. The FAA’s requirement to have drones of certain weights registered is now back and this time it has some staying power. More than just an FAA rule, it has become part of the US law. That is partly due to the fact that the registration requirement is just a very small part of a larger, and more expensive, National Defense Authorization Act that US President Trump just signed into law.
That strategy might have been to sneak in the requirement into a broader law, one that Trump would undoubtedly sign. The $700 billion act was, after all, in line with Trump’s goal of boosting the US’ military chops. He might have been willing to overlook a minuscule part of the Act that would have repercussions for unassuming consumers.
The FAA is naturally happy about the turn of events, but it’s not going to be smooth-sailing forward. Before the courts shot down its registration rule, the FAA already collected $5 from the 838,620 owners who already registered. The agency already started refunding those in response to the ruling. Now both the FAA and drone owners are left in limbo on how to proceed now that the requirement has been reinstated.
While many consumers, especially those with tiny drones, will be none too happy, it’s not exactly surprising that the law has headed in this direction. The number of drones taking to the skies is growing rapidly, and some of them flying into places they have no business being in. Unsurprisingly, there are even those, including US officials, who have come to see drones as potential weapons or, at the very least, spying machines for other governments.
by JC Torres
The proportion of the global business jet fleet on the market has fallen to levels not seen since before the worldwide financial crisis. Yet while the sector is keen to view this as a sign of the good times returning, market messages are mixed.
The most recent business jet market report by Swiss bank UBS says used aircraft accounted for 10.5 per cent of the aircraft for sale in July. This was the lowest level since November 2007.
“We’re now at a new beginning point of steady, healthy growth,” argues Chad Anderson, president of sales agent Jetcraft. “The market is back to a point where there is more than one buyer for aircraft that are correctly priced, marketed and positioned. Inventories are back to pre-recession levels.”
Steve Varsano, who founded The Jet Business, broker of sales of super-midsize and larger business jets, says this is feeding into prices.
“Prices of second-hand jets have come down drastically over the past two years,” he says. “Now prices are really starting to stabilise.”
Reduction on the total number of recent model jets listed for resale YoY
The used-jet market has also acted as a brake on sales of new aircraft. In its latest Global Business Aviation Outlook last month, Honeywell, the industrial group, said this was one of a range of difficulties for plane makers.
“Declining used aircraft prices, continued low commodities prices and economic and political uncertainties in many business-jet markets” remain concerns for new jet purchases, says Ben Driggs, president of Honeywell’s after-market sales in the Americas.
Another important factor is the cost of depreciation. This will be “much more on a new jet than the maintenance cost on an old jet”, points out Oliver Stone, managing director of Colibri Aircraft, a European jet broker.
The balance between depreciation and maintenance illustrates the case for buying nearly new planes, especially aircraft that are still under a manufacturer’s warranty or have a good maintenance contract.
“Take a 2005 Bombardier Challenger 604,” says Mr Varsano. Owning that $6m large-cabin, long-range jet would cost about $400,000 a year in maintenance, he adds. “But if you spend $10m more you could get a 2014-15 Challenger 605. If borrowing costs are 3 to 4 per cent, the interest would be $300,000 to $400,000 a year. And with the newer aircraft you would have better reliability and a better residual value.”
The falling prices of used aircraft have tempted new buyers, according to Mr Stone. “There’s been a pretty significant uptick in first-time buyers buying pre-owned aircraft,” he says.
Expected deliveries of new jets in 2017 according to Honeywell
A huge number of aeroplane transactions are driven by a “liquidity event”, he adds. “People who have sold companies, or who have more cash flow from growth — they’ve been chartering for a while, and have seen the business benefits, so they want to try owning a plane.”
Choosing the right aircraft is difficult, especially when rising numbers of buyers lack experience, says Mr Varsano. “Twenty years ago people first bought a small plane and worked their way up.” Now “more and more first-time buyers are getting into a bigger aircraft.”
Catering to this is The Jet Business’s showroom on central London’s Park Lane. It contains a mock-up of an Airbus Corporate Jet cabin and a sophisticated computer tool that displays life-size images of jet interiors on a wall of screens. This allows buyers who may have little knowledge about aircraft to compare models easily, says Mr Varsano.
He also stresses the interplay between the used and new jet markets, citing the Gulfstream G550. “There are about 540 in the world,” he says. There were about 35 for sale when deliveries of the more capable G650 started, he adds, partly from people upgrading to the newer jet. Now, of the G550s “with the preferred forward galley, less than five years old, there are just three for sale.”
