Aviation maintenance expert Mick Baumann has been named Director of Maintenance for Guardian Jet LLC (guardianjet.com), the Guilford-Connecticut-based business aviation consulting and brokerage firm.
In his new role, Baumann will support Guardian Jet’s sales, acquisition and consulting team by lending it his vast technical aircraft experience. He will also play a critical, client-facing role overseeing the myriad technical aspects of aircraft transactions for Guardian Jet’s client base.
Baumann brings more than a decade of aviation maintenance experience to his new role with Guardian Jet. As a longtime avionics technician and airframe and powerplant mechanic, he has handled maintenance for both business aviation aircraft as well as those in general aviation. His airframe experience is particularly notable, including his work on Global XRS, 5000, 6000, Challenger 604, 605, 300, 350, Citation Excel, Falcon 2000EX and Falcon 7X aircraft.
Prior to joining Guardian Jet, Baumann served as an avionics technician for UTFlight, the corporate flight department for United Technologies in Hartford, Connecticut. Previously, he worked for the Bombardier Hartford Service Center as a member of its aircraft on ground (AOG) team.
Don Dwyer, Managing Partner of Guardian Jet, said he is extremely pleased to welcome Baumann to the Guardian Jet Team. “To have a director of maintenance on the team is just one more example of the quality we strive to bring to our company and our clients. Mick’s stellar aircraft maintenance experience gives us the ability to understand all the technical aspects of a client’s airplane—from avionics to the connectivity in the back of the airplane. Mick’s degree of technical knowledge and professionalism really beefs up our bench strength at Guardian Jet.”
Baumann is a graduate of the Pennsylvania College of Technology, where he received a BS in Aviation Maintenance Technology. He also holds an Airframe and Powerplant (A&P) certificate from the Federal Aviation Administration, and he has received maintenance and avionics training for several aircraft models. Additionally, Baumann has a FCC General Radio Telephone Operators License and a Satcom Direct AeroIT certification.
For more information about Guardian Jet, visit guardianjet.com.
About Guardian Jet
Founded in 2002, Guardian Jet, LLC, offers business aviation brokerage, consulting and oversight services for thousands of clients worldwide. The company distinguishes itself with its focus on integrity and industry expertise, and by consistently providing business value to clients. Guardian Jet’s core mission has always been to earn the right to buy and sell aircraft on behalf of its clientele by providing great consulting advice, market intelligence and flawless execution.
GENEVA – 28 May 2018 – Guardian Jet (stand Y125), a leading global aircraft brokerage and consulting firm, will share aircraft market trends and predictions and demonstrate its Vault 2.0 online asset management system at the European Business Aviation Convention & Exhibition (EBACE) in Geneva, Switzerland from 29-31 May.
“There’s an incredible amount of activity in both the new and pre-owned business jet market, and it’s a dynamic market,” said Mike Dwyer, Guardian Jet managing partner. “We’re seeing a lot more transactions and price increases in airplanes with a great pedigree—from the Pilatus PC-12 through the Gulfstream G650.”
Evolving Dynamics in Global Business Aviation Marketplace
Buyers are cautious about Brexit. Despite encouraging signs in the European business aviation market and a U.S.-led global resurgence in general, uncertainty over the United Kingdom’s looming exit from the European Union (“Brexit”) has affected owners’ long-term planning. “We’re hearing from many of our European and U.K.-based customers and colleagues who have a ‘wait and see’ approach in this regard,” Dwyer continued.
The highest-pedigreed airplanes are selling quickly. Many of the best, low-time airplanes that are five years and newer are not even reaching the marketplace before they’re sold.
U.S. buyers are traveling further to purchase. Due to rising competition and fewer desirable jets available across the U.S., aircraft brokers are traveling farther afield – from Malaysia to China, from Saudi Arabia to France – to purchase aircraft from regions they likely wouldn’t have considered just two years ago.
There’s a bifurcated marketplace. “The best high-end airplanes with great pedigrees and low-time (less than 10 years old) are increasing in value,” Dwyer said. “That’s a real split from the low-end market, where we aren’t seeing price increases – and we don’t see that changing soon.”
Buyers must be nimble, ready to buy. “We believe in patience when you’re buying an airplane, but now we’re also saying, ‘let’s be nimble,’” Dwyer commented. “When we identify the right aircraft, we want to have the ability to move quickly, and that’s where we’re finding the best airplanes and the best deals for our customers.”
