Amid pandemic-related rules and restrictions, surging travel demand and disgruntled airline and airport employees, America's once-friendly skies have largely devolved into a persistent state of surliness.
As a result, many with the means to do so are flocking to the private jet market, where industry analysts project new aircraft shipments will increase 9% this year and grow another 5.9% in 2022, after falling in 2020 to less than half of the industry's pre-Great Recession peak.
Meanwhile, flight volumes for private jets, which include rides on shared aircraft services as well as individually owned planes, are expected to near the industry's 2007 highwater mark this year.
"We're seeing increases in demand with the COVID environment, plus people are having concerns about aircraft delays and not wanting to be in airports," said Victoria Ambrosio, Bank of Texas Private Wealth market manager. "That includes people who are moving from commercial flights to NetJets or some other fractional ownership service as well as those who've been invested in a fractional service and are deciding to purchase their own aircraft."
The hot market has prompted many clients to upgrade from existing jets while others are buying into partnerships with friends and colleagues, added Jessica Seitzer, a BOK Financial® Private Wealth banker.
"We have clients who've grown to love aviation moving up to more advanced aircraft as well as those who are excited about being part of an ownership team—they all enjoy the freedom that having your own jet provides," she said.
Multifaceted benefits
While private jets can fetch as much as $45 million, the most common range is between $2 million and $10 million. Buyers tend to be business owners who frequently visit clients—or bring them into town from elsewhere—and want to capitalize on the value of time saved by avoiding the seemingly inevitable hassles of commercial flights, including navigating airport concourses packed with fellow travelers.
For those in the market for a jet, conditions for financing the purchase are ideal.
"Many times, it's an opportunity cost for capital, given the low-rate environment," Seitzer said. "Clients might have the $10 million in an investment account, but they don't want to liquidate holdings and deal with the repercussions of that. Or maybe their investments are doing so well, the cost of borrowing is not as much of an issue."
From a tax perspective, the Tax Cuts and Jobs Act of 2017 paved the way for corporations to accelerate their depreciation deductions from private aircraft purchased and used for business purposes. Through 2022, qualified jet purchases may be eligible for as much as 100% of the purchase price to immediately be deducted from a company's income instead of using an extended depreciation schedule.
Gradual path to ownership
It's rare that clients contact Ambrosio and Seitzer out of the blue and say they want to buy a private jet outright. Instead, many get familiar with the benefits and advantages through shared service providers before starting to explore different ownership possibilities.
When they decide to make a move, many buy into a friend or business associate's ownership group.
"We see a lot of corporate executives who are already involved in various partnerships, and oftentimes operating agreements are already in place, making the process for creating a newly formed holding entity fairly seamless," Seitzer said.
Beyond that, individuals may step up to acquire their own jets. But both private bankers caution prospective buyers to consider all the related expenses beyond the cost of the plane, including the salary for one or two pilots, maintenance, fuel and storage.
Nonetheless, steadily rising demand has been accentuated lately by uncertainty around the federal tax proposals potentially targeting capital gains and estate taxes, which has spurred many to consider their own aircraft sooner rather than later.
Supply chain complications ground some aspirations
As with any hot market nowadays, soaring activity has proven problematic for the private jet industry. Ambrosio likens it to the double-digit jumps in residential real estate prices.
"In Dallas, it's very comparable to the housing market as people are receiving unsolicited offers on their aircraft above what they paid for it, but if they take it, they really struggle to find a replacement because the demand is so high," she said. "It's great to sell, but very tough to buy."
Additionally, the current global supply chain issues are complicating matters for manufacturers and service providers, with semiconductor chips, other select components and even tires in short supply.
And supply chain issues are impacting not just those looking to buy.
"We have a client who's been doing great business refurbishing jets—he overhauls engines and brings up the airframes to increase the value and make a living doing what he loves," Seitzer said. "But his business is stalled because of the supply chain challenges."
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