“Prices have come down so far, people are keeping their aircraft for longer,” he says. “It used to be four to five years. Now it’s six to seven years.” People used to buy a small plane and work their way up. Now more first-timers go for a bigger aircraft
Honeywell’s expectation was of 620-640 new jets being delivered in the 12 months to the end of 2017 but statistics about the global fleet can be misleading, says Mr Versano. “A lot of aeroplanes are 30-40 years old,” he notes. “Fifty per cent are more than 30 years old. How many of those will get sold? I don’t know anyone buying a 30-year-old plane.”
Mr Varsano, who started his aviation career in statistics, says a cut-off that excludes jets over three decades old would give a better idea of the state of the market. His figures put the number of jets for sale at 2,208, with 562, or just over a quarter, more than 30 years old.
There is a problem with the oldest business jets, says Mr Stone of Colibri. “A Challenger 601 from the late 1980s that needs its engines overhauled will cost $1m per side . . . but then the aircraft will still be worth just $1.7m.”
A looming concern is upgrades required by regulators to avionics equipment. One key US deadline is the end of the decade. There are not enough maintenance facilities to overhaul all the fleet, so “we’re starting to see a negative impact [on value] of not having had the upgrade done,” says Mr Stone.
But opportunities exist in cheaper jets and what remains a sluggish market for used aircraft. Lower hardware prices are cutting jet chartering costs. Leasing company Global Jet Capital is putting its aircraft out to charter when it takes them back at lease-end, until they are sold or re-leased to new clients.
Ben Murray, Global Jet senior managing director of asset management, says this can throw up customers who might never have thought of leasing. “We might approach a charterer [of the aircraft],” he says, “and actually sell them a lease.”
by Rohit Jaggi
The IRS audit process can be challenging for any business aircraft owner or operator, so NBAA has created resources to help Members prepare for audits and understand how the process functions. Developing a record-keeping system that maintains the information commonly requested by IRS auditors is one of the most important steps in preparing for a potential audit. In general, taxpayers have the burden of proving they are entitled to a specific tax deduction or credit, which makes having the necessary records for substantiation very important.
In NBAA’s Member resource, Record-Keeping Rules for Business Aircraft (300 KB, PDF), the history of IRS substantiation and record-keeping rules is reviewed, and specific best practices are provided regarding the types of records that an aircraft owner or operator should keep. For example, the resource provides details on how to substantiate the business purpose of a flight, which is a common audit topic.
NBAA also created a Navigational Guide for Audits (225 KB, PDF), which describes the IRS audit process from start to finish and includes details on appeal options for taxpayers. Starting with the initial contact by the auditor and moving through the information document request process to the audit findings, the guide provides business aircraft owners and operators with resources to manage IRS audits.
The U.S. Department of Transportation (DOT) will conduct a pilot program to evaluate how state and local governments might participate in regulating drone traffic at low altitudes—a role the FAA now serves. The department expects to select at least five industry-government partnerships to test the proposition.
According to the October 25 announcement, President Donald Trump issued a memorandum directing Transportation Secretary Elaine Chao to begin the Unmanned Aircraft Systems Integration Pilot Program. The DOT will issue an official public notice in the Federal Register in the coming days with details about the application process. Selections will be made within 180 days of the notice for what is planned as a three-year program.
Participating local governments and drone operators will have “regulatory certainty and stability” to conduct various operations, including night flights, flights over people, flights beyond the pilot’s visual line of sight and package delivery, the DOT said. The program also will serve as a testbed for detect-and-avoid and counter-UAStechnologies.
Importantly, the partnerships will evaluate the issue of federal preemption as applied to drones—testing where and when a community should regulate low-flying aircraft relative to the FAA. The federal government has claimed sovereignty of the airspace since 1926, but drones have complicated that understanding.
The pilot program will draw on the findings of a “roles and responsibilities” work group of the FAA’s Drone Advisory Committee (DAC) called Task Group 1. In July, AIN reported that state and local governments largely were not participating on the work group, apparently due to concerns that industry was over-represented. More recently, The Washington Post, citing internal documents and emails, reported that the process “has been riven by suspicion and dysfunction.” One of the newspaper’s sources complained that a representative of Shenzhen, China-based DJI, the world’s leading small-drone manufacturer, co-chairs the task group.
Plans call for Task Group 1 and other work groups to summarize their findings at the next full DAC meeting, which is scheduled for November 8 at Amazon headquarters in Seattle. Pre-registration is required to attend the meeting, according to federal advisory organization RTCA, which manages the committee.