Town Hall: Taxing questions to shape US business prospects

The prospects for the US private jet market this year will be shaped by burgeoning demand from small- to medium-scale business owners – starting in June – and potential changes to tax law covering 100% expenses. That was the mostly upbeat assessment from Joseph Carfagna Jr, president, Leading Edge Aviation Solutions, at last week’s Corporate Jet Investor Town Hall online meeting.

“The people who will travel first are a lot of us who are on this call [Town Hall],” Carfagna told delegates. “It will be people who run smaller businesses who have to go to press the flesh to make something happen. These folks are going to have to travel.”

The scale of the run down in commercial aviation services would only become fully apparent from mid-June, he said. By then, significant numbers of US citizens will have been vaccinated against Covid-19 and business people will want to renew face-to-face contact with clients. When that happens in mid-June, US business travellers will realise that what used to be a one-day trip, for example to Kansas City, will become a three-day trip, with two days dedicated to travel due to slashed airline services.

“Once it becomes apparent, in the summer, how difficult it is for small business people to start travelling, then wealthy individuals and privately-held companies will see another saving in the purchase of airplanes – if all else remains constant,” said Carfagna. The result would likely be another uptick in aircraft sales when the full realisation dawned of the new limitations on airline schedules.

Business aviation ‘leapfrog’

It remained unclear whether the trend of business aviation “leapfrog”, noted last year, would continue this year. “It was all about how to get more control of the asset and fly with less people on board,” Carfagna told the Town Hall meeting. “So, the charter customer became a fractional customer and the fractional customer thought about buying their own airplane. And the person who chartered their plane out when they weren’t flying it stopped doing that [to avoid the risk of contamination].  “So, everything moved up one notch. It wouldn’t surprise me to see that happen again.” Large scale corporate travel would resume in the third quarter of this year, he predicted.

Sourcing quality inventory was already proving problematic – particularly for intercontinental aircraft. “Even though thosee were the poster children for how values crashed in 2020, the amount of them that got snapped up in November and December was large.”  But, of all the aircraft transactions closed by Leading Edge Aviation Solutions last year, less than 10% were to corporate clients.

The prospects for business jet sales this year and beyond could also be shaped by tax changes introduced by the Biden administration. Sales last year were fuelled not just by Covid-19 but by legislation introduced by the Trump administration in 2017 allowing for 100% bonus deprecation on business jets. The new administration is widely expected to end this benefit but when is unclear.

“So, as soon as the talk ramps up about changes in the Tax Bill, watch for the rhetoric about loopholes and corporate jet owners. No one ever feels sorry for corporate jet owners.” The Trump Tax Bill will last until 2023 – unless it is modified by the new administration.

‘Very robust market in the US’

“The question is, if they do change it, will it be retroactive to January 1st 2021?,” asked Carfagna. If the Biden administration chose that date, anyone who bought afterwards would not qualify for the 100% expensing. But the government could choose to make it forward acting from January 1st 2022. “If that’s the case, we are going to have a year that will be a lot like the last half of 2020 for the remainder of 2021. It will be a very robust market in the US if that’s the case.”

Also taking part in the meeting were: Keri Dowling, president, Air Law Office, Janine Iannarelli, president, Par Avion and Rohit Kapur, president, JetHQ Asia.

The Town Hall online meeting – Sales & transactions update – sponsored by Air Law Office, took place on February 24th. Listen to  the podcasts here or find the meetings on Spotify here or via our video channel here.

Meanwhile, the next Town Hall ‘Bringing in new fliers’ takes place on March 3rd. Register for your free place here.

Watch for talk of tax changes, advised Joseph Carfagna Jr, president, Leading Edge Aviation Solutions.