These trends also demonstrate that buyers in this dynamic and highly-competitive global aircraft marketplace must have the latest information readily-available to help them purchase the right business aircraft for their mission needs. Guardian Jet seeks to revolutionize this process with the international debut of Vault 2.0.
About Vault 2.0
Guardian Jet’s innovative Vault 2.0 is a cloud-based asset management/brokerage software solution that helps corporate jet owners and high-net-worth individuals select, trade, own and operate the right model of aircraft to best fit their transportation needs.
Featuring a comprehensive database encompassing 126 of the most popular business aircraft, the full version of Guardian Jet’s proprietary Vault 2.0 software delivers the best actionable analytics and insights to clients, allowing them to make informed tactical and strategic decisions that can save them millions of dollars.
“The goal of Vault 2.0 is to provide real-time aircraft information and even more transparency in the unregulated brokerage industry,” said Dwyer. “This new platform will help Guardian Jet clients save millions of dollars during the lifecycle of their aircraft and while executing aircraft transactions.”
Vault 2.0 is available to existing Guardian Jet clientele, with demonstrations taking place during EBACE 2018 at Guardian Jet’s stand (Y125.) Learn more about Vault 2.0 and the wide array of additional Guardian Jet services at guardianjet.com.
About Guardian Jet
Founded in 2002, Guardian Jet, LLC offers business aviation brokerage, consulting and oversight services for hundreds of clients worldwide. The company distinguishes itself with a focus on integrity and industry expertise, and by consistently providing business value to clients. Guardian Jet’s core mission has always been to earn the right to buy and sell aircraft on behalf of its clientele by providing them with great consulting advice, market intelligence and flawless execution. For more information, visit guardianjet.com.
Guardian Jet is a proud member of the National Aircraft Resale Association (NARA) who just launched an aggressive campaign to help improve the ethical standards for pre-owned aircraft transactions.
In this short video, Don Dwyer explains some of the reasoning behind NARA’s endeavor and why ethical business aviation transactions are so important in our unregulated aviation brokerage industry.
About NARA’s Strict Code of Ethics
All NARA members follow a strict NARA Code of Ethics, and the Broker/Dealer members must pass a rigorous certification process to assure the highest standards when buying and selling previously owned aircraft.
Ultimately, they are recognized as NARA Certified Aircraft Brokers and Dealers. NARA Products and Services Members represent a variety of aviation services that operate with the highest professional standards in the industry.
NARA, a professional trade association formed more than 25 years ago, is comprised of selected aircraft sales and brokerage businesses that are NARA Certified and aircraft product/services companies that adhere to the highest professional standards. Promoting the growth and public understanding of the aircraft resale industry, NARA’s members abide by an elite 14-point Code of Ethics that provides standards of business conduct regarding aircraft transactions.
NARA is working to raise awareness of the unfortunate ramifications of transactions involving brokers, dealers and aviation advisors who do not subscribe to high ethical standards.
Guardian Jet is pleased to represent for sale a beautiful 2001 Cessna Citation Excel (Serial Number 5153).
Accommodating up to eight passengers, this midsize business jet is a great, reliable aircraft that will get you from Los Angeles to New Orleans or from Chicago to San Diego.
Other notable features:
New exterior paint completed at Duncan Aviation in 2018
Interior refurbished at Duncan Aviation in 2011
APU on Honeywell MSP program
ATG-5000 with Wi-Fi
Aircraft Maintained by Chapter 5
This extremely well-maintained aircraft is available for immediate purchase, and “priced to sell” at $1,795,000.
ABOUT THE CITATION EXCEL
Powered by two Pratt & Whitney engines, the Citation Excel was built by the Cessna Aircraft Company, based in Wichita, Kansas. It has a published range of 2,138 nautical miles (3,441 km).
With the success of Cessna’s high-end Citation VII, the manufacturer saw a market for an aircraft with the Citation X’s features but aimed at a more traditional market, where it would chiefly compete with twin-turboprop aircraft.
To produce the Excel, Cessna took the Citation X’s wide, stand-up cabin fuselage, shortened it to about 21 feet (6.4 m) and mated it with an upswept wing that makes use of a supercritical airfoil (based on the Citation V Ultra’s wing), and the tail from the Citation V.
