business aviation

NAFA member, H. Lee Rohde, III, President and CEO of Essex Aviation, shares what you need to know about aircraft lease agreements.

Aircraft leasing is a popular private aviation option for corporate entities and private individuals alike. In order to lease an aircraft, a lessee and lessor must sign an aircraft lease agreement, which defines the terms of the lease, such as who is responsible for operating and maintaining the aircraft, the length of the lease and so on.

For this article, we’ve enlisted the help of David M. Hernandez and Edward K. Gross of Vedder Price, an international business-focused law firm, to explain what aircraft lease agreements are and how they differ depending upon which leasing structure you choose.

Table of Contents

• The Two Most Common Types of Lease Structure
• The Different Types of Aircraft Lease Agreements
• Components of a Standard Aircraft Lease Agreement
• Drafting an Aircraft Lease Agreement
• Key Aircraft Lease Agreement Considerations
• Renegotiating an Aircraft Lease Agreement
• What to Know Before You Sign an Aircraft Lease Agreement

The Two Most Common Types of Lease Structure

There are two primary types of aircraft lease structure:

Traditional Ownership Structure Lease
Also known as an operating lease, the owner (either a business or an individual) acquires an aircraft and sets that aircraft up as its own legal entity, typically a limited liability company (LLC). The LLC will often enter into a lease agreement with the actual intended operator of the aircraft — usually the original buyer — so that they can use the aircraft. This prevents the LLC from being considered a prohibited flight department company. From there, the LLC — which legally owns the aircraft — may also enter into an aircraft management agreement with a management company. The management company is responsible for managing the aircraft on behalf of the owner, as well as operating the aircraft for third-party commercial charters. Some owners decide not to hire a management company and instead elect to hire their own pilots and maintenance personnel.

There are a number of reasons why an aircraft owner might create a traditional ownership leasing structure, including for tax purposes, for privacy or to comply with Federal Aviation Administration (FAA) regulations. Many owners choose to take advantage of what is referred to as “sale for resale” state tax exemptions; this exemption enables the owner to spread sales tax across lease payments, rather than pay in full at closing. Some owners would prefer that their company name not be listed on the FAA registry and would, therefore, rather use an LLC as the registered owner of the aircraft.

Finally, the FAA prohibits entities from charging for the use of the aircraft and prohibits single member entities from owning and operating an aircraft; this is commonly referred to as the “flight department company trap.” As a result, some companies will set up an LLC as a leasing company and lease the aircraft to the actual operator.

Financing Lease
A financing lease is essentially an acquisition financing product and is an alternative to a secured loan. For the sake of simplifying things, you can think of lease financing as being similar to loan financing.

In this arrangement, a financial institution will take ownership of the aircraft and enter into a lease agreement with a business or individual. This is essentially an acquisition structure that doesn’t require the actual purchase by the lessee of a plane, meaning the lessee doesn’t have to carry the aircraft on its balance sheet.

We refer to these acquisition financing transactions as “leases” for tax, accounting and commercial law/bankruptcy purposes. The lessor assumes all of the market value risks and benefits associated with ownership, especially regarding the value of the aircraft after lease expiration, and it allocates the “net” lease responsibilities (discussed below) to the lessee under the lease terms.

In the past, banks were typically the lessors in these financings, however, the number of banks that offer true (tax) leases has significantly diminished since the 2008 recession. Those interested in pursuing a financing lease structure are more likely to find opportunities working with an equity investor.

The Different Types of Aircraft Lease Agreement

The terms of an aircraft lease agreement changes depending on which leasing structure you choose to pursue.

Traditional Ownership Structure Lease
A typical traditional leasing structure often involves related parties. However, there are situations in which a traditional leasing structure would involve unrelated parties, in which case the lessee would be required to obtain pilot management services from an unrelated entity. It’s important to note that lessors cannot provide the aircraft and a pilot in a traditional ownership structure lease because that is considered a “wet lease” and generally requires an FAA Air Carrier certificate. The use of a time sharing agreement, under the Federal Aviation Regulations (FAR) Part 91.501, is a limited exception to this rule.

Financing Lease
As mentioned, a financing lease is an acquisition financing product, so it is appropriate to compare it to a purchase money loan. Similar to a secured loan, the lessor finances the lessee’s prospective acquisition, however, the lessor advances 100% of the purchase price and the lessee’s payments are reduced to reflect the lessor’s tax and residual value assumptions; the lessee typically has flexibility to purchase the aircraft upon lease expiration or, perhaps, to extend the lease term.

Put simply, the aircraft lease agreement for a financing lease is similar to a loan agreement; so long as the lessee pays installments and materially performs any other obligations under the lease, the lessor won’t interrupt the lessee’s use and operation of the aircraft during the lease term. The key difference between a financing lease and a secured loan is that the lessor assumes on the market value risk at lease expiration.

Components of a Standard Aircraft Lease Agreement

Let’s take a closer look at the basic components that an aircraft lease agreement structure should include, including general terms, starting with a traditional ownership lease.

Traditional Ownership Structure Lease
It’s uncommon for a bank or lender to be involved in a traditional leasing structure unless the situation were to call for both a traditional ownership lease and a financing lease. In a traditional leasing structure, FAA regulations require both the lessor and the lessee to obtain pilot management services from an independent third party. A lease without the provision of pilot services is considered a “dry lease,” whereas a lease with an aircraft and pilot is considered a “wet lease” and requires FAA certification. The vast majority of traditional ownership leases that people enter into are dry leases.

Those interested in a traditional leasing structure should be aware that the FAA takes dry lease abuses very seriously and has aggressively pursued enforcement action against entities entering into fraudulent dry leases. Any entity that requires the lessee to use a specific set of pilots when leasing the aircraft is a de facto wet lease, and therefore requires an air carrier operating certificate; this ultimately subjects the lessor to less risk of enforcement action and civil penalties.

As far as general terms are concerned, any aircraft lease agreement for a traditional leasing structure should clearly specify which entity has operational control, performs maintenance, provides insurances and is generally responsible for the care of the aircraft while it is in the lessee’s possession. The lease agreement should also address all relevant aspects of the aircraft’s care and operation, including default provisions, choice of law, permitted use, return provisions and maximum hours of operation. Additionally, the lessor should reserve the right to inspect the aircraft if it is leased to unrelated entities.

Financing Lease
With a financing lease, the structure of the aircraft lease agreement will take into account whether the lessor is going to lease finance a new or pre-owned aircraft.

If the lessor is lease financing a new aircraft, the lessee must assign its right to purchase the aircraft from the original equipment manufacturer (OEM) and, in some cases, to make progress payments due under the purchase agreement. If the lessor chooses to finance these progress payments, it will pay the balance of the purchase price to the OEM upon delivery, take ownership of the aircraft title and lease the aircraft to the lessee.

If the lessor is lease financing a pre-owned aircraft, the purchasing process is essentially the same, except for the fact that it is generally less time and cost-efficient than purchasing from the OEM, and the lessor doesn’t finance pre-delivery payments. If the transaction is a refinancing, it will be structured as a sale and leaseback, pursuant to which the lessor purchases the aircraft from and leases it back the lessee. This would necessitate an aircraft purchase and leaseback agreement.

In any case, once the purchase is complete, the lessee accepts the aircraft under the lease for the negotiated rent, term and certain lease expiry options. In some cases, the lessor might require additional support from the lessor in the form of a guarantee, deposit or other non-aircraft collateral.

The essential promise the lessee makes is that, upon acceptance, the lessee cannot cancel the lease and is obligated to pay the rents and other amounts listed under the lease come “hell or high water.”

