Why I Am Not Surprise, Just Disappointed

April 4th, 2014 by Jack Olcott

Each morning I read a New York newspaper that is world renowned for its journalistic excellence but is often taken to task by conservatives.  Its coverage is complete, and for the most part its articles are well researched.   Recently, however, an Op Ed writer demonstrated a stereotype and uninformed attitude toward corporate jets, as if those two words were an affront to America.

 

Segments of the press as well as parts of the Obama Administration seem to have a blind eye toward the role that Business Aviation plays in the economic growth and quality of life of our nation.  Transportation is an enabling technology for business success.  Without the ability to bring the ebb and flow of commerce to all of America, including those rural areas where workers are available and quality of life is good, our nation would concentrate industry in locations served only by the Airlines.  In addition to limited economic development, such massing of industry in urban centers would lead to more congestion and other social problems.

 

Scheduled Airlines provide service to about 10 percent of the locations in the USA with public-use airports, but most business-friendly schedules connect about 1 percent of cities and towns with airports available to business.   Consider that statistic—99 locations out of every 100 with public-use airports lack business-friendly service by scheduled Airlines.  Except between major hubs, scheduled air carriers are unable to facilitate efficient business travel for companies that wish to see customers or manage employees in several cities in one day or avoid time-consuming overnight stays.

 

Furthermore, the scheduled Airlines do not want to serve locations where the demand for public air transportation is low.  Even at major hubs, schedules have been cut to assure higher load factors. Airline departures from secondary hubs have been reduced by over 20 percent in the last five or so years.  The Airline business model simply does not address many needs of business.  Our nation requires Business Aviation to fill the transportation gap not served by the Airlines.  In fact, the Airlines and Business Aviation are partners in providing our nation with safe and efficient transportation needed for economic development.

 

Critics argue that owners of corporate jets get unfair tax breaks and do not pay their fair share for use of the nation’s Air Traffic Control system.  They fail to realize, or acknowledge, that a business aircraft is treated like other capital assets.  To be subject to the tax rules for depreciation and deductions of operating costs, the asset must be ordinary and necessary to the furtherance of the company’s business.  Business use must be the primary reason for the company’s ownership, and when used personally appropriate adjustments must be made to the company’s and the individual’s tax liabilities. If a company provides too much personal use, the corporate jet is not considered a business asset.

 

I believe a corporate jet receives greater scrutiny than any other company asset.  The IRS is quick to examine any claims to deduct aircraft expenses.  Shareholders often exhibit the same skepticism as the press and the government.  Thus Boards of Directors are very careful that a corporate jet is managed with a degree of professionalism and honesty that passes the most careful review.

 

The fare-share issue has been well vetted.  All users of corporate jets pay a fuel tax that compensates the government for Business Aviation’s marginal use of an ATC system that would exist even if all corporate jets and private aircraft were grounded.

 

Regarding the use of a corporate jet to assure efficient use of time and to provide security while traveling, no one seems to question why our nation’s CEO must use Air Force One.   Nor should critics of Business Aviation fail to attribute the same needs to company CEOs.

 

I urge all who understand and appreciate the benefits of Business Aviation to inform friends and colleagues about the reasons why corporate jets are beneficial to our nation’s wellbeing, even for the many citizens who do not use them directly.  (The company with a business aircraft may well be their employer or customer.)  By doing so, we who believe in Business Aviation’s many benefits to our nation may not be so disappointed when a respected journalist addresses corporate jets.

Jack Olcott

Jack Olcott is president of General Aero Co. and past president of the National Business Aviation Association. Olcott has a rich history in aviation, including working as a flight instructor and flight research specialist, leading aviation media properties for McGraw-Hill, and serving on various advisory boards and councils. His current activities involve advocating the advantages of business aviation domestically as well as internationally. Olcott has more than 8,500 hours of flight time and type ratings in a Learjet, Citation I and II, Dassault Falcon 50/900, and Beech Model 300/1900.

The opinions expressed by the bloggers do not reflect AOPA’s position on any topic.

  • Sid Siddiqi

    Very clear reasoned and worded Biz Av or really Travel by
    General Aviation stand Jack, congratulations.

    I recall the exact use you speak of – efficient travel -
    saving cost and enhancing family life quality were the reasons HP often
    employed its biz jet to fly tech. staff from its Silicon Valley locations to
    its facility in Corvallis OR typically carrying 8 people on board. That’s a day
    trip and with 6 people it costs beat airline + car from Portland OR + overnight
    hotel costs (counting nothing for these staff spending time with their families
    that night)!