To power the aircraft, Cessna chose the Pratt & Whitney Canada PW500 turbofan. The Excel has the roomiest cabin in its class of light corporate jets, and typically seats six to eight in a corporate configuration, while being flown by a crew of two.
This beautifully maintained eight-passenger executive configuration features a two-place side-facing couch and six leather passenger seats in the main cabin. Its seats and cabinetry were refurbished in 2011. The jet also features an aft lavatory and coat closet.
The refreshment center provides storage for an assortment of hot and cold beverages and light snacks.
The jet’s avionics feature the following, among other highlights:
AVIONICS: Honeywell Primus 1000 3-Tube electronic flight information system (EFIS)
In this 4-minute video, Doc Dwyer explains why an aircraft market analysis is important when buying or selling your airplane.
In particular, he gives you an in-depth look at the Gulfstream G550 market, and shares why you track and analyze all the details in a market to truly understand what’s going on.
Watch the video:
Doc’s Edited Transcript:
Today we’re going to talk about the Gulfstream G550 market.
I’m going to start with three statistics that just give you a sense of what’s going on in the market.
There are 30 aircraft for sale (or 5.2 percent of the market), and that 5.2 percent makes me start to think this is a little bit of a seller’s market.
Ten percent of a market is fairly standard.
There were 12 sales in the past six months (or about two sales per month), so we’re seeing some good activity two sales per month and 30 aircraft for sale leads us to 15 months to sell the current inventory.
This is a really important statistic that we like to track at Guardian Jet.
A 12- to- 18-month cycle is a very healthy market with good turnover. Less than 12 months and the market’s on fire; above 18 months, and we start to see a slowdown and prices really falling.
G550 Market Trends
The next thing I like to look at is some trending.
We track everything over eight quarters here at Guardian Jet. These two graphs jumped off the page to me. The first is the number of aircraft for sale.
As you see, the general trend over the past eight months is definitely down although we’ve seen an uptick in the first quarter of 2018, and another uptick in the second quarter of 2018.
For aircraft sold by model year, the second quarter of 2017, we sold 13 G550s. In the first quarter of 2018, we sold four. In the second quarter of 2018, we’ve sold three so far.
So you can see that the supply is starting to pick up; demand is definitely decreasing.
So what does that mean?
Let’s go back to our basic economics increasing supply decreasing demand will probably see some softening and pricing.
But if you look at the first two slides that we’ve showed you here today they disagree with each other so let’s go into more detail and see what’s really going on in the market.
What’s selling in the G550 market?
9 of 12 sales are U.S.-based aircraft
14 of the 30 aircraft for sale are based in the U.S.
We’re seeing a heavy favoritism toward the U.S.-based aircraft.
The number one single option to have right now in the G550 is a forward galley. Eleven out of the 12 aircraft that have sold have a forward galley while only 17 out of the 30 on the market have a forward galley.
So really those forward galley airplanes are the only one that’s moving. Aft-galley airplanes are moving solely based on price.
If you look, you’ll see that the trend on forward galley aircraft has increased over time. From 2003 to 2010, if we look at the aircraft that are currently for sale, 5 out of the 14 aircraft have a forward galley.
From 2011 to 2017, 12 of the 16 have a forward galley. As you can see, the market has really shifted in that time span to being forward galley-driven.
Why is all this important?
It’s really important when we bring your aircraft to the market to understand what the market wants, so that we can price your aircraft correctly.
If you have an international aft galley aircraft right now, we know we need to sell it on price. But if you have a U.S. forward galley airplane, we know we can be a little firmer on price and terms when it comes to the letter of intent (LOI) in agreement because we’ll have a desired airplane.
We track a number of other details in every market so that we really can have an understanding of what’s going on.
Thank you very much. If you have any interest in the G550 market—or any aircraft that you own currently or are looking at—please don’t hesitate to call us at 1-203-453-0800. We’d love you to walk you through those markets as well.
Mike Dwyer of Guardian Jet invites you to come see our team at the European Business Aviation Convention & Exhibition (EBACE) on 29-31 May in Geneva Switzerland.
We’ll be showcasing the Vault 2.0, our online asset management and brokerage tool at booth Y125.
Watch this brief video:
Hi, I’m Mike Dwyer from Guardian Jet.