These leases are typically “net” leases, meaning that the lessee agrees to pay all costs associated with owning, operating, maintaining, servicing, insuring and registering the aircraft, as well as all related taxes. Essentially, the lessee bears all risks associated with ownership, other than decline in the market value of the aircraft. The aircraft lease agreement will include a number of requirements and restrictions to ensure the safe operation and condition of the aircraft. By way of example, the lessee will be required to indemnify the lessor against liability claims, state taxes and loss of lessor’s anticipated tax benefits.

Although the lease is typically non-cancellable by the lessee, should the aircraft suffer a casualty, the lessee is required to pay the lessor the agreed value of the aircraft, determined at lease inception. Aside from a casualty, some financing leases might also permit the lessee to terminate the lease and purchase the aircraft from the lessor or otherwise make the lessor whole.

Most bank lessors are “credit” lenders, so the lease is likely to include credit covenants, cross-defaults and reporting requirements similar to what might be included in a credit facility agreement. At lease expiration, the lessee must either return the aircraft according to certain conditions set out in the lease, purchase the aircraft for (at least) fair market value or renew the term for (at least) fair market rental value.

Drafting an Aircraft Lease Agreement

The process of drafting an aircraft lease agreement is as follows:

Traditional Ownership Structure Lease
The most important aspects of drafting and negotiating a lease are understanding the goals and expectations of the parties involved and knowing which parties will be responsible for the care, maintenance and insurance of the aircraft. There should be no confusion as to:

• Who will perform maintenance
• Who will be responsible for payment of maintenance service plans
• How the aircraft will be returned
• What the termination provisions are
• What notice is required

Every aspect of the use, operation and return of the aircraft should be addressed. The aircraft lease agreement should also address what happens in the event of any non-compliance or default, particularly in the case of unrelated parties.

Financing Lease
The credit approval process for a financing lease starts with the lessor conducting due diligence regarding the lessee/guarantor and the aircraft in question. From there, the lessor and lessee will create a term sheet, with the lessor covering financing terms, requirements of the lessor’s credit committee and so on. The lessor will then provide lease documents reflecting what was proposed in the term sheet, with all important details and/or agreed adjustments to the proposed terms.

Next, the lessor and lessee will incorporate various terms reflecting the lessee’s ownership structure and operational expectations into the lease documents. Deliverables are then collected, and closing deliverables and action items are attended to. Assuming all concerned parties are satisfied, the lessor pays the purchase price to the OEM or seller, and the lessee accepts the aircraft under the lease agreement.

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An important note: Given the significant investment of private aircraft and the potential for FAA, IRS and insurance violations, it’s in your best interest to retain a team of knowledgeable professionals to help you navigate this complex process. Regardless which leasing structure you choose, your team should include:

• An experienced business aircraft finance attorney
• A private aviation consultant
• A broker
• An OEM or other seller
• An insurance broker
• A management company or charter operator
• A maintenance program provider
• An aviation experienced accountant or tax advisor
• An FAA registration counsel and/or title company

Key Aircraft Lease Agreement Considerations

A few things to keep in mind before entering into an aircraft lease agreement:

Traditional Ownership Structure Lease

• The primary consideration is using the aircraft to its maximum operational capability consistent with the client’s wishes without violating any FAA or IRS regulations and insurance provisions. This requires full knowledge of exactly what each party wants to do with the aircraft within the limitations of those regulations and provisions.
• In accordance with the previous consideration, it’s imperative to understand the applicable FAA, IRS and insurance requirements to ensure that owners are able to operate the aircraft as they need. It’s best practice to discuss operational considerations with the management company.
• If the aircraft being leased under a traditional lease is being financed, all usage and other terms must be approved by, and subject to the rights of, the financing party; this is known as “consent.”

Financing Lease

• The terms and pricing, including rent, will be driven by the aircraft’s value, operational and maintenance expectations, the creditworthiness of the lessee and any customer relationship with the lessee.
• Some lessors — banks, in particular — are more conservative as to whom they’ll provide lease financing. Other lessors, especially equity investors, are asset financiers and are therefore less risk-averse; that said, that risk acceptance will be reflected in their pricing.
• Experienced and sophisticated lessors and lessees will have sorted out most of what they deem essential in the term sheet in order to avoid unnecessary investments of the time and legal costs required to put together a transaction that isn’t a good fit for either party.
• It’s important that lessees take a thorough and thoughtful approach not only to the proposed economics of the transaction, but also to purchase, operation, management, regulatory and tax considerations.
• Lessees must fully disclose all information that might be pertinent to the lessor’s willingness to lease the aircraft pursuant to what’s been proposed in the term sheet.
• The financing proposed in the term sheet must be practical and likely to be approved by the lessor’s credit committee well before the scheduled closing.

Renegotiating an Aircraft Lease Agreement

There are some instances in which it might make sense for a lessee to renegotiate or otherwise restructure an existing aircraft lease.

Traditional Ownership Structure Lease
Whether the parties involved want to renegotiate the lease depends entirely on their relevant and respective needs and whether there are issues that require renegotiation. Given that related party leases are typically handled internally, there are rarely any issues. However, an unrelated party lease could involve a wide variety of issues, including payment issues, operational issues or default provisions. Therefore, it’s imperative that all leases address how to make modification amendments and define applicable resolution provisions.

Lessees are advised to be wary of any entity attempting to offer a lease as a viable alternative to a charter arrangement. The FAA is severely cracking down on such corrupt operations and has pursued multiple enforcement actions over the past two years.

The most important thing here is that all parties understand the terms and conditions of the lease. It’s inadvisable to sign a lease and worry whether you can comply with the terms after the fact. The lessee should always know exactly what they are responsible for under the lease and what the termination and default provisions are.

Financing Lease
Financing lease pricing is based on interest rates and market values. If there is a significant change in either or both, or if the lessee’s needs have changed and they intend to trade up through another lease with the same lessor, the lessee may be able to restructure the lease.

Non-bank lessors are likely to be receptive to restructuring requests. Banks that offer leasing products are more likely to be receptive toward restructuring if the lessee is a desirable customer or if they intend to extend the lease at a time when the actual aircraft value is likely to be less than the assumed value at lease inception.

It’s important that both parties remain aware as to when it might be mutually beneficial to renegotiate or restructure the terms of the lease.

What to Know Before You Sign an Aircraft Lease Agreement

In order to expediently close a deal, it’s critical that lessees fully disclose expectations and other relevant information and be responsive to the lessor. In the case of a financing lease, having an existing banking relationship with the lessor could streamline the approval process and result in friendlier economic terms.

Lease financing for a desirable customer can be competitive; in such situations, lessees should prioritize the reliability of the financing provider over proposed financing rates and costs. To that end, lessees should place more weight on a lessor’s ability to close a transaction in a timely manner and their documentation or closing requirements than on whether they offer favorable economic terms.

Finally, in order to achieve all of their goals related to acquiring, financing and operating a new or pre-owned aircraft, lessees should retain the services of industry professionals with relevant experience and favorably recognized market reputations. This includes retaining legal counsel from a firm such as Vedder Price and advisory services from a private aviation consulting firm such as Essex Aviation.

This article was originally published by Essex Aviation.

NAFA member, Tony Kioussis, President of Asset Insight, shares Asset Insight’s July 2020 market analysis.

Asset Insight's Juluy 31, 2020 market analysis revealed a 1.2% inventory decrease to the tracked business aircraft fleet – the first monthly reduction since January – along with an Ask Price decrease of 1.5%. Which models were impacted the most?

As July ended, Asset Insight’s tracked fleet of 134 fixed-wing business aircraft, and 2,331 aircraft listed for sale equated to a 1.2% inventory fleet decrease compared to June, and a year-to-date (YTD) increase of 6.8%.

