It’s an approach designed to ensure that business aircraft owners really do have the perfect ownership experience. “We lead with that as a culture and a mantra,” said McReynolds of the MRO business. “We tell them [owners] what it’s [their aircraft] going to look like going out of the door [after aircraft maintenance]. And we tell them about surprises when they happen. It’s an expectation they really appreciate.”

Often aircraft maintenance is one of the last things new owners think about when closing a transaction. But, in reality, it’s one of the most important parts of the ownership experience, which often becomes an afterthought, said McReynolds of Weststar Aviation. “The complexity in this thing we call maintenance; most people don’t think about. But hiring a DoM [director of maintenance] to represent your best interest in a complex environment is a key part of ownership,” he added.

‘All on the first day’

Buying a business aircraft is a collaborative effort, according to speakers. Jay Mesinger, CEO/president, Mesinger Jet Sales, which sponsored the Town Hall had this advice for new buyers: “I tell people when they start to think about buying to talk to their lender, interview [prospective] management companies and your aviation attorney – all on the first day They are all parallel paths that you need to come together at one time to enjoy your asset from Day One.”

So much of the industry’s focus lies on the transactional side – the buying and selling. “But there’s so much that goes on in the middle and that is the ownership,” he added. “Operating your airplane is all part of getting ready to, one day, sell it and buy another one. But let’s not forget this place in the middle where the joy can come in.”

Welcoming new entrants to this industry effectively depended on understanding the perspective of where they come from, said Bob Marinace, chief experience officer with private jet charter and management company Solairus Aviation. 

Those who come from fractional and charter “know the acronyms” and the basics of scheduling and using an aircraft but they don’t understand the ownership experience, said Marinace. “What we are about is to help educate and to explain how this will differ from what they have experienced so far,” he added.

‘One of the first things you talk about’

Too often the selection of a management company is not prioritised, said Stewart Lapayowker, managing shareholder, Lapayowker Jet Counsel. “Unfortunately, for new aircraft owners, selection of a management company seemed to get overlooked and then it’s a scramble to fine one,” said Lapayowker. “But it should be one of the first things you talk about.”

Some of the key questions to answer, he said, are: Are you going to set up your own organic flight department; are you going to have a managed aircraft and if so, who will be the manager? It is important to engage a management company that understands the new owner’s preferred structure and can be flexible and deliver the services they are looking for.

“First-time buyers haven’t got the experience [to make informed decisions on their own],” said Lapayowker. “But they get a lot of free advice. Everybody at a cocktail party tells you how to do it right.”

You can watch the hour-long, free-to-view CJI Town Hall, Masterclass here. The next Masterclass – devoted to buying business aircraft – aganin sponsored by Mesinger Jet Sales, will take place on Wednesday, September 25th. These Town Halls complement CJI’s Aircraft Transaction Masterclass.

The post CJI Town Hall, Masterclass: ‘Safety, quality, honesty and transparency’ appeared first on Corporate Jet Investor.

The tax reform proposals of both the House and Senate provide for reductions in corporate tax rates to 20% (the Senate provision would defer the reduction to 1 January 2019). The House would reduce tax rates for pass-through entities to 25% starting in 2018, and the Senate proposal would allow a deduction of 17.4% of domestic qualified business income (subject to limitations) to address pass-throughs.

Instead of five-year MACRs depreciation (for Part 91 aircraft) and 50% bonus depreciation for new aircraft placed in service, the House proposal would allow 100% expensing of new and PRE-OWNED aircraft, retroactive to 27 September 2017. The Senate proposal would merely increase bonus depreciation to 100% retroactive to 27 September 2017.

For those buying smaller aircraft, the 179 deduction (currently $500,000) would increase to $5,000,000 under the House proposal and $1,000,000 under the Senate proposal.

In both proposals, there would be limitations on interest deductions, and an elimination of 1031 tax deferred exchanges for personal property (which includes aircraft). If one were to be able to expense 100% of an aircraft, a 1031 would not likely be needed since, if you replaced the aircraft that you sold with a replacement aircraft in the same tax year, the deduction for the new aircraft would likely offset the gain on the sale of the relinquished aircraft.

How should a rational Seller respond to the proposed tax changes?

A Seller woould presumably look at the tax impact of the sale. Since tax rates for corporations or pass-through entities would decrease in 2018, presumably a Seller may think about postpoining the sale of the aircraft until 2018. But practically, when a Seller has its aircraft for sale, it’s for a reason and I have to doubt that a Seller will push off a qualified Buyer just to consummate the sale next year. It’s possible, but not necessarily rational, given that buyers have other inventory in the market to target.

Should a rational Buyer defer a purchase until 2018?

