2024 October

As we approach the end of the year, we continue to receive a lot of questions on aircraft bonus depreciation. With the current law, many aircraft will qualify for up to 60% bonus depreciation in 2023, and some will even qualify for 80%. As with most tax law, there are conditions that must be met, and the intricacies cannot be overlooked. To avoid unexpected surprises at tax time, it is important to address the rules before you close.

To qualify for bonus depreciation, the aircraft must be predominantly used in Qualified Business Use (“QBU”). Aircraft that will be predominantly for personal use often will not qualify. QBU has a stricter definition than business use. It has special carve-outs for related party leases and use by “greater than five percent” owners. The ownership and operating structure must be carefully analyzed to determine if the requirements can be met.

The usage of the aircraft is the primary driver for eligibility, and is based on your tax year. Each year, the aircraft usage must be carefully monitored and analyzed to ensure that the QBU requirements are met. If the QBU requirements are not met in a later year, you may have to “give back” the bonus depreciation. That means taking a lesser depreciation deduction, referred to as recapture.

Keep in mind that any deductions, including depreciation, will be limited by personal use of the aircraft. This includes not only personal flights, but also personal guests onboard business flights. We recommend careful planning of your flight itineraries through year end to ensure that the deduction is maximized, especially in the year of purchase.

Bonus depreciation is scheduled to reduce by 20% each year, so 40% in 2025, 20% in 2026, and down to 0% in 2027. However, with the election coming up, and a long-time pending bill to bring back 100% bonus sitting with the senate, the rules could change in the future. If you are looking to purchase an aircraft and bonus depreciation is an incentive, be sure to address the requirements prior to purchase to make sure your tax planning goals are met.

About the Author

Angel Houck is a CPA and the co-founder of Houck & Christensen CPAs, LLC, a firm that focuses exclusively on business aviation. Angel advises many tax matters that impact aircraft owners and operators, including federal income tax, state and local taxes, federal excise tax, US source income, and audit support. Angel is on the NBAA Tax Committee, Treasurer of the Central Florida Business Aviation Association and a member of IADA.

How will the aircraft escrow market end up in 2024? Let’s look to the past for clues as to what year-end may look like.

From 2020-2023, the volume of escrow closings was extremely high. So much so that it seemed like I didn’t even have the time for those brief moments of reflection. We were busy along with the rest of the industry. I knew the end of those years was going to be active. After all, Q4 is when most brokers experience their highest sales.

But fast forward to 2024, and so far, the year has been a bit of a mixed bag.

As you likely know, our business relies on repeat clients, most of whom are brokers, dealers, attorneys, and individual buyers/sellers. Of this group, there are clients who were just as active as any other year. But there are many that I’ve not heard from as much.

Based on conversations with aircraft brokers, I think there’s been a conscious decision to take a step back and catch their breath. For others, I think they’re doing what they can, but the activity hasn’t been as high this year.

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Case in point: We’re seeing deals that were meant to be financed, and then at some point, the financing fell apart and the deal canceled. The lower deal flow indicates that we’re still facing supply chain issues. Plus, we continue to hear comments such as, “We’re still waiting on a part” or “We’re still unsure of the return to service (RTS) date.”

For every straightforward closing, there seem to be 2-3 clients with a last-second issue (e.g., a holdback or addendum). Unfortunately, everything this year has just seemed harder than it needs to be. Without a doubt, I’d say 2024 has been the most challenging year to get aircraft escrow deals across the finish line. I’ve tried to make sense of it, but everyone I talk to has a hard time identifying the “why” as well.

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My crystal ball for the year end is foggy. As I mentioned above, 2024 is turning out to be a mixed bag. Some dealmakers will continue to thrive, and some will continue to be slow.

What we’ve learned from the business surge of 2020-2023 is that this level of growth isn’t sustainable. This year may just be a healthy correction, setting the stage for a brighter future.

Here at Aero-Space Reports, I’m grateful to report that our year has been strong, and we’re on pace for another year of growth. When it comes to the future, I’ll always choose optimism and look forward to ending on a high note.