The tracked fleet’s Quality Rating dipped a bit from June’s 12-month best figure, and the latest ‘for sale’ fleet mix increased the anticipated cost for upcoming maintenance events close to the 12-month high (worst) figure. However, July’s 5.293 Quality Rating kept the inventory within the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.

July’s Aircraft Value Trends

Average Ask Price decreased 1.5% in July, leading to a 5.0% value decline since the start of 2020. By aircraft group, the figures were as follows:

• Large Jets: This group fueled the loss with a reduction of 2.4%, and a total value loss during 2020 of 11.8%.
• Medium Jets: Ask Prices increased 1.5% during July but were still down 3.7% YTD.
• Small Jets: The group posted a 12-month high figure through a 0.3% gain in value and is now up 9.2% for the year.
• Turboprops: Ask Prices gained 2.8% but are still off by 2.4% during 2020.

July’s Fleet for Sale Trends

The tracked fleet’s total number of aircraft listed for sale decreased 1.2% in July (29 units), reflecting a YTD inventory increase equating to 6.8% (149 units).

• Large Jet Inventory: Decreased slightly by 0.4% (two units), but remains up 14.8% (64 units) YTD.
• Medium Jet Inventory: Availability was down a substantial 2.7% (18 units) for July, bringing the YTD increase down to a single unit (0.2%).
• Small Jet Inventory: Decreased 2.6% (18 units) in July but was still up 6.4% YTD (41 units).
• Turboprop Inventory: The only group to post an increase, Turboprops were up 1.2% (nine units) for the month, and inventory has now grown 9.6% (43 units) YTD.

July’s Maintenance Exposure Trends

Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (deteriorated) 3.1% in July to $1.419m, signaling upcoming maintenance for the latest fleet mix would be close to the 12-month high (worst) figure. The last time our tracked fleet posted a higher (worse) Maintenance Exposure figure was in October 2019. Individual group results were as follows:

• Large Jets: Worsened (increased) 1.0% for the month, but the figure was better than the group’s 12-month average.
• Medium Jets: Worsened by 0.7%, but the figure was only slightly above (worse) than last month’s 12-month best number.
• Small Jets: Suffered greatly from the reconstituted inventory, increasing 15.3% to set a 12-month worst (high) figure.
• Turboprops: At the other end of the spectrum, Turboprops posted a 12-month low (best) figure through a 3.6% decrease.

July’s ETP Ratio Trend

The inventory’s ETP Ratio rose (worsened) to 71.2%, from June’s 69.9%, following three consecutive monthly improvements (decreases), bringing our tracked fleet to just below its worst (highest) 12-month figure.

The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increases, in many cases by more than 30%.

During Q2 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 53% longer than assets with an ETP Ratio below 40% (251 days versus 384 days). How did each group fare during July?

• Turboprops: For the eighth consecutive month, Turboprops registered the lowest ETP Ratio at 41.8%, a 12-month low (best) figure that continued earning them the top spot among the four groups.
• Large Jets: Improved for the third straight month, this time to 61.4% from June’s 64.0%, thereby remaining in second place.
• Medium Jets: Deteriorated (rose) slightly to 73.7% from June’s 73.4%, with the figure remaining better (lower) than the group’s 12-month average.
• Small Jets: Made the environment for many sellers even more challenging through a Ratio increase to 96.5%, a 12-month high figure that was substantially worse than June’s 85.8%.

Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during July 2020.

Most Improved Models

All six ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Ask Price, on the other hand, was not as uniform, with the Beechcraft King Air C90, Bombardier Global Express, and Cessna Citation II, posting decreases of $5,976, $101,143, and $23,789, respectively. The remaining models experienced the following price increases:

• Gulfstream GIV-SP (MSG3): +$2,102,500
• Dassault Falcon 50: +$84,286
• Beechcraft King Air B200 (pre-2001): +$9,247

Gulfstream GIV-SP (MSG3)

Eclipsing all models in July is the one that occupied the ‘Most Deteriorated’ spot during our June analysis. It earned the top position through a Maintenance Exposure decrease exceeding $852k, along with an Ask Price increase exceeded $2.1m. But that does not bring visibility to the full story.

There were two aircraft listed ‘for sale’ in June carrying Ask Prices. When the asset carrying an Ask Price approximately one-third lower than the remaining one sold, the figure naturally shifted dramatically.

Still, there’s no getting around the model’s substantial improvement in Maintenance Exposure, derived through the single July transaction and three additions to inventory. With an ETP Ratio of 55%, and with inventory at only five units (5.6% of the active fleet), sellers should have some realistic opportunities to trade their aircraft, assuming price expectations are sensible.

Beechcraft King Air C90

Our research uncovered two aircraft trades in July, and the 47 units comprising the latest inventory mix equated to 12.1% of the active King Air C90 fleet – hardly the stuff of legend.

While the model’s Maintenance Exposure decrease of $71k far exceeded its Ask Price reduction, the resulting 116.6% ETP Ratio does not hold much promise for sellers. Buyers, on the other hand, have their pick of the litter.

Dassault Falcon 50

Two units found new owners in July. The remaining inventory of 23 aircraft equated to 12.3% of the active fleet. While the ‘for sale’ fleet saw Maintenance Exposure decrease over $33k and Ask Price increase more than $84k, the resulting ETP Ratio still exceeded 126%.

Although statistically deserving of its spot on the ‘Most Improved’ list, it is doubtful that sellers will experience a dramatic change in fortune although, for some buyers, this may still be the perfect solution for their geographic operating environment.

Beechcraft King Air B200 (Pre-2001 Models)

The second King Air model to occupy a spot on this month’s ‘Most Improved’ list definitely belongs here. Four units traded in July, and the 55 aircraft listed for sale create good selection for buyers, while sellers can benefit from availability only equating to 7.1% of the active fleet.

The model’s ETP Ratio, at 46.2%, is also a great deal more conducive to deal-making and resulted from a Maintenance Exposure drop exceeding $70k and a slight Ask Price increase.

Bombardier Global Express

By no means a stranger to this list, the Global Express gained its position in July following a Maintenance Exposure decrease approaching $393k that was overshadowed an Ask Price decrease exceeding $101k.

We did not record a sale during July, and the model’s 21 listed units equate to 14.6% of the active fleet. However, with an ETP Ratio of 67%, and considering the aircraft’s capabilities and industry following, sellers should have more opportunities than sellers of many other models posting such figures.

Cessna Citation II

Occupying the final slot on July’s ‘Most Improved’ list is a model whose constituents range in age from 25 to 42 years, and whose 83 inventory units equate to 16.5% of the active fleet. For buyers not afraid to become the final owner of an asset within the Small Jet range, the Citation II might be worth considering, as Ask Price fell nearly $24k in July while Maintenance Exposure improved (decreased) over $55k.

Of course, the aircraft’s actual Maintenance Exposure could make your acquisition a bit more expensive that planned, considering the ETP Ratio stood at nearly 128% when last calculated.

Most Deteriorated Models

All six models on July’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Bombardier Learjet 36A posted no Ask Price change, while the remaining models experienced the following decreases:

• Cessna Citation ISP: -$58,192
• Bombardier Learjet 55: -$26,071
• Gulfstream GIV-SP: -$348,000
• Hawker Beechjet 40: -$75,000
• Gulfstream GIV: -$11,111

Cessna Citation ISP

The best aircraft among July’s ‘Most Deteriorated’ assets held the second-highest position on June’s ‘Most Improved’ list. Its dramatic change in stature came from a $7k Maintenance Exposure increase, along with a $58k drop in Ask Price.

As if the model’s 128.5% ETP Ratio posed an insufficient challenge for sellers, inventory stood at 20% of the active fleet (55 units) as we closed out July. Three aircraft did trade last month, but this model’s fleet is aged between 35 and 43 years of age, so prospective buyers need to keep in mind that any future resale is unlikely to generate a price much above salvage value.

