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Operation Safe Pilot All Over Again

As some of you may know, the Department of Justice recently issued a Press Release announcing that it had indicted four pilots for lying on their medical applications. In each case, the airman failed to disclose that he was receiving Veterans Administration ("VA") benefits for a medical condition that would likely have either disqualified the airman from receiving a medical certificate, or would have certainly subjected the airman to additional scrutiny and/or testing requirements by the FAA's Office of Aerospace Medicine.

The airmen were "caught" when the FAA cross-checked its database of airmen holding medical certificates with the VA's disability benefits database. This is reminiscent of the FAA's 2002 Operation Safe Pilot in which it performed a similar cross-check, but with the Social Security Administration's ("SSA") disability database. Operation Safe Pilot resulted in prosecution of forty pilots who were receiving SSA disability benefits for conditions that would have either disqualified the airmen from receiving a medical or would have triggered further inquiry by the FAA.

After Operation Safe Pilot, the FAA revised the application for medical certificate to include language that specifically authorizes it to conduct this type of cross-check with SSA and VA. When an airman signs the medical application, he or she is agreeing that the FAA can perform this type of search.

Since the DOJ Press Release was issued, I have received multiple calls from airmen who believe they may be in a similar situation, but have not yet been "discovered" or received any notice from the FAA. In each call the airman is, perhaps justifiably, concerned regarding his or her liability exposure for criminal prosecution. Fortunately, options, albeit not great options, are available provided the airman is not yet in the FAA's cross-hairs.

Depending upon the circumstances, airmen have at least two options for dealing with the situation:

  1. An airman can contact the FAA via letter and disclose the previously omitted information regarding both the medical condition and the receipt of disability benefits. It is also helpful to provide an explanation for the non-disclosure, to the extent that the airman has a reasonable explanation for failing to disclose the information. This may persuade the FAA that the failure to disclose was not intentional, but merely a misunderstanding etc.; or

  2. The airman can apply for a new medical certificate and disclose the medical condition and receipt of benefits on the application. Then when the airman goes to his or her aviation medical examiner ("AME") for the medical examination the airman can explain the situation to the AME.

In either instance, the airman will want to have all of his or her VA medical/disability records available to provide to the FAA. However, an airman should keep in mind that any information he or she provides to the FAA could be used against the airman in a criminal prosecution. So it is important for the airman to be very careful about what he or she says to the FAA or AME.

Although pursuing one of these two options does not guarantee that the FAA will not prosecute the airman, coming clean and correcting the record before the airman is "caught" may convince the FAA that prosecution is unnecessary. However, even if an airman is not prosecuted, it is quite likely that the FAA will follow its standard playbook and revoke all of the airman's certificates as a sanction for falsifying the airman's medical application(s).

If you find yourself in this situation, please call and I will be happy to help you through the process.

7 Elements of a Great Fly-in

As summer comes to a close I’ve been reflecting on all of the amazing fly-ins we were able to go to this year. Our fly-in season began with the National Waco Club Reunion, peaked with a week at Oshkosh, and ended with a laidback gathering in Delphi, IN. There were several smaller fly-ins and hangar parties peppered in the mix, and we were thrilled to attend a personal record number of events this year. Next year we plan to go to even more, and perhaps host our own hangar party for our flying and non-flying friends. Aviation is all about community, and fly-ins are the most amazing expression of that.

I would like to share what I believe are all essential elements of a successful fly-in. Of course all events are different, but keeping these common themes in mind when planning a fly-in will help elevate the event from good to great. A personal goal of mine has been to host a fly-in for a long time, so let me know in the comments if you have any recommendations for elements that you believe to be important!

1. Food

At almost every single fly-in we attended this summer, the first thing on our minds when we landed was where the food was. This was especially true for the fly-in breakfasts, where we had woken up extremely early and avoided food so we could gorge ourselves on the pancakes and bacon being served at the airport. At events that aren’t centered around breakfast, having food trucks options on-site is a great idea as well. Pilots are hungry people!

