With current inflationary pressures and a looming recession, as well as the recent runup in bizjet prices, the aircraft market is settling and there are better opportunities ahead. In addition to interest rate considerations if financing a purchase, the US exchange rate is a factor as aircraft, parts and other services are all denominated in USD.
Aircraft Management Company “AMC”:
The engagement of an Aircraft Management Company (the “AMC”) to assist in aircraft selection and procurement is a good first step. You will need their services to operate and maintain your aircraft and the AMC has the experience and expertise to understand what works best for all parties. They can also arrange third party charter revenues to offset some of your costs.
To assist in your selection of an AMC arrange for a tour of their facilities and FBO as well as obtain a draft aircraft management agreement and operating budget to review. You may be surprised with the operational expenses which are 10-15% of aircraft’s capital cost per year. Also, discuss crewing the aircraft as there is an acute shortage of experienced pilots and the good AMC’s have the market advantage. The AMC will assign at least one dedicated pilot to operate your aircraft as well as maintenance and service personnel who are all their employees.
The AMC maintains two operating licenses under the Canadian Aviation Regulations, one Private (personal) and one Commercial (corporate and charter use). The licenses restrict locations their aircraft can be operated as well as outline the aircraft types they can fly. Aircraft are registered with Transport Canada in the name of the AMC – your name as owner is not readily available. An interesting website for aircraft registrations is here. For example, enter “Skyservice” under Owner to see aircraft they operate and then drill down under Mark to get aircraft information. The FAA registry for US registrations: “Click here for FAA Registry Aircraft Inquiry” are made in the owner’s and AMC’s names.
Most AMC’s are licensed by Transport Canada as Approved Maintenance Organizations and have staff and expertise to maintain your aircraft. Manufacturer’s maintenance programs (“PBH”) are available for engines, airframes and APU’s with payments made for each hour flown. The funds accrued in program are used for replacement or overhaul. A PBH program adds value to the aircraft and is generally transferrable to a new owner and assignable to a lender. A further advantage is certainty on availability of parts and coverage in event of a premature failure of a component.
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Aircraft Selection:
The purchase of a pre-owned bizjet makes economic sense as it depreciates rapidly in the initial five years and then the curve flattens out through useful life of 25 years or more. Further rationale is the 10% Luxury Tax on purchase of an aircraft manufactured after 2018. Should the aircraft require refurbishment you should consider having this completed in conjunction with the purchase with these costs included in financing.
The pedigree of preowned aircraft being reputation of previous ownership and the AMC is a valuable consideration. Ideally you can locate a single-owner aircraft with low time and transferrable PBH programs. An essential step before buying is pre-purchase inspection “PPI” which will outline items needing attention and maintenance and damage history. Also understand where an aircraft is in its inspection cycle; these are very costly and time consuming. With the number of available BizJets in the US often purchasers will import an aircraft which is a complex procedure. Your AMC will provide expert assistance with the PPI and importation process.
Taxation & Legal Matters:
Your legal and financial advisors will likely suggest the aircraft is held in a Special Purpose Entity formed to distance other asset from the aircraft ownership risk. Aviation law is highly specialized and requires a great deal of expertise and understanding. It is advisable to engage suitable legal counsel to assist as security documentation and registration are very complex. A lender will have their own legal counsel engaged at your expense and recommend you obtain a quote for these services to control the cost. The AMC will be required to pledge security to a lender and will provide the liability and hull insurance.
Turbine-powered aircraft are PST exempt in BC and in other provinces with HST it is more complicated. Be mindful of funding GST on purchase which takes time to recover with a newly formed SPE. Aircraft can be an effective tax deferral vehicle with CCA at 20% while the aircraft is holding its value. One final thought is to properly document and pay for your personal use of the aircraft – you will be audited by CRA and logbooks are a ready source of information.
The author, Peter Greenway, has been fortunate to have his career centred in aviation financing and heli-ski industries.
For more information contact Peter:
Email: [email protected]
Mobile: 250-819-1008
Linkedin:
https://ca.linkedin.com/in/peter-greenway-4632093a
