Thinking about Buying your First Jet?
When you buy your first jet, save time and money by utilizing processes and techniques that others successfully utilized to purchase and operate their first plane. Use these processes and techniques with your unique facts to achieve the best result for you (even if it is different than your friend’s aircraft structure). There is no cookie-cutter, best for everyone’s aircraft structure. The techniques and processes will lead you to your best result.
The good news is that there are experienced, helpful aviation professionals (think brokers, lawyers, and jet management companies) who work well together and will help you find a plane you want to buy, get it purchased, and set it up to operate for you to enjoy.
Ask questions and put serious thought into the suggestions of the aviation professionals. Up-front input by everyone involved including you, your business personnel, tax advisor, jet broker, your regular lawyer, and your aviation lawyer will produce the purchase of an aircraft that fits your needs, is eligible for applicable tax deductions, and is operated in compliance with the FAA regulations.
To Achieve the Best Result, First Ask: “What Do I Want”?
- What is your price range?
- What is your flight range (flights of 2-3 hours or flights of 15 hours)?
- Number of people on each flight?
- How much luggage (do you ski or golf or have a lot of clothes)?
- Is this for primarily personal use or primarily business use with some personal use on weekends?
- Do I need to or want to finance the purchase of the jet?
- Do I want to lease or charter the aircraft to others when I am not using it?
Identifying the unvarnished answers to these questions upfront will help you achieve your primary goals. If you plan for all business use of the jet, but use it heavily for personal trips in December, the month you buy it, you may have an unpleasant tax surprise coming. Follow the well-trodden path and use it to your benefit. Make your plan based on a reasonable estimate of what will probably occur, not an ideal set of facts that has only a one percent chance of occurring.
Price Range – Identify the Plane’s Purchase Price and the Plane’s Operating Costs
You may know the amount you want to spend on the purchase of the plane. However, you also need to identify how much you can spend on the annual operating costs. You need insurance, fuel, a parking spot, pilots, maintenance, and many other items to comfortably enjoy your plane. Buyers need an idea of both the purchase price and the annual operating costs prior to committing to purchase a plane.
Get a Budget for Annual Jet Operations
A professional aircraft management company can provide you with an estimated budget. Interview at least a couple of professional aircraft management companies to identify which will be the best fit for your planned operations. The first draft of the budget will be general, but after your team works to provide information and you or your designated decision-maker make decisions, the professional aircraft management company will be able to provide increasingly detailed budgets.
Pick Your Jet Acquisition Team & Let Them Talk
Yes, this sounds complicated – the tax advisor talking to the pilot, the broker, and the aviation attorney, but does your tax advisor know if the plane has a good maintenance history or if the LLC you set-up to own the aircraft is eligible to register the aircraft under the FAA regulations? Does your pilot know the requirements of your state’s sales tax exemption? Does your regular attorney know that the sole purpose entity you set-up cannot operate the aircraft under the FAA regulations? Do you believe any single person is an expert on aircraft maintenance, aircraft valuation, tax issues, and FAA regulations? You will avoid heartburn, angst, and future expense if you utilize professional advisors and let your advisors talk to each other from the outset.
Avoid purchasing an aircraft and consulting only one advisor. Take the well-traveled path of utilizing a team of subject matter experts who work together. If you don’t utilize a team, you could buy an aircraft with a poor maintenance history, that needs expensive avionics upgrades or that the FAA will not register!
If the tax advisor reports only to you and the pilot/management company reports only to you and the broker reports only to you, then you are burdened with the need to identify that what the tax advisor tells you conflicts with what the management company tells you. If you do not want this burden, let the advisors have a few all-hands phone conferences to identify the issues and work out the best solutions. Follow what others have done and let your advisors talk to each other and then bring you the final suggestion.
Too Many Jet Decisions? Assign Business Personnel to Make Some Decisions
If you want to minimize your involvement in the tax and legal details, then assign business personnel, such as your CFO, to handle the decisions to be made. This frees you up to work on your business and later to enjoy the plane.
Financing – Plan Early When Financing a Jet
Your aviation attorney will know that obtaining quotes on financing, making a decision, providing due diligence, and reviewing the loan documents takes weeks, not days, and will let you know to plan accordingly. This is a path others have cleared for you and you will benefit by providing information to your team about any plan for financing at the outset. Aircraft purchase agreements do not include a financing contingency clause so have your financing plan ready. Do not assume that financing a jet occurs within a week.
Discuss All Issues When Purchasing a Jet
Your team will consider:
- Your business and personal goals
- Tax goals
- FAA regulations
The tax laws may not allow all the anticipated deductions due if you satisfy all your personal goals and the business goals may be limited by the FAA regulations. Working as a team, they can identify these issues at the outset instead of after the purchase.
There are a lot of moving parts when you buy your first jet. Start early and work with experienced professionals and you can have a pleasant purchase experience and really enjoy owning and operating your first jet.
Buying a jet is different than buying a car. Avoid buying a plane recommended by your charter company without consulting your own advisors. Aviation is a highly regulated industry and penalties for failing to comply with FAA regulations can be steep. Noncompliance with the tax laws and your insurance policy can quickly become expensive. Even straightforward FAA and tax issues can have complex answers. The help of aviation professionals who represent your interests and who are experienced in business aviation can help reduce costs and ensure regulatory compliance.
Michelle M. Wade is a partner with the law firm of Jetstream Aviation Law and counsels clients on the acquisition, financing, and operation of corporate jets operated under Part 91 and Part 135 of the Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com.