Learn to Fly Private
Welcome to the 22nd edition of "Learn to Fly Private". Today is not intended to be a political post, but instead we will look into the impact from from the fact sheet the White House put out Monday, in which it named Corporate and Business Jets six times in the 2500 word talking points memo. We'll also discuss the impact presidential election years have on private aviation. It might be a bit more dry than the exciting plane p*rn that you've come to expect from my X/Twitter feed, but its important that you are informed on these issues if you're considering purchasing an aircraft or possibly even a fractional share.
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Now let's dig in...
Biden administration has target in sight, and its your jet.
It is no secret that bonus depreciation and efficient tax structures are a huge tailwind for private aviation. I talk with buyers of business jets and turboprops every day. For most, they are successful business entrepreneurs or operators that have created hundreds or thousands of good paying jobs and are accessing a business tool that can unlock further value and thus, continuing to grow the economy. This is net positive for America.
The other reality is, general aviation (which is what Business Aviation falls under) contributes a lot to the US economy. I'm going to share some data and screenshots from the NBAA Business Aviation Fact Book. If you would like a complete copy, reply to this email and I will send you the full fact book.
Total General Aviation GDP Contribution
The United States is the largest market for private aviation by a long shot. There is growth in countries such as China, India, the Middle East, and Europe has a decent showing, but the vast majority of business aircraft are in the United States. This creates over 1 million high paying jobs in the United States, of which the majority are W2 earners and pay taxes.
Impact to Communities
From an industry perspective, there are many jobs supported by private aviation. For instance management, pilots, dispatchers, customer service agents, line techs, maintenance professionals, interior refurbisher, charter sales people, airframe sales people, financiers (like me), and many others. There is also a large economic impact on local communities when an aircraft is based there.
Local communities should also be up in arms over this, because a slowdown in business aviation would mean a slowdown in their local economy. Especially if it is a small town.
What the Talking Points Say
Now that I've made my case as to why Business Aviation is a net positive for the economy, not just a luxury that should be looked down on, let's break down exactly what it says. As a reminder, this is not tax advice and intended as commentary only, you should consult your CPA for real tax advice.
Crackdown on Personal Use of Jets
"...started cracking down on high-end tax evasion like deducting personal use of corporate jets as a business expense."
I think this one is pretty straight forward, but isn't entirely clear on how it will be administered. For personal use, making it a taxable event wouldn't be the end of the world. Administration of this will mean more audits of companies with private aircraft, so its important to set up your structures and make sure you talk to an aviation tax professional that can help coach you through the best way to set it up.
I, for one, think it would only be fair to tax the personal use of Airforce 1 and Marine 1 when taken for vacation, since it's only "fair".
Closing "Loopholes" for Corporate Jets
Cracks Down on Corporate Jet Loopholes. The Budget eliminates a tax break that gives preferential treatment for writing off corporate jet purchases, compared to commercial aircraft. It would also increase the fuel tax on corporate and private jet travel, so that corporate executives and other wealthy Americans pay their fair share for the use of airspace and other public services related to air travel.
I would imagine this is referencing bonus depreciation for jets specifically. For those that are new here, we talk about bonus depreciation a lot. You can take 60% of the depreciation in the first year in 2024, and many thought that we were going to bump that back up to 100%. It appears the Biden Administration wants to cut it altogether. This would be detrimental to aircraft transactions and would deter some from buying altogether.
Another down stream effect could be that charter prices increase significantly due to the increase in demand from some fliers. If there is no longer a depreciation tax advantage, the cost calculation of per-hour in a fractional vs. whole ownership vs. chartering may invert, causing more charter or fractional ownership. Also, without the tax benefit of bonus depreciation, some may choose to not charter the aircraft they do own because the real cost of depreciation would be too high when they go to sell the aircraft.
Also, increasing fuel tax is pretty ridiculous. As a function of using the airspace and public services, business aviation is a small fraction of the burden placed on ATC and the FAA. The proposal is to increase the fuel tax 5x on private and corporate aviation.
What can we learn from the past?
The Obama administration had basically the exact same position, unsuccessfully going after bonus depreciation as well. When those points were being made, many buyers eased off their purchasing speed or fleet upgrading. For instance, corporate flight departments often upgrade their fleets as the hours get to the point they are going to have maintenance issues
I had dinner last night with a friend, Mike McCracken from Hawkeye Aircraft (side note, it was at Charlie's Sushi in Clearwater, Florida and its top 3 best meals I've ever had). He has a consulting business, primarily focused on jet acquisitions for family offices, corporate flight departments, and UHNW individuals. He has helped multiple Fortune 100 and Fortune 50 corporate flight departments do mission profile analysis and fleet planning. He commented that we can reflect back at buyer sentiment during the years President Obama was calling out corporate aviation, especially around the 2012 election, where many corporate flight departments or UHNW individuals simply didn't buy due to the uncertainty. Statistically speaking, there isn't a slowdown during election years, but anecdotally speaking it slows down until everyone is sure they know who is going to win.
I, for one, hope this gets amended to allow for private aviation to continue to flourish. If not, there could be a lot of hurt in the industry not only for those of us that work in the industry but also those that are private fliers. Next week will be much less doom and gloom, I promise.
Until next week,
Preston Holland
p.s. If you love this newsletter, it would mean a lot to me if you forwarded it to a friend that also needs to learn more about private aviation. I want to help as many people as I can confidently fly private.