    I recall the original attack launched by that other NYC
    paper the Wall Street Journal that tracked Biz Jets destinations (2011 I
    think). They suggested since 30+% or so of the flights were to resort areas
    hence the Biz Execs flying at company expense must be playing! Does WSJ think
    there no Conferences & Expos in Aspen or West Palm Beach! Then Mayor
    Bloomberg made a fitting reply to when the WSJ followup asked him to reveal
    costs etc. he said he pays for his jet and so where he goes is his private
    affair.

    General Aviation travel is definitely an asset to small
    businesses and to Middle America in general not only to business executives, we
    the users somehow need to refresh this message to our fellow citizens in the
    country.

    Jack as you suggest the US economic vitality in the future
    needs airline travel complimented by General Aviation – the hub and spoke mass
    transportation enhanced with on demand direct to destination General Aviation travel where the demand is
    lean and schedules convenience can make the business or destination viable.

    So thanks again Plane Sense as NBAA put it during your
    tenure there and since; and also as NBAA and you put it – No Plane No Gain!

  • mf

    I understand the motivation of the author, it is his livelihood. So, please do not take what I am about to say personally.
    I think this article is kind of tone deaf when it comes to the mood of the country. And actually, being this tone deaf will in the long run hurt commercial interests of general aviation, not help.

    I am an AOPA member, which I joined after 9/11/2001, believing that the general aviation will need strong advocacy to survive. I am also a citizen though, living in what is the real world for the 99%+ of the society at large. As such I do recognize the reality, that so called business aviation is really an alternate transportation system for the opposite of 99%. It is one more, and very important, way in which the opposite of 99% separate themselves from the rest of the society. And mind you, I am very well paid for the working stiff, which is why I am still able to fly for fun just a little bit. Just the same, I do recognize this reality because I do not have money to burn, so if I do have to fly from A to B I fly commercial. Flying general aviation is for people who do not have to worry about money at all, or who can write this flying off their corporate taxes, or who can pass the cost of flying to the consumer of goods they peddle. For the general public, flying has become an experience quite similar to riding a Greyhound bus, worse actually because of all the security restrictions which reinforce corporate arrogance of airlines. And a growing proportion of the public cannot fly at all.

    The public would be madder still if they ever bothered to look carefully at their ticket, which says that maybe ~30% of the price they pay consists of a variety of taxes. Which leads me to two conclusions: treating every proposal to levy a tax on “business aviation” like it is a frontal assault on the Bill of Rights is not very productive. It sounds good here, but eventually it will backfire. General aviation, particularly the business portion of it, need to pay fair share of taxes for using the system, which may actually include an added luxury tax. Trying to say otherwise may work in a short term, but in the longer term will deprive this community of a voice, when the tide begins to turn.

    • mcpoo726

      Can you tell me which tax the airline is paying that the GA business user is not? Of course, there are a few such as the taxes/fees on the commercial ticket that cover the TSA costs but then that wouldn’t be appropriate for the GA business user since they don’t use that service. For all you geniuses out there who think you know what your talking about, can you explain the overall tax implications as they differ for a purchased GA aircraft (the business jet in your eyes) versus an aircraft that is on an operational lease such as a commercial airliner? You can skip the balance sheet difference. Just the income statement and statement of cash flows explanation will suffice. If you could do that, you would see that any comparison between GA and commercial that takes the view that a GA owner is getting comparative corporate welfare is ridiculous. While we are on the corporate welfare bandwagon I seem to remember billions of dollars, much more than the $3B in Bob Welch’s response, doled out to the commercial sector of aviation over the past several years.
      Here’s the bottom line. The tax code is too convoluted. Tax policy is an attempt by government to shape business to their liking and they never go back and get rid of the bad policy which most of it is. We should repeal the vast majority of the tax code in the name of simplification and at the same time reduce our corporate tax rates which are the highest in the developed world.

      • mf

        I am all for simplification of the tax code. Should this be done in earnest, corporate taxes will go up, not down. This is because real rate of corporate taxation is nowhere near the nominal rate. There is a number of reasons corporations are sitting on a largest cash pile in history, taxes is one of them (though not the only one).
        As a member of the flying public I see no reason why a private jet, or a business jet, should not pay higher tax, or a fee, for the use of the system. Particularly given that this aircraft gets the same treatment in the system, rightly so for safety reasons, as a scheduled airliner. One can debate what these fees should be, but one should not imply that they would somehow be discriminatory.

