What did you get your dad for Father’s Day? “Kiss the cook” BBQ apron? Car detail? Heartfelt framed photo? Jay-Z, who has been a father for six months, received a private jet from his wife Beyonce Knowles.
In a more philanthropic note, actor Tom Cruise offered his Gulfstream V to a man working on the set of his new movie Oblivion. A support worker, David, was crushed by a 700-pound weight on set in May, and Cruise quickly ordered his jet to transport David to spinal specialist. David is now undergoing therapy after spending four days in intensive care in Baton Rouge, La.
After Facebook’s IPO last month, Russian investor Alisher Usmanov sold $1.4 billion in Facebook stock. While not necessarily an international celebrity, Usmanov is certainly wealthy. His personal fortune is valued at $15.8 billion; he’s the 34th richest person in the world. Usmanov is now the proud owner of an Airbus A340, the largest private jet in Russia and possibly Europe. If he decks it out in a fashion similar to his $100 million yacht, which includes a swimming pool and cabins for 20, he could end up spending about $500 million. That’s some jet.
Spare parts keep your private jet in the air, but they also can pave the road to destruction for you, your crew and your guests if they do not meet safety standards.
Counterfeit aircraft parts are big business, so finding the right parts and suppliers to keep your jet safe relies on the expertise of professionals who can discern the difference. And aircraft owners and operators can never have too much knowledge when acquiring aircraft spare parts.
The problem of bogus aircraft parts — officially called “suspected unapproved parts” or SUPs — remains as critical now as ever because substandard parts pose a significant threat to aviation safety.
Sometimes a part is labeled “unapproved” for purely paper purposes, with the primary concern being that the paper trail doesn’t document the design and production quality of a component. The part could be in excellent or dismally shoddy condition. But without proper documentation you can’t know without extensive testing — the testing that the parts manufacturer is supposed to do to certify the part as meeting standards.
Sometimes tests show that the part is bogus and the accompanying paperwork is false. Identifying SUPs is challenging because the bogus parts often appear the same as approved parts, putting the safety of the aircraft at risk without the knowledge of the parts user.
In addition, sometimes the paperwork appears as genuine as the part, which means airlines, maintenance organizations, aviation manufacturers and parts distributors need to create and adhere to systems for the detection and reporting of unapproved parts.
SUP detection
Aviation safety authorities such as the FAA and CASA work to assure information about SUPs is distributed to the aviation community in the hopes of assuring further detection and taking counterfeit parts out of circulation.
They strive to bring together as many aviation industry participants as possible to give those participants the latest information about SUP issues, employ steps to combat bogus parts and give participants opportunities to question international experts.
In recent years, the FAA and the aviation industry began work on a program to assure parts traceability, using special markings and codes not available to the general public. The goal: to create a permanent trail for tracing a part from its current owner and location all the way back to its point of origin.
As the FAA’s SUP program influences the world of new parts, the window of opportunity for counterfeiters will steadily narrow — but not close completely. The new system does little for the millions of older spare parts produced before the new program that are still available.
Start close to home
Minimizing the risk of inadvertently accepting a bogus part starts with aircraft owners and operations, according to FAA guidelines:
- Know your suppliers and eschew low-ball pitches from unknown suppliers.
- Check labels of new parts against those of parts already known to be legal from a known source.
- Watch for damaged shipping boxes or reused labels, smudged stamps or other indications of package tampering.
If you suspect that someone has tried to sell you an SUP or you have inadvertently purchased one, you can report it at the FAA Web site’s Suspected Unapproved Parts Program page at http://www.faa.gov/aircraft/safety/programs/sups/.
To insure that you do not purchase or use counterfeit jet parts, consult with a broker or professionals who know the ins and outs of what to look for during the pre-purchase inspection. Many experts can even help you trace prior ownership (pedigree) and the history of the aircraft.
The U.N.’s International Civil Aviation Organization (ICAO) is working on international emissions standards. The secretary-general of ICAO, Raymond Benjamin, announced on June 18 that the organization plans to have a draft proposal by March 2013. Right now, the ICAO is studying four different options: two cap-and-trade systems, mandatory off-setting, and mandatory off-setting with potential revenue production.
It’s important for the ICAO to develop and implement international aviation emissions standards to fend off a brewing conflict over the EU’s greenhouse gas management system.
The EU instituted its Emissions Trading System (ETS) in 2005. Since Jan. 1 all domestic and international flights to, from, or between EU member states must comply with ETS. In this system, companies are allotted a specific number of CO2 allowances which can be bought, sold, or traded depending on a company’s need for them. For example, if an airline predicts it will exceed its allotted allowances, it can either take steps to reduce its emissions or purchase excess credits from another entity.
As you can imagine, several countries aren’t fans of the ETS. Non-EU countries believe the ETS infringes on their rights as sovereign nations. China and India refuse to share their emissions data or participate in the program.
