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Archive for June 2011

Amusing video: What does it take to own a private jet?

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The WSJ published an amusing video about what it takes to own and operate a private jet.  Ostensibly, they’re challenging Obama’s lumping of people making $250k a year in with private jet owners in discussion of the debt ceiling.  I’m not sure he really said precisely that, but it’s an interesting video.  Their numbers related to the costs of owning and operating a jet are fairly accurate.

Link to video at WSJ:
What It Takes to Own a Private Jet

The discussion is backed up by some b-roll of a Falcon 7 undergoing testing, in one case taking a high speed run through a giant puddle of standing water on the runway — which is interesting in itself.

 

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Written by mojofinance

June 30, 2011 at 9:53 pm

Wow — Obama really hates corporate jets

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Obama boards Air Force One

Obama not amused by corporate jet tax breaks

By my count, Obama mentioned corporate jets and corporate jet owners six times in his press conference yesterday, when discussing the ongoing negotiations regarding the vote to raise the debt ceiling.  And, not in a good way.  He repeatedly lumped corporate jet owners in with hedge fund managers and oil companies as a group of people that are receiving tax breaks they do not deserve.   He claimed that the cost of keeping the accelerated depreciation for business jets would mean compromising food safety, cutting medical research, decreasing college scholarships, compromising the National Weather Service, and risking children’s safety.   That’s heavy stuff.  And: National Weather Service?  Really?

The arguments for the accelerated depreciation (which is the tax break I believe he’s talking about, though he doesn’t specify) are that it causes businesses to spend money they would not otherwise spend on capital equipment for their business.  By allowing them to accelerate the depreciation schedule, they are able to reduce their tax burden, effectively making the cost of the capital goods lower, encouraging corporations to buy more of them, stimulating jobs at the companies that manufacture and sell those goods, thereby growing the entire economy.  Opinions can differ as to whether or not that type of incentive is an effective way of stimulating the economy.  The interesting part here, though, is how he’s singling out corporate jets.  The accelerated depreciation applies to a broad range of capital goods and it’s not at all clear to me why the policy would be good when applied to most assets and bad when applied to  corporate jets.  Certainly a lot of Americans are employed in the production of private jets and other corporate aircraft, so presumably keeping them employed is desirable.  I don’t think there’s an economic argument for singling out corporate jets, so much as they provide a convenient touchstone for class-warfare rhetoric aimed at the Republicans.  Luckily for Obama, not that many people own corporate jets (or manage hedge funds or oil companies), because he’s clearly not working hard to win their vote.

Of course, Obama didn’t mention where the tax break for corporate jets came from: his own stimulus bill.

Even leaving aside the accelerated depreciation of corporate jets, the tax treatment of aircraft used for business purposes is an interesting topic.  I’ve followed with interest the WSJ’s coverage of corporate jet use, and their strong implication that corporate jets are used far more often for personal use than real corporate business.  The tax code, I feel, is a big reason for this.  The asset cost of private jet travel makes up such a large portion of the total cost, that the deductions for standard depreciation and cost of financing radically changes the cost of flying.

I recently looked at an aircraft management proposal for a used Challenger 300.  The annual asset costs (cost of capital plus depreciation) on that plane represented 73% of the total annual ownership cost.  When you work it all out, someone owning and flying that plane personally ends up paying 33% more per hour than someone who checks the >51% business usage box and takes the relevant deductions.  That’s a massive difference on something that is already so expensive.

So, that creates a massive incentive for a company to allow the executive to use the plane for personal flying and call it a business expense, and for individuals to get creative when claiming business use of their own aircraft.  Having to pay an extra 33% is a bitter pill to swallow, especially when it seems like everyone else is claiming all private jet travel as a business expense.

Transcript of news conference at WSJ

Obama’s case against the rich rings hollow 

Obama targets private jets, Big Oil

National Business Aviation Association CEO strikes back at WSJ

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NBAA CEO Ed Bolen, in a letter to the editor, claimed that the WSJ article Corporate Jet Set: Leisure vs Business  “neglected to mention that the personal use of a company’s airplane typically accounts for only a tiny fraction of the aircraft’s flights.”  He continues “for the most part, businesspeople use airplanes to reach towns with little or no airline service, work more efficiently and productively while in flight, and be more nimble and competitive in a global marketplace.”

Call me crazy, but this sounds like a bunch of malarkey.  The WSJ certainly did not “neglect” to mention the things that Bolen claims, rather they made the opposite point entirely — that corporate jets are used far more often for leisure travel than the corporations and the NBAA claims, and, that such personal use of these aircraft is dramatically and systematically under-reported.  I agree that there is a general sense of “rich people are bad” in the article — surprising for the WSJ — but feel like they make a valid point.  I personally love to fly privately, but don’t want to pay (as a shareholder) for the CEO to go on vacation while being told that he’s flying for business.  If the CEO is really underpaid to the extent that he can’t afford to fly privately to the extent he wants to, then we can have a discussion about salary, but slipping in personal usage of a corporate jet effectively as hidden compensation is wrong.

 

Most Corporate Aircraft Users Are a ‘Working Jet Set’

Written by mojofinance

June 30, 2011 at 7:00 pm

WSJ back on track: Corporate Jet Set: Leisure vs. Business

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New WSJ piece alleges that corporations dramatically under-report personal use of corporate aircraft.

