Business Aviation Advisor July-August 2019 by Business Aviation Advisor Magazine

JULY / AUGUST 2019

Low Profile, High Challenges BizAv Staffing at a Crossroads

New, Preowned â&#x20AC;&#x201C; or Remanufactured? Your Third Aircraft Option

E-VTOLS TAKE OFF FIVE STEPS TO SAFER FLIGHTS TAXING RELATIONSHIPS A DECADE OF AIRCRAFT FINANCE EVOLUTION TIME FOR A NEW FAA LEADER A Business Aviation Media, Inc. Publication

W W W . B I Z AVA D V I S O R . C O M

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F E AT U R E S

Low Profile, High Challenges 06 BizAv Staffing at a Crossroads

• Volume 6 / I s sue 4

by ROLL AN D VIN C E NT

New, Preowned – or Remanufactured? 08 Your Third Aircraft Option

Taxing Relationships

The New Tax Traffic Controller for Partnership/LLC Aircraft Owners

by DAVI D N . COR K E R N , J . D. , LL . M .

A Decade of Aircraft Finance Evolution

by FOR D VON W E IS E

Now is a Good Time to Buy

by G IL WOLIN

e-VTOLS Take Off

Urban Air Mobility Coming Soon

05 Publisher’s Message

by BA A S TAFF R E P OR T

We’ll Make It Up in Volume

by G IL WOLIN

Five Steps to Safer Flights NTSB Wants You to Know

Washington Report

by RYAN WAGU E S PAC K

by DAVI D COLLOG AN

D E PA R T M E N T S

Time for a New FAA Leader

Above and Beyond 2019:

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Ju l y/A u g u s t 2 019 B U S I N E S S AV I AT I O N A DV I S O R 3

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PUBLISHER’S MESSAGE ■ PUBLISHER Gil Wolin gwolin@bizavadvisor.com CRE ATIVE DIRECTOR Raymond F. Ringston rringston@bizavadvisor.com MANAGING EDITOR G.R. Shapiro gshapiro@bizavadvisor.com ASSISTANT EDITOR Michael B. Murphy mmurphy@bizavadvisor.com WASHINGTON EDITOR David Collogan dlcollogan@gmail.com CONTRIBUTORS David N. Corkern, J.D., LL.M. Shackelford, Bowen, McKinley & Norton, LLP dcorkern@shackelford.law Rolland Vincent Rolland Vincent Associates rvincent@rollandvincent.com Ford von Weise Citi Private Bank ford.vonweise@citi.com Ryan Waguespack National Air Transportation Association ryanw@nata.aero Gil Wolin Business Aviation Media, Inc. gwolin@bizavadvisor.com BUSINESS MANAGER JoAnn O’Keefe jokeefe@bizavadvisor.com BOARD OF ADVISORS Paul Cardarelli • Larry Flynn Anthony Kioussis • Dick Koenig Joe Moeggenberg • Louis C. Seno Nel Stubbs • Rolland Vincent John (Jack) M. Young BUSINESS AVIATION MEDIA , INC . PO Box 5512 • Wayland, MA 01778 Tel: (800) 655-8496 • Fax: (508) 499-2172 info@bizavadvisor.com • www.bizavadvisor.com Editorial contributions should be addressed to: Business Aviation Advisor, PO Box 5512, Wayland, MA 01778, and must be accompanied by return postage. Publisher assumes no responsibility for safety of artwork, photographs, or manuscripts. Permissions: Material in this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of the publisher.