We’d like to invite you to visit us at EBACE where we will be demonstrating at the Palexpo in booth Y125.
We will be showcasing the Vault 2.0, which is our online portal to your relationship with your aircraft as an asset in a portfolio.
So please come by Palexpo and see us. Just give us a call at +1-203-453-0800, and we’ll set up an appointment.
About Vault 2.0
Very quickly, the Vault 2.0 is an online, 24/7 tool, that looks at every aspect of managing your airplane—from valuation fleet planning and asset management to finding the right airplane, executing a purchase and executing a sale.
There’s also benchmarking if you want to look at how you compare to your peers. We’d love to give you a deeper dive.
One of our motives for creating the Vault 2.0—besides improving our asset management product, fleet planning business with our very robust consulting in the U.S.—is international expansion.
So, whether you’re in Europe, Asia, Africa—anywhere on the planet—we have given you a portal to your airplane. See how it looks in the markets it lives in—and all of those replacement candidates that you might be considering.
So please get in touch with us; we’d love to show you the Vault 2.0 in Geneva this May.
Don Dwyer, managing partner of Guardian Jet, talks to Anthony Harrington about building a leading position as advisor, broker and consultant to Fortune 500 companies on all things related to private jets.
Anthony Harrington: How did it all begin?
Don Dwyer: Guardian Jet, one of the big three aircraft brokers, was founded in 2002, some 16 years ago, by my brother, Mike Dwyer, along with Mike Mikolay.
My brother, Mike, and I share managing partner responsibilities and Mikolay is our Executive Vice President, responsible for operations.
AH: Having two brothers as joint managing partners is something of a unique set up for this industry. How do you two manage to keep the peace between you and avoid sibling rows?
DD: (Laughs) In the beginning of our careers, out of necessity because we had a tiny budget, we made do with a very small office with our desks butting up against each
Now we have a very nice, architect-designed office. We still have our desks in the same room, not because we have to, but because it’s still the best way for us both to stay in touch with everything that is happening and what the other one is doing.
He’s better at some things than I am, so we each play to our strengths and we get along splendidly!
AH: So, how did the business fare in the early days?
DD: We took a very different approach to most start-ups. A lot of small businesses start regionally and slowly extend their customer base to other states.
We, on the other hand, started off as a customer-centric business. And, right from the outset, we said we wanted to serve the needs of the most sophisticated and demanding customer base in the world, namely the directors and senior executives of Fortune 500 companies.
We told ourselves that we wanted to earn the right to advise and to represent these companies across a range of transactions. We are a consultancy, first and foremost, and Fortune 500 companies have embraced our approach.
AH:How would you characterise the work of a great consultancy when it comes to buying and selling jets?
DD: If you’re behaving in your customer’s best interests, you should find that as often as you are saying, “Now is a great time for you to buy,” you should also find yourself saying, almost as many times, “Let’s slow down and hold on to the aircraft that we currently have!”
This last bit of advice is not going to make you money, but it’s going to build your reputation for independence and for putting the client’s interests first—and that is what we’re focused on.
And ultimately, of course, the quality of your reputation is what brings in new clients and retains the client base.
We’ve had customers we’ve given that advice to turn around and say, “Hey, aren’t you a broker? Aren’t you supposed to be selling us the jet?” And the answer is, “Not if it’s not in your best interests right now!”
AH:You are strong in the Fortune 500 segment of the market, what about the high net worth side?
DD: If you look at the number of deals we’ve done over time, we have a very high concentration of Fortune 500 clients represented in those deals.
But we love the HNWI business and we’re growing a sales force specifically to focus on individuals who have the means to own private jets.
There tends to be a different feel to the two kinds of transactions. Fortune 500 companies want a defensible plan when they allocate capital to buy a jet. They want to be able to
show its value to the business.
With a high-net-worth person, you’re really looking to see that they’ll be comfortable with the purchase and the ongoing costs.
It is important to make the point that we are not an operational consultancy. We don’t set out to tell clients how to fly more safely or more economically. Our consultancy is all about the capital that you’re going to invest in your aircraft.
We analyse all the scenarios that apply to a possible purchase, including what it would cost to charter for the equivalent number of flight hours a year.
We show them what it will cost to operate that particular aircraft and what the residual value is likely to be, and we will help them by providing all the facts around the decision.
