The first step in the planning process is to develop an acquisition plan to determine what type of aircraft is best suited for the company’s or individual’s particular operational, financial and strategic needs.
Gold Executive Jet Solutions provides an overview of the critical factors to consider when thinking about buying a business aircraft.
The first step in the process should involve an assessment of the company's operational needs, in particular, how the company intends to use the aircraft. Factors to consider include: how much the aircraft will be used, what the typical destinations or distances are, and the number of passengers, the need for multiple aircraft and the feasibility of alternative transportation options (rail, airlines and cars).
This step should involve a comprehensive discussion among all the relevant parties to determine an operating profile based on the company's transportation needs. Thought should also be given to future operations, such as emerging markets, mergers and acquisitions, potential changes to operating structure and other unique needs, such as providing transportation to clients, officers and directors, and other guests. Many companies also allow the aircraft to be used by officers for personal use, and such use may have Federal Aviation Administration (FAA), Internal Revenue Service (IRS) and Securities and Exchange Commission (SEC) implications. Finally, companies may want to consider chartering the aircraft commercially to obtain charter revenue.
The first issue a company faces is whether to simply pay cash or, given the current historically low interest rates, whether better uses of its cash exist. If the company decides to finance, the next issue is whether to enter into a loan or lease, and at what terms. Both options have very different exit strategies, disclosures and tax implications. A comprehensive financial analysis by Gold Executive Jet Solutions will be imperative to the decision-making process. The analysis should consider the entire ownership cycle from acquisition to sale and include all fixed, variable, ownership and transition costs. As discussed below, tax implications such as depreciation, deductions, sales/use tax and other taxes should be analyzed thoroughly. An ideal financial analysis mad by Gold Executive Jet Solutions includes a discussion of the following: loan, lease or cash purchase, potential charter revenue, budget and tax implications, residual values, maintenance plans and purchase of a new or pre-owned aircraft.
Tax planning is another important step in the acquisition process. Comprehensive federal and state tax planning allows many owners to choose the best tax planning model
Selecting the Right Aircraft
In today's business aircraft market, companies have a wide variety of aircraft and options from which to choose. Companies narrow their choices based on their operational needs, focusing on cost, size and range. Business aircraft are divided into turboprops and jets, and jets are further divided based on cabin size and range (very light, light, medium, heavy/ultra-long-range). Companies should consider whether to buy or lease a new or pre-owned aircraft. Primary criteria that companies consider when selecting the right aircraft are performance, comfort, maintenance and market conditions. As a general matter, once a company has narrowed its choices to a particular aircraft class, it is critical to determine the operating costs of aircraft within the cabin class. The ideal aircraft is one which provides the highest level of operational capabilities consistent with the company’s needs at the lowest aggregate hourly operating cost.
One of the most important aircraft acquisition planning decisions is determining the appropriate ownership structure. The structure will depend primarily on the company's needs and regulatory constraints. The most common aircraft ownership structures include a company within a group of consolidated companies, a single company (S-Corp or C-Corp), two or more owners using a joint ownership arrangement, an individual or partnership (the partners must be individuals), fractional ownership and owner or voting trust (primarily for non-U.S. citizens).
Each ownership structure has unique benefits, and some may be used only based on application regulatory constraints. To address this dilemma, many owners either place their aircraft in a company with an existing business function or create an SPE that merely owns the aircraft and leases it without pilots to third-party lessees. The lessees then obtain the pilots from another source. The aircraft owner may not direct the lessee to use specific pilots.
For many companies, perhaps the most common ownership structure involves placing the aircraft with a company within a consolidated group of companies. The FARs permit an owner to charge its parent and subsidiary companies for the carriage of company officials, employees, guests or property when the carriage is within the scope of, and incidental to, the business of the aircraft operator. Many companies use this structure because it offers a great deal of flexibility as well as the ability to charge other companies within a consolidated group of companies for their use of the aircraft.