We’ll Make It Up in Volume Some conundrums never die, no matter how often they’re proven wrong. “We lose money on every sale, but we’ll make it up in volume” is one of bizav’s oldest favorites. Its latest incarnation is driven by the 2019 surge in flight activity, driven by a healthy economy and reduced commercial airline schedules as a result of the 737 MAX grounding. Virtually every segment of our industry, starting with Part 91 owner flying, is up month over month, according to the latest numbers from ARGUS (www.argus.aero). That increase in owner flying drives increased use of supplemental lift, whether by ad hoc or contract charter, jet card, or fractional share. And the increased demand for supplemental lift enables charter management companies to deliver on their revenue commitments to their aircraft owner management clients whose aircraft are available for charter. Almost 90% of turbine aircraft available for charter are enrolled in a management program, in which the owner receives a large percentage of the Part 135 charter revenue. The downside? When flying is up, so are scheduling conflicts, whether from crew duty day limits, from scheduled and unscheduled maintenance events and related downtime – or from increased flying by the aircraft’s owner. No charter management company wants to refuse a trip request from an end user or charter broker. It’s too easy to find an alternative operator, thanks to the internet and mobile apps that facilitate access to charter aircraft worldwide (see “Fifteen Shades of Grey Market Charter,” BAA Special Report, August 2018). Consequently management companies today are scrambling to add available aircraft to their fleets to accommodate the increased demand. They tout their Argus, Air Charter Safety Foundation, and Wyvern safety ratings, operational experience, customer service orientation, and ability to generate that third party revenue, which helps offset the cost of owner flying. But to win the competition when all else fails, they cut their own net revenue by reducing management fees or increasing the owner’s percentage of charter revenue. The charter management company needs that net revenue to cover their overhead costs: salaries, marketing, rent, insurance, legal, communications, etc. That’s where the “good guys” will cut. Others may cut their service capabilities … or their safety management. More than a decade ago, management companies’ standard charter revenue cut was 15%. Today, if charter companies have to keep dipping below that to compete for new aircraft or to keep current ones, then some “good guys” won’t be able to cover overhead and turn enough profit to stay afloat. So be mindful when negotiating. Don’t be blinded by low management fees, high commission rates, and charter hours. Success based on volume remains a myth, when the company is losing on every deal.

The views and opinions expressed in Business Aviation Advisor are those of the authors and advertisers, and do not necessarily reflect the policy or position of Business Aviation Media, Inc. Articles presented in this publication are for general information and educational purposes and do not constitute legal or financial advice. Postmaster: Please send address changes to: Business Aviation Media, Inc., PO Box 5512 • Wayland, MA 01778, USA ©Copyright 2019 by Business Aviation Media, Inc. All rights reserved

Gil Wolin — Publisher gwolin@bizavadvisor.com

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■ INDUSTRY UPDATE

Low Profile, High Challenges BY ROLLAND VINCENT Rolland Vincent Associates / rvincent@rollandvincent.com

ou are among the world’s business aircraft owners and operators. You are well represented wherever movers-andshakers are to be found. Beyond Manhattan, London, and Frankfurt, you are seen from Monaco to West Palm Beach, from San Francisco Bay to Hong Kong’s Victoria Harbour. Citizens of the world, if you so choose, business aviation’s customers tend to be well educated, globally minded, and exceptionally well connected – both in your relationships and with your electronic devices. As a community, you have been sensitized to prefer low visibility, privacy and “stealth wealth” over flamboyant expressions of opulence that instantly attract media attention and ever-present iPhone lenses. Companies and advisors that serve you know that discretion in their dealings is the rule rather than the exception – generally speaking, the fewer people “in the know,” the better. Business aviation, therefore, is largely a science and art that satisfies many customers’ inherent desire for discretion, especially in a world indulgent with fast-breaking news, near-instantaneous tweets, and self-gratifications. Arguably, all is well and business aviation is most customer-effective when it is nearly invisible on the public’s radar screen. 6 B U S I N E S S AV I AT I O N A DV I S O R

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Invisibility certainly has its advantages. You can travel discretely, whether under your own blocked aircraft registrations or under the auspices of charter, membership, and fractional fleet operators where “QS” can refer equally to “Quarter Share” or “Quietly Secure” and “UP” to “Ultimate Privacy.” You can come and go while accomplishing your professional and personal objectives, beyond the purview of your competitor’s or the general public’s eyes. And what’s wrong with that? In general, business aviation – if not by design then by happenstance – transmits a relatively small radar signature. Air Transport Action Group (ATAG) research suggests that civil aviation produces about 2% of all human-induced CO2 emissions; the General Aviation Manufacturers Association (GAMA) estimates that business aviation is responsible for just 2% of civil aviation’s total, or a measly .04% of global emissions. Business aviation’s impact therefore is almost inconsequential. This has partly to do with low average utilization of business aircraft. Fixed-wing turbine customers reported that they flew about 340 flight hours per aircraft last year, perhaps 1/9th the utilization of a typical commercial airliner. In a debate about climate change and environmental policy, such a position has obvious advantages, especially when push comes to shove – when always dreaded user taxes and duties are under consideration. w w w. B i z AvA d v i s o r. c o m

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BizAv Staffing at a Crossroads

