MAY / JUNE 2018
Global Reach Fifteen tips for effective international travel
NBAA’s CAM Program Certifying the future of business aviation
MOVIN’ ON UP CAPITALIZING ON THE TCJA THE “ACCESS ECONOMY” UNCERTAINTY REIGNS 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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• Volume 5 / I s sue 3
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6
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F E AT U R E S
Global Reach 06 Fifteen tips for effective international travel
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The “Access Economy”
by M I C H AE L T. A M ALFITANO, S R .
by S TE V E V E D E S K A S
NBAA’s CAM Program 08 Certifying the future of business aviation
BizAv responds to younger users
D E PA R T M E N T S
by T. JA M E S BU C H AN AN , C A M , C . P. M .
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Movin’ On Up
Publisher’s Message 05 Expertly APPlied
by G IL WOLIN
by G IL WOLIN
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Capitalizing On The TCJA
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Washington Report
New tax laws may spur new financing
by A M AN DA APPLEG ATE
by DAVI D COLLOG AN
Business aviation for beginners
Uncertainty reigns
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Want to Learn More About Your Investment In Business Aviation? Join us for Business Aviation Advisor’s exciting new webinar series, on the business of owning and flying business aircraft – from entry portals, to acquisition and operations, to management, insurance, finance, and more.
BUSINESS AVIATION ADVISOR
2018 WEBINAR SERIES The Information You Need, From Experts You Can Trust
Pre-register or find out more at www.bizavadvisor.com/webinars w w w. B i z AvA d v i s o r. c o m
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Learn why savvy owners are turning to operating Leases.
An operating lease is a popular financing tool that can provide you with the benefits of a private aircraft without the traditional risks of aircraft ownership. There are several different options, but in each case you do not take ownership of the aircraft, but have the full use of it as if you did. Plus instead of a large down payment, you put down a more modest security deposit and return the aircraft at the end of the lease term to Global Jet Capital. You can choose to: · Enter into a sale and leaseback arrangement for your current aircraft · Identify a new or pre-owned aircraft for us to purchase · Assign your purchase contracts to us for your new, on-order aircraft
Balance Sheet Assets:
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Allocation of Capital
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Off Balance Sheet
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LEASING & LENDING SOLUTIONS FOR PRIVATE AIRCRAFT
Easily adjust to changing needs
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 Michael T. Amalfitano, Sr. Embraer Executive Jets michael.amalfitano@embraer.com Amanda Applegate Aerlex Law Group aapplegate@aerlex.com T. James Buchanan, CAM, C.P.M. National Business Aviation Association cam@nbaa.org Steve Vedeskas Gama Aviation Signature Gil Wolin Business Aviation Media, Inc. gwolin@bizavadvisor.com BUSINESS MANAGER JoAnn O’Keefe jokeefe@bizavadvisor.com 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.
Expertly APPlied Business aviation travel is on the rise again. The reasons are manifold: an improving economy, coupled with continuing decline in the scope and quality of commercial airline service. You may have noticed this trend within your own circle of associates and friends who increasingly are asking about your use of business aircraft. We’re seeing it here at Business Aviation Advisor, too. Our first informational webinar, BizAv 101: Moving from Business Class to Business Aviation, drew attendees from all corners of the globe – executives and high net worth individuals seeking more control over their travel schedules and in-flight comfort (see page 10 for an abridged version of the webinar text). Aviation and data safety auditor Argus’ numbers for March confirm that business aircraft flight activity overall saw a 12.5% month-to-month increase over February. All segments and categories experienced that increase, with fractional flying up 13.4%, owner flying up 13.3%, and charter flying 11.1%; and with light jets up 13.4%, mid-size cabin jets up 13.1%, and large cabin aircraft up 9.8%. Turboprop flying increased as well, by 12.8%, fueled in part by the growing acceptance of fleets operated by Wheels Up and PlaneSense. The year-over-year gain was strong too, with March 2018 up over last March by 2.6% across the board, with charter showing the largest gain, 7.7%. The upside to this growing demand is a healthy industry, with fixed costs spread over more annual flight hours, helping to keep total operating costs lower for owners and charter users. The downside? The surge in demand, combined with easily accessed internet technology, has enabled a wide range of new aviation service providers to set up shop online. Using elaborate websites, these often-anonymous brokers and consultants promote their “expertise,” based on dubious credentials and experience. It’s not just happening in business aviation. The glut of information now available and accessible online 24/7 gives some the impression that anyone can be an “expert” with the click of a mouse or swipe of a smartphone screen. Professor Tom Nichols drills into this phenomenon in his 2017 book, The Death of Expertise, a fascinating read about the impact of information overload, the result of which is a devaluing of real expertise. The “Universities” of Google and Wikipedia have spawned quasi-experts offering opinions and services based on algorithms and internet search engines, rather than on actual experience and careers devoted to developing a knowledge base and successfully applying it. So don’t be fooled by that shiny new aviation “app.” Do the research behind that online company before stepping aboard. Because when it comes to flying, selecting and vetting the best service provider – be it charter, fractional, or a management company – continues to be YOUR responsibility. Your life depends on it.
