- 16 Nov 2020
- Andre Fodor
- Flight Departments
When it comes to buying a business jet, everyone has their own ideas about which is best to buy. How can you, as an aviation manager, steer the direction of the discussion? Andre Fodor shares tips in this three-part mini-series…
Friends working in aircraft sales describe a positive uptick in inquiries from first-time buyers lately, while I have held meetings with new clients looking to purchase airplanes and seeking guidance to get things right from the start. But where do you begin?
These client meetings yield interesting insights. For example, often, I learn just how far people may be from selecting the right jet for sale. Such oversights can lead to a buyer’s deep regret, and a soured ownership experience.
With that in mind, we will consider the initial process of aircraft acquisition and inception over the following paragraphs. What can be the common misunderstandings for unwary buyers, and, as the flight department manager, how can you spot these and help correct them?
In subsequent articles, we’ll consider the implementation of a successful purchase, and conclude with a focus on the all-important first year of flight operations. The collective insights of this mini-series will help provide an outline for the development of a sound business aircraft acquisition and operation plan.
Distinguish Price from Affordability
The typical aircraft buyer I meet tends to have been looking at airplane catalogues and online listings for some time. There is nothing more exciting than a colorful aircraft catalogue. However, window shopping can lead to misconceptions about Pricing and Affordability as these two words are distinctly opposite.
Though a prospective buyer may be looking at adverts for attractively-priced Large Jets, they need to be made aware that an upcoming heavy inspection could add several more million dollars to the ownership experience.
By examining the actual affordability of a prospective business aircraft – ideally with an operational budget spreadsheet – buyers will begin to understand that, in aircraft sales, it’s a sound professional plan that will reveal the genuinely great deals available to them. As aviation managers, we should be able to provide such a plan.
How do Residual Values Impact Buying Decisions?
Additional reality tends to dawn on the buyer when residual values are discussed. With aircraft being depreciating assets, this should be taken into consideration when a purchase is planned.
Newer, larger jets see substantial depreciation over the course of a few years, compared to older, already well-depreciated assets. But equally, when older, well-depreciated assets are being considered, is there a possibility you could become the last owner of that aircraft?
Could your principal stomach parting the aircraft out and receiving salvage value, as opposed to resale value? ‘Disposable’ aircraft work for some business models, but not all.
Regardless, what a jet is worth now, and what it will be worth at the end of your planned ownership tenure, must factor into the overall decision of which aircraft offers the best value for your operation.
Consider the Legal and Tax Implications
For the corporate buyer, the selection of an aircraft must consider the ability to depreciate the asset for tax purposes, and write off the flights as business expenses. It’s important to understand the legal ramifications of the planned usage.
Only recently, as I attended a meeting with a prospective aircraft owner, the buyer voiced his intention to partially recover operational costs by letting friends use the airplane. As I pointed out that what he planned to do would be characterized as illegal charter, and outlined the implications and possible penalties from both the federal tax, and aviation authorities, the prospective buyer realized they were looking at the wrong aircraft.
This initiated a discussion about right-sizing his purchase or even upgrading his choice to an aircraft equipped with a flight data recorder so it could be added to an air charter certificate. For those in flight department management, your role is to ask the hard questions before hard money is spent.
Business aircraft ownership needs professional guidance. An experienced aviation manager will have a broad understanding of the purchase options, available financing, depreciation, and even the leasing opportunities.
You must understand the features of dry leases and time-sharing agreements and know how to outline a rough ownership plan that covers the major challenges.
While nobody is expected to be an expert on every facet of aircraft acquisition and ownership, the wise professional knows the steps, and will reach out to experts as needed.
As you find yourself in the aircraft acquisition game, remember to reach out to others who have been through it. Seek good advice, and make decisions based on solid planning. We all want to fly the largest, most-advanced, and furthest-reaching aircraft. But that will only happen when the deal is solid, and has healthy, strong wings.
Continue reading: Find Part 2 and Part 3 here.