This conflict has a negative effect on aviation in general. The EU has promised disciplinary measures against Chinese aircraft for non-compliance, and China announced it will implement countermeasures. As a result, China has suspended long-distance jet orders from Airbus that add up to about $14 billion.
There is a lot of optimism for growth in the aviation sector in the next 10 years; conflict over emissions isn’t doing anyone any favors. Will the ICAO’s efforts to create international standards be completed in time to diffuse the situation in European airspace?
If your company’s jet is occasionally used for pleasure as well as business — such as flying an employee to a vacation destination — you could jeopardize your tax deduction, increasing the cost of owning and operating the aircraft for your business.
The Internal Revenue Service (IRS) will disallow any deductions for expenses of a business aircraft when it is used for entertainment purposes. In a nutshell, if the jet was flown for 100 hours and 30 hours was for entertainment purposes, the IRS would force the company to disallow 30 percent of its deductions, including — and most significantly — depreciation deductions. For a company with a high-tax-basis aircraft, the loss of depreciation entitlements can push the lost tax deduction to more than $20,000 or $30,000 per flight hour (or more in the case of bonus depreciation eligible aircraft or aircraft purchased late in the tax year).
The disallowance even extends to “deadhead” flights, when the aircraft is needed for business use while an employee is using it for a vacation and the jet is brought home after dropping off the employee. The new rules provide that the company factor in the deadhead flight into the calculation of the disallowance and, even though no passengers are on board, the company will experience further loss of deductions.
The best antidote to this problem is to sell jet membership or block-time cards — licensed resellers of unused fractional shares — for entertainment flights. With these programs, you don’t own the aircraft but, instead, charter it from the card provider, purchasing a block of hours such as 25 or 50 on the card.
The benefit of block-time cards is that usually, the card provider has a fleet of aircraft they manage and are also able to draw from a wide array of charter operators, which means flight availability is often guaranteed with minimal notice.
Other benefits:
- Your account is deducted only for occupied flight hours.
- Deadhead flights don’t usually count toward your flight time.
- It may be possible to obtain a discounted rate or elongated time frame on which to use your card hours.
- You can choose the best possible aircraft solution based on the purpose of your trip — either light-, mid-, large-cabin or extended-range aircraft (as opposed to the one-size-cabin option with your company aircraft).
The biggest and most-important benefit to using a flight card: The disallowance rules relate only to the amount paid for the card, and tax depreciation is not a cost factored into the card. As a result, the after-tax cost of using a card is likely lower than use of a company aircraft with a high-tax basis.
For more information about maximizing your investment in your company jet, contact the experts at L & L International at sales@l-lint.com or call us any time at 877-453-8276.
A dry winter in the West inevitably leads to a dangerous fire season during the summer months. This fact is being borne out by wildland fires occurring earlier and more intensely than usual in the summer of 2012. Most notably, wildfires in New Mexico and Colorado are burning right now. The High Park Fire raging outside Fort Collins, Colo., has already claimed one life, 118 structures and more than 73 square miles — and it’s only 10 percent contained.
Fortunately, specialized firefighting aircraft are on hand to aid the fight against the massive blaze, especially since rain is not in the forecast.
These aircraft play a major role in fighting wildland fires, but the U.S. Forest Service has an inadequate fleet. For this reason, it relies on private aviation companies like Neptune Aviation to bolster the fleet during active fires. The Forest Service also generally uses aircraft only to fight fires that threaten homes rather than ones burning only in the wilderness.
Aircraft being used in the High Park Fire include the following:
- Five single engine air tanker (SEAT)
The heavy air tankers, or “heavies,” are in high demand during fire season. They are expensive, but their impact is great.
- Cost Forest Service an average of $10,000 per day
- Make up 5 percent of Forest Service’s annual $2 billion firefighting budget
- Hold 2,100 gallons of retardant
For more about the aircraft fighting the High Park Fire, read this report by KUNC’s Grace Hood.
What’s the problem with financing?
The problem lies in banks’ general lack of enthusiasm for loaning money to “anyone who really needs it to buy an aircraft,” Jeff Wieand writes for the Business Jet Traveler. Wieand notes that banks are performing stricter due diligence, taking a harder look at the aircraft while stretching out the loan-approval process to about eight weeks.
Although most lenders are making credit-based rather than asset-based aircraft loans, they still want an appropriate asset value in case they get stuck with repossessed and off-lease aircraft with depressed values, Wieand reports.
Borrowers considering cash, leasing
But it’s not just the banks holding the market back, Wieand says. Although financing costs are low, so are investment returns. Thus, many buyers who would otherwise finance an aircraft purchase are paying cash, according to Wieand. Some do so because they’re buying an older aircraft, and many banks have official cutoffs for providing debt financing for aircraft more than 20 or even 15 years old.
The alternative to paying cash or borrowing to buy an aircraft is a lease. A lease offers several benefits:
- A lessor takes tax depreciation, which is passed along to a lessee via low payments and lower implicit interest rates.