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 2018 by Business Aviation Media, Inc. All rights reserved
Gil Wolin — Publisher gwolin@bizavadvisor.com
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■ FLIGHT OPERATIONS
Global Reach Fifteen Tips for Effective International Travel
Gama Aviation Signature
Your long flight across the globe was safe, comfortable, and productive. Will you find yourself waiting – and waiting – at your destination airport for parking and customs clearance? How can you avoid costly errors? When flying from the U.S. to other parts of the world and vice versa, use these tips to guide you and your flight operation.
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Plan Ahead
Local knowledge/assistance is critical – The rules that governed your last trip may no longer apply, so hiring an onsite contact with local knowledge of current business aviation regulations not only is useful, it’s essential. Regulations change frequently – Formerly, a business aircraft flying to China needed a local sponsor – a government agency or domestic business – to meet the passengers. The Civil Aviation Administration of China would determine whether the arriving aircraft’s business in China was acceptable. While the CAAC no longer requires sponsorship, all trips still require permits and visas. Cuba requires that you have a sponsor to vouch for your legitimate business reason for travel before 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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customs will issue a visa, and the U.K.’s Air Passenger Tax now requires an operator to have a local representative capable of paying this tax directly to Her Majesty’s Revenue & Customs Agency. Permit acquisition times can be long and costly – When a country indicates “three working days are required to secure an arrival permit,” be aware of what that means. For example, with a three-day national holiday the first week of April, obtaining a permit in China could take six days. A relatively simple recent seven-hour flight from Europe to South Africa required eleven different permits. And be aware: some permitting is very expensive. For example, landing in Johannesburg’s main airport could cost $12,000. You may prefer to opt for a different airport with less onerous fees. Regions matter – The U.S., Canada, the Caribbean, and Mexico currently are the easiest regions in which to operate, with Europe close behind. Often as few as 24 hours or one working day is required for permitting, particularly for owner flights. Canada, Mexico, and the Caribbean require simple notification prior to departure, provided customs is available at your destination airport. And operating N-registered aircraft in other parts of the world typically is easier than operating with a foreign registry in the U.S. or in many other parts of the world.
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When You Land
Customs and security – At some airports, like the U.K.’s Farnborough, customs officials will meet your aircraft at the ramp and clear you there. Most others require that you deplane, go to the customs facility, and perhaps w w w. B i z AvA d v i s o r. c o m
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Use your personal connections – By using your own local business contacts, you may have more influence than the flight operation or dispatch team to secure the necessary arrival and departure permits at your destination. Locally based family offices and other local sponsors also may be able to help. Are you flying your own aircraft, or flying charter? – Owner flights are easier, take less time, and allow greater permitting flexibility than do charter flights: 24 to 48 hours versus several working days to a week. Customs and security screening on charter flights usually are much more meticulous than on owner flights. So when flying charter, allow extra time to deplane. Fractional owners normally are treated like whole aircraft owners. But in some countries, you have to prove that you are traveling on the aircraft in which you own a share. If that’s not so, your flight will be treated like a charter. Cabotage rules – In many countries, including Canada, China, and Thailand, multiple stops within a single country are not permitted. You can fly in and fly out, but since only locally registered aircraft are permitted to fly point-topoint, you may need to charter from a local company to fly within such nations. Possible disruption – Whether it’s weather or a higher risk of terrorism, corruption, crime, or disease, before departing for international destinations, pay special attention to the local news and weather. Always check to see if your destination has special precautions at this State Department site: www.travel.state.gov/content/travel/en/traveladvisories/traveladvisories.html Staying connected – When flying intercontinentally over water, you’ll need a satellite-based service – Inmarsat, Viasat, or Satcom Direct – to stay connected throughout your flight. Since network security is questionable over certain countries, use caution. And monthly data costs can run into the tens of thousands of dollars. To control costs and provide more security, you may opt to stick to text messaging while in flight. Make sure you’re insured – While you may be fully covered for all travel in the U.S., before you fly, check with your insurance carrier to determine that your coverage meets all local requirements at your specific international destinations. Insure your own good health – Plan months in advance for anticipated health needs, such as required immunizations. Also, verify that your regular medications are legal at your destination, and take steps to minimize the effects of crossing multiple time zones (see: “When You Can’t Just Fly Home,” BAA Nov/Dec 2015).