Bombardier Learjet 55

First the good news: One asset transacted last month and we did not record any additions to the Learjet 55 inventory.

Now the bad news: The 14 units listed for sale equate to 14.6% of the active fleet for an asset whose ETP Ratio is 188% (by virtue of Maintenance Exposure increase exceeding $55k and an Ask Price decrease of more than $26k).

Ask Prices for this model range between just below $500k to just below $1.0m. For an aircraft aged 33 to 39 years, even the low end of the pricing spectrum will be challenging for sellers to achieve, unless they can effectively monetize their aircraft’s Maintenance Equity.

Gulfstream GIV-SP

Three transactions took place in July proving, yet again, this model’s strong following. However, with a Maintenance Exposure increase approaching $487k, along with an Ask Price decrease of $348k, the GIV-SP, unlike those operated under MSG3 Maintenance rules (see above), found its way onto the ‘Most Deteriorated’ list.

While the 19 aircraft listed for sale represent only 9.1% of the active fleet, the model’s 97% ETP Ratio will make selling against its MSG3 brethren challenging for most existing owners, especially if the aircraft’s engines are not enrolled on an Hourly Cost Maintenance Program.

Hawker Beechjet 400

This 31 to 34-year-old model joined the ‘Most Deteriorated’ list having completed no transactions during July. It did so on its Maintenance Exposure weakness which increased (worsened) over $25k, along with a $75k reduction in Ask Price.

Only four units are listed for sale. Unfortunately for sellers, that equates to 12.1% of the active fleet, while the model’s average ETP Ratio, at over 131%, equates to a challenging selling environment.

Gulfstream GIV

The third Gulfstream model to make either list finds itself in the second worst position among July’s ‘Most Deteriorated’ group.

Two aircraft transacted in July to lower the number available for sale to 21 units (12.4% of the active fleet). Unfortunately, at the ripe old age of 27 to 34 years, this superb aircraft is beginning to reach its financial obsolescence through an ETP Ratio approaching 185%, due to a Maintenance Exposure increase exceeding $477k, along with another Ask Price reduction.

Bombardier Learjet 36A

With an ETP Ratio approaching 185%, and units that are as much as 44 years old, it is not difficult to understand why this model occupied the most deteriorated spot on July’s list. What might be surprising is that one aircraft did trade in July, and only four are listed for sale.

Unfortunately, those listings equate to 10.8% of the active fleet whose Maintenance Exposure increased by more that $306k by virtue of the latest inventory mix.

While air ambulance work has kept this model flying, it, too, is staring at financial obsolescence with some units probably already at that destination.

The Seller’s Challenge

It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an HCMP where more than half of their model’s in-service fleet is enrolled on one.

Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer, while simultaneously accruing a higher maintenance figure.

More information from www.assetinsight.com.

This article was originally published by AvBuyer on August 14, 2020.

NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the hidden or unexpected costs of aircraft ownership. 

Major hidden costs, for example, can result when a previous owner has deferred maintenance. You’re better off buying an airplane that’s been regularly used because the owner will typically address issues as they arise in order to continue using the plane regularly.

It’s a myth that it’s smart to look for an aircraft that’s had low flying time. Less wear and tear on the engine and the airframe? While those are important considerations, they should not be the only ones. After all, these are machines and machines are made to be run. When an aircraft sits, its problems remain hidden.

Low flying time could mean high maintenance when it’s your time to own the airplane. That’s one reason the first annual inspection can be unusually expensive — another hidden cost. So be prepared.

Here is a list of other hidden costs associated with aircraft ownership:

• Expenses incurred when an airplane is tied down outside (as opposed to protected in a hangar), including repainting and reskinning the exterior and replacing or repairing instrument panels, aircraft seats, interiors or even sun-crazed windows.
• Contaminated fuel, or more likely, a lineman who accidentally fills your gas tanks with the wrong fuel.
• Unforeseen mechanical failures or mishaps, such as a blown tire, a gear door jamming, a baggage door opening in flight and ejecting an object that damages an elevator or tail surface, etc.
• Compliance with unforeseen airworthiness directives (ADs).
• Animal strikes, bird strikes, lightning strikes, prop strikes, strikes by another aircraft taxiing into you.
• Mud daubers corrupting your pitot-static system or rodents chewing through electrical cables or nesting in your push-pull tubes.
• Sudden failure of one or more instruments, navigation radios or engine monitors.
• Even a pandemic.

The list is extensive but not exhaustive. Hence our advice to add 10% to 15% on top of your projected operations budget, so when those hidden costs reveal themselves, you aren’t surprised.

This article was originally published by AOPA Aviation Finance Company on June 10, 2020.

NAFA member, David Norton, partner at Shackelford, Bowen, McKinley & Norton, gave a presentation on Part 91 Dry Leasing, which was immediately followed up with a panel discussion on illegal charters, the two topics going hand-in-hand.

According to Norton, a wet lease is defined as the "aircraft plus crewmember," and a "dry" lease as a mere equipment lease of the aircraft.  Some aircraft owners, shying away from key legal, logistical and cost differences between Part 91 and Part 135 operations, enter into dry leasing agreements seeking to raise revenue with their aircraft while letting others operate the aircraft.  If not done properly, Part 91 dry leasing can result in penalties from the FAA and refusal of insurance coverage when incident occurs.

The key question is whether operational control is transferred or if an air transportation service is actually being provided.  Norton says that "operational control" continues to be a confusing term among owners and pilots, but essentially boils down to who gets to stay where an airplane is going on a given day. 

"Pilots will say they have operational control, but unless they are the aircraft owner or the aircraft is leased to them personally, pilots are generally not in operational control of the airplane," said Norton.  "The operator is generally a company or person who has the right to say where [the aircraft] is going on a given day, and for [business jets] that means you're usually hiring a professional pilot.  So it's not necessarily the person whose hands are on the yoke acting as the operator."

Read more

This article was originally published by Shackelford, Bowen, McKinley & Norton in The Binder, Vol. 45 No. 2 - Summer 2020 - on August 4, 2020.

FOR IMMEDIATE RELEASE

EDGEWATER, Md. – Aug. 28, 2019 - National Aircraft Finance Association (NAFA) is pleased to announce that Cassels Brock & Blackwell LLP (Cassels Brock) has recently joined its professional network of aviation lenders. 

“NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world. We’re excited to welcome Cassels Brock to our growing organization as we head to our 50th anniversary,” said Jim Blessing, President of NAFA.

Cassels Brock is a Canadian law firm focused on serving the transaction, advocacy and advisory needs of the country’s most dynamic business sectors. As one of the largest business law practices in Canada, they serve multinational, national and mid-market entities.

The firm’s multidisciplinary aviation practice has the expertise and experience to help clients achieve their goals in complex national and multi-national aviation law and aircraft finance transactions, including personal and business aviation needs. Cassels Brock designs, implements and manages the transaction scenarios that best match clients' goals and the available legal framework (working within the international law, common law and civil law systems). 

Cassels Brock is dedicated to serving the needs of both the Canadian and International aviation industries. They can advise, negotiate and draft all relevant documentation in English and French, and have a working knowledge of Spanish, enabling them to provide enhanced support to international clients.

The firm prides itself on understanding the unique business and legal challenges clients face along with the intricate business and regulatory environment in which they operate. Their clients include high net worth individuals, aviation manufacturers and aviation financiers, including aircraft and engine manufacturers, aircraft and engine leasing companies and advisors, government export credit agencies, international banks, hedge funds and other investors.

Much like NAFA, Cassels Brock provides timely, responsive, proactive and practical advice and joins NAFA in exceeding expectations in the aviation industry through teamwork and strong leadership. 

