When it comes to conducting business outside of your locality, companies that own a business aircraft have a huge advantage over companies that stick to commercial airlines and driving for their transportation needs. Having your own business aircraft allows you and your employees to fly whenever andwherever, getting you to your destination in a convenient, efficient manner.
However, the decision to acquire a business aircraft is complex and requires a significant amount of time, planning and budget. The first step in the process is to develop an acquisition plan to determine what type of aircraft is best suited for the company’s or individual’s particular operational, financial and strategic needs.
If business has been booming lately, and you’re starting to consider purchasing a business aircraft, here are a few things to consider before you officially take the leap.
Benefits of Owning a Business Aircraft
There are a number of different reasons an organization may be interested in buying an aircraft. Many companies use planes to supplement their travel operations, since they allow efficient, flexible, safe, secure and cost-effective transportation to a wide variety of destinations throughout the world, when compared to commercial transportation offerings. However, there are many other underestimated benefits, such as an improved productivity for frequent business travelers, since employees are able to work while aboard the aircraft, rather than wasting valuable time in airports and on commercial airlines (with poor connectivity to the outside world).
Additionally, business jets will drastically reduce travel time. This is because your travelers aren’t beholden to the rigid schedules of commercial aircrafts with long security lines, flight delays and even cancellations. They can make their most of their valuable time by bending the flight schedule to fit their business needs. This can potentially save thousands of dollars in lost productivity and travel expenses (hotels, car rentals, food expenses, etc.) compared with going by normal means of transportation. If these benefits sound like something your organization is interested in, keep reading to find out more about investing in a business aircraft.
Organizational Travel Needs
The first thing you need to assess before purchasing a business airplane is your organization’s specific travel needs. Particularly, how the company plans on using the plane, how much it will be used, the typical route distances, number of passengers and the need for supplemental transportation options.
Also consider the organization’s future operational needs, such as emerging markets, mergers and acquisitions, potential changes to the operating structure, and other unique needs like client or guest transportation. These will all impact the type of aircraft your organization should invest in.
Organizational Financial Considerations
From purchasing plane tickets to coordinating company cars to managing employee travel expenses, if the cost of traditional travel is dragging business down, purchasing a company plane is a long-term solution to slashing these travel costs. As an organization, you’ll need to decide whether to pay for the aircraft upfront in cash, or, given the current historically low interest rates, if financing the aircraft is a smarter business choice. If financing does seem like the way to go, you need to obtain a loan or a lease, with both having different tax advantages. A broad analysis of the organization’s finances will need to be completed to ensure that your choice makes sense.
A complete financial analysis should include the following:
· Loan, lease or cash purchase recommendations
· Budget and tax implications
· Residual values
· Maintenance plans
· Purchase of a new or pre-owned aircraft.
The analysis should consider the entire ownership cycle from acquisition to sale and include all fixed, variable, ownership and transition costs. Covered in the next section, tax implications such as depreciation, deductions, sales/use tax and other taxes should be deeply analyzed. It’s generally recommended for organizations to discuss the decision with internal teams while also hiring an outside party, such as an aviation specialist, to help ensure that a comprehensive analysis has been made that incorporates all relevant information.
Another huge consideration when buying a business aircraft is the tax implication, since it is a very expensive purchase. However, with proper planning, organizations can drastically reduce their exposure to high rates and take advantage of the many tax breaks that come with owning a business jet. For example, some states charge sales tax when buying an airplane, but some purchase agreements require the aircraft to be delivered to the purchaser in a “tax-friendly” jurisdiction, where no transfer taxes will be enforced.
Should Your Business Buy a New or Pre-Owned Airplane?
Today’s corporate aviation market offers a ton of variety in terms of aircraft models with different performance options and operational features. In general, business aircraft are separated into two groups: turboprops and jets. Jets are separated further into very light, light, medium, heavy/ultra-long-range categories, depending on cabin size and flight range.
This all boils down to the classic question – should your business buy a new or used airplane? Ultimately, that depends on what your profit and loss sheet looks like, however here’s what you can expect to pay for both a new and used corporate aircraft. Also, consider the ongoing expenses of owning an aircraft. Primary criteria that companies consider when selecting the right aircraft are performance, comfort, maintenance and market conditions.
- New: The price range to buy a new corporate jet is between $3 million and $90 million. For example, the most popular private jet, the 8-seater Cessna Citation XLS, costs $13 million. The most expensive private jet on the market is the Gulfstream G-650, which has a base price of $70 million.
- Used: Although pre-owned jets are generally cheaper, they can still cost millions of dollars. However, if you’re on a budget, you can find a good deal on a plane that’s only a few years old.
- Ongoing costs: Owning a plane comes with certain regular costs, there’s just no way around it. First, there is routine maintenance, including on-the-ground downtime. Then there are the unforeseen expenses like new tires, plane detailing, inspection costs. There’s also hangarage (parking in a hangar), pilot and crew salaries, and aircraft insurance. As the owner, you have to cover everything. Overall, expect to pay around $200,000 up to $1 million annually in operating costs.
As a general matter, once a company has narrowed its choices to a particular aircraft class, it is critical to determine the operating costs of aircraft within the cabin class. The ideal aircraft is one which provides the highest level of operational capabilities consistent with the company’s needs at the lowest aggregate hourly operating cost.
When starting the process of purchasing a corporate aircraft, you’re bound to exercise your problem-solving abilities, given the many variables that go into purchasing a corporate aircraft. With the proper planning and consideration, however, you can put the process of buying a jet into motion and improve the way you, your employees, and even clients and guests travel.
Do You Want to Take Control of Your Business Trips?
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