The answer is probably not. For new aircraft, a Buyer already will receive 50% bonus depreciation, so the House and Senate Bills will only improve a Buyer’s position to 100% and, if passed, the expensing or increased bonus depreciation would be retroactive to 27 September 2017, so there is no rational reason for a Buyer of a new aircraft to wait until 2018.

What about pre-owned aircraft? In that case, there’s a definite difference between the House and Senate models (the House allowing for 100% expensing), but it should make no difference to the Buyer of a pre-owned aircraft since the House provision would be retroactive to 27 September 2017. That is, the pre-owned Buyer either benefits from buying a pre-owned aircraft before 2017 year-end (if the House model is adopted) or it doesn’t if the Senate model is adopted (and things stay status quo). Holding off and waiting would not seem to be rational.

If the 179 deduction were the only benefit available to a small aircraft buyer, then it would be rational for Buyers of smaller aircraft to “wait and see” because there is a significant difference between the $5 million House 179 deduction and the $1 million Senate 179 deduction (179 would apply to new and pre-owned). But those same buyers have available to them the other cost recovery provisions mentioned above. Betting on how the 179 deduction will come out does not seem to be rational, except perhaps in the case of pre-owned lower priced aircraft.

The decision-making of a rational Buyer of a new or pre-owned large aircraft should not be affected by the tax reform proposals, and a Seller who has committed to sell its aircraft would ordinarily not push off a qualified buyer.

If everyone behaves rationally, Q4 2017 should be business as usual. But who says everyone is rational?

The post Tax reform and the rational aircraft buyer and seller appeared first on Corporate Jet Investor.

The tax reform proposals of both the House and Senate provide for reductions in corporate tax rates to 20% (the Senate provision would defer the reduction to 1 January 2019). The House would reduce tax rates for pass-through entities to 25% starting in 2018, and the Senate proposal would allow a deduction of 17.4% of domestic qualified business income (subject to limitations) to address pass-throughs.

Instead of five-year MACRs depreciation (for Part 91 aircraft) and 50% bonus depreciation for new aircraft placed in service, the House proposal would allow 100% expensing of new and PRE-OWNED aircraft, retroactive to 27 September 2017. The Senate proposal would merely increase bonus depreciation to 100% retroactive to 27 September 2017.

For those buying smaller aircraft, the 179 deduction (currently $500,000) would increase to $5,000,000 under the House proposal and $1,000,000 under the Senate proposal.

In both proposals, there would be limitations on interest deductions, and an elimination of 1031 tax deferred exchanges for personal property (which includes aircraft). If one were to be able to expense 100% of an aircraft, a 1031 would not likely be needed since, if you replaced the aircraft that you sold with a replacement aircraft in the same tax year, the deduction for the new aircraft would likely offset the gain on the sale of the relinquished aircraft.

How should a rational Seller respond to the proposed tax changes?

A Seller woould presumably look at the tax impact of the sale. Since tax rates for corporations or pass-through entities would decrease in 2018, presumably a Seller may think about postpoining the sale of the aircraft until 2018. But practically, when a Seller has its aircraft for sale, it’s for a reason and I have to doubt that a Seller will push off a qualified Buyer just to consummate the sale next year. It’s possible, but not necessarily rational, given that buyers have other inventory in the market to target.

Should a rational Buyer defer a purchase until 2018?

The answer is probably not. For new aircraft, a Buyer already will receive 50% bonus depreciation, so the House and Senate Bills will only improve a Buyer’s position to 100% and, if passed, the expensing or increased bonus depreciation would be retroactive to 27 September 2017, so there is no rational reason for a Buyer of a new aircraft to wait until 2018.

What about pre-owned aircraft? In that case, there’s a definite difference between the House and Senate models (the House allowing for 100% expensing), but it should make no difference to the Buyer of a pre-owned aircraft since the House provision would be retroactive to 27 September 2017. That is, the pre-owned Buyer either benefits from buying a pre-owned aircraft before 2017 year-end (if the House model is adopted) or it doesn’t if the Senate model is adopted (and things stay status quo). Holding off and waiting would not seem to be rational.

If the 179 deduction were the only benefit available to a small aircraft buyer, then it would be rational for Buyers of smaller aircraft to “wait and see” because there is a significant difference between the $5 million House 179 deduction and the $1 million Senate 179 deduction (179 would apply to new and pre-owned). But those same buyers have available to them the other cost recovery provisions mentioned above. Betting on how the 179 deduction will come out does not seem to be rational, except perhaps in the case of pre-owned lower priced aircraft.

The decision-making of a rational Buyer of a new or pre-owned large aircraft should not be affected by the tax reform proposals, and a Seller who has committed to sell its aircraft would ordinarily not push off a qualified buyer.

If everyone behaves rationally, Q4 2017 should be business as usual. But who says everyone is rational?

The post Tax reform and the rational aircraft buyer and seller appeared first on Corporate Jet Investor.