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Executive Summary
Below is an article that Michelle Wade first published on Forbes.com titled: What You Can Do With The Company Jet When Selling Your Business.
Advance planning will pay dividends when you sell your business.
Considerations Before Deciding What to do with the Company Jet
Before you decide what to do with the company jet that you flew for both business and personal trips, consider future finances and lifestyle issues.
Plan ahead
Without thoughtful planning, an aircraft transfer from the business to you can be unnecessarily expensive. Input from professional advisors, including your own aviation counsel and tax advisor, can help create the best plan for your future ownership and operation of the aircraft.
Offsetting the Cost
After you own the plane, in addition to using the aircraft yourself, you may want to allow others to use the aircraft to help cover a portion of your overhead costs. These options include:
• Lease the aircraft back to the business.
• Lease the aircraft to a charter company for charter to third parties.
If you expect lease payments or charter revenue to help you cover a portion of the aircraft expenses, review the economic and use analysis at the outset to avoid an unpleasant surprise.
Know your options and your future plans to help structure the best future ownership and operation plan for the aircraft.
Article – Selling a Business? Plan for the Jet
Selling your business, whether to a third party or to the next generation, requires planning. If you own a plane that you, the business owner, used for both business and personal use, this planning should include the future use and ownership of the plane.
Before a business owner elects what to do with a business asset like a plane, consider both financial and lifestyle issues, such as:
• Will the business be more attractive to a buyer if the business owns the plane?
• Will you and your family want to use a private aircraft for personal flights?
• How will you travel if the aircraft is unavailable for your personal and family use?
• Does this plane suit the future flight needs of you and your family?
• Can you afford to operate this aircraft if you are responsible for all the expenses?
Answering these questions can help you determine what the best decision is for the company plane. Your options for the future ownership and use of the aircraft include: selling the aircraft with the business as an asset of the business, selling the aircraft to a third party prior to selling the business and transferring the aircraft to yourself.
As a private jet lawyer, I want to focus on what steps you can take if you choose to transfer the aircraft to yourself.
If you’re transferring the aircraft to yourself, plan ahead.
In the flurry of selling the business, don’t overlook the details of the aircraft transfer because, without thoughtful planning, an aircraft transfer from the business to you can be unnecessarily expensive. Consequently, input from professional advisors, including your own aviation counsel and tax advisor, is necessary to create the best plan for your future ownership and operation of the aircraft.
Obtain a comprehensive budget for the initial five years of ownership and operations based on your anticipated usage. Plan for taxes, insurance, risk mitigation, options to offset overhead costs, and compliance with aviation laws and insurance requirements.
Considerations to discuss with your aviation team include:
• Is the tax result different if you purchase the aircraft from the business vs. taking a distribution of the plane from the business?
• Will you finance your purchase of the aircraft?
• Will the aircraft be leased or chartered to friends, family and third parties, and how will this affect both the operating expense budget and the tax plan?
Consider how you can offset the costs of the transfer.
After you own the plane, in addition to using the aircraft yourself, you may want to allow others to use the aircraft to help cover a portion of your overhead costs. These options include:
• Lease the aircraft back to the business.
• Lease the aircraft to a charter company for charter to third parties.
Leasing the plane to the business:
Before you lease the aircraft back to the business you just sold, have a written agreement with the new owner that addresses all the important economic and usage issues, including:
• Who has priority when scheduling flights?
• Will there be any limit on the number of hours flown by the business?
• How much will you charge the business?
• Who will pay for repositioning flights?
• Can you easily terminate the lease to the business if you sell the aircraft?
• If you financed the aircraft, does your lender allow you to lease the aircraft to others?
A written dry lease is generally required, and all arrangements must satisfy the Federal Aviation Administration’s regulatory requirements for aircraft leases.
Leasing the plane to a charter company:
After you own the plane, when leasing it to a charter company to allow them to charter the aircraft to third parties, ensure you agree on important issues:
• How much will you pay for the charter company to add your aircraft to its FAA certificate?
• How long will it take for the FAA to approve the charter company adding your aircraft to its FAA certificate?
• Will customers and brokers contact this charter company for charter service by this type of plane?
• What additional annual costs will you incur by leasing the plane to the charter company?
• Will you obtain better rates on insurance, maintenance and fuel through the charter company’s fleet programs? Can you easily terminate the lease to the charter company if you sell the aircraft?
• What are the scheduling rules for the aircraft?
If you expect charter revenue to help you cover a portion of the aircraft expenses, carefully review the economic and usage analysis at the outset to avoid an unpleasant surprise. Any guarantees made by the charter company should be included in your written agreement.
In conclusion, before selling your business, ensure you include aircraft planning in your transition preparations. By knowing your options and structuring the ownership and operation of the aircraft, you can ensure you’re creating your best future.
Contact Jetstream Aviation Law for legal assistance with the structure of the ownership and operation of a private plane.
Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com. Michelle Wade (mwade@jetstreamlaw.com)
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.
