We’re halfway through 2018, and it’s looking like a great time to invest in a private jet.
But the real question we’re here to answer is: Is it the right time for you to buy a private aircraft? It’s a big decision; here’s how to make that call.
Market Conditions & Affordability
The inevitable first question is whether you can afford it. If you’re new to the private jet buying experience… that’s a big question. Prices for new jets can range from $1.69 million to several hundred million for those who want to deck out a commercial-size plane in their own fashion. Of course, if you buy a larger jet, you might be limiting your destination options.
There’s good reason for many jet buyers to purchase second-hand aircraft. Not only are new jets expensive, but the average private jet owner replaces his or her aircraft about every 3 to 5 years. It’s no surprise that in 2015, 76% of aircraft bought globally were pre-owned despite only 11.5% of the total jets listed for sale that year being pre-owned. If you like the idea of a pre-owned aircraft, you can have your jet broker or management company locate the right one for you, so you don’t have to do it blind. Just be sure to use caution and get things inspected thoroughly.
After purchase, there’s the cost of ongoing management. On average, it may cost $700,000 to $4 million each year to own and operate an aircraft in the United States, although that amount can vary significantly based upon usage.
Luckily, those estimated operating costs cover a comprehensive list of needs:
- Hangar or office
- Hull Insurance
- Liability insurance
- Pilot and staff, and/or training
- Average maintenance, including parts and labor
- Landing fees
A Glance at the Global Economy
According to the United Nations’ World Economic Situation and Prospects Report 2018, global economic growth reached 3% in 2017 and is expected to remain steady for 2018 and 2019. This is a significant acceleration over the 2.4% global economic growth rate experienced in 2016. However, elevated trade policy uncertainty, rising debt levels, and non-uniform improvements in economic activity may decelerate productivity growth.
In simpler terms – the global economy is stronger than it has been in recent years, but not so stable that there is a huge influx of jet buyers on the market. Fewer aircraft buyers mean the prices of available aircraft go down.
How Aircraft Longevity Impacts Availability
The General Aviation Aircraft Shipment Report (GAMA) cites 3250 planes and helicopters shipped worldwide in 2017, with a total of more than 15000 business jets shipped worldwide between 1994 and 2016. On average, business jets up to 25 years old may only have about 12000 hours on them, and when they’re well-maintained aircraft can easily last for 25000 hours.
Yet, jet manufacturing companies are unlikely to slow down production, even when economies tanked in 2008. The jet manufacturing process requires long development times, and companies don’t want to risk loss of talent due to temporarily slow markets.
The result is a greater quantity of aircraft available for discounted prices to keep things moving.
Purpose of Use and Tax Incentives
If you plan to use your jet primarily for business, there are some potential tax deductions that can help cushion the blow from the initial investment.
Really though – they do more than cushion the blow.
Historically, the IRS defined a private jet with a “useful life of 5 years,” in which time many owners do switch jets – but they don’t have to. The jet could potentially be used for several decades. This allowed some businesses to recover up to 70% of the jet’s initial cost within 3 years time, based upon a disparity between the asset’s real-life rate of depreciation and accounting. In addition, a “bonus depreciation” was possible to speed up defined depreciation rates upwards of 50%.
However, as of the tax reform passed by Trump Administration in late 2017, companies that buy private jets can now deduct 100% bonus depreciation for the aircraft. This means after a business buys a private jet, it can deduce the full depreciation of the aircraft immediately, but it doesn’t increase the depreciation value itself.
It goes without saying that these potential tax deductions don’t apply to recreational use of the aircraft.
Jet Fuel Prices
Gas prices are a consideration as well. According to the International Air Transport Association’s (IATA) jet fuel price monitor, prices may be higher than they were in 2016, but by comparison: The May 2018 rate of $90/barrel of jet fuel is still way below the $130/barrel in May 2011.
How Many Hours You’re Flying Each Year
Recommendations can vary based on purpose of use, the rates at your preferred charter company, market conditions, and more – but most prospective buyers should be flying at least 150 – 250 hours per year before considering private aircraft purchase.
If you’re not racking up these hours just yet, Forbes offers a great list of questions to consider while researching a jet card or membership program, or you might consider fractional jet ownership. Companies offering fractional aircraft ownership options typically recommend much higher rates of usage, around 400 – 600 hours per year, before purchasing a private jet.
The goal here is to be flying enough hours to tip the financial scales in favor of private jet ownership. Since this subject can get incredibly complex for any individual buyer, be sure to speak with one of our experts for advice early-on to get your individual calculable tipping point.
Flexibility, Confidentiality, & Customization
We’ve talked an awful lot about money. There’s an important point to bring up, outside of market conditions, fuel prices, and the like.
We’re talking about comfort and privacy. We’re talking about making travel fun again.
Having your own private jet can ensure a level of confidentiality and customization beyond the standard jet charter experience. Let’s say you’re a total health nut. So while in-air, you’d like to have space to do some basic exercises and a private chef equipped with an upscale kitchen to prepare meals that suit your specific dietary preferences.
Maybe you have allergies and want to ensure a completely risk-free environment.
Or perhaps you very rarely fly, but when you do, you need a specific type of bed for a good night’s sleep.
Whatever your reason, owning a private aircraft will always supply the greatest opportunity for privacy, comfort, and flexibility. These are the types of preferences that trump most financial considerations.
Need Jet Insurance?
It’s important to take care of your purchases, especially ones as large as this. Call our aviation insurance experts at (800) 780-9201 or fill out the form below to get your quote.