AVmail: July 4, 2011
Letter of the Week: Questionable Question
AVweb's current "Question of the Week" and the choices listed reveal a fundamental misunderstanding about what a depreciation allowance tax benefit is and what it accomplishes. Rather than serving as a bail-out as the editors' choices imply, depreciation is a win-win for individual companies and the U.S. economy.
Giving companies tax breaks for capital investments serves to encourage them to replace older equipment or buy needed assets for growth, while generating ripple-effect increases in economic activity. This is why depreciation allowances have received overwhelming bi-partisan support in Congress for many decades and also why President Obama and Congress enthusiastically supported accelerating depreciation last year for capital investments, including spending for business aircraft.
Buying a plane for business is no different than buying a new machine to expand a business. And don't forget that the vast majority of business aircraft owners and operators are the small-to-mid-size companies that are vital to our nation's global economic competitiveness. They even read AVweb. So you can image our disappointment at seeing such a dependable GA news source buy into rhetoric designed to secure politically expedient headlines.
Vice President - Operations, Education & Economics
National Business Aviation Association
The gist of your "Question," as shown by the answer choices available, misses the point. It is that the obscenely wealthy corporate executives (whose company provides them the luxury of their own jet airliner) don't need tax breaks.
In a time when the U.S. must decide such things as whether to provide medical care for the poor, fund the military for our defense, or not to tax the top one percent of the top one percent through their corporation-provided benefits for the king-like luxuries they enjoy, it shouldn't be very difficult to see which is the unreasonable choice.
In the name of General Aviation, stop lumping the regular folks who fly or rent a 172 in with those who are provided "business" transportation in a $50 million Dassault tri-jet. The issue is really about giving tax incentives to business jet buyers, not the average piston airplane flyer.
Having companies pay taxes on aircraft is counterproductive and has the effect of raising product costs for all of us. Companies never actually pay taxes or other government fees. Any tax they are forced to pay becomes part of their product cost and is simply transferred to the consumer of their product or service. If Americans would understand this simple fact then all the politically motivated chatter about corporations not paying taxes just might stop.
The United States subsidized airmail and airlines in the early days to the benefit of many, if not most, of the U.S. population. I think there's something honorable about making sure that Hobbs, New Mexico has airline service. Airports throughout the land that can handle Cessna 172s and Cherokees (or the Cessna Caravans that service Hobbs) and tax codes that make it easier for people to own and operate general aviation aircraft for business purposes are good. But subsidizing private wine cellars, yachts, and Gulfstreams for the pampering of the super-rich doesn't make sense.
I think there are legitimate uses for corporate aircraft (like filling in the numerous gaps in airline service), but flying executives to Barbados for board meetings is not one of them. If the super-rich want solid gold toilet seats in their Boeing business jets, I think that's fine. Just don't ask the U.S. government to subsidize it.
I don't know where to draw the line. Should barons and below [be] O.K. for tax breaks? Are trips to Portland O.K. but trips to Pago Pago not? Again, I don't know where the line is, but there's got to be one somewhere.
While the President has stepped into a topic he clearly has misunderstood, I am very glad that he will now get rid of tax breaks for users of corporate jets. I sincerely hope that as CEO of the U.S, he realizes that the Obama family will now have to pay their way on flights on Air Force One or fly commercial like the rest of us.
And as CEO of the U.S., I sincerely hope that he will reimburse the U.S. Treasury and Department of Defense for flights thus far and also refrain from using military aviation hardware for future trips. (I hear that Amtrak is also a reliable mode of transport around the country.)
The New 737
Regarding the letter from Gregory Myers: Putting a de-engined version of the 727 back into production as a 737 replacement makes no sense. Assuming the jigs and tooling really are still available, it was designed in the early 1960s. We've learned a lot about aeronautical engineering since then, and if you were to design something externally identical in shape to a 727 now, the entire structure would be different, from the skin in. Ford didn't use the old tooling for the new Mustang, and it makes no sense to make new-build replicas of early '60s airliners.