For more information about Cassels Brock & Blackwell LLP, visit nafa.aero/companies/cassels-brock-blackwell-llp.

About NAFA:  

The National Aircraft Finance Association (NAFA)is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit NAFA.aero.

FOR IMMEDIATE RELEASE

EDGEWATER, Md. – Aug. 1, 2019 –The National Aircraft Finance Association (NAFA) is pleased to announce that global law firm Greenberg Traurig, LLP has joined its professional network of aviation service providers. 

“NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world. We’re excited to welcome Greenberg Traurig to our growing organization as we head to our 50th anniversary,” said Jim Blessing, president of NAFA.

Greenberg Traurig’s Business Aviation Practice represents owners and operators of business aircrafts, financial institutions, leasing companies, corporations, airlines, and other aviation-related businesses on a variety of finance, leasing, commercial, and related corporate matters. The team is skilled in advising both domestic and foreign airlines, lessors, and lenders on aircraft, engines, and parts financings; purchases and sales of aircraft and aircraft portfolios; equipment leasing matters; as well as airline investments and other aviation-related commercial and operational matters. Attorneys capitalize on the firm’s global resources by working closely with restructuring, tax, private wealth, antitrust, governmental affairs, intellectual property, environmental, and labor and employment colleagues to develop multifaceted strategies that meet clients’ aviation needs.

Business aviation attorney Edward Kammerer, a longstanding contributor to and recent board member of NAFA, recently joined Greenberg Traurig as a shareholder. He advises the business aviation community on a wide range of transactions and issues, with a special focus on aircraft acquisitions and finance. With 40 years of experience, he represents major corporations, mid-sized companies, family offices, corporate executives, entrepreneurs, and business owners, helping them to acquire, operate, finance, and sell private aircrafts. Kammerer has previously served as in-house counsel for three leading equipment finance companies, including affiliates of two major banks and one leading insurance company. He had responsibility for the development of standard form financing documents and approved documentation of inbound and outbound syndicated secured financings. Kammerer is admitted in New York, Rhode Island, and Connecticut. 

About Greenberg Traurig: Greenberg Traurig, LLP(GT) has more than 2,100 attorneys in 41 offices in the United States, Latin America, Europe, Asia, and the Middle East. GT has been recognized for its philanthropic giving, diversity, and innovation, and is consistently among the largest firms in the U.S. on the Law360400 and among the Top 20 on the Am Law Global 100.  Web: http://www.gtlaw.com Twitter: @GT_Law.

About NAFA: The National Aircraft Finance Association (NAFA)is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; improving the industry's service to the public; and providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit NAFA.aero.

NAFA member SOLJETS celebrates completion of its 100th company transaction.

PARK CITY, Utah, March 4, 2019 /PRNewswire/ -- SOLJETS, a boutique business aircraft brokerage firm, recently announced its 2018 year-end results to its customer base with a predominant theme of growth. The SOLJETS team completed its 100th company transaction in late Q4 2018, and finished the year at 106 total transactions since the company was founded less than four years ago.

SOLJETS also saw a 10% YoY growth in sales revenue, and a 40% jump in the team's employee count. "We're incredibly proud of our team's achievements the past few years. We've also been humbled by the process of starting and building a business," said David Lee, Co-founder and Partner of SOLJETS. While Lee admitted each deal they've done thus far has had its own challenges, he noted all of them came with lessons learned. "You can't learn the aircraft transaction process by reading a book, nor can you be passive in the transaction itself and hope for a good result. It's creativity, steadfast perseverance, and expansive business and technical acumen that gets deals done these days," mentioned Lee, also adding these are all traits he looks for in all SOLJETS team members. 

The company is looking forward to additional growth in 2019. "We recently hired a Regional Sales Director for the Western USA, and we currently have eyes on another two candidates for additional sales coverage in the U.S.," noted Greg Oswald, SOLJETS Co-Founder and Partner, of the company's immediate personnel plans. SOLJETS also just recently finished building their new offices in Park City, Utah. "We're building our future, literally and figuratively," said Oswald.

Of the 106 deals completed through the end of 2018, SOLJETS transacted a myriad of different aircraft types, 32 models to be exact, from light to midsize to super-mid business jets, and even jet fighters. The firm has bought and sold planes in 18 different countries.

ABOUT SOLJETS: Founded in 2015, SOLJETS is a business-aircraft brokerage firm with offices across the United States in Arizona, Atlanta, Boulder, Chicago, Park City, and Sacramento. The unique SOLJETS client-centric model focuses on fostering buyer and seller trust and peace of mind throughout every transaction. SOLJETS serves clients globally and has completed over 100 aircraft transactions…and counting.

SOLJETS. Freedom. Adventure. Delivered.

This article was originally written by SOLJETS and published on PRnewswire on March 4, 2019.

NAFA member Jason Zilberbrand, President and CTO of VREF Aircraft Value Reference & Appraisal Services, announces expanding staff and specialties.

VREF Aircraft Value Reference, the leading provider of aircraft valuations for the aviation industry expands staff and services.

CHICAGO, IL, USA, June 3, 2019 /EINPresswire.com/ -- VREF Aircraft Value Reference, Appraisal & Litigation Consulting Services the leading provider of aircraft valuations for the aviation industry, continues its 25th Anniversary celebration by adding more staff and specialties to its management team to meet their expanding business requirements.

VREF has been expanding its specialty expertise’s, which now includes aviation cyber security, airport security, avionics, avionics security, and ground equipment appraisal and Litigation consulting.

“Offering expertise, consulting and appraisal work related to cyber security and avionics is not something we take lightly. It is a highly specialized field that requires years if not decades of training, certifications and experience to produce high quality and awe-inspiring results”, said Jason Zilberbrand President of VREF. 

“VREF is the only Business Aviation and for that matter General Aviation firm that offers the breadth of expertise we do with a staff including lawyers, federal agents, teaching professors and A&P technicians and is the most knowledgeable appraisal team I have ever worked with,” said Ken Dufour CEO.

Eric Pupye, Esq. joined VREF in March to oversee Cyber Security, Airport Security and Avionics Security Expert Witness and Litigation Consulting. Eric is an attorney and Federal Agent with The Department of Homeland Security and he has Top Secret Security Clearance. In addition to being an attorney, Eric is a certified Protection Professional (CPP) and a Professional Certified Investigator (PCI). Prior to joining VREF, Eric spent a decade in the U.S. Air Force working with the National Security Agency, Defense Intelligence Agency, and the Defense Threat Reaction Agency. Eric is a combat veteran and he was awarded the Bronze Star.

“Eric brings a new skill set and specialties to the firm, we are not only honored to be working with him, but it also establishes VREF as the go-to company for all aviation related litigation support matters,” said Jason Zilberbrand, VREF President and CTO. Mr. Zilberbrand continued, “We are confident that Eric’s talents will be a huge part of our continued growth as we start taking on more sophisticated projects.”

Additionally, VREF opened its third International Office and welcomed Neil Schiller, ASA of Sydney Australia to the team. This is the third International office opened in 2019 including Switzerland and Austria. Neil will be overseeing appraisal and expert witness work in the Oceania region and he has over 30 years of extensive experience in appraising aviation related assets including aircraft, helicopters, ground equipment and airport equipment. Prior to joining VREF, Neil was in charge of the GECC portfolio of Business aircraft for Australia and New Zealand.

“Eric Pupye and Neil Schiller are welcome additions to VREF. The team we have assembled represents the best talent available in the industry and our commitment to the industry to drive transparency and ethics. We plan on opening additional offices to assist the existing client base,” said Ken Dufour, ASA and CEO of VREF.  

