“"Many years ago, our company founder, Al Conklin, sold a new twin-engine business aircraft to a very successful entrepreneur. He had established a bit of a rapport with the individual and, after the sale, asked him straight out, 'How can you justify the cost of this airplane?' His reply? 'What is the cost of a divorce?'"–David Wyndham, president, Conklin & de Decker”
Another Take on the President's Take on Corporate Jets
President Obama had barely concluded his June 29 press conference when my e-mail box began filling up with responses from the general-aviation industry. The National Business Aviation Association expressed “dismay” and announced that it was sending a “strongly worded” letter to the President about his remarks, which it said “reflect a total lack of understanding” of the field. The National Air Transportation Association, meanwhile, said it was “appalled” by the President’s comments. Other groups–including Helicopter Association International, the General Aviation Manufacturers Association and the Aircraft Electronics Association–weighed in similarly. So did my colleague Kirby Harrison, who, like NATA, used the word “appalled” to describe his reaction.
When I read the President’s speech, I understood why the response had been so strong. No fewer than six times in his brief talk, Obama had singled out “corporate jet owners,” suggesting that they need to give up tax breaks to help reduce the national debt. These comments sounded a bit like a replay of what happened after Detroit’s auto CEOs flew their business jets to Washington in 2008 and the media jumped on the story. Despite public-relations efforts by the NBAA and others, corporate jets clearly remain an easy target for politicians and the mainstream media, which see them as a symbol of excessive spending and ignore their contribution to the bottom line.
I found the President’s repeated attacks on “tax breaks” for corporate jet owners perplexing on several counts. For one thing, only about six months have passed since he signed a tax bill that extended “bonus” depreciation for buyers of business jets and other new aircraft. According to Bloomberg News, moreover, ending tax breaks related to corporate jets would achieve less than one-tenth of 1 percent of the President’s deficit-reduction goal.
The bizav industry’s reaction may have been as overblown as the speech itself was baffling, however. The NBAA and other groups seemed to suggest that the elimination of bonus depreciation for purchasers of new business aircraft would seriously harm the industry and the overall economy, but Business Jet Traveler columnist Jeff Wieand painted a different picture in his April/May 2011 column. Wieand pointed out that while bonus depreciation is in theory good medicine for the economy, “it’s hard to see how it will have much impact” in the case of business aviation.
For many who signed contracts to buy aircraft in 2010, he said, bonus depreciation “is just a big tax giveaway”–the airplane has already been purchased, so there’s no stimulus effect, just a tax break. Moreover, most heavy and long-range aircraft are sold out through 2011, so the break now applies largely to light and medium-sized jets–precisely the ones, said Wieand, bought by companies that aren’t making a whole lot of money now and therefore can’t benefit from a write-off. Wieand detailed other problems, too: bonus depreciation could have the effect of boosting aircraft prices, for example; and while it’s supposed to help the economy by boosting sales, many business jets aren’t made by U.S. companies.
My guess is that keeping this tax break isn’t quite as important to the business aviation industry or the overall economy as the NBAA and others suggest–and also that eliminating it wouldn’t help the country nearly as much as the President suggests. Instead, it’s primarily a political football for both sides to throw at the other.
Be that as it may, I want to mention another problem I had with the President’s speech: When he repeatedly referred in the same breath to “corporate jet owners” and “millionaire and billionaires [who have] done so well,” I got the sense that he was lumping corporate and private jet owners together.
The terms “private jet,” “business jet” and “corporate jet” get used rather interchangeably, even in our magazines, but by definition, individuals don’t buy corporate jets and corporations aren’t millionaires and billionaires. Moreover, there is a big difference between an individual buying a jet for personal travel and a corporation that employs its own flight department to save time and boost productivity.
You may or may not agree that tax cuts for affluent Americans should be allowed to expire, but whatever your position on that, it’s a whole separate issue from whether the tax code should encourage or discourage corporate use of business aircraft. You can argue that someone who can afford to buy a private jet to fly to the Caribbean should pay more taxes without believing that a company is acting lavishly when it uses its aircraft to send six service technicians to a city the airlines don’t serve or to keep its highly paid CEO from wasting hours in airline terminals. And of course, private jet buyers do not qualify for the bonus depreciation write-off.
If the President wants to talk about higher personal tax rates for individuals who are wealthy enough to buy their own jets, that’s one thing–and it is in fact an argument he’s been making all along. But corporate jet use is a whole other matter. In the past, President Obama has seemed to appreciate the distinction and I hope he does so in the future.
(Photo: Pete Souza, The Obama-Biden Transition Project)