2. Flying

Something that really helps get people excited at fly-ins is if there is actual flying going on. You would be surprised at the number of fly-ins where planes stay parked and become static displays for the entire fly-in. It’s so much more exciting to hear the engines running, watch the planes do low passes, and really feel that general aviation is alive and well. Consider having an EAA chapter host Young Eagle flights, or planning an airshow during the fly-in.

3. Diversity

Some of the coolest fly-ins have a diverse group of attendees. You have young pilots, old pilots, professional pilots, recreational pilots, UAS pilots, military pilots, skydivers… The list goes on and on! At one fly-in there was a whole display of RC aircraft that I had never seen before. Celebrating diversity in aviation is a win for everyone, and opens up new opportunities to learn about a different aspect of the general aviation world. Beyond that, having vintage cars are great to have as well to admire their craftsmanship and history!

4. Youth

There’s nothing more adorable than seeing little kids totally in awe at fly-ins. They have no filter so the way they express their feelings of pure joy or excitement when they see a plane zoom by is so wholesome. I especially love it when little ones have toy airplanes and imitate the movements of the planes in the air. This is the kind of excitement that we need to encourage the next generation of pilots. Everyone screams "pilot shortage!" but that won’t change in the future if we don’t instill a love of aviation into youth right now.

5. Non-pilots

Inviting the general public to a fly-in adds a whole new dimension of fun. I spoke to people who came to the local fly-in every year, and others who were driving by and wanted to see what the commotion was. There are so many misconceptions about general aviation, and a lot of people don’t understand how fun and safe it actually is. Having a "fly-in or drive-in" type of event encourages those who normally stay away from the airport to give it a try and see some cool sights.

6. Safety

Safety should always be the number 1 priority in aviation, and fly-ins are no exception. Having clearly defined areas where planes are allowed to move around and ways to control the crowd are a must. Consider having members of the local Civil Air Patrol group assist with enforcing rules and educating attendees on when it is not safe to be near an airplane.

7. A Game Plan

Having a little structure for the event helps things run much smoother. Dinners or awards ceremonies with specific start times break up the action in an appropriate way. Some fly-ins even have scheduled fly-outs to other airports for breakfast or lunch. This keeps it interesting and fun, and a published plan helps everyone stay in the loop on what to expect during the event. Organization and communication are key!

What do you think of this list? Did I cover everything you think is important for a successful fly-in? Let me know in the comments, and let’s do our part to keep general aviation thriving!

Quick Tips - Aviation Tax Planning

In my previous blog post, the financial analysis identified the aircraft that does the best job for the money. This month, I'll touch on some of the US aviation tax basics to be considered.

Ben Franklin supposedly said that in life, there are only two certainties - death and taxes. The former I'll leave to others. Taxes can be significant, and if not properly planned for, can lead to spending more money than is necessary. 

My partner, [Nel Stubbs], is business aviation’s best resource on aviation taxes for the United States. If you are buying or selling an aircraft that will be based in the US, she’s your contact. However, here are some general tips.

You may be FAA Part 91 and still face “commercial” taxes! What?

At the Federal level, the tax laws are managed by the Internal Revenue Service. The IRS separates aviation into two groups - commercial and non commercial. Do not make the mistake that the IRS definition is in any way required to match that of the FAA Federal Aviation Regulations (FAR's) for commercial and non commercial operations. The IRS and FAA use different standards to define commercial operations and they have "agreed to disagree."

The FAA uses regulatory definitions for a commercial operator. It involves the "intent" to hold one's aircraft out for hire. The IRS looks primarily at whether there is "transportation of persons or property for compensation or hire by air." Whether a profit is intended is not the IRS' concern. There may be times when an operator is FAA Part 91 private but can be subject to IRS "commercial" taxes. Many operators run afoul of the IRS in incorrectly figuring out how or whether to apply the Federal Excise Taxes. Add in an election year with carriage of elected officials, transporting guests on corporate aircraft and international operations, and it can get confusing fast. Business and Personal use is a complicated subject on its own.

