Tom Haines

What’s the economic reality in the aircaft market?

November 7, 2008 by Thomas B. Haines, Editor in Chief

While it seems like bad news this week for GA manufacturers, I wonder if it really is. Within the last month Cirrus, Mooney, Cessna, and Hawker Beechcraft all announced layoffs and/or cutbacks in work weeks in order to reduce production to meet reduced demand. Only Piper seems to be bucking the trend so far. A Piper spokesman told me at Expo that it plans to deliver 44 airplanes in the next five manufacturing weeks before the end of the year–so no expected layoffs on the production line there by year-end. But production of some components for aircraft in 2009 may be scaled back in case demand at Piper softens. Piper reports only one customer who has not been able to get credit to complete a planned retail delivery.

What’s not clear is whether demand for piston airplanes is significantly down or whether manufacturers are playing it conservatively, reducing production in anticipation of reduced demand. It could be that the manufacturers have learned a thing or two from previous economic slow downs when they didn’t reduce production rates quickly enough and found themselves awash in high-priced inventory.

In looking at the economic situation I wonder how many pilots not making planned aircraft purchases are doing so because they truly can no longer afford or qualify for the purchase or whether it is simply them being conservative–putting off the purchase until the future becomes more clear.

Complicating the situation is the bonus depreciation credit for aircraft purchases made before year-end. The credit expires at the end of the year. Now, industry officials are debating whether lobbying for an extension of the tax credit as part of a 2009 stimulus package might cause those planning to purchase this year to get the credit to instead wait until later to purchase if the credit is still available next year. They’d like the orders this year and to also have the credit for next year. If push comes to shove, they’d probably rather have the stimulus package for next year even if it means some delayed sales for now.

What do you think? Has the economic situation caused you to cancel an aircraft order or has anyone you know canceled an order? What will be the impact of the economy on aircraft sales?

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4 Responses to “What’s the economic reality in the aircaft market?”

  1. Kevin McGinty Says:

    Tom, thanks for your article dated Nov 7 w/regard to 2008 Bonus Depreciation subject. I purchased a new Cessna 182T last December from the factory in KS. I am trying to understand the legal details of this package and whether or not it is extended into 2009. I am also on the cusp of being able to do this as my purchase was made in Dec of 2007–are there any exceptions given that the purchase was a couple of weeks away from 2009? Also, If I were to form a LLC and have 2-3 other pilots in my group and i actively managed the leasing of the plane–would this be a viable way to take advantage of the 50% depreciation law? I will be contacting a tax person on this in the coming week but thought you might have a better understanding than I do before I start looking into it. I am not against selling this aircraft and purchasing a new one if this scenario is realistic. Thanks Tom! Kevin in Boston.

  2. Tom Haines Says:

    Kevin,
    Your best bet–by far–is to talk to an attorney familar with the tax laws. If you are a member of the AOPA Legal Services Plan give the plan a call as a first step.
    –Tom

  3. Rodney Martz Says:

    Hi Kevin,
    Rodney, here, from AOPA’s Pilot Information Center. The devil is in the details, of course, but no 2007 delivery would qualify for Bonus depreciation. You could trade for a new aircraft now, for 2008 delivery or, for 2009 delivery if the aircraft was built in 2008.

    The bigger question though, is: is the faster depreciation worth the effort?, i.e. remember we are only talking about faster depreciation – not more depreciation. Critical to any ‘time-value-of-money’ calcualtion is: do you have both business motive AND profit to offset with the faster early depreciation. You need to discuss carry-backs with your tax professional.

    To answer your last question, yes, a leasing business as an LLC ‘could’ qualify for the bonus depreciation this year. You must understand, however, that IRS demands a profit 3 years out of 5- not counting depreciation. This aircraft must be part of a serious profit taxpaying entity, there are no free lunches. Fail to show profit and the IRS can recapture with interest and with penalties.

    Regards.

  4. Small Business Tax Guru Says:

    I’ve been involved in taxations for lengthier then I care to admit, both on the individual side (all my working life-time!!) and from a legal point of view since satisfying the bar and pursuing tax law. I’ve offered a lot of advice and righted a lot of wrongs, and I must say that what you’ve put up makes impeccable sense. Please continue the good work – the more people know the better they’ll be armed to deal with the tax man, and that’s what it’s all about.

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