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U.S. Bizav Flight Activity Continues Climb, Says Argus

 

 

 

 

Business aircraft flying ticked up 2.1 percent year-over-year in the U.S., Canada, and the Caribbean last month, according to TraqPak data released today by business aviation research firm Argus International. This was better than the 0.9 percent increase the company had predicted for the month; Argus is calling for a 1 percent increase this month.

Part 91 activity logged another solid month, climbing 3.8 percent from last August. This was followed by a 0.4 percent increase in Part 135 operations, while fractional flying was flat from a year ago.

For the second consecutive month, all business aircraft categories except for light jets recorded gains. Midsize jet flying marked a resurgence last month, rising 4.2 percent, with turboprops not far behind with a 3.1 percent uplift from a year ago. Large-cabin jets, which have been at the top of the leaderboard for most of the past several years, climbed 1.9 percent year-over-year, while light jet activity dropped by 1.6 percent, continuing recent losses in this category.

Part 135 large-cabin jet flying saw the only double-digit gain in individual categories, rising 14.5 percent. Conversely, fractional large-cabin jets posted the only double-digit decrease, falling 24.8 percent.

by AINalerts

 

2018-09-17T13:33:51+00:00 September 17th, 2018|Aviation News, Blog, Economics of Aviation, General Aviation|

UBS: Bombardier To Reclaim Large Bizjet Market Share

Thanks to the expected service entries of its Global 7500 later this year and Global 5500 and 6500 next year, Bombardier Business Aircraft is likely to pick up more market share of the large-cabin business jet market at Gulfstream Aerospace’s expense, according to a recent report from UBS Global Research. “Bombardier has been conceding share to Gulfstream for the last few years,” UBS said, especially as the Canadian aircraft manufacturer’s Global 7500 program suffered delays.

“On the back of a sold-out Global 7500 backlog through 2020, we see Bombardier clawing its market share back to 40 percent,” said UBS analyst Myles Walton. “Other product refreshes for the Global 5000 [now the Global 5500] and the Global 6000 [now the Global 6500] should help Bombardier maintain its production levels on those two platforms, but given the clean-sheet design of the G500 and G600 at Gulfstream, we would expect Bombardier’s head-to-head product offering there to fall a bit short of Gulfstream.”

Bombardier has garnered an average of about 37 percent of the large-cabin jet market share by units over the past decade, hitting a recent high of about 40 percent in 2014 and low of 33 percent last year. However, this could potentially exceed 40 percent in both units and value by 2020 as Bombardier delivers its new Globals to customers, UBS said.

by AINalerts: August 28, 2018

2018-08-29T11:27:23+00:00 August 29th, 2018|Aviation News, Blog|

Bizav Salaries Pushing Up, NBAA Survey Finds

As the business aviation industry continues to face a workforce shortage, salaries are pushing up, with several positions improved by double digits and at least one position experiencing a 30 percent increase, according to the 2018 NBAA Compensation Survey. NBAA found an average of 3 to 4 percent increases across the 16 positions involved in the survey. The cash compensation for a non-flying aviation department manager category jumped 30 percent, to $205,000; maintenance foremen were up 14 percent, to $127,000; and senior captain salaries climbed 12 percent, to $164,000, the survey data indicates.
“The survey shows that our members are adjusting and keeping up with industry trends,” said Peter Korns, NBAA’s manager of tax, operations, and workforce engagement. “As our industry continues to work to attract and retain quality talent, we are seeing real efforts to fairly compensate pilots and mechanics who might otherwise seek out alternative opportunities.”
Korns added that the survey was largely in line with expectations. But not all salaries increased. “We see some significant decreases in dispatcher and line service personnel salaries—down 12 percent and 10 percent, respectively—which is cause for further analysis,” he said.
This year’s survey marked its largest data set to date, encompassing 790 NBAA operating member companies that provided data for 4,130 employees.

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By AINalerts : August 28, 2018

2018-08-29T11:25:24+00:00 August 29th, 2018|Aviation News, Blog, Business Aircraft Industry News, Economics of Aviation|

Amstat Report Shows Strengthening of Bizjet Values

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.

by AINalerts

2018-07-17T14:35:14+00:00 July 17th, 2018|Aviation News, Blog, Business Aircraft Industry News, Economics of Aviation|

Aircraft Marketplace Now ‘Balanced,’ Says Industry Veteran

 

 

 

 

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

2018-07-16T09:07:01+00:00 July 16th, 2018|Aviation News, Blog, Business Aircraft Industry News, Economics of Aviation|

NATA Sees More Enforcement on Illegal Charter Ahead

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

 

2018-07-03T14:56:08+00:00 July 3rd, 2018|Aircraft Tax, Aviation News, Blog, Government Regulation|

1Q Bizcraft Utilization Reaches Decade-long High

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.

