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Larger- Smaller Or None At All
It is not uncommon at some point in an ownership cycle for there to be a ‘Transition Analysis’- observes Jay Mesinger. This takes place around a few logical events- one being mergers and acquisitions. If both companies have been operating business aircraft there is seldom need for both flight departments.

Typically the following analysis looks first at the combined or new synergies of the companies. Are there new mission requirements as a result of this merger? Will the equipment and personnel have the skill or capability to meet these new destinations or frequencies? As discussed in prior articles- the ‘Mission Profile’ groundwork will be the beginning of the Transition Analysis. The outcome will then facilitate the assessment of the current fleet.

Next- the range and operational efficiency based on the mission will come into question. The age of the combined fleet based on the new company’s corporate- cultural or tax strategy may also be analyzed.

Ultimately what will emerge will be a sketch of the new flight department. The number of airplanes the company ends up with- as well as the fleet make-up based on size and capability will be defined. Following this- the flight department and Board will determine the execution of a Transition Plan.

Developing marketing strategies as well as the selection of the aircraft sales professionals will then be undertaken - and the end result will be a fleet of airplanes that matches the company and it’s newly created goals. Other reasons exist- of course- for a transition that necessitates the requirement to travel to new destinations and the need for more seats. Similar analyses will be required in all such cases.

Irrespective of the cause- no transition can be complete without the counsel of the aviation attorney and tax partner. Often a change in equipment will involve guidance in order to take full advantage of depreciation laws. Under Section 1031- the exchange mechanisms need to be considered as well as sales tax strategies.

Very often those solutions that worked in one set of operational patterns will not necessarily work given a proposed transition. For example- operational leases may need to be changed or developed to meet the requirements of the transition.

In some cases the Transition Analysis is facilitated by a significant change in aircraft use. Based on an initial analysis done years before- the right answer at that time may have been to not buy a whole aircraft due to lower-than-optimum need; thus- the initial solution was a fractional or charter aircraft.

As the company’s utilization increases- the idea of revisiting the analysis becomes the logical path. This increase in use may very well bring the owner into a range of use that justifies purchasing a whole aircraft. The current market will then provide the Board or its advisors the cost of the available candidate aircraft. From this market input- the advice of a skilled aviation attorney and tax advisor will be critical when developing the sales and federal tax plan- blending it into the operational strategy to meet the needs of the mission while meeting the criteria of the tax planning.

Whether moving to a larger airplane from a smaller one- paring down a larger fleet or moving out all together- the Transition Analysis is often the same. The process will involve:

• A good grasp of current market conditions;

• An eye towards future market development (based on trends seen today and those that may shape tomorrow) for a reasonable assessment of residual value; and

• A keen eye towards regulatory and tax needs.

There is no way to create an outcome that can serve all aspects of the transition without a thorough process. Operating more- larger or smaller aircraft can be very different from operating the current aircraft. Ground support equipment- personnel and hangar requirements can be completely different for each situation.

Finally- don’t forget to bring the existing flight department into the process. One of the wonderful benefits of having an established flight department (compared to a first-time buyer) is the experience they have of tapping into their trusted team members for knowledge and information. Build a winning team and you will be planning for success.


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