- In most states, sales tax is paid over the stream of the low monthly payments in lieu of the up-front acquisition cost, yielding a much lower sales tax liability.
- Custom leasing provides flexibility for upgrade and/or early buyout options.
- True operating leases qualify for off-balance-sheet accounting treatment, providing shareholder sensitivity benefits.
- Leases provide 100 percent financing in most cases.
- Experienced corporate aircraft lessors take aggressive residuals that yield residual value protection to a lessee, which has provided significant value to lessees with diminishing aircraft values.
What does loan financing require?
If your company stands at the threshold of truly taking off but needs the boost of a private jet to do so, know that loan financing for the purchase of private aircraft is similar to a mortgage or automobile loan.
A basic transaction for a small personal or corporate aircraft may proceed like this:
- Borrowers provide basic information about themselves and their prospective aircraft to the lender.
- The lender performs an appraisal of the aircraft’s value.
- The lender performs a title search based on the aircraft’s registration number to confirm no liens or title defects are present. In many cases, a title insurance policy is procured to protect against any undetected defects in title.
- The lender then prepares documentation for the transaction:
- In some cases, surety from a third party
- At closing, the loan documentation is executed and funds and title are transferred.
A lender’s resources and costs required to finance a small aircraft and a large aircraft are virtually the same. Therefore, large aircraft should garner more favorable rates as a lender has the opportunity to recoup its costs over a larger dollar volume borrowed. Generally, however, the other provisions of the financing (e.g., advance amount, note term, amortization) will be somewhat consistent for both small and large aircraft.
Both floating and fixed rates are available, and often lenders offer hybrid rate structures. The best interest rate structure for you should be determined by the interest rate climate at your time of closing and how long you plan to own/lease the aircraft. Your aviation lender should be able to offer you insight into the interest rate structure best suited to your specific transaction.
Regardless of how you decide to finance your purchase, count on the experience of a professional aircraft broker to guide you through the entire purchasing process.
Michael Huerta, acting administrator of the Federal Aviation Administration (FAA) spoke at the RTCA Symposium, June 5, 2012, about the status of NextGen implementation.
NextGen, basically, is the movement from World War II-era technology to satellite-based technology for air traffic control. It has many benefits:
- Pilots know precise locations of nearby aircraft.
- More direct flight paths and descents.
In his speech, Huerta explained how successful industry-wide adoption of NextGen depends on collaboration among all aspects of aviation, from airports and air traffic controllers to equipment manufacturers and pilots.
Huerta also discussed four areas of NextGen implementation:
- Metroplex initiatives – Creating new routes to relieve congestion. These initiatives include programs such as Greener Skies in Seattle, which is working to demonstrate that curved a RNP approach is predictable and safe
- DataComm – Integrating communications in an air/ground network
- NextGen metrics – Providing performance data for NextGen initiatives in four areas (safety, capacity, efficiency and environment)
- Equipage incentives – Encouraging aircraft to upgrade to NextGen capabilities
The stages of implementation, which are predicted to take place between 2012 and 2025, are starting now in some of the larger airports in cities including Atlanta, Memphis and Seattle. Ideally, processes will be perfected in local and regional areas and standardized in order to be applied everywhere else.
Time is money, and no one knows that better than the executives of a company with a private jet.
But it’s not just about how fast a jet can transport staff to and from an appointment; it’s also about what they can accomplish en route. From meetings to research to developing client relationships, these airborne offices help executives make the most of their time.
Although saving time is a major focus of a private jet purchase, many companies and individuals waste time when they attempt to shop for and purchase a private jet on their own — or with the help of someone who doesn’t have the knowledge and experience of a jet broker.
Jet brokers:
- Understand clients’ requirements. A jet broker will ask crucial questions that determine the type of aircraft and approach to ownership that will best meet each client’s needs.
- Provide valuable insight. A good jet broker will not push clients into a sale, but will instead provide information that allows clients to determine which aircraft is the most economical and effective choice.
- Provide multiple options. Jet brokers use the breadth of their contacts and expertise to find the right aircraft for each client’s budget and use. They have access to planes that are not on the open market, so even if clients don’t see exactly what they are looking for on a website, they may still be able to procure the make and model they want.
- Give all the details. Jet brokers can provide seating charts, layouts and options for different makes and models of jets they are suggesting, evaluate the potential for renovation or augmentation, and engage purchasers in the buying process.
- Get all the ducks in a row. A jet broker ensures the new jet owner possesses all of the correct paperwork and has the latest maintenance and safety records for the aircraft.
- Extend their service. The best jet brokers have an extensive network of professional service providers to perform maintenance checks on the aircraft chosen, appraise the craft for the lender or insurance agents, and work to ensure that the purchase returns value for the investment. A broker can also connect buyers to professionals who can make changes and upgrades to the aircraft after the purchase.
When purchasing a jet aircraft, find a jet broker who can help you save time long before you make the investment in a plane.