    • porsche

      Regarding: “…Flying general aviation is for people who do not have to worry about money at all, or who can write this flying off their corporate taxes, or who can pass the cost of flying to the consumer of goods they peddle…”

      I must disagree, at least with regard to corporate jets. Big companies fly their executives around the globe in private aircraft mainly because it’s cheaper, a lot cheaper. I remember when car company executives were severely (and wrongly) criticized for attending a bailout-related presidential meeting in their corporate jets. Here’s what no one seems to grasp. Top level executives in the largest corporations are making oh, five thousand to perhaps thirty thousand dollars an hour or more!

      Really think about that. It might cost a company ten, twenty, or even more than a hundred thousand dollars, extra, per passenger, per flight, in extra travel time and lost productivity, to send their executives on a commercial flight instead of using their own private jet. Instead of criticizing the use of private jets, it should be praised. As a stockholder, I would insist that any executive who opted to travel commercially be fired immediately, as well as anyone within the company who suggested it.

      Now, as to whether such astronomical levels of compensation are justified, that’s another issue entirely, but as long as such pay exists, it’s not only logical, but imperative that their time and YOUR money, be spent as wisely as possible.

      • mf

        We will agree to disagree .I do not want to turn this into populism versus elitism thing, aopa should not be the place. My main point is this: as a member, I am increasingly annoyed by this organization’s literature that treats private jets as some sort of special breed deserving of special treatment because “we are in it together”, “this is all general aviation” and “they are out to tax us, us poor innocents”. Costs of the system have to be paid. Systems supporting jet aviation are very expensive. Business jets and private jets are owned by people or entities with a lot of money, it is quite all right to ask them to pay more into the system they are using. How much may be a matter of debate, but only that should be the matter of debate.
        As far as efficiency goes. Of course if you take idiotically exorbitant pay of modern executives and divide it by the number of hours in the day, you are “saving hundreds of thousands of dollars” by getting them somewhere couple hours earlier. This does not mean that you are saving any money for the shareholder, which you would only if getting them there couple of hours earlier made a corporation run better. It does not. You are just feeding their sense of self importance. Shareholders already took it on the chin by being powerless to prevent excesses of compensation. My sneaky (and snarky) suspicion is that most of this travel is completely pointless. We are living after all in an era of high quality video conference. At a societal level ,I think it would do these highly paid executives a ton of good if they actually flew commercial, particularly if they are not traveling on business. Otherwise ,they live a completely artificial life of tinted glass limo and sycophantic servants from door to door. All decaying societies in their final stages suffer from this disease: separation of elites from the society, to a point when elites, which are still calling the shots, lose touch with what is actually happening in the country. Read some books about European nobility circa 1914.

  • Bob_Welch

    Although Mr. Olcott didn’t reference the source for the hostile article towards corporate jets, I believe it was the op-ed article by Nicholas Kristof in the 3/26/14 edition of the NYT.

    The objections cited as “corporate welfare” by Mr. Kristoff were accelerated depreciation rules, private use by top executives, and avoidance of taxes to fund the air traffic control system. Mr. Olcott finds the op-ed “demonstrated a stereotype and uninformed attitude toward corporate jets” yet Mr. Olcott’s reply is an artfully crafted reply to justify maintaining significant tax breaks for private and corporate jets. Mr Olcott is correct that private and corporate jets provide a vital service in flying to locations not well served by the commercial airline system. And yes, these aircraft fund the ATC system through the purchase of fuel.

    But the tax breaks for such aircraft are significant. Like all such breaks, the special exceptions may have made sense when they were passed- often to provide short-term stimulation to the economy. One passed however, special interest groups lobby hard to perpetuate the exemption. Under current tax laws, purchasers of new corporate or private jets are allowed to depreciate between 50%-60% of their value in the first year of ownership. The normal straight line depreciation of such aircraft is 7 years. The NBAA stoutly maintains that the jet aircraft manufacturers are still a fragile industry and such accelerated depreciation rules are necessary to help maintain the industry. Isn’t this a classic definition of ‘corporate welfare’?

    Robert Frank of CNBC cites studies that indicate that elimination of such special tax treatments would ‘only’ generate some $3 billion in additional tax revenues over 10 years. As if $300 billion a year in tax breaks is so inconsequential it’s not even worth considering.

    Ask yourself what values are you in favor of to justify elimination of early childhood education or school lunches in order to allow $300 million a year in tax credits to corporate or private jet owners?

    I forget the name of the politician who once observed “Don’t’ tax you and don’t tax me, tax the one behind the tree”.