Jay Mesinger

Buy now while great choices exist for buyers says US broker

September 22, 2003:

If you are reading this, you have more than likely had the dream of either owning or flying a corporate jet come true. Now, how about a new dream? Why not buy a new aircraft rather than a pre-owned aircraft? This is one of those rare times in history where all the stars line up in a way like never before. But let’s not jump ahead. Why buy new?

If you have been involved with the contractual portion of a pre-owned aircraft acquisition, you already know the portion of the contract that is sometimes known as the big print area. It’s the place were all reps and warranties are disavowed and replaced with terms like ‘as-is, were is’, etc. This means from the moment you sign the delivery and acceptance receipt, it is yours.

If it breaks from that point forward, the cost of corrective action is yours. Don’t get me wrong, with comprehensive pre-buy inspections and the heretofore-lower acquisition price of pre-owned, many of those gotchas are mitigated. Buying pre-owned can be a very safe and sound investment.

Buying new can provide several very important factors that, put together, can lower direct costs,

fixed costs and provide state-of-the-art technology with no fore-seeable investment for regulatory compliance. Warranties lower direct costs by providing parts and labour cost reductions.

Engine and parts programmes have a lower per hour cost during these warranty periods as well.

Fixed costs are lowered by eliminating modification and refurbishment loads for at least a three to five-year period.

Another key factor for comparison is residual value. It is true, with most current production aircraft purchases today, the sheer down-market can provide new hedges against future losses and even enhance the residual value, but the new aircraft using the same logic of discounted pricing can be even more compelling in the residual value area.

So why now? What is all this star alignment talk? Although the excess inventory for virtually all manufacturers has now been accounted for and sold, the manufacturers still report that newly placed future inventory may still be discounted and great future buying opportunities will exist in the foreseeable future. Interest rates are at absolute all-time lows. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (2003 Tax Act), now provides a 50 per cent accelerated depreciation opportunity (up from the original act that was 30 per cent), on new aircraft purchased after May 5, 2003 and placed in service before January 1, 2005. This makes it logical to at least explore the possibility of buying new.

Sadly, all great things will come to an end. The manufacturers will rethink and create more balanced inventories given the new future sales projections and thereby lose the incentive for these discounts. This 2003 Tax Act has an automatic end-date based on deliveries before January 1, 2005. And as our economy strengthens, interest rates will certainly go back up. So now is the time to buy new.

If you are contemplating an aircraft purchase, be sure you employ an aircraft professional who has the tools as well as the experience to compare (on several levels) the benefits and financial statistics of new versus pre-owned. It is also imperative the professional has the OEM relationships to help structure all the benefits mentioned.

Today’s analysis of an aircraft acquisition should be based on many levels: tax, state and federal, regulatory, and operational are all areas of key importance when calculating how to buy, what to buy and even if to buy. They are all critical to the endgame.

So, why not? That answer is best answered by you, your tax consultants and your aircraft sales professional who have looked closely at your mission, your budget requirements and your short and long-term needs.

Our industry is and will remain viable and important to those who have found that getting in front of their customers, getting there often and getting there soon can make the competitive difference. It puts you, your company and your mission out there, ahead of your competition. Only now you have more choices of how to get there!


- Jay Mesinger