About VREF

VREF Aircraft Value Reference, Appraisal & Litigation Consulting Services, was founded in 1994 and is headquartered in Des Moines, Iowa with offices in Chicago, Rockford, Los Angeles, Boise, Daytona Beach, Austria, Switzerland, China and Australia.

VREF delivers aircraft and engine data through online subscription services (SaaS) and published quarterly digests.

VREF provides valuations, appraisals and litigation consulting services to a world-wide client base of aviation professionals including, law firms, banks, financial institutions, leasing companies, manufacturers, aircraft owners, aircraft operators and suppliers. VREF Aircraft Value Reference, Appraisal & Litigation Consulting Services plays a key role in advising decision makers within the aviation industry. 

VREF is the official Valuation Guide and Appraisal company for the AOPA.

For further enquiries or interviews please contact the VREF team.

P: 844-303-VREF
E: info@vref.com

Jason Zilberbrand
VREF
3129610934
email us here

This press release was originally published by EINPresswire on June 3, 2019.

FOR IMMEDIATE RELEASE

EDGEWATER, Md. – May 28, 2019 – National Aircraft Finance Association (NAFA) is pleased to announce that Equity Bank has recently joined its professional network of aviation lenders. “NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world. We’re excited to welcome Equity to our growing organization as we head to our 50th anniversary,” said Jim Blessing, President of NAFA.

Founded in November 2002 in Andover, Kansas by current Chairman and CEO Brad Elliott, Equity Bank has grown through a combination of organic growth and acquisitions, and now has $4.1 billion in assets. Equity Bank strives to provide an enhanced banking experience for customers with sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based customer service of a community bank. Parent company Equity Bancshares, Inc. trades on the Nasdaq Global Select Market under the ticker symbol EQBK.

Equity Bank has now launched a business aviation division, headed by Morgan Littell, industry veteran and former NAFA member through UMB Bank. The division will focus on providing tailored financial solutions for business aircraft acquisitions. 

“We’re proud to provide financing solutions that are tailored to the needs of our customers, including our dedication to the aviation needs of our clients,” said Craig Anderson, Executive Vice President and Chief Operating Officer of Equity Bank. “We’re pleased to have a professional leader like Morgan join our team, and she will be an asset to our customers.”

Much like NAFA, Equity Bank is focused on community and growth in financial services, and that now extends to the business aviation industry. Equity and NAFA foster an environment in which passionate, knowledgeable and committed professionals can lend their expertise and high standards of service to the financial community.

For more information about Equity Bank, visit equitybank.com.

About NAFA:  

The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit NAFA.aero.

Teterboro, NJ, May 7, 2019 – Meridian, the award-winning private aviation company, is pleased to announce that it has been recognized as one of the nation’s best FBOs by two of the leading industry surveys for 2019. The company’s Fixed Base Operator (FBO) in Teterboro was voted in the top 5% of all US FBOs, as well as the #1 FBO in the Northeast, by readers of Aviation International News(AIN) in its annual FBO survey. Readers of Professional Pilot (ProPilot) also voted Meridian Teterboro among the best FBOs in this year’s annual PRASE Survey. 

In addition to ranking the FBOs, both surveys also measure individual performance. Meridian is proud to say that both Betsy Wines and Victor Seda continue to be recognized for their unwavering dedication to customer satisfaction. AIN voters distinguished Betsy Wines for routinely going “Above & Beyond”, while the ProPilot survey acknowledged both customer service representatives for their efforts. Wines ranked #2 and Seda ranked #4 in the Best CSR category, and 2019 marks the 13^thyear in a row that the two colleagues have been voted together in the top of the category. 

“It’s gratifying to know that our efforts are appreciated,” said Ken Forester, Meridian’s CEO. “We know customers have options when flying into Teterboro, and I am proud of Betsy and Victor and the entire team who make every pilot and passenger feel welcomed. Our customers enjoy coming to Meridian because of the personal commitment we make to each customer and to each other.”

The 2019 AIN FBO Survey results were released on April 1, and the results of the Professional Pilot PRASE Survey were released on April 29. Meridian was again named the highest ranking FBO at Teterboro Airport in both surveys. 

“These industry surveys are well-respected. The entire Meridian TEB team is honored to be recognized for our exceptional service,” Forester added. “We sincerely thank our customers for their support and confidence in us.”

About Meridian

Meridian is an award-winning, private aviation company with locations at Teterboro Airport (TEB) near New York City, and Hayward Executive Airport (HWD) near San Francisco. Meridian owns and operates businesses that include FBOs, Private Air Charter, Aircraft Management, and Aircraft Maintenance. We also have charter sales offices located at Van Nuys Airport (VNY) and Sonoma County Airport (STS) in California. 

Meridian Teterboro has earned numerous industry awards and accolades for its exceptional service: 2019 AIN FBO Survey - Top 5% FBO in the Americas and #1 FBO in Northeast; 2019 Professional Pilot PRASE Survey - Top 13 Best FBOs in US, Top 6 Best Independent FBOs in US, and Best CSRs (Betsy Wines and Victor Seda); 2018 Pilots’ Choice Awards - #1 US FBO in Northeast. Meridian was voted #1 FBO at Teterboro Airport in all three surveys. 

Meridian Air Charter has one of the best safety standards in the industry. In addition to our own Safety Management System (SMS), we regularly undergo rigorous third-party audits conducted by the industry’s leading vendor and international industry auditing associations. Meridian is one of only 140 operators worldwide to hold the ARG/US Platinum rating, the highest level awarded. We are also IS-BAO Stage 2 Certified and IATA TCO Approved. We maintain the Wyvern Wingman Certification, which only 103 operators currently hold worldwide. 

For more information, please visit our website at www.meridian.aero or call us in Teterboro, NJ, at 201-288-5040, or in Hayward, CA, at 510-674-2500.

#  #  #

  A ramp view of Meridian’s terminal and hangar at Teterboro Airport (KTEB)

The Meridian Teterboro Customer Service Team

The Meridian Teterboro Line Service Team 

This press release was originally published by Meridian on May 7, 2019.

NAFA member, H. Lee Rohde, III, President & CEO of Essex Aviation, shares a private aviation case study on finding the right combination of services for your aviation needs..

The Client

The client, an executive in the venture capital division of a global asset management firm, spends a significant amount of time traveling, for both professional and personal reasons. A longtime private flyer, the client also frequently makes use of private aviation services for his family.

Prior to working with a dedicated private aviation consultancy, the client utilized the services of a number of different jet carriers on a charter basis, quoting and scheduling each flight individually with help from his executive assistant.

The Challenge

Following a move from Massachusetts to Vermont, the client saw a significant increase in his volume of travel, both personally and professionally. Since the client continued to work in Boston, he began to use small light jet charters to commute from Vermont to Massachusetts on a weekly basis. As the number of charters began to add up, the client realized he needed a more practical solution to his private aviation needs.

In addition to an increased volume of travel, the client also increased his use of other charter aircraft instead of his charter provider’s fleet of aircraft; this prompted the client to look at alternative or supplemental lift options for his ongoing travel.

The Solution

Based on a referral from his wealth management firm, which has worked with Essex in the past to handle other clients’ travel requirements, the client turned to Essex Aviation Group for dedicated private aviation consulting services.

The consultants at Essex immediately set to work conducting a comprehensive flight history analysis for the client, examining key metrics such as the average duration of the client’s flights, mileage, frequency, aircraft type, etc. Based on the results of this analysis, Lee Rohde, President and CEO of Essex Aviation, crafted a multiple service provider program that would best meet the client’s various business and personal travel needs. The program Lee developed included a combination of a membership program, card program and fractional share provider, which reduced some of the overall flight costs by as much as 50 percent.

By working with Essex Aviation the client was able to reduce some of the overall flight costs by as much as 50%

The Conclusion

Essex Aviation’s ability to adapt to the client’s changing private aviation needs has contributed to a positive, ongoing relationship.