even stand in line with the arriving commercial passengers. Outbound customs clearance usually is less onerous in all countries. Parking restrictions – When flying internationally, particularly to Asia, your aircraft may be prohibited from remaining overnight at your destination airport. Some airports allow only a specific maximum number of hours parked, requiring the aircraft to reposition elsewhere, and return only to pick you up for your return flight. Others may permit a limited number of stage flights within the country before requiring your aircraft to leave the country’s airspace. Respect, and be aware of, the local culture – Dress appropriately, and recognize that sandals showing bare feet, a baseball cap, or chewing gum might cause offense. In Europe, shorts and running shoes are not usually seen outside of the gym. When traveling within a Muslim country, women passengers and pilots may wish to don a hijab, even where it is not mandatory. But not all local practices are legal. In some regions, officials may expect extra payment for services that are routine elsewhere. These handouts can be very expensive, and may be a violation of the Foreign Corrupt Practices Act. Use your trustworthy local contact to guide you. Getting to your final destination – When you have a choice of airport, consider ground transportation availability. For example, Tokyo’s Haneda Airport is closer to downtown, but driving downtown can take longer than landing at the suburban airport, Nagoya, then taking the bullet train. China is close to the size of the U.S. in area, but has only 30 to 40 airports (compared with 5,000 in the U.S.) that can accommodate a business jet. While China has some helicopter service, it is not available for transients – that’s you. In China, the lowlevel airspace is not open for private use at all. So you’ll either be driving or taking a high-speed train, which has no first-class compartments. Advance planning and a trusted, onsite contact can help ensure that your international travel is efficient, smooth, and trouble-free. BAA
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STEVE VEDE SK AS heads Operations for Gama Aviation Signature, a worldwide business aircraft charter, management, and maintenance company. With more than 30 years’ experience in flight operations, and account management, he holds commercial pilot and dispatch licenses.
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■ FLIGHT OPERATIONS
NBAA’s CAM Program Certifying the Future of Business Aviation BY T. JAMES BUCHANAN, CAM, C.P.M. National Business Aviation Association / cam@nbaa.org
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s a business aviation user, you already know its value: the highest levels of safety, security, and discretion. How can a professionally led flight department add value to your company? Aviation consultant Pete Agur says, “Good leadership means respecting the professionals you hired.” (see “Who’s the Boss?” BAA Sept/Oct 2017). “Professional” is the watchword here. You employ professionals to manage your accounting, legal, and sales departments. You use professional practitioners for financial and medical services in your personal life. But have you considered the professional status of your business aviation team? Recognizing the need for professional certification in business aviation, the National Business Aviation Association (NBAA) developed the Certified Aviation Manager (CAM) program to identify qualified professionals to lead departments and organizations that use business aircraft. Itself accredited by the National Commission for Certifying Agencies, the CAM program provides an objective, third-party review of its certificants, and is designed to protect the interests of all stakeholders in business aviation. Since 2003, more than 400 aviation professionals have earned their CAM certification. Job Analysis What knowledge, skills, and abilities must a person demonstrate to become a CAM? Through its CAM Governing Board, the NBAA sponsors a periodic job analysis study, obtaining input from business aviation subject matter experts, practitioners, and educators to specify the CAM knowledge domains: ■■ Business Management: aviation department structure, financial processes, information safeguards, and social responsibility. ■■ Human Resources: staffing, compensation, training, and human factors. ■■ Leadership: vision, ethics, mentoring, self-development, and innovation. ■■ Aircraft Maintenance and Facilities Operations: aircraft and hangar maintenance, emergency preparedness, and facility security. ■■ Operations: planning and conducting flights, regulatory compliance, international standards, safety management, and aviation operational security. Exam, Education, and Experience The competency-based, criterion-referenced CAM exam’s content is aligned with the job analysis study. Exam performance is 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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evaluated using a statistically determined standard – based on measurements of knowledge, attitudes, and behavior – to determine the applicant’s suitability as a professional aviation manager. Certification is dependent both on exam results and on