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Thinking back over years of creating successful aircraft transactions- Jay Mesinger observes that many aspects of a transaction seemed to be the same- whether it was an individual buying an aircraft- or a company. What did often differ were the questions along the life of the process.

Mission Profile work- Contracting issues and Pre-buy Inspections are all process-driven items that are critical to the conclusion of a transaction. However- it is important to discuss what goes on behind the scenes - including thoughts and questions asked throughout the process that have helped to ensure successful transactions.

The size of the company often creates one line of questions. For example- when working with a large public company we might hear questions that center on department structure. With a first time buyer from a public company so much of the decision process centers on the tax implication and the need to understand the term “personal use”.

One question that occurs time and again concerns how the company can develop accurate recordkeeping to identify operations when an executive combines a perfectly documented business trip with personal use. (This is an exacting task that - if not accomplished correctly - can derail the entire budgeting process based on the miscalculation or complete loss of the depreciation benefits of the airplane.)

Another common question more akin to the corporate world than with the high-net-worth individual has to do with the optics of owning a business aircraft. What might the aircraft look like to shareholders- customers and the media- and how can we help these constituent groups view the corporate aircraft as an essential business tool? Will the customer see the corporate aircraft as the company’s desire to get ahead of its competition and in front of its customer with greater frequency- thereby providing quicker and more valuable service when needed? How can shareholders see the aircraft as a tool as opposed to a transportation boondoggle?

Thankfully- our industry has overcome much of the ill-feeling that for several years enveloped it- including the “fat cat” image of just a few years ago. Of course- we must never take our eyes off of the public’s perception of Business Aviation. With questions from corporations tending to center on shareholders and customers- the high-net-worth individuals tend to focus on questions concerning financing as well as partnership or shared use- paying particular attention to the amount of money the lenders want as a down-payment.

Will the aircraft’s value outpace the amount owed over the life of the ownership? What does the idea of upgrades or modifications do to the value of the asset? Can the modifications to the aircraft be financed as the need arises during the term of ownership?

A QUESTION IN COMMON
One question that may come up for each type of buying entity has to do with reimbursement of expenses. If a friend or another client of the company uses the airplane- can the company just get reimbursed for the costs? This is one of the most misunderstood areas of operation- and the answer is ultimately “no”.

So many people are under the impression that they can operate their aircraft under Part 91 flight rules and accept reimbursement for expenses. Such reimbursement sets up what would be considered an illegal Part 135 (Charter) operation. If sharing of the aircraft is going to be contemplated- the appropriate Part 135 flight rules should be examined carefully first.

One of the most important questions our clients can ask is for the name of a skilled Aviation Tax Attorney. Questions regarding personal use- shared expenses and even benefits from the revenue generated by Part 135 use do not always have a straight forward answer. The idea of passive (as opposed to active) revenue being thrown off by charter can be daunting when trying to sort out all of the other components of aircraft operations and ownership.

This serves to illustrate why seeking a good professional tax advisor is so necessary. The different lines of questioning for these types of buyers is generally divided between the ‘tax’ and ‘use’ types of questions asked by the corporate side- as opposed to the ‘financing’ and ‘sharing’ questions asked by the individual.

It is important to remember that your trusted aircraft sales professional will also be asking a myriad of questions to help navigate a successful outcome- not only from a transactional perspective but more importantly from the client satisfaction and comfort perspective.

It’s important that your questions are listened to carefully so that your aircraft professional can understand your particular concerns during the transaction process. If there are questions that cannot be answered- you should seek to have skilled tax and aviation counsel added to the mix. The team you create to address the issues of aircraft use and ownership will ultimately guarantee the success of the transaction outcome.

 

Read more about: Aircraft Transactions

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