Aviation Politics: Depreciation in Jeopardy

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Submitted by Mr. Rob Burgon

Is it just me, or does it seem like more and more people are talking politics these days?  Perhaps I care more about this stuff the older I get, or maybe I’ve just become more aware of the political warfare taking place in our country.  Either way, it’s evident that partisan jousting is taking place anytime you turn on the TV, open a newspaper, or log on to the Internet.

Unfortunately the aviation community has found itself at the center of some of these legislative attacks.  From the use of unmanned aircraft in national airspace to GA user fees, to tax considerations for business aircraft there are several issues afoot on which you as a lover of aviation should be raising your voice.

Let me just start by saying that I don’t want to talk partisan politics.  In my opinion government, by nature, is inefficient and that goes for whatever political party may be in the fight.  Due to the virtual inability of the American people to hold our leaders accountable (not to mention the lack of term limitations), I don’t foresee things getting better anytime soon.  Knowing my perspective on this should help you take a more critical approach to what I’m about to say so you can formulate an opinion for yourself.

I’m sure by now everyone’s heard of the White House’s comments regarding the depreciation of business aircraft.  As a pilot you may be thinking “why should I care about this?”  Let’s start with the most important piece of the equation: me.  I love flying.  I love it so much that I want to do it every day.  If I do nothing but fly, I will eventually go broke and starve to death, so I need to make money.  Let’s suppose the military is not an option because I’m either too old to start pilot training or I just don’t want to deal with the constant deployments.

Well, there are several pilot opportunities in the private sector and those opportunities won’t be around if the owner of the aircraft (i.e. the companies that own the aircraft) goes broke.  That’s the worst-case scenario.  More realistically, the company will not be able to pay you a decent salary if they don’t have solid cash flow. No money = no flying.

One nice little perk for owners of business aircraft is the ability to deduct depreciation of aircraft from business income.  This deduction lowers the company’s tax liability which means they pay fewer dollars to Uncle Sam and are able to do something else with that money – like pay their amazing pilots to do what they love to do!

Right now the White House is trying to extend the time over which a business aircraft may be depreciated.  This will ultimately increase a business’s tax liability in the short term and reduce overall cash flows.  In order to maintain current cash flows, the companies utilizing these aircraft will have to cut expenditures in other areas (e.g. pilot/maintainer salaries!) or face bankruptcy.

Here’s a quick video by tax lawyer Ari Good explaining the importance of depreciation on a business aircraft.  This video was released several months prior to the White House’s comments.  Please keep in mind this applies to pretty much all capital assets.

Unfortunately this potential legislation may also affect sales of aircraft.  A company will diligently try to estimate cash flows and return on investment (ROI) before buying a capital asset such as a business jet.  By decreasing the benefit provided by depreciation, the projected rate of return on the business jet may not meet the company’s requirements (hurdle rate) and they will forego purchasing the jet.

Listen, I’m not anti-taxes or anti-government.  Sometimes our leaders just don’t understand.  They may not understand that the small marginal benefit to federal revenue comes at the cost of a large decrease in corporate cash flow.  They may not understand how important general aviation is to our economy.  That’s why it is our job to tell them.  We can let them know they are about to make a stupid decision by raising our voices.  We can do that by writing our congressional representatives, joining advocacy groups (such as AOPA), and voicing our opinion through social media.

We’ll discuss other political issues facing the aviation community in the future.  We’d love to hear what is on your mind.  Send us your comments here or on our Facebook page.  Together we can keep jets in the air and pilots at the controls!

Mr. Burgon holds a Commercial Pilot Certificate with Instrument Rating and has a B.A. in Finance and an M.S. in Accounting and Financial Management.