experience, training, and the specific aviation licenses and certificates held. Professional Principles and Values CAM certificants commit to observe professional principles and values, with personal integrity at the core. Together, the first letter of each CAM value spell “SERVICES”: ■■ Safety: I will maintain the highest standards for safety of personnel and equipment at all times. ■■ Efficiency: I will strive to achieve the most efficient and costeffective means of accomplishing my employer’s mission. ■■ Relevance: I will seek to maintain the most relevant expertise needed by my employer and reach the highest standards possible. ■■ Vision: I will maintain a vision that supports the highest standards of accomplishment for my company and industry. ■■ Integrity: I will strive for the highest level of integrity without compromise while accomplishing my duties. ■■ Commitment: I will demonstrate the highest level of commitment to fulfilling my job duties with distinction. ■■ Excellence: I will seek excellence in all aspects of mission accomplishment within my realm of responsibility. ■■ Security: I will maintain the highest levels of security and comfort for all involved in my sphere of influence. For Business Aviation Users Professional growth does not stop with attainment of the CAM credential. Certificants must complete continuing education to be recertified every three years. In conjunction with the recurring job analysis survey, both certificants and the CAM program itself grow with the evolving business aviation industry. For business aviation users like you, CAM is a tool to conduct succession planning for future leaders. For certificants, it is added motivation to continue professional development and stay at the top of their field. Wise business aviation users encourage professionalism in all their spheres of influence, and there is no better way to do so in business aviation than with CAM.BAA T. JAME S BUCHANAN , CAM , C .P.M . , is responsible for
aviation support services as Director-Flight Operations Administration for a Fortune 500 business aviation department. An experienced business manager, Jim serves as chair of the CAM Governing Board.
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■ INDUSTRY UPDATE
Movin’ On Up Business Aviation for Beginners
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re your colleagues interested in learning more about business aviation? This article, drawn from BAA’s recent webinar: “Moving from Business Class to Business Aviation,” provides an introductory overview that you may wish to share. As you consider a move from business class to business aviation, what do you need to know?
BizAv Offers Many Compelling Benefits
■■ Saving
time – the only one truly non-renewable resource.
■■ Control of your schedule – Business aviation enables you to
fly not only where you want to go, but when you want to go. You set the schedule, based on when you want to depart, but more often based on when you want to arrive. ■■ Reach remote and rural areas – In the U.S., commercial airlines serve 514 airports, while 5,000+ airports can accommodate business jets and turboprops. With the aircraft at your disposal, you can reach multiple destinations in one day – and 38% of business aviation trips involve multiple destinations. ■■ Responsiveness – BizAv allows you to respond to opportunities – or crises – anywhere in the world at virtually a moment’s notice, or get your key marketing and sales executives where they need to be to close the deal or manage existing client relations. 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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■■ Privacy and security – On many commercial flights, you can
use mobile devices, including your phone, in flight. Business aircraft offers you privacy, and because your travel security is assured, travel time becomes productive worktime.
Is BizAv Appropriate For You?
Start with a simple analysis of your travel requirements, using these four primary considerations: ■■ How much you fly – What are your primary, regular destinations, and how often do you fly to each annually? That will determine the number of hours you (plan to) fly on a regular basis. Then add occasional or projected new destinations, and the frequency to each. ■■ Where you fly – Do any of your final destinations have unusual restrictions, such as runway facilities with limited operational capabilities? Are the runways limited to a specific size/ performance aircraft? Or are there landing restrictions, such as curfew for limited night visibility? ■■ Who/what will accompany you on each trip – What is your anticipated typical passenger load and/or baggage and equipment load, such as specialized instruments or small machinery? ■■ Your requirements for cabin comfort – Will you need a cabin with stand-up headroom? Sleeping facilities? A full galley for hot meal service? Collecting these data, in addition to the number of hours you’ll w w w. B i z AvA d v i s o r. c o m
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BY GIL WOLIN Business Aviation Media, Inc. / gwolin@bizavadvisor.com
fly annually, will help determine the size of aircraft you’ll need and the best portal to meet your travel requirements.
