In the coming decade, approximately 8,500 new business jets will enter into service, according to Honeywell Aerospace’s most recent industry forecast. That number doesn’t include thousands of smaller piston and turboprop aircraft and helicopters that will be needed.
While first-time business aviation operators will take home some of those new and preowned aircraft, the majority will be replacements for today’s fleet. The key question some operators face is: when to go out with the old and in with the new?
“In today’s market, most owners keep their aircraft for five to seven years,” said Todd Jackson, vice president of acquisitions for Elliott Jets. “That window often aligns with factors like evolving mission requirements, technological advancements, depreciation cycles and changing tax strategies.”
A recent Airbus Corporate Jets study surveying 96% of U.S. corporations that own or lease aircraft said the top reasons for transitioning to a “new or better model in the next five years” were:
- New U.S. tax legislation
- Growing focus on operational costs
- Newer/better/more fuel-efficient models/making greater use of sustainable aviation fuel
- Larger aircraft requirements
- Residual value considerations
“Today, we have the bonus depreciation [also known as immediate expensing] element that can greatly motivate an aircraft change,” said Emily Deaton, CEO of jetAVIA. “You’ll even see lateral moves here – same aircraft type, same operational profile, just big tax benefits for buying a ‘new’ airplane.”
“There are also owners who will upgrade when their aircraft are coming out of the OEM warranty period,” she continued. “We’re also seeing owners reaching the crossroads of where the economics of upgrading the engines, avionics, paint and interior of their older aircraft no longer make economic sense.”
“Additionally, the conversation around ongoing support, spares availability and increasing maintenance is becoming very top-of-mind today with operators of legacy aircraft,” Deaton added. “There aren’t any hard equations here, but the key is to understand if the upgrade aligns with how long you intend to keep the aircraft. Every aircraft and aircraft owner has a different value equation.”
Consider the Upgrade Costs
“If the aircraft still meets the operator’s mission and has strong market value, an investment in avionics, paint or interior may deliver a solid return, if resale is expected in the next few years,” Jackson said. “But once the upgrade costs begin to exceed 20% to 30% of the aircraft’s market value, it’s time to evaluate replacement options.”
“Your flight crew and director of maintenance are essential partners in the evaluation of your current aircraft’s ‘value’ and any possible replacement/acquisition strategy,” Jackson added. “Their input helps align the replacement aircraft with real-world needs and not just specifications on paper.”
For more insight and information, take a look at the NBAA Aircraft Transaction Guide, which includes an introduction to the regulatory, tax, financial and transactional issues that come together during an aircraft acquisition.
International Business Aviation Council Ltd.