What does it take to purchase a plane? Asking prices are now up to 33 percent higher than average, wait times are longer than ever, and buying an airplane isn’t a quick process. We strongly advise weighing all the pros and cons of aircraft ownership, as well as consulting with financial professionals, including a tax advisor. It is crucial to remember the big picture when you are in the market for a plane.
Sellers are asking up to 33 percent more than average due to increased demand, limited inventory, and lack of supply from manufacturers. And wait times are now running anywhere from nine to 24 months.
Given the current market conditions, we strongly advise consumers to carefully consider their decision. Keep in mind that anyone in the market for purchasing an aircraft is not making a single decision (i.e., to buy a plane). Typically, they are making as many as three decisions: finding the right plane, structuring the purchase as a tax advantaged investment, and hiring a management company to fly it, unless they plan on piloting it themselves. If you’re going to hire a management company, what do you expect from them in the way of safety, fuel burn, dispatch reliability and other operational parameters?
It has become more challenging than ever to finance a plane. In fact, it can be difficult to be approved for a loan that will cover a plane purchase because lenders face a significant amount of risk if a borrower defaults.
You’ll also want to be careful not to assume that tax advantages will help defray all your costs of purchasing and owning an airplane. While there are some possible tax perks (such as bonus depreciation and interest expense deductibility) if you use an airplane mostly for business reasons, and those trips are documented sufficiently, you’ll want to confirm what benefits would apply to you specifically before you make your purchase.
There can be possible restrictions to those tax breaks if a business plane purchase is ever used for leisurely trips. Business entertainment as a flight’s primary purpose, for instance, may not qualify as business use; the rules on leasing to third parties can also be convoluted.
It’s also critical to note that beginning in 2023, the bonus depreciation benefits will slowly start to decrease by 20 percent annually, until they disappear completely after 2026. Additionally, the sunsetting of the depreciation tax break starting in 2023 seems to be making it even more challenging to purchase a plane.
If you are still strongly considering purchasing an airplane in this market, the following tips can help you navigate your purchase.
Bring in professionals. Hiring an aviation attorney, an accountant and a financing provider who specialize in aircraft transactions is strongly recommended.
Do your due diligence on the seller. You’ll want to check the backgrounds of both the company that is selling the plane (e.g., what industry experience do they have), as well as its principals.
Set your expectations accordingly. If you are thinking about buying an aircraft, it’s helpful to think of planes like used cars. You may find what appears to be a good deal, but also like used cars, they come with their quirks and issues that you need to be aware of. It’s also a good idea to ask about the availability of warranty and maintenance contracts for the plane you are considering.
Consider your financing options. There are a number of ways to finance a private jet (e.g., owner financing, private placement, bank loans). Each has different complexities that will require professional guidance.
Do your due diligence on the plane. If you are not an expert in planes, then hiring a consultant will be money well spent, particularly if there is something unusual about the aircraft that makes it more difficult to value. It is recommended to use an independent valuation provider for this task because they are not involved in the sale.
Consider whether to buy or charter. There are pros and cons to buying versus chartering a plane, and it’s important to make sure you clearly understand them before making any decision. For many people, they eventually realize that aircraft ownership can be more trouble than it’s worth, and that chartering a private flight is the ultimate solution.
Determine who will fly your plane. This is an important question to answer because if your pilots aren’t qualified, then you may actually be violating FAA regulations by flying with them, which could cause problems for both you and the seller/lessor.
Update your insurance coverage. If you are going to buy a plane, it is a good idea to update your insurance coverage because the type of policy required by a lender may not be adequate from an aircraft owner’s perspective.
If you’re not exactly committed to the idea of purchasing an airplane, there are much better options that can offer the same perks of jet ownership without the responsibility. By chartering a private flight for your trips, you can still experience the same level of privacy and luxury that you’d have with your own plane. At JetMembership.com, we also offer an exclusive program that gives members the opportunity to charter flights at wholesale costs. Contact us today to learn more!