Aircraft Are Not Real Estate. But, its still Location, Location, Loacation

Add to that the 50 US States Departments of Revenue and local county/city tax authorities. They are all slightly different. Some apply sales taxes. The seller of an aircraft may be required to collect and remit sales taxes on the sale of an aircraft. Many states offer some exemptions or exceptions. Property taxes can be applied to aircraft - some being based on the percentage of time the aircraft spends in the state and others flat rated for aircraft based in their state.

Where the aircraft is based matters. It can be in a Delaware LLC or in a Trust, but if the aircraft spends any significant amount of time in (Name a US state), then your aircraft may be subject to taxes. There may be sales taxes, use taxes, and property taxes. You may even face taxes from two different states if the aircraft spends a lot of time in a second location over than its home base. 

There are use taxes and fuel taxes applied at the state and county level. Some of those taxes get applied to the state's aviation fund and other just go into the general fund. Again, there may be exemptions for commercial operators.

The biggest thing to remember is to Plan Ahead. Before taking action, find out what the options are and their costs. Trying to do this after the fact often proves costly. Secondly, document, document, document. Paperwork can be your friend as a "paper trail" can provide proof of the taxable/non-taxable activity and or its intent.

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October 16-18, I'll be at the 2018 NBAA BACE. Stop by Booth 1134 to say hi. 

 

Paperwork Tips For Smooth Border Crossings In General Aviation Aircraft

For those of you who have flown into or out of the U.S. in a general aviation aircraft, you know that extra thought and planning are involved in these flights. And while the process may seem daunting to the uninitiated, it really isn't if you pay attention to the necessary details. Here are a couple of the paperwork "gotchas" that can create problems for pilots if they are not considered and addressed prior to a cross border flight:

  • Aircraft Documents. The aircraft must have a current and valid registration certificate and an airworthiness certificate. If the registered owner of the aircraft is a corporation or a limited liability company, that entity must be an "active" entity. If it isn't, then the aircraft's registration is likely invalid. Operating an aircraft without a valid registration could subject the pilot/operator to both prosecution and civil penalties.

    If the aircraft is not owned by the pilot/operator, a copy of a lease, use agreement or other documentation authorizing use of the aircraft by the pilot/operator will be required. If the aircraft was recently purchased and is being operated with a temporary registration pending receipt of the hard-card registration certificate from the FAA, the aircraft may not be operated internationally unless a Declaration of International Operations is filed with the FAA. The FAA will then fax a 30-day Temporary Certificate of Aircraft Registration or "fly wire" permitting flights outside the U.S.

  • Pilot/Passenger Documents. The pilot will need a valid airman certificate, a valid medical certificate, and although not required for operation in the U.S., depending upon the destination the pilot may also need a restricted radiotelephone operators permit. Also be aware that if the pilot is operating under the provisions of 14 C.F.R. Part 68 ("Basic Med"), very few other countries currently recognize Basic Med in lieu of a valid medical certificate. As a result, for most international destinations the pilot will need to hold at least a third-class medical certificate.

    The pilot and each passenger must have a valid U.S. passport or other valid DHS approved travel document. And it is critical that the information on the pilot/passenger documentation matches the information provided to U.S. Customs Border Patrol ("CBP") through its eApis system. If the information does not match, entry into the U.S. could be denied or delayed, and the pilot/operator could be subject to civil penalties.

If you pay attention to the paperwork/document requirements for operating a general aviation aircraft to/from the U.S., you will avoid the turbulence and build-ups that can otherwise complicate cross border flights. For more information on cross border travel requirements, you can review the CBP website or the U.S. State Department website.

Pre-Owned Aircraft Market Stabilizes after Ten–Year Decline

A recovery is in progress in the pre-owned business jet market following what seemed to be an interminable downturn since 2008. Even though the U.S. market strengthened in recent years, weakness in other world-areas kept global inventories excessively high, providing downward pressure on aircraft values in all markets.