But we don’t try to talk the client into buying the aircraft. That is their decision and we only put it to them when we are comfortable with it.
AH: Are you seeing any real change in the market today versus a few years ago?
DD: Right now, we’re seeing a host of first time buyers. It seems to me that at long last we are seeing a real charge from the fractional jet side of the market.
We’ve been waiting forever, it seems, for the first wave of buyers to come out of the fractional market and acquire their own aircraft. It is really starting to happen at last.
AH: What about the financing side of the business? Is there the cash available from the market to support the acquisition of new and pre-owned jets?
DD: We can always find a finance company for a qualified buyer. However, we live in the world of qualified buyers. Trying to get financing for unqualified buyers is very difficult and you should probably not be doing that.
For a high-end broker, such as ourselves, there are more than enough customers that fall into the “qualified” category and who really are in the market to buy a jet.
AH: What about residuals? Th is can be a very elusive number to try to pin down, can it not?
DD: We have as much data on residual values as anyone on the planet. However, the bottom line for any owner is that a jet is a depreciating asset, with some models depreciating faster than others.
A Phenom 300, for example, holds its value very well. Today it has the same year on year residual value as pretty much all models used to have pre-2007. You also know that the Gulfstream G650 is going to hold its value better than most.
AH: I take it you are buying and selling both new and pre-owned?
DD: We buy an awful lot of new aircraft because of the nature of our client base. But we always look at the relative values and merits of new and pre-owned.
With our Fortune 500 clients, what we do is to try to help them to get some logical cadence into their buying. If they hold on to a jet for too long, for example, the delta between what their aircraft is worth and the new price will be huge.
If you buy more regularly, that delta becomes much more manageable. |BAM
Guardian Jet is pleased to represent for sale an exceptional, pre-owned 2010 Agusta AW139 Helicopter.
The offer is especially notable considering the tremendous value available in the pre-owned Agusta AW139 market. And, what’s more, with an expected selling price of well under $6 million, this 2010 Agusta AW139, S/N 41246 represents a rare bargain.
Currently based in Trenton and available immediately for sale, this aircraft has been owned by a Fortune 100 company since it was purchased (brand-new). The owner is widely known as one of the most experienced rotor-wing operations in the country.
The AW139 is enrolled on Agusta’s Essential Power Train Program, its engines are on ESP Gold, and its avionics are enrolled on Honeywell HAPP. All of these programs offer prospective buyers operational peace of mind.
As of January 8, 2018, the aircraft’s total time was recorded at 2,275 hours, with 4,398 landings. It has no known damage history.
It’s extremely well-equipped with ZingHUMS, EGPWS, TCAS and is ADS-B Out-compliant.
We encourage any interested party to set a time to view the aircraft personally, as you will be thoroughly impressed by it, and the owner’s operational excellence.
With original Interior by Air Concepts International, following are some highlights about the S/N 41246’s interior:
Deluxe VIP Executive 6-passenger interior features two forward facing captain’s chairs and a four-place bench seat
Seats are covered in Townsend leather
A deluxe refreshment/storage center is located between the captain’s chairs featuring mahogany wood and veneer cabinets
And some of the cabin features include:
Cocoon Generation II Noise Reduction Wall Panel System
Coffee and hot water decanters
Custom executive VIP cabin interior
Cockpit / cabin divider bulkhead with manual sliding windows
Four-place rear-facing leather VIP executive seats with integrated head rests
Two forward-facing single leather VIP executive seats with integrated head rests
Cabin refreshment credenza with ice drawer, storage and waste container
Custom cabin carpet
Magazine racks on cabin doors
Two 110V AC outlets in cabin
One 110V AC outlet in cockpit
Dual 15″ LCD monitors
CABIN ENTERTAINMENT & COMMUNICATIONS FEATURES
True North SatPhone
Sky Connect Tracking System
PBS-250 Digital Passenger Briefing System
Flight Displays Systems Moving Map
Dual 15” LCD Monitors
The helicopter’s avionics feature the following, among other highlights:
Honeywell Primus Epic 4-Tube 8×10” Primus II System
Our Managing Partner, Mike Dwyer, gives you an insider’s look at Guardian Jet’s Vault 2.0. In this short 2-minute demo, he explains how the brokerage and consulting data we provide helps aircraft owners save millions over the life of their asset.
