MIAMI—A record number of aircraft transactions could occur this year, and given upcoming changes to U.S. depreciation accounting rules, will this put even more of a race to close deals by the year end?

It could, but it depends on a buyer’s risk tolerance level. 

The issue at question is the 2017 U.S. tax bill that provides 100% bonus depreciation on certain assets, including aircraft, “but it begins to phase out next year (up to 100% in 2022, 80% in 2023 and 60% in 2024),” says Kent Jackson, Jetlaw’s managing partner. 

The same tax bill also eliminates “like kind exchanges, which had been used to avoid recapture of depreciation. Like kind exchanges weren’t necessary while 100% bonus depreciation is available, but as bonus depreciation phases out, there will be tax issues. And no one can fully predict what Congress will do next. Altogether, these factors put pressure on buying aircraft this year, particularly for those who are replacing aircraft,” Jackson says.

For motivated buyers, it’s still possible to close an aircraft transaction this year, but “there is risk involved with it,” especially if buyers proceed with only a visual aircraft inspection or no inspection at all, says Keri Dowling, Air Law Office president, speaking at the Corporate Jet Investors Miami event.

“The fourth quarter is always a horse race and this year is no different. In fact, I’d argue it’s a little accelerated this year because of the changing bonus depreciation,” says Andy Priester, Priester Aviation’s chairman and CEO, speaking at Corporate Jet Investor Miami.

While buyers waved inspections last year around this time, now Dowling says she’s having more “substantive conversions with the entire team of the purchaser about whether they really want to take the bonus depreciation and whether that’s something that really fits into their overall tax planning structure,” Dowling says. 

While the depreciation appeals to some, to others they “realize that the bonus depreciation looks really good until you get down to the nitty gritty,” she adds.

Regardless of whether buyers are motivated by the bonus depreciation, expect the rest of this quarter to be busy and MRO slots for pre-buy inspections to be hard to book.

For the first time in three months, business flight activity increased from its previous month in North America. However, business aviation flights in October for North America lagged behind 2021.

October tends to be at the top of the charts for activity each year, and this past month finished 0.3% ahead of September, according to the latest data from ARGUS TRAQPak. The number of business aviation flights globally finished down 3.2% and 4.9% in North America.

However, the 2022 number is still 13.4% higher in North America than it was in October 2019. The European market was down 10% in October compared to 2021.

 “October’s flight activity landscape is indicative of transition,” said Travis Kuhn, senior vice president of market intelligence for ARGUS. “On one side of the coin we’re up double digits from October 2019 and on the other side we’re down from last year’s all-time high. Additionally, Europe is slowing but it is actually following more of its normal pre-COVID trend so it is too early to tell if other factors are influencing the flight activity volume on the continent. In the short term we expect to see some additional declines primarily related to seasonal adjustments in activity.”

PREVIOUS STORY: Business aviation flights up from 2021 in September, but post third-straight monthly decline

Kuhn noted that October tends to be among the strongest months for business aviation, as it is a 31-day month with no major holidays and generally much of North America does not see snow in the month. It also helps that it is the only month where all six major pro sports are active.

Historically, the following March generally hits similar numbers as October in the prior year, with the following October outgaining it, Kuhn said.

However, March remains the strongest month in 2022 for business flights, something Kuhn sees as a flattening of the post-pandemic growth curve. October 2021 remains the strongest month on record for business aviation flights.

“These are still significant numbers,” he told GlobalAir.com.

Much of the drop was in the Part 135 segment, down 10.6% year to year in October. However, it was up 6.7% from September.

NBAA regions in the south and west saw gains, as the northern part of the country slowed down. The southeast led with a 22.4% gain, while New England slid 14.6%.

For November, ARGUS TRAQPak forecasts a 1.4% decrease in overall North American flights, year to year, with European activity is estimated expected decrease 11.1% from November 2021.

Preowned business aircraft exceeded or continued to hold their value in September even as inventory levels rose, according to Sandhills Global’ s latest aviation industry market report.
That’s especially true among turboprops, the asking values of which surpassed highs that were reached earlier in May. In the U.S. and Canada, turboprops’ asking equipment value index (EVI)—a Sandhills proprietary measure used to monitor equipment markets—in September increased 3.3 percent month-over-month and 33 percent year-over-year. Used turboprop inventory increased by 4.3 percent in September but remained down 30.4 percent from a year ago.

For preowned business jet aircraft globally, September inventory rose 3.7 percent—the eighth consecutive month of increases—and was up 14 percent from a year ago. However, asking EVI edged higher at 3.4 percent for the month and 22.4 percent year-over-year.“Aircraft market segments continue to show strength despite a weakening economic outlook,” said Sandhills’ Controller department manager Brant Washburn.