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by AINalerts : May 1, 2018

2018-05-01T13:57:05+00:00 May 1st, 2018|Aviation News, Blog, Business Aircraft Industry News|

100% Depreciation and Aircraft Personal Use

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.

 – March 8, 2018
2018-03-15T09:03:31+00:00 March 15th, 2018|Aircraft Tax, Aviation News, Blog|

Bizav Flying in U.S., Canada Continues Climb

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

2018-03-08T13:25:02+00:00 March 8th, 2018|Aviation News, Blog|

JetNet: Used Bizjet Market Swings To Seller’s Market

The preowned business jet market transitioned to a seller’s market in December, with inventory now at 9.9 percent, just below the 10 percent threshold of inventory for sale and down from 11 percent in December 2016, according to data released yesterday by JetNet. Inventory of preowned business jets has decreased steadily from a high point of 2,938 aircraft in July 2009, or 17.7 percent of the in-service fleet, to 2,143 jets in December.

“A period of transition is now in play, wherein the pendulum swings [from] in favor of the buyer to the seller,” the business aviation data firm said. “The pristine used jets that were on the market a few years ago have become more challenging to locate. The sage advice for buyers is to act now.”

According to JetNet, there were 2,668 more business jet transactions last year, an increase of 177, or 7.1 percent, over 2016. Preowned transactions were boosted last year by large-cabin jet deals, which accounted for 37 percent, or 992, of the total transactions; this was up 17.3 percent from 2016. Sales of preowned light jets also surged 8.2 percent last year, to 952 transactions. Meanwhile, preowned midsize jet sales slumped 4.9 percent, falling from 630 in 2016 to 599 last year.

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by AINalerts

2018-02-13T13:44:58+00:00 February 13th, 2018|Aviation News, Blog|

U.S., Canada Bizav Flying Off to Roaring Start in 2018

Utilization metrics for business aircraft flying in the U.S. and Canada continued to improve last month, with activity up 4 percent year-over-year, according to TraqPak data released today by Argus International. That was well above the 3.3 percent gain that analysts at the business aviation services company predicted last month; this month, they are calling for a 3.8 percent rise.

Flying by both operator type and aircraft category were up across the board last month. Part 135 activity soared by 8 percent year-over-year, while fractional and Part 91 reported upticks of 2.2 percent and 1.5 percent, respectively. By aircraft category, turboprops led the pack, rising 5.5 percent from a year ago, followed by large-cabin jets, up 4 percent; midsize jets, up 3.1 percent; and light jets, up 2.8 percent.

Activity has steadily increased over the past five Januarys, climbing from approximately 217,000 flights in January 2013 to 240,000 last month, JetNet data shows. Weekday flying was up 2.8 percent from a year ago, while weekend activity jumped 8.5 percent. By U.S. region, the Southeast dominates with 58,234 departures, eclipsing the next busiest—the central West Coast—by more than 23,000 movements.

 

by AINalerts

2018-02-13T13:42:40+00:00 February 13th, 2018|Aviation News, Blog, Business Aircraft Industry News|

Bonus Depreciation

Bonus depreciation may allow aircraft owners to realize the depreciation benefits of an eligible asset more quickly. Aircraft owners are not entitled to more depreciation, but are allowed to obtain the benefits of depreciation more quickly. When available, bonus depreciation can be utilized by owners of many capital assets and is not an aviation specific benefit.

The U.S. House and Senate have approved extensions of bonus depreciation on numerous occasions, which affirms what many industry analysts and economists understand – that businesses are unable to fully deduct the initial cost of capital investments, including those made in new aircraft, as they do with labor and raw material. Instead, they must write these costs off over many years, and, as a result, never recoup the full value of investments that drive economic growth.

Bonus depreciation delivers long-term stimulus to industries like general aviation, which provides high-skill, and high-paying, jobs for more than 1.1 million Americans, and is responsible for generating $219 billion in economic activity in the United States annually. It also gives American companies access to advanced equipment, including aircraft, making them more competitive, while preserving jobs in aviation-related manufacturing, one of the few industries that contributes positively to America’s trade balance.

The 2017 Tax Cuts and Jobs Act provides for 100 percent bonus depreciation, allowing taxpayers immediate deduction of the cost of aircraft acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2027 (Jan. 1, 2028 for longer production period property and certain aircraft). Through the efforts of NBAA and a coalition of general aviation groups, the new law permits 100 percent bonus depreciation for both factory-new and pre-owned aircraft so long as it is the taxpayer’s first use of the aircraft.

Learn More about New Depreciation Rules Under the 2017 Tax Act.