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PIL ATUS AIRCR A F T LTD
Your Portals into Business Aviation
While there are many types of programs, there really are only two portals into business aviation: rent or own. The preliminary analysis you’ve just completed will help to indicate which is appropriate for you. Generally, if you’ll be flying less than 200 hours, you’ll likely look at renting: that is, single-trip charter, block charter, or a jet card program. For more than 400 hours, you’ll likely consider full aircraft ownership. In-between options are a fractional share, shared ownership, or fully managed ownership, making your aircraft available for charter when you are not flying. ■■ Charter – When you charter an aircraft, you rent the aircraft and crew for a specific trip and time period. As most charter aircraft have a home base, you’ll pay for the aircraft to fly to you, fly your trip, and then return to home base. Therefore, it’s prudent to rent an aircraft based at or near your home airport. Most charter trips are charged by the hours flown, and most operators require a minimum charge of two flight hours per day. So, if you charter the aircraft for four days, but fly only six hours, you’ll pay for eight hours of flying, plus landing fees, ground transportation, and catering; and crew expenses such as hotel and meals. ■■ Jet card – Today’s Jet Card, formerly known as “block charter,” offers a per-hour discount for the pre-purchase of a minimum number of charter hours in a specific time period. Operators will sell Jet Cards for flying on their own fleet of aircraft. Some brokers offer their own branded Jet Card, with the same kind of guaranteed rate and availability. With a Jet Card, you pay only for the hours that you are actually onboard the aircraft, with no positioning charges. Those anticipated costs to position the aircraft, crew expenses, etc., are built into the hourly rate you will pay, so you can expect it to be higher than the perhour charter cost. ■■ Fractional – With fractional ownership, you purchase or lease a percentage of one of the aircraft in the operator’s fleet. Then as you fly, you pay an hourly fee for the hours actually onboard the aircraft. Fractional operators assume that a fleet aircraft will fly 800 occupied hours annually. Typically, the smallest share you can own or lease is one-sixteenth of a specific aircraft, entitling you to fly 50 hours per year. You accrue all the tax and other financial benefits of your capital investment. Because the fractional fleet “floats” – that is, the aircraft have no home base – when you book a trip, you usually won’t be flying on the aircraft in which you own a share. Instead, you’ll fly on the aircraft the operator brings in, usually the one nearest you. ■■ Ownership – Once your flying approaches 400 or more hours a year, you may consider purchasing a whole aircraft. The recent change in U.S. tax laws and the ability to depreciate 100% of the aircraft in the first year may influence your decision. Whether you plan to purchase a new or a pre-owned aircraft, you must decide whether to establish your own independent
flight department, or to hire a management company to manage your aircraft for you. Each involves significant benefits, disadvantages, and costs.