With other issues, however, invisibility has its consequences, some of them intractable. A current topic of concern is talent, and more specifically, the difficulties business aviation is facing in recruiting and retaining people to fly and maintain your aircraft. (See “Sticky Business,” BAA May/June 2019). Some will say that the challenges are simply a matter of pure and simple economics – pay more and people will stay rather than join the commercial airlines. Others believe that we need to tell our story more effectively – about the quality of life, the high-performance aircraft, the latest-generation cockpits, the variety of airports and missions served, the excitement of flying in an unscheduled pattern, not knowing where the day will take them. While these arguments all have merit, evidence suggests that business aviation is not yet “winning” the battle for talent. Widespread reports of multiple pay increases and benefit adjustments to stem the outflow of rated pilots and aircraft maintenance technicians to the commercial airlines describe actions that largely are stop-gap in nature, and not necessarily focused on bringing new people into the industry. While retention may seem like Job #1, recruitment is the other side of the same coin, albeit hampered by the near-constant headwind of business aviation’s limited public visibility. With awareness being the first step towards action, talent was the front-and-center subject of the opening panel of experts at the 9th annual JETNET iQ Global Business Aviation Summit on June 4-5, 2019 in White Plains, NY. In today’s highly competitive U.S. labor market, where unemployment is at a 50-year low and where about 60% of business aircraft currently are based, retaining people has become an urgent priority for professional operators, whether flying a fleet of large cabin business jets or a single-engine turboprop. Fully 75% of worldwide aircraft owner/operator respondents to the JETNET iQ Q2 2019 Survey – and a remarkable 81% in North America w w w. B i z AvA d v i s o r. c o m

– indicated that they currently are experiencing difficulties recruiting and retaining pilots, mechanics, and technicians. High-utilization business aircraft owners/operators – including charter, fractional, aircraft management, corporate flight departments, and others flying more than 800 hours per aircraft per year – were only slightly better off, with 70% reporting such challenges. Recruitment of young technical talent is particularly difficult in the face of aggressive and creative competition from commercial airlines. From ab initio flight training with career pathways and signing bonuses all the way to the right (and eventually left) seat of a jetliner, the hunt for talent has become a day-to-day focus for many aircraft owners. The opportunity to design, build, market, operate, and service today and tomorrow’s business aircraft provides an exciting roadmap for many young and diverse professionals entering the industry. Getting in front of these people to tell our story, share our enthusiasm, and build personal relationships is hard and seemingly thankless work, especially in the face of the schedule control, steady career path, and income predictability offered by the airlines – features they tout in their recruiting efforts. Getting more people to experience the benefits of business aviation is surely part of our industry’s longer-term talent solution. Encouragingly, more than half of Q2 2019 JETNET iQ Survey respondents believe there will be a shift away from whole aircraft ownership towards various forms of shared access in the coming years. New business aviation models show tremendous promise. Whether charter, membership, fractional ownership, empty-leg and per-seat clubs, or other channels, they offer greater accessibility plus the benefits sought by the next generation of pilots. A key to success will be whether any of these approaches can effectively tackle one of the biggest elephants in the room, namely the high fixed and variable costs of providing the service so as to entice more users to purchase. A dramatic increase in investment and experimentation in urban air mobility is among the most exciting developments already attracting talent and capital into the industry. Urban air mobility vehicles, whether powered by hybrid or all-electric propulsion, surely are part of our low-emissions and more environmentally sensitive future, but an integrated operational system faces many technological, regulatory, economic, customer acceptance, and safety obstacles. Realistically, just one of these obstacles could take more time to resolve than most proponents will ever admit. What to do? Advocate for business aviation, both inside and especially outside your organization and industry. Ensure that your aviation people are recognized in your business, and that they are compensated fairly for the good work they do. Take specific actions to better serve your pilots and maintenance technicians – the ones you have today, and the ones you’ll have tomorrow. BAA ROLL AND VINCENT is President of Rolland Vincent Associates,

an aviation and aerospace market research, forecasting, and strategic planning firm. His more than 35 years of experience includes work with manufacturers, commercial operators, and international organizations.