Watch the video or read the transcript.
Mike Dwyer’s Vault 2.0 video transcript:
We announced the Vault 2.0 at NBAA 2017 in Las Vegas, and we’re very pleased to report that, at the end of the first quarter 2018, the newer Vault—that’s more intuitive, with more information has been a tremendous success.
We almost have about 300 users of the Vault. And, we’re getting about 10 hits a day from our clients a day as they interact with Guardian Jet, and their relationship with their aircraft as an asset in a portfolio.
That Asset Management is where we say that, over the life of the asset, we can save you millions of dollars.
What I also want to do is show you in this update, is show you a couple of examples. Some of it is live so we can show you what’s happening.
Right now, we’re in the sales “bucket.” We’re showing you an airplane and what it’s worth. There’s a valuation.
I’m going to touch on Fleet Planning and go into Customer Reports.
This is an actual customer.
In February 2016, we initiated a Fleet Plan. It was about the disposition of a G550. We kept in touch all through 2016 and renewed and reviewed in 2017. And we’re in constant touch today. That’s what we call Asset Management.
A Fleet Plan is a Fleet Plan, and that’s great. Renewing and reviewing is what we call Asset Management.
This is a nice archive in place for all of that to occur.
So that was the Fleet Planning/consulting side of the house—and we like to start there. We like to say that consulting earns us the right to execute your trade.
On the trading side, I’m going to show you an example under Sales. In the Client Update, we show all of the prospects in your Vault that have called in, that are interested in potentially buying it.
We not only show you when they called in, but we chronicle our follow-up with that person.
So, this call came in at 11 o’clock this morning and within 15 minutes of the call being over, it was in our client’s vault. And if they looked, they’d see it as it happened.
Those are just a couple of examples of sort of the real-time nature of the Vault, and how we can help you manage the assets in your fleet or with your single airplane.
Please give us a call. Meghan Carlson runs our program here at Guardian Jet. We’d be happy to set up a demonstration—whether it’s live in your offices, or online.
We’ll be at EBACE May 29-31, and we’re very excited about it.
Should you pay cash or lease or finance your next aircraft? It’s a great question and one that we often answer for our clients here at Guardian Jet.
Below we’ll compare the different options for aircraft financing in an effort to help you understand its impact on your fleet plan.
But first, let’s see what the industry is doing, domestically here in the U.S., and abroad.
Survey Says . . .
Cash is king.
At least when it comes to buying a new aircraft in the U.S., according to Michael Chase, principal at Chase & Associates.
In his report, nearly three-quarters (73%) of new aircraft owners purchase their planes outright. And this is a statistic that’s remained largely constant since 2006.
But, internationally, things are different when it comes to aircraft finance.
When JETNET iQ’s Quarterly report surveyed 500 aircraft operators globally, only about 45% shared that that they prefer cash—or cash followed by financing—as their preference.
Where international buyers are concerned, financing is more popular.
Yet leasing is gaining considerable traction, thanks to record demand and strong liquidity. It’s an aircraft financing option that creates more efficient risk management of aircraft residual values.
In Boeing’s 2018 Current Aircraft Finance Market Outlook, aircraft leasing continues to grow in absolute size while maintaining a 40% global market share.
So, what is your best option when it comes to aircraft finance?
How do you factor in aircraft residual values? And should you let someone else take on the risk while you use your cash to fund other projects or assets?
Pros and Cons: Cash vs Lease vs Financing
Let’s get down to it and discuss the pros and cons of the different purchasing vehicles. Then we’ll go into an actual example of buying or leasing a $10M airplane.
In an aircraft lease, the pros are as follows:
You preserve your capital outlay. You don’t put anything up front, you just start making payments.
You have fixed monthly payments. You know your budget for the term of the lease agreement or your ownership period of the airplane.
You have no residual value risk.
The residual value risk is born by the lessor.
You have some degree of flexibility. This is because you can write into the lease deal an EBO (Early Buy Out) or an ETO (Early Termination Option). This can be favorable to you if the market does better than what the leasing company anticipated. You usually don’t impact your P&L in the year of the transaction like you would paying $10M for an airplane.
You aren’t impacted negatively in the year of replacement.
You might have flexibility. At the time of sale, the bank may allow you to enter into new lease agreement for your next purchase.