Safety and Regulations
Whichever portal you choose, ensuring your safety is your responsibility. As an owner, you’ll hire the most qualified crew and technicians, see that they receive regular recurrent training, and meet the highest safety standards. When using charter or a jet card program, you must do sufficient due diligence about the operator and its safety record. Many fine, reputable, and experienced charter brokers are available to serve you. But be aware: charter brokers are not regulated by any government agency. The rapid growth of the internet has spawned dozens of faceless apps offering convenient flights at great prices. Shopping for charter using an app provides minimal opportunity to review the operational safety record and capability of the operator. Before a booking a charter trip, make sure that the aircraft provided meets the safety standards of at least one of the three major recognized charter safety auditor companies: Argus, Wyvern, and the Air Charter Safety Foundation (ACSF). Each has specific operational standards which the operator must meet to earn their endorsement. A company that is regularly audited and rated will provide you with another layer of care. For more information about safety, portals, aircraft management, and more, visit www.bizavadvisor.com and click on “Featured Articles.” 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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■ AIRCRAFT FINANCE
Capitalizing On The TCJA New Tax Laws May Spur New Financing BY AMANDA APPLEGATE ow will the Tax Cuts and Jobs Act of 2017 (“TCJA”) affect business aviation lending? And what does this mean for you? ■■ A surplus of capital/available funds will be created for many corporations by the decreased corporate tax rate. In 2017, C corporations were subject to graduated tax rates of 15% for taxable income up to $50,000, 25% (more than $50,000 to $75,000), 34% (more than $75,000 to $10,000,000), and 35% (more than $10,000,000). Beginning with the 2018 tax year, the corporate tax rate is a flat 21%, and the corporate alternative minimum tax is eliminated. ■■ Bonus depreciation has increased from 50% to 100% on equipment, including aircraft. Depending on ownership structure, if you use your aircraft for business purposes, you may be able to immediately write off the entire cost of an aircraft acquired and placed into service (e.g., flying at least one qualifying business trip) after September 27, 2017, and before January 1, 2023. For tax years after 2022, there is a gradual phase out of bonus depreciation by 20% each year for five years. In addition, bonus depreciation under the TCJA applies to both new and pre-owned aircraft, as long as the aircraft is used for business purposes. Note that, for the next five years, aircraft used for business purposes qualify for 100% deductions in the cost of ownership for both new and preowned aircraft. ■■ Under the TCJA, you will no longer be allowed to defer taxable gain on the sale of aircraft through the use of a like-kind exchange. Starting in 2018, the taxable gain on the sale will be subject to immediate recapture for tax purposes. However, if an aircraft, new or pre-owned, is purchased in the same year as the sale, and you are able to take advantage of bonus depreciation, then you may be able to reduce or eliminate the overall tax impact of the aircraft sale. The elimination of like-kind exchanges became effective on January 1, 2018 and is a permanent repeal. The National Aircraft Finance Association (NAFA) lender members are already noticing some definite trends after the passage of the TCJA. ■■ Lenders offering tax leases expect their lease portfolio to grow. Although many clients will not be able to take advantage of the 100% depreciation under a tax lease, the lender can benefit in this circumstance. Lenders are investing more resources, including more robust modeling systems to predict aircraft depreciation, in order to develop better lease offerings. Furthermore, some lenders who had stopped doing leases altogether are now advertising a lease option for the first time in years. 12 B U S I N E S S AV I AT I O N A DV I S O R
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■■ A number of corporate clients have evaluated the impact of the
TCJA on their individual situations and are now considering replacement aircraft, whereas such a consideration had been on hold in years past. ■■ There is an increase in activity from current aircraft owners who own personally and are now seeking to upgrade to a newer aircraft – perhaps a result of both the strong economy and the decrease in taxes under the TCJA. If the TCJA does stimulate economic activity, rising interest rates may follow, a significant change for lenders and borrowers since we’ve had historically low rates for the last six years. Some NAFA lenders indicate that higher rates may lead to more aircraft financing opportunities. They reason that businesses and individuals who have used the liquidity on their balance sheets to selffinance investments may now look to leveraging an asset like an aircraft and deploying that liquidity into new investments. While it is too early to speak with any certainty, it appears that there is a strong likelihood of more aircraft financing in 2018, including tax leases, as a result of the TCJA. BAA AMANDA APPLEGATE is a Partner at Aerlex Law Group.
Applegate has focused on private aviation law for the past 20 years, representing aircraft owners, flight departments, lessees, borrowers, lenders, fractional owners, purchasers, and sellers.
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Aerlex Law Group / aapplegate@aerlex.com
IGNITING IDEAS.
PROVOKING CHANGE.
