Business NewsWire Complete Issue

June 29, 2004
By The AVweb Editorial Staff

This issue of AVweb's Business AVflash is brought to you by …


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BizAv Taxes: Two Steps Forward...

Face facts: Taxes are both the bane and benefit of purchasing and operating a business aircraft, no matter its size. Whether levied at the federal, state or local levels -- or figured into the cost of operation through existing excise taxes -- taxes are as much a factor in a company's decision to operate its own aircraft as they are in deciding where to build a new factory. As a result, business aviation's bean counters are always watching for new ways to reduce costs of acquisition and operation while taking advantage of incentives designed to spur economic investment and retain manufacturing jobs. So it comes as no real surprise to see the industry getting up close and personal from time to time with those who decide tax policy. It's also no secret that one person's desire to use the government's power to tax in a manner that fosters desired behavior can be balanced by another's plan to tax activity deemed unworthy. Three recent developments highlight government's willingness to use taxation not only as a carrot, but also as a stick.

Our first example also happens to be one with the most potential impact on the industry, a favorable one in this instance: Both the U.S. House of Representatives and the Senate are working on economic-incentive legislation that would continue an existing tax break designed to encourage purchases of business aircraft. Both bills, H.R. 4520, passed by the House on June 17, and S. 1637, passed in the Senate on May 11, would extend for an additional 12 months the placed-in-service requirement for purchasers of general aviation aircraft wishing to qualify for 50-percent accelerated or bonus depreciation. Since both bills say substantially the same thing, industry anticipates the extension will be a part of any final measure emerging from a conference committee of House and Senate members. When that conference will have its first meeting, however, is not known. It's a safe bet, however, that the bills will be reconciled and a final version placed on the president's desk for signature well before Congress adjourns to go home and campaign this fall. That milestone is presently scheduled for Oct. 1. "We hope that negotiators from the House and Senate can quickly resolve any differences between their two versions of this bill, and send it to President Bush for his signature," said GAMA President and CEO Ed Bolen, to no one's great surprise.

...Meanwhile, Albuquerque Antes Up...

Vern Raburn apparently knew what he was doing when he chose Albuquerque, N.M., as the site for his then-new company, Eclipse Aviation, giving rise to our second example. Still in the process of getting its first aircraft through the FAA's certification process, Eclipse recently was the beneficiary of substantial largesse from the city it calls home. According to the Albuquerque Journal, city fathers earlier this month "approved a $45 million industrial revenue bond package to help Eclipse Aviation deliver" its light-light Eclipse 500 jet. According to the Journal, the city also approved a proposal to reduce the company's property taxes by some $777,000 over a ten-year period. The Journal said that Eclipse would use the bond proceeds "to purchase equipment for various manufacturing, research and office support functions." According to the city, its net tax receipts would rise some $2.1 million because of the additional jobs Eclipse would bring in. The Journal quoted Perry Denker, Eclipse's vice president for investor relations, as saying that approving the bond measure "demonstrates another level of the great partnership that we feel with the city." It is not clear to what extent, if any, the city's actions will help the company expedite certification and delivery of its first Eclipse 500 jet. Presently, Eclipse targets March 31, 2006, as the date by which it will receive the FAA's certification. Eclipse has several prototypes in various stages of production but isn't scheduled to roll out one of them from manufacturing until December 2004.

...As Executive Perks Are Once Again a Focus

It's been a while -- the 1980s, to be exact -- since any major action by Congress or the IRS to address what some perceive as abuses of business aircraft by the businesspeople who ride in the back. Our third example harks back to Reagan-era tax-reform legislation, which gave the industry terms like "personal use" and "empty-seat"; both common non-business uses of company-provided transportation were targeted as fringe benefits during that time frame as Congress clamped down on perceived tax-code abuses, if not the perceptions themselves. But, according to U.S. Rep. Rahm Emanuel (D-Ill.), there's a $3 billion corporate jet tax-shelter loophole in the U.S. tax code as a result. Naturally, Emanuel has introduced a bill to address the situation. According to the congressman, businesspeople who fly aboard corporate jets for personal reasons are charged about half the price of a round-trip first-class ticket from New York to Los Angeles. Meanwhile, the company takes a full tax deduction for owning and operating the plane. Emanuel says the stark difference -- $300 to the traveler versus the $30,000 operating-expense deduction -- is a loophole and he wants it closed. The Chicago-area congressman introduced a bill, the "Corporate Jet Tax Shelter Reform Act of 2004" (H.R.4352), on May 11 that would limit the company’s deduction only to the actual amount of income imputed to the executive. It's not likely to go anywhere in the current Congress.

