On March 6, 2011 Bank of America hosted an aviation seminar entitled Market Perspective on Business Aviation at their New York City corporate offices. Jim Dickerson, Managing Director Bank Markets for Bank of America Leasing, served as the seminar’s moderator as well as a speaker covering aircraft finance topics.
The program focused on the following topics:
Current Market: New and Pre-owned Aircraft
Current Issues: Regulatory and Tax
Aircraft Finance: Trends and Options
Leading Edge Aviation Solutions’ president, Joseph Carfagna, Jr., was delighted to serve on the six member panel and as a speaker covering market trends for new and pre-owned aircraft.
TRENDS FROM THE SEMINAR
U.S. Economy Continues to Lanquish
The U.S. gross domestic product trended down, not up, in the first quarter of 2011. The U.S. economy continues to struggle with debt and unemployment issues and cannot come to agreement with how to effectively address these problems. The economy seems stuck in neutral and improvement is questionable. A ray of good news is that corporate earnings are up. In recent months the aviation market has seen an increase in the number of corporate jets sold to corporations versus wealthy individuals.
Foreign Sales
Foreign markets, comparatively speaking, are active for large cabin aircraft. New equipment is favored in most instances because the infrastructure to maintain and manage aircraft is inadequate, for example, in India and China and owners seek the greatest dependability. New and very late model used aircraft have been selling into the Asia Pacific region; Latin America, particularly Brazil, and to some extent The Middle East. These foreign sales, however, are insufficient to balance the decrease in the US market—still the largest market in the world by far for business jets.
Pricing and Financing
Because of the demand for used, near new, large cabin aircraft, the prices may trend upward for these models. For most other models there is too much supply in the market on the used end. Midsize and light jets are a bargain.
Banks are loaning money to finance aircraft; however, they have become much more prudent about it. Today it takes longer to secure financing because of increased investigations by financial institutions not only concerning the credit worthiness of the applicant but also with regard to the value of the asset. Financing older aircraft is more difficult for today’s purchasers with twenty years being the maximum age of the asset as a norm. Banks are also requiring more money down on the purchase.
Taxes and Regulatory Trends
It is important today more than ever before to know the laws and tax consequences when purchasing an aircraft. Utilizing professionals for the acquisition transaction and good legal and tax counsel is critical.
Areas for concern are use of bonus depreciation. It is still available for purchasers, but care must be taken regarding when the aircraft is placed in service and how the aircraft is used. Know the rules in order to protect qualification for bonus depreciation.
Another trend the industry is observing is closer scrutiny by the FAA of non citizen trusts for aircraft ownership by individuals or businesses that are not U.S. citizens. These trusts will probably continue but not without changes.