Now, as those international markets are returning to relative stability, surging demand in the U.S. is driving a new market dynamic.

Inventory of pre-owned airplanes for sale has declined on a quarter-over-quarter basis for the last two years, with much of what is remaining picked clean of the most desirable aircraft. Just a year ago, a buyer could enter the market for almost any model and be able to find an aircraft meeting its acquisition parameters. And because it was a buyer’s market, it could typically negotiate favorable pricing as well.

Well, that picture has changed considerably, especially for buyers targeting current or recent-production model aircraft with Next-Gen avionics updates, desirable cabin configurations, and reasonably strong paint and interior. Those buyers are finding themselves in competition, even bidding wars, to have a shot at that qualified aircraft. Buyers that are slow to make an offer on a strong candidate are often left behind, finding themselves starting their search anew, and hopefully wiser from the experience.


Falcon 7X

Following are examples from current and recent production models in mid-sized to large-cabin markets where inventory has taken a dramatic drop in the last 12 months:

Model

July 1, 2017

July 1, 2018

% Reduction

Falcon 7X

31

20

35%

Falcon 2000EX Series

25

14

44%

G450

31

18

42%

Challenger 605/650

16

8

50%

Challenger 300/350

34

21

38%

Citation Sovereign/+

34

21

38%

Even some older models have seen inventories drop over the last year, as buyers have recognized value opportunities in this category.

Model

July 1, 2017

July 1, 2018

% Reduction

Falcon 900B

21

11

48%

G200

31

21

32%

GIV-SP

39

26

33%

Challenger 604

32

20

38%

 

Where does the market go from here?
The aircraft market is, of course, driven by the global economy. And there’s also compelling data that suggests our market’s health is tied directly to price of oil, as countries whose economies are tied to oil, and companies whose profits rise and fall with the price of oil, are significant users of business aircraft. While it is beyond the scope of this article to predict the global economy and the price of oil in the long-term, the forecast for the pre-owned market for remainder of 2018 and into 2019 looks good.
- Confidence, a key psychological factor for business jet buyers, is strong that the economic outlook is positive.
- The U.S. tax environment is more favorable for the acquisition of aircraft.
- The number of very-high-net-worth individuals is growing globally.
- Demand for pre-owned aircraft, especially among U.S, buyers, has displayed sustained strength the last two years.
- Utilization of business aircraft, both in North America and Europe, are returning to pre-recession levels.
- Depreciation rates for many models are inching back to historic norms (3-5% annual depreciation), after several years of double digit value slides.

All of this points to a continuation of the current market environment, characterized by more buyers entering the market, and sellers of quality aircraft finding themselves in a stronger position than they have been in a decade. Prices will continue to stabilize, and even experience a slight uptick in some cases.

It should be noted that not all models will see this scenario. Those that are 25-30 years and older are still faced with bloated inventories. Many owners are trying to get out from underneath their aircraft before regulatory mandates take affect that require expensive avionics upgrades. In addition, as these older aircraft become more expensive to maintain and operate, demand for them diminishes. Sellers of aging aircraft will still experience long market times and value softness.


Challenger 605

Summary
Despite the challenges owners of older aircraft are facing, current market trends are positive for the entire industry. Sellers are entering the market with new-found confidence. Buyers are more optimistic that the value of the aircraft they acquire is not going to drop precipitously as soon as they close. OEM’s are getting calls from buyers who just a year ago would have been looking solely in the newer pre-owned market. Charter operators, service centers, and training providers are all enjoying healthy (and in some cases excessive!) demand. A sense of stability is taking hold which has been missing in our market for a decade. And though there always seems to be a storm cloud or two forming on the horizon, aircraft owners are seeing asset value retention finally returning to historic norms.

By Jim Donath

Jim Donath is President of Donath Aircraft Services, a Chicago-based aircraft brokerage firm focused on the mid-sized and large cabin markets for over 40 years.

 

 

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