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■ AIRCRAFT ACQUISITION

New, Preowned – or Remanufactured? Your Third Aircraft Option any factors drive aircraft product improvements – better operating economics, better performance, and sometimes, even our better nature, as evidenced by lower exhaust emissions and the Sustainable Alternative Jet Fuel initiative. For 55 years of turbine aircraft progress, it’s been all three. It began in 1964, when Beechcraft introduced the first King Air 90, a faster turboprop-powered, pressurized version of its piston engine Queen Air. That year, Grumman did the same – re-engining the turboprop G-I to create the first large cabin, intercontinental business jet: the G-II. In 1973, Learjet launched the turbofan Learjet 35, an upgrade of the original turbojet 24/25 series, replacing the turbojet GE CJ610 engine with the Garrett (now Honeywell) TFE 731. Dassault Falcon Jet did so with the original Falcon 20, as did British Aerospace with the early Hawker 125. Gulfstream performed yet another transformation when it replaced the Rolls-Royce Spey engine on the G-III with the Tay to create the turbofan G-IV. Original equipment manufacturers (OEMs) sought to offer owners newer and better versions of their existing product lines. While they continue to offer upgraded and improved versions of their current models, third-party engineering/manufacturing companies have been able to take such well designed and constructed airframes, and update them with technologically advanced engines, avionics, and refurbished interiors. By using existing reconditioned airframes, they’re able to offer them to owners like you at 40 to 50 percent below comparable new model prices. One such remanufacturer modified and upgraded more than 500 small-cabin Citations with Williams engines, new wings, and avionics – upgrades since emulated by Textron Aviation on some newer Citation models. Canadian company Viking Air went from supporting the popular De Havilland Twin Otter series for Bombardier, to purchasing the manufacturing rights and upgrading the entire product line. Nextant Aerospace has taken a slightly different approach: by selecting successful models from three market segments, it can offer options for upgraded aircraft to a wider variety of owners and users, rebuilt to the same standard under a single brand. Its customers either can bring their own aircraft to Nextant, or have it acquire one. Nextant then either rebuilds the aircraft completely (the “Turnkey” option) or modifies it with options selected by the client (“A La Carte”). 8 B U S I N E S S AV I AT I O N A DV I S O R

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Nextant 400XTi

Its first venture in 2007 was to take the former Beechjet 400A/ Hawker 400XP light jet and upgrade it with fuel-efficient Williams International FJ44 engines, Collins Pro Line 21 avionics, and better airframe, systems, and interior. The 400 began life in 1978 as the Mitsubishi MU-300 Diamond before Beechcraft acquired its program in 1985. The Nextant 400XTi version sports a 2000+ mile range, higher cruise speeds, and meets the FAA and ICAO Stage IV reduced noise standard. Nextant followed that with a King Air 90 update, the G90XT, competing with Beechcraft’s own updated King Air 90, the C90GTx. In place of the Pratt & Whitney PT6-135A engine and Collins Pro Line Fusion avionics, the Nextant G90XT is equipped with GE Aviation H75-100 engines and Garmin avionics. Its winglets make the G90XT comparable to the Beechcraft C90GTx in range and cruise speed. Nextant now offers an updated edition of Bombardier’s Challenger 604. The Canadian manufacturer replaced that popular model in 2006 with the 605 and then again in 2016 with the 650. With a projected range of more than 5,000 statute miles carrying four passengers, and maximum altitude of 45,000 feet, the 604XT compares very favorably with both OEM models. It features an upgraded Collins Pro Line Fusion avionics suite, new cabin design options, and aerodynamic enhancements. For more than half a century, business turbine OEMs have designed and built durable airframes, updating and upgrading them as new technology allowed. That durability is what enables today’s remanufacturers to offer you with a third option to just buying “new” or “used.” BAA GIL WOLIN , Publisher of Business Aviation Advisor, is a 45-year industry veteran, experienced in corporate aircraft management, charter, and ground services. An aviation marketing consultant, he is the middle of three generations of aviation professionals.