The cons of an aircraft lease:
Your tax benefits are assumed by the lessor. You’re giving the residual value risk to the leasing company, and they’re getting the tax benefits. So the lessor gets the depreciation.
You pay more to own your airplane.
Over the life of the agreement, you’re paying interest and you don’t get the same tax benefits as mentioned above. Also, when you want to sell the aircraft, the optimal timing for buying a replacement may be limited, depending on your lease term and/or exit strategy.
You will have usage restrictions. You can only fly it so many hours a year or you affect the return conditions on a lease. A lessor usually has requirements for hours flown, insurance, and being on an engine program.
The pros of financing an aircraft:
You will save more money. When financing through a bank, you’ll save the most money from a net present value cost. Aircraft financing is the less expensive option over the life cycle of your ownership from a net present value perspective.
You get significanttax advantages. You can accelerate the depreciation of the airplane. (In the example below, we use the current 100% bonus depreciation in year 1, so you’ll reap considerable tax benefits.)
You have more flexibility to resell. There are no restrictions on how you use the airplane. And you’ll be able to sell the plane more easily, without lease penalties.
The cons offinancing an aircraft:
Your capital is tied up. Let’s say you pay 10% for a $10M jet. That means you’re going to put $1M down, and you can’t use that for other business needs—the way you could if you were leasing the airplane.
You assume the residual value risk.
Your P&L might be impacted negatively. This is because you’re spending $10M in the year of the transaction.
The pros of purchasing an aircraft with cash:
You get great tax benefitsfrom owning your own airplane.
You will save money over time. Cash is the less expensive option over the life cycle of your ownership from a life cycle cost perspective.
You have the most flexibility when you sell. If your corporate travel mission changes, you can sell more quickly without lease penalties, and there’s no loan to pay off.
You have no transaction costs.
You have no restrictions.
This enables you to use the aircraft as you wish, and choose whether to add an engine program (it’s not required). Excessive wear and tear is not an issue (at least to the lessor).
The cons of purchasing an aircraft with cash:
You will have a significant capital expenditure.
You assume the residual value risk.
Your P&L might be impacted negatively.
Financial Analysis Case Study – After-Tax Cash Flow
In the following case study, we looked at financing options for a nearly new aircraft that’s less than three years old and has fewer than 1,000 hours. The purchase price is $10M, and we outlined both the 10-year life cycle cost and the net present value.
Our assumptions for a 10-year cash flow example:
Compared the cost of capital over a 10-year term calculating after-tax
Sales tax rate of 8.25%
Residual value decrement of 8% per year
Federal and State corporate tax rate of 35%
Net present value discount rate of 10%
100% business use
Lease rate factor of 0.9%
Financing interest rate of 4%
100% bonus tax depreciation for after-tax analysis
10-Year Life Cycle Cost and Net Present Value Case Study – $10M Jet Purchase
Ok. Now, let’s get into the specifics. Looking at the chart above, the blue lines represent the life cycle costs of owning the airplane over 10 years.
In the first column, the cash purchase has a very low life cycle cost.
But when you apply the cost of money or the net present value (NPV), it’s very high. In fact, it’s much higher than the life cycle cost because in the beginning of that term, you paid $10M.
Life cycle cost explained:
You buy the airplane and pay for it, including all the operating costs. You get the tax benefits, if any, and then you sell the airplane. Or, in the case of the lease, terminate the lease at the end. And then you look at your total costs.
Net present value explained:
The value of a sum of money in today’s market, in contrast to some future value it will have when it has been invested at compound interest.
In an aircraft lease, you’ll have high life cycle operating costs because you’re paying a lot of money over time to lease this airplane.
But, unlike in the purchase, because you’re paying it over time (and it becomes a discount rate), you actually have a lower NPV than your life cycle costs.
It’s much less expensive to pay with cash than to lease, but you can see the difference, and remember that there are some advantages to leasing.
In the third column, you’ll see that financing the airplane clearly comes out ahead from a net present value perspective. This is due to the lower capital outlay combined with the ability to reap the benefits of the 100% bonus depreciation.
With all of that said, every aircraft ownership decision is unique to the corporate or high-net-worth individual.
We’re always more than happy to discuss your particular needs. To learn more, visit our financial projections page or give us a call at 1-203-453-0800. We’d love to help you out.