About the Author:

Jeff Snowden is the President of Aero-Space Reports, Inc., an industry-leading aircraft escrow and title company based in Oklahoma City, Oklahoma. On a day-to-day basis, his primary function is to act as an Escrow Agent for trusted brokers, attorneys, financing companies, and individual buyers/sellers. He prides himself on his ability to ebb and flow with each transaction based on the deal particulars, the parties involved, and the circumstances surrounding the closing. Jeff is a member of International Aircraft Dealers Association (IADA), National Aircraft Finance Association (NAFA), National Business Aviation Association (NBAA), and Aircraft Owners and Pilots Association (AOPA).

With decreasing federal interest rates in the news, I’m hearing a common question right now: “Where are rates going?” And how will they affect aircraft loans?

I could quote various economists, or even recap what the Federal Reserve Board members are thinking. However, the reality is that no one knows for certain where things go from here. From a lending perspective, the best way to examine market conditions is through tangible actual and historical data over forecasts.

As you may be aware, the phrase “the Fed cut rates” does not mean that rates across the board (e.g., car loans, aircraft loans, or mortgages) will drop the same amount the Fed’s rate cut suggested. In fact, a Fed rate cut may not even mean that rates we see every day (airplane loans, for example) drop at all. To the contrary, they may even increase marginally.

Let’s dive deeper. In September, the Fed “cut rates” by 0.50%. However, the rate cut by the Fed was the “Federal Funds Rate,” which meant that not all rates dropped equally. For example, the 10-year Treasury Rate (which is a better indication of the general rate trend in the aircraft lending world) actually decreased 0.993% from its 2024 high before the Fed’s decision. Compare that to the days immediately after the Fed rate cut, the 10-year rate increased 0.085%. We’ve seen similar trends with our aircraft loan rate offerings.

What does all this mean? In essence, it supports the fact that, overall, rates have trended down, a trend that began before the Fed’s decision. It also means that the market may already have priced in the anticipated rate cuts through the end of the year, as seen by the pre-Fed cut drop in the 10-year Treasury. If financing an aircraft loan is on your radar, I think this is good to keep in mind as we push to year-end.

About the Author

Mike Smith is President of Scope Aircraft Finance and is based in Columbus, Ohio. Scope is a wholly-owned subsidiary of Park National Bank and an industry leader in providing finance solutions in the high-performance piston, turboprop, and light jet markets throughout the lower 48 States. Mike serves on the board of the Ohio Regional Business Aviation Association and is an active member of the National Aircraft Finance Association.

As we head into Q4, the topic with the most buzz surrounding aviation insurance is the term “softening” marketplace. I’m sure some of you are seeing signs of this—especially if you’re currently insuring aircraft through an aviation insurance broker.

Why is the aviation insurance market showing signs of softening? One indication is that there is additional capacity, which means more underwriting companies entering the aviation space here in the USA.

Case in point, in the past year, we’ve seen 3-4 new underwriting company entrants. Some of these new insurers were existing insurance carriers for other lines of property/casualty coverages. And now they’re expanding their product offerings to include aviation insurance. (Namely aircraft hull and liability coverages, and aviation general liability coverage).

Within the past 18 months, interestingly, we’ve seen new additions in hull and liability carriers. Two of these insurers—Mach 2 and Eiger—are entirely new aviation underwriting companies. The other two—Rokstone and Beacon Aviation—are existing property/casualty insurers that have recently expanded into offering aviation product lines.

The additional market capacity is softening the premiums for certain classes of business. Namely those that are owner/flown, lower-to-mid-value turbine and some lighter piston aircraft classes.

As with all aviation insurance, it is never a ‘one-size-fits-all’ type of business. So, while some policies are currently seeing softening rates, others are seeing flat premiums or even lingering, smaller, single-digit increases.

The new insurers in the space have almost immediately impacted the $5M and below hull value aircraft. Not to mention, they’ve affected the $5M and below liability limit landscape. They’re doing this by providing more underwriting options for consumers, depending on pilot experience and asset values insured. From a consumer’s perspective, the current and future insurance path looks particularly favorable, compared to the years 2019-2023.