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BY GIL WOLIN

Business Aviation Media, Inc. / gwolin@bizavadvisor.com

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■ ALTERNATIVE LIFT

e-VTOLS Take Off Urban Air Mobility Coming Soon eading to JFK from midtown Manhattan? Expect the taxi trip to take at least 45 minutes to an hour, for a fare of $52. Or you could travel the same route in five minutes on a Blade helicopter for a charge of $195. Before long, you might be able take a $70, ten-minute flight with minimal carbon footprint, on an electric vertical take-off and landing aircraft (e-VTOL). Such aircraft, which include fixed wing, helicopters, and other aircraft with powered rotors, can take off, hover, and land vertically. In the last few months, several companies have announced prototypes or plans for “flying cars” above major metropolitan areas – all run on electricity. It’s a scenario only George Jetson could have envisioned. While you might purchase or charter an e-VTOL for your own use, they’re also an attractive option for those passengers who don’t mind sharing. (See “Accessing the e-VTOL Network,” BAA July/ August 2017). Currently, more than 100 electric aircraft are under development around the globe. Nineteen of these companies are working on air taxis. In May, Lilium, a German air taxi company, announced the first test of its full-scale, all-electric five-seater aircraft, a precursor to the Lilium Jet. CA-based Kitty Hawk’s Cora is an “electric, autonomous fully fledged air taxi that takes off like a helicopter and flies like a plane.” PAV by Aurora Flight Sciences (a Boeing Company) is a “fullyelectric vehicle designed to provide safe, clean, and quiet transportation, designed for urban commutes with typical ranges up to 50 miles.” Airbus’ CityAirbus demonstrator is a “multi-passenger, autonomously piloted eVTOL vehicle designed for urban air mobility.” In 2018, Rolls-Royce stated that its hybrid concept “EVTOL” was under development. EmbraerX announced its “aircraft … based on the key design drivers of safety, passenger experience, affordability and a very low footprint for the community, in terms of noise and emissions.” The electric VTOL Nexus is under development by Bell, which plans to make it available in key major markets “by the mid-2020s.” The multinational transportation network company Uber Technologies Inc. recently announced plans to operate a network of electric air taxis (Uber Air) in cities worldwide to enable four-person flights in densely populated urban markets. UberCopter will fly passengers from downtown Manhattan to JFK in half an hour. Earlier this year, Pipistrel, based in Slovenia, announced an eVTOL using Honeywell avionics, and was among those chosen by Uber to develop an air taxi prototype. 10 B U S I N E S S AV I AT I O N A DV I S O R

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The electric VTOL Nexus is under development by Bell, which plans to make it available in key major markets “by the mid-2020s.”

In addition to these larger companies, small start-ups with big investors such as Joby Aviation, Volocopter, and Terrafugia (owned by Volvo), have similar programs under development. Business models range from app-based, on demand charter to subscriptions and shares. Where will these new electric vehicles take off and land? One answer is “Urban FBOs” or “Urban Skyports,” located on top of office buildings or parking garages, or in large open spaces in metropolitan areas. In June, Signature Flight Support and Uber Elevate announced a nationwide partnership, in which Signature will facilitate groundbased operations and Skyport infrastructure for Uber Air. Signature also will also be the ground-based operator for Uber Copter services, with a July 9, 2019 launch date. German start-up Volocopter announced plans for a network of “Volo-ports” – circular launchpads that project from atop skyscrapers, transporting “up to 1,000 passengers per day.” And Transcend Air and partner Indiana-based Lily Helipads have begun design on solar-powered “Vertipads,” initially to be located on urban waterfronts in NYC, San Francisco, Boston, and Montreal. Creating and safe-proofing all the other parts of an eVTOL system – including getting the ATC and airspace right and the regulations in place, will set the pace for the future of Urban Air Mobility. But within the next five years, for those who have the means and the desire, gridlocked ground traffic to the airport could be an outdated concept. BAA w w w. B i z AvA d v i s o r. c o m

BELL HELIC OP TER

BAA STAFF REPORT

■ AIRCRAFT SAFETY

Five Steps to Safer Flights NTSB Wants You to Know mandate a prescribed number of hours a pilot must be off work or resting. But whether or not the pilot actually rests is self-reported. And other aviation safety personnel are not regulated as closely. Although fatigue prevention is covered in flight training, Part 91 pilots have no such restrictions. See that your operation (or management company) implements and continually monitors a comprehensive fatigue-management training system for all personnel (See “Longer Flights, Safer Flights,” BAA May/June 2017). End Alcohol and Other Drug Impairment – Many commonly-used over-the-counter (OTC) and prescription drugs have side effects which can impair the pilot’s ability to fly, and may not be easily recognized. “The most commonly found impairing substance in fatal crashes,” reports the NTSB, “was diphenhydramine, a sedating antihistamine found in over-thecounter allergy, cold, and sleep-aid medications.” Since aviation accidents caused by impaired operators are completely preventable, require your pilots to be familiar with the Aeronautical Information Manual’s “I’M SAFE” checklist, to help them assess their readiness for flight. Create a culture in which all flight and ground crew members are encouraged to anonymously report concerns related to safety without fear of retribution. Improve the Safety of Part 135 Aircraft Flight Operations – While the FAA considers air taxi, charter and on-demand flights to be “commercial flights,” it does not require them to meet the same safety standards as commercial airlines. Whether you operate under Part 91 or 135, it is up to you and/ or your management company to ensure the highest level of safety for your aircraft, crew, and passengers by implementing a Safety Management System (See “Safety Guards,” BAA November/December 2016). Strengthen Occupant Protection – You, your passengers, and your crew can help avoid serious injuries by wearing seat belts or shoulder harnesses. Ensure that any children aboard your aircraft, even those younger than age 2 (who are not required to do so by law) be secured in their own seat by a child safety restraint system. Regularly review your evacuation and crashworthiness procedures with your crew and with frequent passengers. Train commercial flight and cabin crews in procedures to conduct timely and professional evacuations when conditions warrant. Taking these actions now will help ensure safety: every flight, every time. BAA