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Bombardier Gets Certification Approvals from Two Countries

It’s been a good month for Bombardier Aerospace. On June 22, the company announced that Transport Canada had awarded the certification papers for Bombardier's Learjet 40, six months after the light jet entered corporate service last January. Earlier, on June 17, Bombardier received FAA approval to install the Honeywell TFE731-20BR engine in the Learjet 45 XR upgrade package. Bombardier's Learjet 40 is based on the model 45 platform, of which some 240 copies have been delivered, and shares major systems with its parent. Introduced in 2002, the Learjet 40 received U.S. type certification in July 2003, less than 11 months after the aircraft’s first flight on Aug. 30, 2002. A total of nine Learjet 40s are in service with both Bombardier Flexjet fractional owners and traditional customers in the U.S. and Germany. Meanwhile, the Learjet 45 XR upgrade is designed to deliver greater payload-range capabilities through a 1,000-pound (454-kg) increase in maximum takeoff weight (MTOW) and enhanced performance from the new 20BR engines. Referring to Canada's Learjet 40 certification, Christophe Chicandard, Director, Sales, Canada, Bombardier Aerospace, Business Aircraft, said, "This latest milestone is terrific news for Canadian business jet operators." With full fuel and six passengers, the Learjet 40 can fly 1,782 nautical miles (3,300 km) at altitudes up to 51,000 feet. Meanwhile, Bombardier reports the Learjet 45 XR upgrade is on schedule to enter service within weeks. The company will issue a Service Bulletin to current Learjet 45 operators allowing them to upgrade their aircraft at a Bombardier Aircraft Services facility. The cost was not specified. "With certification now official, the Bombardier Learjet 45 XR becomes the leader in the key performance criteria in the super light segment," said Mike Kanaley, Vice President and General Manager, Learjet, Bombardier Aerospace, Business Aircraft. Learjet 45 XR certification by the European Aviation Safety Agency is scheduled for late 2004.

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NetJets, Raytheon Shake Hands Again

And the big get bigger. NetJets, widely considered the largest fractional-ownership operation in the world, is buying another 40 aircraft from the Raytheon Aircraft Company -- a mix of 20 Hawker 800XP mid-size jets and 20 Hawker 400XP light jets -- in a deal announced Monday. Total value of the contract will exceed $300 million, according to Raytheon, and the new aircraft will be based in Europe and the United States. Deliveries are set for the 2005-2007 time frame. This agreement between the two companies is the most recent in a spate of NetJets purchases from Raytheon starting last year. In December, NetJets ordered 50 new Hawker 400XPs and eight Hawker 800XPs. Then, in February, the two inked a 10-year maintenance contract for the present and future Hawkers in the NetJets fleet. Also in February 2004, NetJets ordered two additional Hawker 800XPs. The December order of 58 new jets came at Cessna's expense, which saw NetJets cancel plans to buy 50 Citation CJ3 aircraft. "This agreement recognizes that the growing NetJets worldwide customer base prefers roomy cabin interiors offered by both the Hawker 400XP and Hawker 800XP," said Jim Schuster, chairman and CEO of Raytheon Aircraft. For his part, NetJets Chairman Richard Santulli said, "Raytheon’s commitment to customer service and quality aircraft were key factors in our decision. NetJets guarantees aircraft availability 24 hours a day, 365 days a year, and we need a superb service organization to back us up," he added. The total value of all transactions is approximately $1 billion, according to Raytheon.

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Dassault's Falcon 2000EX EASy Gets FAA Type Certificate

Less than a year after its introduction of the Falcon 900EX, Dassault celebrated its June 22 FAA certification for the Falcon 2000EX EASy. Introduction of the non-EASy equipped Falcon 2000EX took place in March 2003, while the EASy flight deck made its debut late last year on Dassault's flagship trijet. In the past year and a half, the 2000EX EASy test aircraft flew 143 flights, accumulating 335 flight hours. According to the company, 15 Falcon 2000EX EASy aircraft are now in various stages of completion at Dassault's Little Rock (Ark.) Completion Center. Customer deliveries will begin almost immediately. Key components in the EASy flight deck are Honeywell-supplied hardware, including four 14-inch Primus Epic screens. "This marks the second successful application of the EASy flight deck," said Jean-Louis Cuvillier, 2000EX, Vice President of Falcon Aircraft Programs. The Falcon 2000EX has a nonstop NBAA IFR range of 3800 nm. According to Dassault, the 2000EX and its sibling the Falcon 2000 are the best-selling large-cabin business jets in use in corporate and fractional programs.