By NBAA

2018-02-12T10:57:46+00:00 February 12th, 2018|Aircraft Tax, Blog, Economics of Aviation|

Tax Reform Highlights for Business Aviation

The House and Senate have both voted to pass major tax reform legislation, and are expected to send the Tax Cuts and Jobs Act (“Tax Bill”) to the president for his signature before Christmas. The legislation contains important changes for business aviation in several areas.

100-Percent Expensing (Bonus Depreciation)

A 2015 Act extended bonus depreciation for qualified property (including commercial and non-commercial aircraft used in a trade or business with a recovery period of 20 years or less) through 2019, with a phase-down over time from 50 percent to 30 percent.

Under the Tax Bill, however, the current law would be amended to provide for 100-percent expensing, which will allow taxpayers immediately to write off the cost of aircraft acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2023 (Jan. 1, 2024 for longer production period property and certain aircraft). Through the efforts of NBAA and a coalition of general aviation groups, the new law would permit 100 percent expensing by the taxpayer for both factory-new and pre-owned aircraft so long as it is the taxpayer’s first use of the aircraft.

For tax years after 2022, the bill provides for a phase down of bonus depreciation in increments of 20 percent each year for qualified aircraft acquired and placed in service before Jan. 1, 2027 (Jan. 1, 2028 for longer production period property and certain aircraft).

Like-Kind Exchanges

Under current law, when property (including business aircraft) held for productive use in the taxpayer’s trade or business or for investment is exchanged for property that is “like-kind,” a special rule under Internal Revenue Code (IRC) § 1031 provides that no gain or loss is recognized to the extent that the replacement property is also held for productive use in a trade or business or for investment purposes.

The Tax Bill modifies this special rule only to allow for like-kind exchanges of real property. As a result, taxpayers will no longer be eligible to defer taxable gain on the sale of aircraft via a like-kind exchange, and the gain would be subject to recapture for tax purposes. This provision is effective for transfers after 2017, and is a permanent repeal of application of IRC § 1031 rules to exchanges involving aircraft and other tangible personal property.

However, a transition rule preserves like-kind exchanges of personal property if the taxpayer has either disposed of the relinquished property or acquired the replacement property on or before Dec. 31, 2017. Further, 100 percent expensing of new and used property helps to compensate for the repeal of like-kind exchanges for tangible personal property, though unlike such repeal and as noted above, 100 percent expensing is scheduled to expire in 2023/2024 with an additional phase down until 2027/2028.

Prohibition on Deduction of Employees’ Commuting Expenses

The Tax Bill prohibits employers from deducting the cost of providing transportation to employees to commute between the employee’s residence and place of employment unless provided for the safety of the employee. It is unclear whether this new provision would allow the deduction of commuting expenses included in income, and if so, whether such deduction is limited to only the actual amount of the expense included in income.

Disallowance of Travel Expenses “Directly Related” to Business

The Tax Bill makes far-reaching changes to the basic deduction disallowance rules for business entertainment which could affect many aircraft owners. Historically, the general rule of IRC § 274 disallowed all entertainment expenses (assuming no exception applied) unless directly related or associated with the active conduct of the business. Therefore, the 100 percent deduction disallowance did not apply to the entertainment of business customers, prospective clients, company retreats and other entertainment events where business was conducted immediately before, during or after the entertainment, or the entertainment was clearly associated with a business goal unrelated to providing the entertainment such as the opening of a new business location. Beginning in 2018, the Tax Bill disallows all entertainment expenditures, regardless of whether they are directly related to a business goal.

Repeal of Miscellaneous Itemized Deductions, Including Employee Business Expenses

The Tax Bill eliminates miscellaneous itemized deductions, including employee business expenses beginning in 2018 and before Jan. 1, 2026. Prior to the amendment, employees could deduct expenses incurred in performing their work, subject to the limitation that such expenses (along with other miscellaneous itemized deductions) were only deductible to the extent that the total of such expenses exceeded 2 percent of adjusted gross income.

The 2% floor was a simplification measure in the 1986 Tax Act under which very few taxpayers needed actually to calculate their miscellaneous itemized deductions. For the same reason, eliminating the deduction is expected to affect relatively few taxpayers. However, the effect on the taxpayers whose adjusted gross income is not extremely high and who are currently able to deduct their aircraft expenses as employee business expenses to the extent they exceed the 2 percent floor could be substantial. Such taxpayers may want to consider restructuring their compensation arrangements into accountable plan arrangements, which are not affected by the Tax Bill.