Recently, Essex facilitated the sale of the client’s shares in the fractional share program, processed renewals with his business aviation services provider and re-evaluated his usage, helping him shift from a 25-hour jet travel card to a 50-hour renewal. According to the client’s executive assistant, the client continues to rely on Essex for tracking analysis and fully intends to engage Essex’s services in the future for an updated usage analysis.

“Lee’s always ready with the next step and the next idea — he often points out options I might not think of or see,” said the client’s executive assistant. “He’s also patient with us as our needs change, especially since we don’t always have time to delve into things ourselves.”

Together, the client and the team at Essex have developed an efficient system for exchanging and updating information, as well as demarcating professional and personal usage, all of which allow for more in-depth ongoing usage analysis.

Said the client’s executive assistant, “It’s been a pleasure all along to work with Lee. He’s extremely responsive and has been able to provide a quick turnaround on everything we’ve asked for. Everything’s running like a well-oiled machine.”

To download the full case study, click here.

This article was originally published on Essex Aviation's blog.

Aviation loss adjuster significantly expands its US operation with specialist team focused on domestic light aircraft claims 

(Norcross, GA) — McLarens Aviation, a leading provider of survey and loss adjusting services to the global aviation industry, has announced the launch of McLarens General Aviation, a new division offering bespoke loss adjusting services to the US light aircraft market. A team of highly experienced adjusters has joined the global aviation specialist to handle domestic, general aviation claims across Continental USA. The move allows McLarens Aviation to significantly expand its existing US operation, which will now operate across a network of 19 strategically located offices, in 13 states. Locations include Atlanta, Austin, Chicago, Cincinnati, Dallas, Denver, Houston, Melbourne (Florida), Miami, Nashville, Newport Beach, Oklahoma City, Orlando, Philadelphia, Prescott (Arizona), Sacramento, Seattle, Scottsdale and St. Louis.

The team will be led by Nic Stratta, who joins as Chief Operating Officer. A well-known and respected loss adjuster, Nic has over 40 years’ experience working in aviation insurance claims, across a number of major insurance, broking and loss adjusting businesses. Nic, who will be based in McLarens Aviation’s new Dallas office, will oversee a regional management team that includes David Gourgues, Regional Manager, Eastern Region; Michelle Brown, Regional Manager, Western Region; and Eric Rank, Regional Manager, Central Region – all of whom are seasoned aviation loss adjusting professionals.

McLarens General Aviation’s team has an average of 25 years’ experience in handling general aviation claims of all classes, including first- and third-party hull damage claims, physical damage to property, bodily injury, third party liability, hangar keeper’s and product liability claims, in addition to offering salvage capabilities, environmental services and Certified Aircraft Appraisal. The team’s light aircraft expertise encompasses the full spectrum of general and light aircraft, including fixed wing and rotor, individual owner, rented and corporate-owned.

Gary Brown, Chief Executive Officer, McLarens: “McLarens continues to deepen its specialty loss adjusting services across our global firm. This focus on the domestic general aviation market shows our commitment to leveraging our existing expertise and expanding capabilities where there is a need in the market. As our firm grows, we’ll look to serve these kinds of niche markets, where our specialised technical expertise is a tangible benefit to our clients.”

Nigel Minett, Managing Director, McLarens Aviation: “General aviation is a distinct area of the market and one that requires a tailored approach to loss adjusting and claims management. The USA is the world’s largest market for light aircraft and is one we’ve been monitoring for some time, so we’re delighted to have Nic and his team on board to help us launch this specialist offering and serve the needs of this market.”

Nic Stratta, Chief Operating Officer, McLarens General Aviation: “The size of our team, level of expertise and ability to offer rapid, local response to incidents across the country, mean that our proposition in this area really is second to none. We see huge potential for growth, particularly with the backing and expertise of McLarens Aviation’s existing US network.”

NOTES TO EDITORS: 

About McLarens and McLarens Aviation

McLarens is a leading independent global insurance services provider with offices and operations strategically located around the world. With a focus on complex, commercial and niche markets, McLarens provides loss adjusting and claims management services, as well as auditing and pre-risk surveying. McLarens Aviation is a leading provider of loss adjusting, survey and risk services to the global aviation industry. Clients include the aviation insurance market, aircraft operators, airports, maintenance and repair organisations (MROs), financiers, lessors, oil and mining companies, law firms and regulators. It has a team of over 90 in-house aviation specialists, operating across 48 offices, in 22 countries across the globe and manages in excess of 4,000 insurance related assignments each year.

McLarens Aviation Locations:

London (City) – London (Heathrow) – Abu Dhabi – Algiers – Atlanta – Austin – Buenos Aires – Bangalore – Beijing – Bogota – Brasilia – Brisbane – Caracas – Chicago – Cincinnati – Dallas – Denver – Delhi – Frankfurt – Houston – Johannesburg – Kingston – Madrid – Melbourne – Melbourne (USA) – Mexico City – Miami – Montreal – Moscow – Nashville – Newport Beach – Oklahoma City – Orlando – Paris – Philadelphia – Prescott – Sacramento – Santiago – São Paulo – Seattle – Scottsdale – Shanghai – Singapore – St. Louis – Sydney – Toronto – Vancouver – Wellington

Contact:
McLarens 

Linde Miscio
Senior Director – Global Marketing & Communications
linde.miscio@mclarens.com

This press release was originally published by Mclarens on February 27, 2019.

NAFA member, David G. Mayer, Partner at Shackelford Law, discusses the Tax Cuts and Jobs Act of 2017.

If the Tax Cuts and Jobs Act of 2017, H.R.1, aimed to simplify federal taxes in the U.S., it missed the mark for business aviation. However, it did include significant tax benefits and other changes worth considering before a prospective business/taxpayer enters into an aircraft purchase, sale, lease, or management arrangement. Changes include full expensing of aircraft cost until 2023, repeal of like-kind exchanges, an exemption of aircraft management fees from federal excise taxes (FET) and continuing incentives for tax leasing.

H.R.1 should boost new and preowned aircraft acquisitions and sales because it offers buyers immediate cash savings on purchases of aircraft. It does so by increasing “bonus depreciation” on business aircraft purchases from 50 percent to 100 percent starting Sept. 27, 2017, and ending in 2023. After that, it phases down 20 percent per year to zero.

A business can, therefore, “fully expense” the aircraft cost in the year the business places the aircraft in service in its “trade or business,” meaning it must use the aircraft for more than 50 percent business use. Previously, bonus depreciation applied only to new aircraft, but H.R.1 extends bonus depreciation to preowned aircraft. If the business does not use the aircraft in its trade or business, this benefit does not apply.

The cash value of full expensing helps offset the disappointing repeal of IRS section 1031 like-kind exchanges. To illustrate, assume a business purchases a preowned, “replacement aircraft” for $5 million in 2018 and sells its fully depreciated, old, “relinquished aircraft,” for $4 million that same year. The business receives $4 million in ordinary income from the sale of the relinquished aircraft and fully expenses the $5 million purchase price of the replacement aircraft.

At the new corporate tax rate under H.R.1 of 21 percent, down from a previous 35 percent maximum, the business saves $840,000 in taxes on its $4 million sale. Before H.R.1, it would have deferred the taxable income under IRC section 1031 rather than achieve immediate tax savings. Importantly, as bonus depreciation phases down, income taxes will likely increase on proceeds of aircraft sales that a like-kind exchange could otherwise have continued to defer.

In a change that provides some relief for business aviation, H.R.1 seems to protect management companies and their customers from FET on “aircraft management services.” This new term refers to a broad range of flight, administrative, and support services provided by management companies to aircraft owners and lessees.