About the Author

Tom Hauge is a 20+ year aviation insurance industry veteran currently serving as National Sales Director for Wings Insurance. A 1992 graduate of the prestigious UND Aerospace aviation program. Wings Insurance is one of the largest privately held aviation insurance brokerages in North America who offers a ‘boutique’ customer experience but leveraging large brokerage house clout in the market.

As many prominent aircraft brokerage leaders near retirement, the firms they represent face a serious challenge. They’ve yet to fully develop their next generation of young sales leaders.

No doubt every aircraft brokerage firm has young, eager professionals on staff—people who love aviation and are enthusiastic to learn. But newbies in high-pressure sales environments can quickly become overwhelmed. And I don’t blame them. There’s a steep learning curve to this complex business, one that requires deep industry knowledge and strong negotiation skills. Not to mention building an extensive network of high-net-worth clients.

Without structured mentorship and proper training, a developing junior sales director will stagnate. Such a lack of commitment from the top brass can lead to high turnover, inconsistent results, and potential reputational damage to the brand.

Key Success Factors for Aircraft Brokerage Firms

We often hear that aviation is a unique industry, and it’s true. Although sales volume may be low, the stakes are incredibly high. There’s a premium placed on relationships and trust. In order to succeed, brokers must consistently prove that they are credible, likable, and trustworthy. And they absolutely must leave their legacy with well-trained junior staffers to fill the void.

But the question remains, how can brokerage leaders bridge the gap as pressure mounts prior to their retirement? Their survival hinges on how effectively they can transition leadership and replace themselves with a new generation of strong, competent and strategically-minded leaders who can hit the ground running. Without a qualified pipeline of younger talent, firms whose leaders are retiring may not only lose experiential knowledge. They’ll also lose clients to competitors—especially ones with more robust leadership development and sales training programs.

The bottom line is that brokerage firms without successful transition plans will struggle. They might not be able to keep up with evolving market conditions. They may miss out on shifts in buying styles and technological advancements. Building a strong team of junior sales directors isn’t just about succession. It’s essential for sustained growth and competitiveness.

About the Author‍

Dustin Cordier is a Certified Exit Planning Advisor and EOS Implementer®. Through his firm, StepZero Coaching, he helps aviation entrepreneurs create freedom, growth and legacy, while coaching aspiring sales leaders using his aircraft brokerage expertise. Connect with Dustin at stepzerocoaching.com or on LinkedIn.

One of the greatest benefits of owning an aircraft is avoiding flying on commercial airlines. Yet, according to the FAA, many owners inadvertently (and illegally!) run their own commercial flight operations. Most owners are likely aware of the general rule against accepting payment or reimbursement for Part 91 flights. An owner can fly any friends or colleagues, but generally may not accept compensation for doing so. Like good law-abiding citizens, these owners only fly their aircraft for themselves, and never charge anyone else when they fly friends or colleagues.

However, most owners often reflexively register their aircraft in a Limited Liability Company (LLC), and run all costs and operating expenses through this LLC. Principals then make capital contributions to pay the bills. But without an operational agreement in place, such as a dry lease from the LLC to the principal or their business, the FAA would consider the LLC an illegal “flight department company” providing illegal charter. The holding company LLC’s sole purpose would be to provide transportation by air to the principal, and the principal capital contributions are “compensation” to the LLC for the flights. In other words, the principal is paying the LLC for flights—something that cannot be done unless the LLC has a charter certificate. This puts the LLC, principal and pilots at risk for FAA fines and action against the pilot’s license.

Potentially worse, since insurance policies typically require compliance with all FAA regulations, it could also provide an insurer a reason to deny coverage in the event of a loss.

The good news? You can absolutely avoid illegal charter. With a bit of planning and guidance from an aviation attorney, you can establish an FAA-compliant ownership and operational structure. Even better, this often aligns with effective state tax planning, helping you stay out of trouble while potentially lowering your tax bill.

About the Author

An attorney and owner of InFlight Law, John Farrish guides clients on the legal side of aircraft sales and acquisitions from start to finish. At InFlight Law, he represents international and publicly traded companies to family businesses, entrepreneurs and ultra-high-net-worth individuals, including owner-pilots. He is experienced in new and pre-flown aircraft transactions, ranging from large cabin to turboprops and has coordinated transactions in every continent—except Antarctica.