The WSJ has a new article in what is now a series on private jet usage.  Unlike they’re previous unfocussed, class warfare story of the previous article, this one looks at the under reporting of personal usage of corporate aircraft for top execs.  The allegations made here (or at least implied) are serious and could easily result in tax evasion or fraud cases against some involved.  In most, or at least a lot, of the cases, there may be a legitimate difference of opinion as to whether or not flights by executives to vacation destinations constitute business use, but it seems clear that many executives have been under-reporting their income, and companies have been under-reporting the perks they pay to the top execs.

Interestingly, the rate the SEC requires to be expensed for personal use is only the variable portions of the expenses.  Even if you report everything faithfully, that’s a heck of a deal –flying for just the cost of the fuel and catering — depreciation, pilots, training, and cost of capital be damned.   In most cases that’s probably a 50% discount to what that executive would have to pay a third party to receive the same service.

Also, it looks like their private flight database is back online and searchable.  Looks like it’s undergone some upgrades since it was last available.

Corporate Jet Set: Leisure vs. Business (WSJ)

Written by mojofinance

June 16, 2011 at 5:01 am

Donald Trump talks about his new private jet

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Donald Trump is trading in his aging Boeing 727 for a gently used 757, a hand-me-down from Microsoft co-founder Paul Allen.   Business Jet Traveler has an amusing interview with him talking about it.  It was certainly time for an upgrade, as the 727 is now 43 years old.  Ironically, and I swear I’m not making this up, Trump’s first wife, Ivana, was also 43 years old when he traded her in on a newer model (literally, a model).

Trump is still the undisputed king of superlatives.  For one thing, he chose the 757 for it’s great looks: “I always felt the [Boeing] 757 was the best looking of all the commercial planes. I like the sleekness, the lines.  I’m a very aesthetic person.”  That the Donald is an aesthetic person is, of course, obvious to anyone who considers the art form to which he has elevated the once lowly comb-over.

As for the avionics and entertainment systems, “top, top, top of the line. This is Paul Allen’s plane from Microsoft, so it is wired for unbelievable things.”  Most  non-billionaires  probably don’t even know there is a “top, top, top” of the line to be had, instead settling for the merely “top” of the line aircraft accessories.  Also, I’d be lying if I said my curiosity wasn’t piqued as to what the “unbelievable things” might include.

Trump’s new plane will have about 28 seats plus two bedrooms, and more gold plating than a more tasteful less aesthetic person could imagine.

The Daily Mail also has a piece on the new plane, plus the pictures of the old and new planes shown here.

Donald Trump's old 727

Donald Trump's old 727

Donald Trump's new 757

Donald Trump's new private jet , a Boeing 757 purchased from Paul Allen. Note the sleekness.

Trump force one: ‘The Donald’ shows off gaudy new $100 million ‘presidential’ 757 jet

Trump Talks About His New Jet

Trump’s new jet makes NYC debut (video)

Trump Wants You to Know He Has a Big New Used Plane

Personally, I think the old 727 looks great, but then it’s only through force of will that I’ve kept from buying a Jetstar, so I obviously like the older jets.

Written by mojofinance

June 4, 2011 at 8:13 pm

Let a hundred airports blossom

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Shenzhen International Airport Termina

Shenzhen International Airport Termina

Private aviation looks to provide an interesting microcosm of the Chinese efforts to transform itself into a modern developed economy practically overnight.  Private jet manufacturers are moving aggressively into the Chinese market.  As of 2010, there were only 130 executive jets registered in China compared to 15,000 in the United States, but manufacturers expect it to provide a big source of revenues in the coming years.  And they expect to sell big planes there, too — Gulfstreams, Globals, Boeing and Airbus business jets, etc.  The Chinese government is also going to play a part, too, with plans to build 45 to 55 new airports in the next few years as well as by loosening restrictions on some airspace (which is tightly controlled by the military).  Obviously, the issue of whether the growth of the Chinese economy is sustainable or a bubble is an open question, with lots of people lining up to make bets on both sides, but it will no doubt be interesting to watch unfold.

Here are some links to stories on the subject:

China’s private jet market takes flight

Business Jets Take off in China

Business aviation industry looks to China

Private jet sales in China cleared for take-off

Interestingly, the stories are not consistent about what the actual numbers of registered jets or projected number of airports to be built are.  This is probably further evidence of what a free-for-all the Chinese market will be over the coming years  — it’s a quickly moving target, and one for which accurate information is hard to come by.  Another note, the number of jets registered in China undoubtedly underestimates the number of jets operating regularly in China, with a large number registered elsewhere to avoid the, ahem, Red tape (sorry).  And, if you thought the title of this post was cheesy, at least I avoided the “taking off” puns — not easy to do.

Written by mojofinance

June 2, 2011 at 3:39 pm

Update: WSJ Disables Private Flight Data Search

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Shortly after publishing the searchable database of private flight data, the Wall Street Journal has disabled the search function.  I’m not sure exactly when it happened, but it was within a couple of days of releasing the database.  I’m not sure if that’s just because of a technical problem (many more people searching the database than the system could support), or for some sort of legal or editorial reason.  You can still look at the results of some searches that they have already performed, but that’s a lot less interesting.

 

A note on the website says:  Editor’s note: Usage of this tool is temporarily limited to viewing searches previously created by WSJ editors.

The page is here.

Written by mojofinance

June 2, 2011 at 2:14 pm

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