8TH ANNUAL JETNET iQ GLOBAL BUSINESS AVIATION SUMMIT NEW SEASON. NEW VENUE. NEW DATE. June 19-20 | The Ritz-Carlton New York, Westchester Three Renaissance Square, White Plains, NY Registration: jetnet.com/summit Join us this June in White Plains. 2018 Summit speakers and panelists will represent a virtual “Who’s Who” of business aviation—experts with unique perspectives on the industry’s present and future. Share the room and ask questions of global leaders, and sharpen your firm’s competitive edge with accurate and timely predictions. Register now online. 2018 Keynote Speaker: Brian E. Barents, Executive Chairman and CEO of Aerion Corporation; former President and CEO of Learjet and Galaxy Aerospace
The World Leader in Aviation Market Intelligence 800.553.8638 +1.315.797.4420 +41 (0) 43.243.7056 jetnet.com
■ INDUSTRY UPDATE
The “Access Economy” BizAv Responds to Younger Users
BY MICHAEL T. AMALFITANO, SR. Embraer Executive Jets / michael.amalfitano@embraer.com
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■■ More durable interiors – Transient use by multiple users re-
quires sturdier materials, and greater ease of maintenance. Because of the rapid turnaround required, when something breaks, it has to be able to be repaired more quickly and easily. ■■ Improved connectivity – (see “1-2-3-4 Connect!” BAA, March/April 2018). ■■ Ease of booking – The rise of online booking now enables nonowning users to locate, purchase, and book travel on business aircraft. So a larger percentage of aircraft currently in production will be sold to fleet operators, who then will market their use through charter, shares, etc. to satisfy the growing demand of this new generation of users. This is a key driver in the current recovery of the demand for charter services. ■■ New financing leasing models – A willingness of the aircraft finance industry to offer operating leases for shares as well as for whole aircraft, fueled in part by the new U.S. tax laws. Greater participation of the finance industry, as in the commercial aviation market, supports these relatively new and hybrid business models. What Do These Changes Mean for You? Although fractional aircraft shares have been available since 1986, and jet cards since 2001, the upsurge in sharing programs has grown exponentially in tandem with universal internet use: just part of business aviation’s own technological transformation. If your current aircraft is of the latest generation, designed for high utilization and high availability, environmentally friendly, and equipped with the latest navigation and connectivity technology, then consider yourself fortunate: broader revenue opportunities now await in the Access Economy. BAA MICHAEL T. AMALFITANO, SR . is President and CEO of Embraer Executive Jets. With 36 years of financial services experience, he formerly held senior positions at Stonebriar Commercial Finance and Bank of America Merrill Lynch.
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nce intrinsically linked to the business cycle, business aviation is witnessing a dramatic shift in demand. The needs and preferences of a new, younger generation of business aviation users are driving changes in the way aircraft are being designed, built, sold, and used. And the expectations of NextGen bizav travelers, who are used to the so-called “Sharing Economy” — a willingness to share the financial cost of owning and/or operating an asset – are contributing to the disruption of the business aviation industry. Welcome to the “Access Economy.” What Are the Key Drivers for This Younger Generation? ■■ They prefer to hire aircraft services rather than buy aircraft. Analogous to ride-sharing or subscription models in the automobile market, this generation doesn’t feel a need to own — at least not yet. ■■ They want more for less: lower costs of flying, coupled with higher expectations for a superior experience. The decline in the quality of commercial airline travel makes bizav use more attractive for those willing to pay for it. ■■ An increasingly distributed workforce sometimes requires face-to-face meetings, even with plentiful online communication services. ■■ State-of-the-art continual connectivity and technology, for unrestricted use of social media and communications apps equal to on-ground. Integration of mobile devices with inflight entertainment; seamless cabin assimilation; mobile-app-driven cabin management technology; 360-degree ergonomic, entertainment, and environmental controls. ■■ A desire to make a smaller carbon impact. Sustainable aircraft and engines with low noise and emissions levels make flying a more socially acceptable experience. How Is the Industry Responding? ■■ Changes in aircraft design and use – The past decade of downturn gave manufacturers the opportunity to invest in and improve aircraft. Today, they are building more durable airframes, engines, and operating systems, enabling aircraft to fly more hours per year with less maintenance. Avionics and navigation equipment are more sophisticated. Aircraft can carry more fuel and go further, more efficiently. Even entry-level aircraft now offer improved performance and economics, which makes business jet travel available to a wider market. ■■ Aircraft will be flying more – Whereas a typical owner flies 200-300 hours a year, these fleet airplanes will fly at least two to three times that number annually.
