Every four years for the past four decades, business aviation in the U.S. has hit the “pause” button. Aircraft sales, as well as owner and charter flying slows, as we wait to see which party and policies will prevail in November. It’s tough to plan future business and investment activities until you know the rules under which you’ll have to operate.
It’s already clear that the 2016 primaries and the general elections will be particularly contentious. That turmoil will have an impact on aircraft values for sellers and insurers. And while in the near term, good deals are in the offing for savvy buyers, as Rollie Vincent explains in our cover story, “Climate’s Changing in Business Aviation,” the longer term view is murkier.
It’s worth taking a historical look at aircraft asset values, as the rules regarding business jets as investments have evolved significantly in the past decade. Business aircraft were viewed as a capital asset with a stable resale value. You could buy a jet, take the 10% Investment Tax Credit, use a double declining depreciation schedule, and thanks to inflation, sell the aircraft in three years at a price nearly equal to its original purchase price.
Of course, having recaptured all that depreciation, you then had to purchase a new aircraft of equal or greater value to avoid significant capital gains tax – a cycle the Original Equipment Manufacturers grew to know and love. That provided an economic rationale for current owners to upgrade, as well as a healthy inventory of late-model preowned aircraft in excellent condition – some still under warranty or enrolled in an hourly-cost-maintenance program – for first-time buyers.
Today, great leaps in both technology and regulation, not to mention NextGen mandatory updates and current economic conditions, have relegated that part of the cycle to history books.
Business aircraft operating economics are under fire as well. Congress is taking a hard look at privatizing the Air Traffic Control (ATC) system, to be governed by a board comprised chiefly of commercial airline representatives. Its primary concern will be the 550 airports with commercial airline service, not the 4,800 corporate and general aviation airports which serve suburban and smaller communities.
Privatizing the ATC likely would change the way we pay for the system, as burdensome per-flight segment user fees probably would replace current fuel taxes, at rates set by the airline-dominated board.
The National Business Aviation Association (NBAA) is fighting this privatization effort on behalf of all corporate flight departments, working with the U.S. Chamber of Commerce and others to preserve one of the safest and most efficient aviation infrastructures in the world.
It wouldn’t hurt to add an aircraft owner’s voice or two to the chorus. For details, contact NBAA at (202) 783-9000. BAA
Publisher of Business Aviation Advisor, has nearly 50 years in business aviation including executive positions at aircraft management/charter and ground services companies. He is a past director of the NATA and Corporate Angel Network.