The key to structuring non-FET management arrangements appears to be simple: only aircraft owners and certain lessees may pay for flights of their managed (owned or leased) aircraft, even if they are not on the flight. This rule should ease the concern about IRS imposition of FET and provide a reliable basis for structuring management and leasing transactions.

One key feature of H.R.1 arises from what it does not include. H.R.1 omits any reference to “possession, command, and control” (PCC) of aircraft, its controversial Chief Counsel opinion in 2012. There, it sanctioned the imposition of FET on management company fees largely because it found that the management companies exercised PCC.

The absence of that factor in H.R.1 should insulate owners and certain lessees from IRS intrusion based on specious PCC arguments. Nevertheless, owners, lessees, and other operators should scrutinize existing and new aircraft lease and management documentation to align the provisions closely to applicable provisions in H.R.1.

Management companies beware: H.R.1 does not change the imposition of FET on parties engaged in “transportation by air” under IRS Section 4261 for commercial operations/charter. Further, H.R.1 does not alleviate the existing ambiguity in categorizing private and commercial operations caused, in part, by the IRS’s persistent disregard of FAR Parts 91 and 135.

Stated differently, the FAR and IRS apply different standards to identify private and commercial flights. Still, this disconnect should not interfere with the practical applications of H.R.1 or the FARs.

Finally, H.R.1 alters the tax dynamics for leasing. Businesses already use leases, as lessees, to shift residual value risk to owner-lessors and achieve favorable pricing. Although higher pre-H.R.1 tax rates encouraged tax leasing, H.R.1 should nonetheless support tax leasing by lessees that lack a sufficient tax liability to use full benefit of 100 percent bonus depreciation, loan interest, and state income tax deductions.

A lessor can help reduce its lessee’s after-tax cost of capital when using the tax benefits available to it on acquiring aircraft. By purchasing an aircraft, a lessor with an adequate tax appetite should use tax benefits efficiently and share its reduced tax burden by lowering rents payable by its lessee.

H.R.1 should help lift the volume of business aviation transactions, but businesses must properly structure deals to make the most of it. As with any tax or legal matter, always consult your own expert to properly address your personal situation.

David G. Mayer is a partner in the global Aviation Practice Group at the Shackelford Law Firm in Dallas, which handles worldwide private aircraft matters, including regulatory compliance, tax planning, purchases, sales, leasing and financing, risk management, insurance, aircraft operations, hangar leasing and aircraft renovations. Mayer frequently represents high-wealth individuals and other aircraft owners, flight departments, lessees, borrowers, operators, sellers, purchasers, and managers, as well as lessors and lenders. He can be contacted at dmayer@shackelfordlaw.net, via LinkedIn or by telephone at (214) 780-1306.

This article was originally published on AINonlnie on January 11, 2018.

NAFA member, GAMA, releases the latest Harris Poll survey findings.

Orlando, FL –– The General Aviation Manufacturers Association (GAMA) today joined with the National Business Aviation Association (NBAA) to release the findings of the latest survey conducted by The Harris Poll demonstrating the value of business aviation in providing safe, efficient transportation to companies of all sizes, particularly those located in smaller communities with little to no commercial airline service.

“The Real World of Business Aviation: 2018 Survey of Companies Using General Aviation Aircraft,” represents a statistically valid representation of the use of business aircraft. The following are among the survey’s key findings:

• Most users of business aviation are small companies employing 500 or fewer workers. Sixty-two percent of pilots and flight department leaders (identified as "pilots" for survey purposes) stated their companies utilize a single, turbine-powered aircraft.
• Many business aircraft are largely flown to towns with little or no airline service, with pilots reporting that, on average, 31.5 percent of their flights over the past year were to destinations lacking any scheduled airline service.
• Scheduling flexibility remains a key driver for business aviation, with 51.6 of passengers stating that traveling on business aircraft enables them to keep business schedules that could not be met efficiently using the scheduled airlines.
• A significant portion of business aircraft passengers are technical specialists, managers and other company employees, as well as customers. These passengers spend an average of 63 percent of their time on board business aircraft engaged in work, compared to just 42 percent when traveling commercially. Furthermore, two-thirds of these passengers say they are more productive on business aircraft flights than when they are in the office.
• During the past year, 38 percent of pilots reported flying business aircraft on humanitarian missions, averaging three such missions annually.

"Since 2009, we've said, 'No Plane No Gain,' and this updated survey confirms the power of the slogan," said GAMA President and CEO Pete Bunce. "General aviation aircraft are indispensable business productivity tools, allowing flexibility, connectivity and efficiency. But they are also on the front line, providing an essential transportation and supply link for those in need around the world."

“Once again, we see that business aviation is a vital tool for companies of all sizes, enabling passengers to use their travel time for more effectively and efficiently than alternatives, while also providing critical lift to smaller communities and areas in need of emergency relief,” NBAA President and CEO Ed Bolen said.

The Harris Poll conducted 202 online interviews of pilots, flight department managers and directors of flight operations or aviation for this survey, with 276 interviews among passengers on business aircraft. Its findings are in line with previous Harris Poll surveys in 1997, 2009 and 2015. Like those examples, the 2018 study was conducted on behalf the No Plane No Gain industry advocacy campaign, co-founded by NBAA and GAMA.

View the complete survey.

This press release was originally published by GAMA on October 16, 2018.

NAFA member, Jetcraft, has released the findings from its fourth annual 10-year business aviation market forecast, building upon the 2017 prediction of a new business cycle of steady, healthy growth and expanding revenues.  

Jetcraft, the global leader in business aircraft sales and acquisitions, is today releasing its fourth annual 10-year business aviation market forecast.

The annual market forecast reaffirms that steady growth in the private jet industry is set to continue, with predictions of 8,736 unit deliveries over the next 10 years, representing $271bn in revenues (based on 2018 pricing). North America will once again take the lead, accounting for 60% (5,241) of predicted new unit deliveries over the forecast period, with Europe expecting 18% (1,572), and Asia-Pacific 13% (1,136).

Jahid Fazal-Karim, Owner and Chairman of the Board at Jetcraft, says: “2018 has been a real turning point for business aviation, as we have now successfully navigated through our industry’s most difficult period. This year’s forecast predicts the continuation of our current business cycle of steady and healthy growth, driven by an increase in wealth creation and the demand for larger and more expensive aircraft.”

The increase in wealth creation over the past decade has spurred growth in family offices that are now offering a wide variety of specialized services, including business aviation. Together with the increase in block charter and fractional programs, this is exposing more UHNWIs to the industry than ever before.

However, despite continued economic growth, Fortune 500 companies have yet to return to historical aircraft transaction levels, due to maintaining a focus on other financial priorities, such as share buybacks and paying down debt. This customer segment is unlikely to restart aircraft purchasing programs until well into the cycle.

The forecast predicts that the large jet category, comprising super large, ultra long range and converted airline segments, will constitute 32% of total units (2,778) and 64% of total revenue over the next decade. All new aircraft model programs, both announced and projected, during the forecast period are exclusively widebodies.

Fazal-Karim adds: “Predicted unit deliveries in the large jet category account for a huge proportion of total revenues in the industry, demonstrating the trend towards larger, long range aircraft to support today’s global business needs.”

While the industry is set to embark on a period of substantial growth, its resilience during the challenges of the previous business cycle has prepared it well for expansion.

Fazal-Karim concludes: “We’re confident that the lessons we’ve learned over the past decade will ensure sustainable growth for business aviation in the years to come. Ours is an enduring industry, and one with a buoyant future ahead.”

Jetcraft’s full 2018 10-year Business Aviation Market Forecast is available to download here. Report graphs available for publication on request.

This market report was originally published by Jetcraft on October 10, 2018.