And before suggesting it could be updated with modern design, structure, materials how much composites were in a 727? and manufacturing techniques (which have changed radically and render that old tooling obsolete): Then that's a new design and not a 727, anyway.
Boeing doesn't need to regress to its past; it needs to continue looking forward.
I'd like to agree with Gregory Myers regarding his idea for a 737 replacement. Keep the age-old fuselage cross-section, whack some composites in where possible (easy to do if redesigning the aft portion to remove the third engine), and off you go!
On the face of it, it's a great idea, Gregory.
Amid the arm-waving over LightSquared and its wireless plan, one fact seems to receive little attention, and it is perhaps the most important: Lightsquared is nothing more (or less) than a hedge fund, with no operating history or capability, and, based on the historic behavior of hedge funds, no interest in operations, the welfare of airline passengers, or anyone other than its organizers (first) and investors (second). Caveat omnes!
LightSquared's "suggestion" that the GPS industry bite the bullet and pay to design, engineer, and install shielding for past and present guidance units to protect their performance from the telecom's proposed 40,000 towers would be ludicrous if not for the probable outcome.
"Too big to fail" is a rewrite of basic physics in which what we once assumed were constants, such as the laws of gravity, are subject to the gravitational force of cash. While few normal people would even consider compromising the GPS spectrum and placing the needs of a public offering ahead of satellite navigation, it appears that enough lobbying, double talk, and persistence can make water flow uphill.
While logic and common sense are frequently made to take vacations during times of emergency, war, disaster, and other needs-based situations, enlarging the footprint of Twitter, Facebook, and other fab franchises at the expense of GPS is so far over the top that even a child can figure this one out.
LightSquared recently issued a press release suggesting that GPS is infringing on LightSquared's bandwidth by being inadequately shielded. What's that? LightSquared's bandwith? How, other than through application of political cash (is there any other kind?) did this become LightSquared's bandwidth other than through the terms published in a stock market prospectus?
It brings to mind going fishing with hand grenades. Sure, the detonation will bring up fish, even a few that can be eaten, but the collateral damage is not only unacceptable, it is a criminal liability that even a lawyer would recognize.
The press release issued by Brattle Group claims $18 billion in implicit U.S. government subsidies provided to the commercial GPS industry. The release is worth reading because of what it suggests as well as what it omits. Yes, GPS was initiated at government cost, ostensibly for the military and for weapons targeting, and yes, the signaling was opened to the public (as it should have been, having been built at public expense). The release goes on to note that no usage fee was ever imposed on the GPS industry for use of these satellites.
How's that? What are taxes? What is NextGen?
By the same logic, every war waged by the U.S. benefited the public by assuring a measure of security to international trade, energy usage, and on and on, yet, apart from taxes, we do not pay "usage fees" for our sea lanes, airspace, or protection from alien incursions on our borders or our territories.
My heart goes out to investors who put money into Philip Falcone's gamble that his proposed IPO venture could somehow navigate around a flaky promise to deliver bandwidth without stepping on GPS toes. The fact is it can't be done on Falcone's $3 billion bet, even backed by his hedge fund. When the LightSquared radios are turned on, nearby GPS systems go down. You can't buy your way out of that one or can you?
I find this story interesting for a completely different reason and write to suggest that you may as well.
LightSquared plans to cover [most of the] continental U.S. with signals from those 40,000 towers. Let's assume that's actually possible, technically and financially. They'll still be bankrupt in less than 10 years thanks to UAVs.
They're ignoring the new class of persistent, stratospheric UAVs that will cover the same area with communication services at a fraction of the cost and with none of the property rights problems.
Remember Iridium? Those business developers fell into the "build it and they will come" trap. LightSquared is doing something similar but adding the assumption that nothing better will be available.
The Old College Try
Regarding your story on the Air Race Classic, I just wanted to let you know that a team sponsored by Purdue University (Jackie Battapaglia and Lauren Nicholson) won the Air Race Classic in 1996. This was probably before they had a "collegiate" category!