3 The National Transportation Safety Board (NTSB), charged by Congress to monitor, investigate, and report publicly on all civil transportation safety issues, also makes recommendations to guide the FAA’s regulatory efforts to prevent accidents, minimize injuries, and save lives. On the NTSB’s ten “Most Wanted List,” five items apply to aviation. What do you, your management company, flight crew, and passengers need to know, and what actions do you need to take now to be safe? Eliminate Distractions – The increasing use of personal electronic devices, the erroneous belief that performing pilot duties while multitasking is safe, and crew loss of situational awareness can be devastating. In 2014, the FAA increased “sterile cockpit” regulations, which prohibit distracting personal activities during critical phrases of flight, to prohibit on-duty pilots from engaging in nonessential communications, or using mobile phones, laptops, or tablets for personal use. These rules should be extended to all safety-critical personnel, including crew, maintenance technicians, and ramp workers. As an aircraft owner, you can institute a cultural norm in your organization that “texting while flying” is unacceptable. To paraphrase the old song, instruct your pilots to “Keep your mind on your driving, keep your hands on the yoke.” Reduce Fatigue-Related Accidents – Fatigue degrades the ability to be attentive to the demands of operating, directing, and maintaining aircraft. “Pilots and other aviation safety-critical personnel may not recognize the effects of fatigue until it’s too late,” says the NTSB. While fatigue often results from insufficient sleep, it also can be caused by medical conditions, stress, or unpredictable work schedules. Duty-hour regulations

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4 5

RYAN WAGUE SPACK is the Vice President of the National Air Transportation Association (NATA), and recently chaired its WorkForce Development Committee and Illegal Charter Task Force. He has 15 years in the business aviation industry.

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BY RYAN WAGUESPACK National Air Transportation Association / ryanw@nata.aero

D E D I C A T E D T O H E L P I N G B U S I N E S S A C H I E V E I T S H I G H E S T G O A L S.

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Learn more or apply for the CAM exam: www.nbaa.org/cam

■ AVIATION LAW

Taxing Relationships The New Tax Traffic Controller for Partnership/LLC Aircraft Owners BY DAVID N. CORKERN, J.D., LL.M.

o you own an airplane through a limited liability company that is treated as a partnership to preserve privacy, or to minimize tax or other liability exposure? Or in which the airplane is held in a partnership of all “natural persons” (i.e. human beings)? Regardless of the reason, you’ll want to be aware of the recent changes made to the way those partnerships/limited liability companies (LLCs) are treated by the IRS during an audit. In 2015, with the passage of the Bipartisan Budget Act, the U.S. Congress significantly revised the manner in which partnerships/ LLCs are audited. (While LLCs differ from partnerships under state law, they are treated and taxed as partnerships by the IRS, unless they have elected to be taxed as corporations. All references to “partnerships” in this article refer to such LLCs as well.) The IRS has issued regulations known as the Centralized Partnership Audit Regime (“CPAR”), effective for audits of partnership tax years beginning on or after January 1, 2018. The CPAR requires that all partnerships designate a “partnership representative.” This designation must be made for each tax year of the partnership and replaces the “tax matters partner” under the old rules. Unlike the tax matters partner, the partnership representative may be someone other than a partner. Do exercise caution when choosing your new partnership representative, since the IRS will not deal with any other person or entity in case of a tax audit. In addition, the CPAR gives the partnership representative greater powers than the former tax matters partner – to bind the partnership and all of its partners in negotiations with the IRS, notwithstanding any contrary provision in the partnership agreement. CPAR also changes the way in which tax adjustments are made. Prior to CPAR, if an audit resulted in additional taxes, penalties, and interest due for the audited tax year, those adjustments would have been made at the partnership level and each partner’s return also was adjusted. The net result of the pre-CPAR audit was that taxes, penalties, and interest were collected from those who were partners in the audited tax years. Now under CPAR, the IRS will assess all taxes, penalties, and interest against the partnership, which shifts the burden to current partners, and not to those who were partners for the years under review. For example, assume that “High-Flying, LLC” owns an aircraft. From 2012 through 2016, individuals A, B, and C were equal partners in High-Flying, LLC. When C sold his interest to D in January, 2017, D became an equal partner with A and B in High-Flying, LLC. 14 B U S I N E S S AV I AT I O N A DV I S O R