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Learn more or apply for the CAM exam: B U S I N E S S AV Iwww.nbaa.org/cam AT I O N A DV I S O R Ma y/Ju n e 2 018
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■ WASHINGTON REPORT
Uncertainty Reigns The President’s Policy Flip-flops & Leadership Vacancies Are Bad for Business
BY DAVID COLLOGAN onald Trump on the campaign trail touted his success in the business world, and his desire to “Make America Great Again.” But his unconventional management style and always-subject-to-change decision-making is causing headaches and confusion for businesses across the country. Following passage of major tax overhaul legislation and adoption of an omnibus federal spending bill it seemed – for a month or so – that the national economy was poised for a robust continuation of strong growth and rising profits. But then, Trump began tweeting and talking about his plans to impose tariffs on steel and aluminum imported from other nations. The prospect of trade wars with major trading partners is generating fear and anxiety across the land as owners of businesses large and small worry about how U.S.-imposed tariffs will boost the cost of their foreign imports and jack up the prices charged for “Made in America” goods sold overseas. Trump started sounding off about tariffs just a few weeks before the annual Asian Business Aviation Conference & Exhibition (ABACE) in Shanghai. There were 30 aircraft on display and the April 17-19 event attracted nearly 200 exhibitors. But it is challenging to keep a conversation with potential customers focused on how great the product is when everyone is mentally calculating the amount of the tariff it may carry. And that budget deal funding agencies through the end of the fiscal year? Within weeks of signing the legislation, Trump was complaining about many of its provisions and threatening to claw back billions of dollars from a range of programs he considers non-essential or wasteful. Attempting to actually do so will provoke intense opposition from Democrats, and consternation from Republicans who are weary of seeing Trump change his mind about something after a deal has been agreed to and legislation signed. Getting the tax and budget bills enacted should have been a demarcation point for the business community, providing a new road map and some certainty about government spending and tax policy. For the nation’s chief executive to quickly begin signaling a change of mind is counterproductive, and indicative of someone who does not appreciate the country’s need for clear economic direction and due process. Trump also is making it difficult for the business community to interact with his administration because so many key positions remain vacant. That is certainly true at FAA, where former Administrator Michael Huerta stepped down Jan. 6 when his 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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five-year term expired. As of late April, Trump had not nominated anyone to succeed Huerta. So, an agency with 47,000 employees providing critical air traffic control services to tens of thousands of flights every day is headed by an “acting” administrator, an “acting” deputy administrator, and an “acting” chief of staff. The thousands of dedicated FAA employees know their jobs and will keep performing them. But in every organization, the work force wants to know who is in charge long term. It is also important for FAA’s top executive to maintain an ongoing dialogue with aviation industry leaders. But Dan Elwell, who was confirmed as deputy administrator last year, has kept a remarkably low profile as the acting administrator. That may be a prudent course for someone who many in the industry believe will eventually be nominated for the post of FAA Administrator (see “New Leadership for FAA,” BAA Jan/Feb 2018). Why run the risk of saying something controversial that might upset Trump or generate opposition during the Senate confirmation process? As a result of Trump’s inaction, the top post at FAA – like hundreds of other senior slots at agencies across the government – remains unfilled. That is a huge disservice – to the employees of those departments, to agency constituents throughout the economy, and to the public at large. Eighteen months after the election, there is no excuse for all those vacancies. 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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dlcollogan@gmail.com
CHALLENGE. CREATE. OUTPERFORM.
INTRODUCING FLEETLOGIC THE FLIGHT BY EMBRAER DEPARTMENTS For the world’s most successful corporations, a well-tuned flight department OF TOMORROW offers a formidable competitive advantage. ARE THOSE But, faced with ever-increasing, shared-transportation options and persistent OPTIMIZED demand for financial return, corporate flight departments today are compelled to maximize the return on their aviation assets and operations while reducing FOR MAXIMUM risks, enhancing safety and ensuring a high-level customer experience. VALUE TODAY. Building on a history of success with complex aircraft operations, Embraer has developed the industry’s first, fully comprehensive, analytics-based fleet optimization solution for corporate flight departments — FleetLogic by Embraer. With our history of innovation, industry-leading product portfolio — including four clean-sheet designs — and our #1-ranked product support team, there is no OEM more qualified to show you the way. With FleetLogic, you’ll have the tools to help your company get the most out of its aviation assets and add maximum value to the bottom line. Contact us and let us show you how. FleetLogic@embraer.com +1.321.752.8500 embraer.com/fleetlogic