Aviation

Reducing Drag in the Air

A private jet can bring comfort and cost savings to business travel — and now may be a great time to get on board.

Photo by Kevin Miyazaki

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It hardly matters if your seat is cramped or fully reclining, travel on a commercial airline comes with certain indignities. But if you?re tired of inconvenient flight times and crowded airports, not to mention queuing to use the facilities just as the 747 hits turbulence, it may be time to consider a private jet.

Of course, you may already have plans to buy or lease a small jet but are in a holding pattern until the economy shows more definite signs of progress. If so, you are not alone: Worldwide shipments of business jets spiraled downward from 1,313 in 2008, when the recession began, to just 427 through the third quarter of 2011.1 Yet this long-term slowdown has created some good news: There are now compelling financial reasons to acquire an aircraft.

For one, with reduced demand for both new and preowned aircraft since the start of the recession, prices have fallen, in some cases by as much as 50%. Planes that are now a bargain include smaller aircraft, such as the new breed of very light jets, and, to a lesser extent, the largest, most luxurious private planes with global reach.

PRIVATE JETS: OTHER OPTIONS
Aside from a jet purchase or lease, these options could get you into the friendly skies. Click to expand

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Private Jets: Other Options

Aside from a jet purchase or lease, these options could get you into the friendly skies.

Charters are a relatively cheap and easy way to fly by private plane. Drawbacks include higher costs per hour, charges for empty flights and inflexible schedules.

Jet cards may make sense if you fly fewer than 50 hours a year. Cards are refillable and provide flexibility in plane availability and routes. But you?ll pay more than the hourly rates for a fractional share.

Fractional ownership is cost-effective if you are flying 50 to 200 hours a year. Downsides can include higher operating costs and fuel surcharges.

Of an estimated 19,000 private jets in service worldwide, 13% are now listed for sale, up from an average of 8% to 10%.2 Among the more desirable jets, those under 15 years old, 7% of the global fleet is for sale, versus the usual 5%. Put simply, in the private-jet airspace, it?s a buyer?s market.

Of course, the decision to buy or lease a personal jet is significant and should be made in consultation with an aviation financing specialist such as the Banc of America Leasing Global Corporate Aircraft Finance group (GCAF), as well as with experts in aviation tax regulations, Federal Aviation Administration (FAA) regulations and aircraft management.

Other Reasons

Aside from today?s exceptional values, perhaps the most compelling reason to consider a private jet is still convenience. But avoiding long lines, on the ground or in the air, is just the start. Consider these lesser-known pluses.

Whereas commercial flights on major airlines can take you to only about 500 U.S. airports, private jets can land at some 5,000 locations. Private travelers can usually land close to their destinations, bringing efficiency and convenience to almost any business trip. It?s not uncommon for corporate sales or tech support teams to visit several locations in one day and still be home for dinner.

Perhaps the most compelling reason to consider a private jet is convenience.

Many private jets now have internet, fax, phone and email capabilities. Those have transformed them into corporate offices in the sky, places where work can get done at almost any altitude. As a bonus, they can provide a confidential venue for doing business with corporate clients. Try doing that strapped into a 767.

Lastly, not only is flying in your own jet simply more convenient, but the latest planes sport technological advances that give them greater efficiency and range than their predecessors and may reduce jet-fuel consumption.

Buy or Lease

Private-jet customers must consider whether to purchase or lease an aircraft. Ownership can make financial sense if you?re a frequent flier, in the air between 200 and 500 hours a year; and buying a new plane can potentially bring tax advantages related to depreciation. The extent of the benefit may depend on whether the plane is held by an individual, a trust, a company or another entity, and which tax return can best use the deductions. It will also be affected by how the plane is used. If it?s for business, the IRS may permit you to write off the plane?s cost basis in five years, providing a large potential deduction. Also, if you already own a jet and want to sell and upgrade, you may be able to structure a Like-Kind Exchange (under Internal Revenue Code Section 1031 rules). That may allow you to defer tax due on the ?recapture? (the addition into your taxable income) of the amount of depreciation deducted during ownership.

If you are unable to fully use the tax benefits or plan to use the plane more for personal than for business travel, consider a lease. Keep in mind that the bank that owns the aircraft will receive any tax benefits ? and in return may be able to offer you a lower coupon or payment amount. Leases can also generally mean less risk of taking a loss or being unable to sell an aircraft. At the end of the lease term, you simply return the plane and walk away. You might also consider some other ways to fly privately (see ?Private Jets: Other Options?).

Guidance

The purchase or lease of a private jet can be daunting. But the GCAF group can draw on nearly two decades of experience in making the process virtually seamless for you. We are a leader in the industry and can help guide your choice of financing a purchase (you own the plane) or a lease (the lessor bank owns the plane). And our list of industry contacts, in areas such as aviation taxation and FAA regulations, is considerable. To learn more about Global Corporate Aircraft Finance group options, ask your U.S. Trust advisor to arrange a meeting with a GCAF specialist. You could soon be cleared for takeoff.

James Dickerson is an executive at Banc of America Leasing Global Corporate Aircraft Finance group of Bank of America Merrill Lynch.

1General Aviation Manufacturers Association, September 30, 2011. 2AMSTAT, December 31, 2011.

?Bank of America Merrill Lynch? is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (?Investment Banking Affiliates?), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured ? May Lose Value ? Are Not Bank Guaranteed

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