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If, after audit, the IRS determines that additional taxes are owed by High-Flying, LLC for tax year 2016, High-Flying, LLC will bear that cost, and D must pick up the tax tab for the former partner, C, absent an “opt-out” or “push-out election” discussed below. How can a new partner be protected from bearing someone else’s tax liability under CPAR? There are two ways to do so: ■■ First, a partnership with fewer than 100 partners and no ineligible partners (e.g., partnerships, trusts, and LLCs taxed as partnerships) may elect out of CPAR. This “opt-out” election is made yearly on the partnership’s tax return. ■■ Second, a partnership may use a “push-out” election to shift the tax audit adjustments to former partners. The “push-out” election also must be made yearly on the partnership’s tax return. If you are thinking of buying or selling an interest in a partnership or limited liability company that owns an aircraft, pay close attention to the shifting tax liability created by CPAR. These rules are somewhat complicated and it’s always a good idea to consult an expert before amending any partnership agreement to comply with CPAR. BAA DAVID N. CORKERN, J.D., LL.M. is an aviation attorney

at Shackelford, Bowen, McKinley & Norton, LLP. Licensed to practice in Texas, he also is recognized as a Tax Law Specialist in Louisiana.

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Shackelford, Bowen, McKinley & Norton, LLP dcorkern@shackelford.law

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AVIATION FINANCE ■

A Decade of Aircraft Finance Evolution Now is a Good Time to Buy BY FORD VON WEISE decade ago, the question of whether or not you could finance your business aircraft acquisition had a complicated answer. With the economic crash of ’08, the bubble burst and the lending industry became harsh, especially for what were deemed illiquid investments, including business assets such as aircraft. Unless you met the significantly increased financial requirements, encompassing net worth and capital liquidity, as well as having “investment grade” credit and a well-established relationship with the bank, then financing an aircraft likely wasn’t an option for you. Many banks raised interest rates across the board or got out of aircraft lending completely. This move was due to much tighter regulations that more than doubled the capital reserves requirement (new Basel III loan reserves), along with the quickly declining market value of both new and used aircraft. With these developments, coupled with heightened loan covenants (restrictions on borrower activities that could jeopardize their ability to repay), lending decreased and fewer transactions resulted. If you still pursued that aircraft investment, you either paid with cash, or waited for the aircraft market to shift again. That shift began taking place with the recovering economy. The demand for light and mid-size aircraft increased. New (non-bank) lenders began filling the space in the middle of the aircraft market, capital started flowing back into aircraft finance, and loans on aircraft once again became an appealing investment. The diversity in lenders brought diversity in financing options, and opened up the aircraft market to older models (although mandatory avionics technology upgrades – cost-prohibitive for some – now had to be considered). More customized financing, in the form of capital leases, operating leases, or traditional loans with varied terms, became available. The big banks leaned toward financing new or “like new” aircraft with secured loans, while non-bank lenders trended toward more varied aircraft and types of loans. Credit quality, along with the aircraft’s residual value, still were big factors for both. However, credit requirements lessened and residual values rose, preparing the aircraft lending market to take off. It wasn’t an awful time to buy a business aircraft anymore, but it also wasn’t the best, yet. The big variable in financing terms had to do with the unpredictability of aircraft residual values. While it became easier to w w w. B i z AvA d v i s o r. c o m

know what an aircraft was worth (compared to the years following the recession), residual values still were inconsistent. This situation was largely informed by the increasingly faster technology cycles in avionics, combined with new manufacturers’ discounting. Because banks look at an aircraft as an asset and need to secure collateral for its underlying worth, the make, model, and technology with which it is equipped (among other factors) influenced residual value and financing terms accordingly. Demand for business aircraft continued to grow, along with financing capital in the aircraft finance market. Combined with more varied loan options and increasingly favorable terms, competition in the space soared. Banks revised their risk acceptance criteria in order to buy more volume, reducing financial requirements even more. Now, with lower interest rates, lower market values for business aircraft, mostly stable residual values, and an increasing number of buyers, “covenant light” transactions are increasing. The developments in the aircraft finance market during the last decade may be complicated. Yet the question of whether or not to buy a business aircraft no longer is complicated: there’s no better time to buy! While we’re not back to the crazy deals of non-recourse lending seen prior to ’08, there’s little reason to wait to make an investment in business aircraft. However, borrow with caution. If you’re on the verge of acquiring a business aircraft, be sure to seek a lender with aviation specialization. BAA FORD VON WEISE is Global Head of Aircraft Finance, Citi