Transportation Excise Tax Does Not Apply to Owner Flights on Managed Aircraft

The Tax Bill also amends IRC § 4261 by adding a new subsection to clarify that owner flights on managed aircraft are not subject to Federal Transportation Excise Tax (FET) ticket tax, but rather are subject to the non-commercial fuel tax. This issue has been the subject of controversy for more than 60 years, and this amendment clarifies the law consistent with the understanding of most people in the industry.

The FET exception applies to payments by the aircraft owner (or lessee) for aircraft management services related to maintenance, support or flights on the aircraft. The exception does not actually require that the owner be on the flight or that the flight be on the business of the owner, but only that the owner (or lessee) pay for the aircraft management services.

“Aircraft management services” are defined broadly, and no distinction is drawn between payments for aircraft management services versus payments for transportation services. It is sufficient that the payments by the owner (or lessee) ultimately cover the aircraft functions identified in the statute as aircraft management services. Since the only requirement is that the payments for aircraft management services be made by the owner or lessee, there appears to be no need to analyze whether or not the management company exercises possession, command and control of the aircraft.

The amendment includes new IRC § 4261(e)(5)(D) that appears to provide that if a portion of any payment is for taxable transportation but such portion is not paid for “aircraft management services,” then such portion of the payment is taxable. While this provision could cause confusion, we believe it is intended to mean that when a payment includes a taxable portion (such as payment for a flight on an aircraft not owned by the payor) and a nontaxable portion (such as payment with respect to a flight on an aircraft owned by the payor), only the taxable portion is subject to FET.

The FET exception only applies with respect to flights paid for by the owner or lessee. Accordingly, if an owner leases the aircraft to a management company, and an affiliate of the owner pays the management company for the flight, the exception would not appear to apply. In contrast, if the aircraft owner leases the aircraft to its affiliate and the affiliate (being a lessee) pays the management company for services related to the flight, then the exception would apply.

Entities that may be disregarded for income tax purposes (such as single-member LLCs, qualified subchapter S subsidiaries and grantor trusts) are respected as separate entities for FET purposes and can expect to be respected for purposes of this exception. For example, if a company owns a single-member LLC which owns an aircraft, the FET exception would not appear to apply to payments by the company to a management company to manage the aircraft. However, if the LLC leases the aircraft to the company, then the company’s payments should be covered by the exception.

The FET exception will not apply to payments by a lessee that is leasing the aircraft from the management company under a lease with a term of thirty-one (31) days or less. This is intended to prevent the exception from applying to one-off customers of a charter company who structure their charters as wet leases. Such a wet lease structure may also be problematic from an FAA regulatory perspective.

The provision is effective for payments after the date of enactment, which could be as early as Dec. 22, 2017. While the provision will not be directly applicable to owner flights prior to this date, we understand that the IRS has recently been (correctly) interpreting current law to not impose FET on management fees with respect to owner flights and we would hope that this provision would reinforce that approach.

Acknowledgments

This article was written by NBAA Tax Committee members John B. Hoover, Cooley LLP, and Ruth Wimer, Winston & Strawn LLP, with thanks to Richard C. Farley, Jr., PwC, and Jeff Wieand, Boston Jet Search. Learn more about the NBAA Tax Committee.

by NBAA Tax Committee

2018-01-11T13:26:55+00:00 January 11th, 2018|Aircraft Tax, Aviation News, Blog, Economics of Aviation|

U.S. Business Aircraft Flying Ends 2017 with a Gain

Business aviation flight activity last month in the U.S. fell short of forecast (5.6 percent growth), but still managed to post a 2 percent year-over-year increase, according to TraqPak data released today by Argus International. Analysts at the business aviation services company are calling for a 3.3 percent gain in flying this month.

By operational category, Part 135 flying came out on top, rising 4.6 percent from a year ago, while fractional activity wasn’t far behind, with a 4 percent increase. But Part 91 flying once again slipped into negative territory, falling 0.5 percent year-over-year, with gains in midsize and large-cabin jets more than offset by losses in turboprops and light jets.

Despite an 8.3 percent resurgence in fractional turboprop flying last month, the turboprop aircraft category remained flat year-over-year. Light jet activity was equally anemic, logging a 0.1 percent decrease. However, midsize and large-cabin flying saw solid gains last month, ascending 4.2 percent and 5.5 percent, respectively, from a year ago.

In individual categories, only Part 135 large-cabin jets experienced double-digit gains, climbing 11.2 percent year-over-year. Large-cabin fractional activity recorded a 5.8 percent loss over the same period.

Argus’s TraqPak data provides “flight-number-specific aircraft arrival and departure information on all IFR flights in the U.S., Canada, and the Caribbean.”

by AINalerts

2018-01-11T13:16:51+00:00 January 11th, 2018|Aviation News, Blog, Business Aircraft Industry News|