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Cessna Upgrades Orlando Citation Service Center

Cessna Aircraft Company announced June 22 that the company’s new Orlando, Fla., Citation Service Center is open for business. The new facility began serving customers the previous day. According to Cessna, the new service center is a significant upgrade to the company's previous facilities, boasting some 155,000 square feet, versus the 47,275-square-foot operation it replaces. Located on the west side of the Orlando International Airport (MCO), the new service center operates around the clock and can accommodate all Citation models for inspections, maintenance, repair, overhaul and other services. Meanwhile, Cessna says it has plans to expand the facility to nearly 200,000 square feet by October 2004, and will add a humidity-controlled paint room and aircraft detailing area. "The new Orlando Service Center triples the amount of space we had at the previous facility, so we’ll be able to work on more airplanes at the same time, and get customers back in the air sooner," said Jim Morgan, Cessna’s vice president of service facilities. For approximately six months, Orlando will house Cessna’s largest Citation Service Center; until, that is, Cessna opens its new 447,259-square-foot Wichita facility, scheduled for late 2004. Once open, the Wichita Citation Service Center will be the largest general aviation maintenance facility in the world, according to the company.

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TSA Watch I: "False Sense of Security"?

If any TSA-watchers remain unconvinced that aviation security and national politics are hopelessly intertwined, last week's comments by Department of Homeland Security (DHS) Undersecretary Asa Hutchinson to the Washington Aero Club should set you straight. At that luncheon, Hutchinson told attendees that Ronald Reagan Washington National Airport (DCA) would not be reopened to general aviation in the foreseeable future (read "not before the November election"). Any such move in the next few months would be at odds with the widely acknowledged Bush administration campaign strategy to ensure the electorate has the potential for new terrorism acts uppermost in its mind as Election Day approaches, according to seasoned observers. Published reports of Hutchinson's comments to the Aero Club include references to what were termed "ongoing security threats" related to the Washington, D.C., area. Of course, those threats were not listed -- that would be too much information. Instead, and although the TSA has prepared a Congress-mandated plan to allow GA back into DCA, it has been back-burnered until further notice. Also, Hutchinson did not elaborate on why he might consider the aviation industry to be asleep at the switch. Hutchinson offered no details on either the DCA-access plan or a schedule for its public disclosure.

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TSA Watch II: Congress to Learn More About "Governor Ernie"

The June 9 episode involving a failed transponder aboard a Beech King Air carrying Kentucky Gov. Ernie Fletcher (R) into DCA on a waiver has had a broad impact on general and business aviation in the Washington, D.C., airspace. And it ain't over yet. Since widely acknowledged communications failures resulted in a panic evacuation of the Capitol as the King Air's primary target flew into protected airspace with ATC's full knowledge and permission, a new NOTAM warning operators about the consequences of a failed transponder has been issued and a flurry of local media coverage has detailed previous and similar instances. On July 8, Congress will get into the act when the House Subcommittee on Aviation holds a scheduled hearing on "National Capitol Region Air Space Control: A Review of the Issues Surrounding the June 9, 2004 Flight of 'N24SP.'" While AVweb is optimistic that the subcommittee will learn about the differences between public-operated aircraft like the governor's versus private ones operated by general and business aviation, it's pretty obvious that Uncle Sugar considers anything without an airline logo on it to be a threat. That's obviously due to the lingering memories of all the GA aircraft used in the Sept. 11, 2001, terrorist attacks. Not that we're cynical, or anything. Look for AVweb's coverage of this hearing, but don't expect any revelations.

Watch Your Inbox ...

...the next issue of AVweb's BizAVflash will be e-mailed to you on July 7. AVweb is changing our production schedule during July to avoid potential conflicts with the 2004 edition of EAA's AirVenture. In August, we'll get back to our regular schedule. See you at Oshkosh!

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