Private Bank. With 34 years in business aviation, banking, and finance, he’s flown 2,500+ hours privately and for the US Coast Guard Auxiliary and Civil Air Patrol.

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Citi Private Bank / ford.vonweise@citi.com

■ WASHINGTON REPORT

Time for a New FAA Leader The Senate Needs to Confirm Stephen Dickson as FAA Administrator BY DAVID COLLOGAN ith all the questions and concerns about how FAA came to certificate the flawed Boeing 737 MAX aircraft, the agency desperately needs a new Administrator to implement changes and help rebuild the agency’s reputation. Ideally that person would have an impeccable background in aviation, with a strong focus on operational safety. Management experience in a large organization would be another big plus. Remarkably, President Trump nominated someone with all those qualities, a veteran pilot for Delta Air Lines named Stephen Dickson, a 1979 graduate of the U.S. Air Force Academy. Dickson spent 12 years as an Air Force officer and joined Delta in 1991. He flew both Boeing and Airbus models, and even earned a law degree from Georgia State University College of Law in 1999. While continuing to fly for Delta, Dickson also began working in management in 1999. He rapidly moved up the org chart and was named Senior VP-flight operations in 2006, a post he held until retiring in 2018. With a stellar resume, nearly a decade of service on the NextGen Advisory Committee, and strong support from the aviation community, Dickson’s nomination seemed poised to sail through the Senate Commerce Committee following his May 15 hearing before the panel. But in early June, a Washington-variety banana peel landed in his path. News accounts detailed a lawsuit against the carrier by a female Delta pilot claiming the company had “retaliated” against her for raising safety concerns. A Labor Department administrative law judge is adjudicating that legal action. Dickson is not a defendant, but did give a deposition in the case. When news media reports linking Dickson’s nomination and the suit appeared, the Commerce Committee postponed a vote on Dickson and set out to collect more information. Testimony from the DOL proceedings shows that the veteran pilot in question was well known to Delta’s Flight Operations Department senior management, because she kept seeking them out over a period of years. She was tenacious about expressing her views, whether complaining about what she considered unfair treatment or advocating for safety initiatives. By early 2016, Flight Operations management became concerned about whether her inability or unwillingness to comply with certain policies could lead to operational issues in the cockpit. (Mental fitness of airline pilots was a concern of many airline officials at that time. On March 24, 2015, the copilot on a Germanwings A320 locked the captain out of the cockpit during a flight and purposely crashed the airplane into the Alps, killing all 150 18 B U S I N E S S AV I AT I O N A DV I S O R

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Senate Commerce Confirmation Hearing for Stephen Dickson to be FAA Administrator.

people aboard. The co-pilot had been diagnosed with depression but had not shared that information with his employer). The growing concerns about the Delta pilot’s mental state led to a senior female member of Delta’s Human Resources department flying from Atlanta to Seattle to interview the pilot. Upon returning, the HR representative told colleagues she was very concerned about the pilot’s demeanor, particularly her fears something bad was going to happen to her. Ultimately, Delta moved to a Section 15 proceeding (outlined in the Collective Bargaining Agreement). Delta’s health services, legal, HR, and other departments were part of the process. The pilot was referred to a psychiatrist and removed from flight status. After 18 months on the ground (during which time the pilot continued to receive pay and benefits), the company agreed to reinstate her to flight status. She later filed the suit against Delta and continues to fly for the airline. Nothing I saw in scouring hundreds of pages of testimony in the DOL case suggests anyone at Delta had a vendetta against the pilot. But officials did have a responsibility to investigate whether that pilot could still be trusted to safely fly a plane. Dickson’s tangential involvement in that process should not prevent his confirmation as FAA Administrator. BAA DAVID COLLOGAN has covered aviation in Washington, DC

for more than four decades. This award-wining journalist is known as one of the most knowledgeable, balanced, wary, and trusted journalists in the aviation community.

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GE T T Y IM AGES

dlcollogan@gmail.com

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